Why the malls are back in business

A colleague who recently returned from a family vacation in Kochi was astounded to visit the LuLu International Mall, modelled on the snazzy ones at Dubai. Spread over 1.7 million square feet of retail space, with a 5,000 sq ft ice skating rink, a 9-screen multiplex and a 2,500-seater food court, LuLu Mall has turned out to be quite a crowd puller. With an estimated 80,000 footfalls a day, the mall claims to be one of the most visited places in Kerala.
 

My colleague says his mom teams up with other elderly women in her circle for a day’s outing at LuLu Mall. They travel 30 km — a commute of more than an hour — to visit the mall at least twice a month. And sitting out of his home in Mumbai, my colleague has to book an Uber taxi for this gang of senior citizens, since they aren’t comfortable using mobile apps on their own.

Yet, Kochi is no exception. Across the country, malls are back with a vengeance in the last one year or so. High-quality malls are popping up across not just in the tier-I cities, but also in tier-II cities such as Kochi, Ahmedabad, Indore, Bhubaneswar, Lucknow, Chandigarh and Surat. Occupancy levels in the existing malls, especially in the southern cities of Bangalore, Trivandrum and Kochi, are also climbing. And just when you thought e-commerce would strike the death knell for shopping malls, a revival in their fortunes is now in the making. 

There are many reasons for this phenomenon. Next time you visit your favourite shopping mall, remember to look closely at the changing tenant mix. If you talk to heads of any major mall management companies, they’ll tell you that their tenant mix is all set to significantly change in the next two to three years. Customers, especially the younger demographic, aren’t interested in just shopping. With the advent of mobile commerce — and virtually every merchandise a click away — malls have become a place to hang out, watch a movie, and eat. The smarter retailers are starting to realise the need to reimagine their stores as experience centres.

Nothing quite stays the same in the consumer world. Aspirations are rising at a level that is mind-boggling. Even till a couple of years ago, food courts were a big draw. But now as home delivery options such as Zomato, Uber Eats and Swiggy explode, food courts in malls are now starting to lose their charm. If families step out for dinner or to meet friends over drinks, they tend to seek out unique fine dining experiences at speciality restaurants, pubs and bars. And what’s more, even sprawling fitness centres are coming up inside malls.

So what will an upmarket mall look like two years hence? The chances are that nearly 30 per cent of space will be devoted to food and beverage, up from 10 per cent today. Entertainment and leisure will be the next big thing. Not just large multiplexes, but family recreation and leisure options. They could command 10 per cent space, up from 5 per cent. And the space for fashion and apparel may go down a wee bit in the overall mix. If the focus earlier was on earning a higher share of wallet, that’s now giving way to share of time. Consumers have enough money in their wallet — or high limits on their credit and debit cards. But they now seek quality experiences for their limited time.

Starting in the mid-2000s, India’s mall culture seemed to be at a take-off point. Several projects were announced but without a holistic strategy in place and not enough focus on the science and art of mall management. The results are inevitable. Over the 10 years, many of the projects simply went nowhere — and a spectre of gloom hung over the retail real estate sector.

In the last one year though, there’s been a clear revival in their fortunes. Some of it has been driven by policy changes: 100 per cent FDI in single-brand retail, coupled with the changes in norms related to real estate investment trusts (REITs) has thrown open a new source of capital for the retail real estate sector.

The emergence of private equity players such as Blackstone and Xander and the Singapore sovereign wealth fund GIC have galvanised the retail real estate sector. To get a sense of the scale-up, between 2017 and March 2018, Nexus Malls, the special purpose vehicle set up by Blackstone, has increased its portfolio from 2.8 million sq ft to 5 million sq ft across eight malls.

A lot of this money is flowing into the construction and development of superior grade malls, backed by strong planning and execution skills. And the average and poor quality mall projects are either downing their shutters or withering away. But the key to this revival story lies in understanding how to orchestrate a one-stop social experience for the mall rats of today.

And it looks like the lessons from the reckless expansion in the last decade are finally giving way to sensible, organised development of the mall sector. 

The writer is co-founder, Founding Fuel