Malls of India: Transitioning from being shopping destinations to entertainment destinations
India’s malls have been on a rocky ride so far. There is a severe lack of Grade A quality mall spaces in India (for details read through Chapter 4 of our recent report click here). As such, the face of future malls in India is set to change. Here are some thoughts on typical mall mix in India:
Apparel: The share of the largest segment, apparel, which typically constitutes 30-40% of a mall’s total leasable area, is set to reduce because of growing pressure from e-commerce players. This segment will come down by 7-15% and settle at 20-25%. This reduction will be led by men’s apparel, which is typically around 35-40% of the overall apparel segment, while the women’s apparel segment will remain intact.
As malls face competition from e-commerce players, and as their catchment area shrinks, they need to ensure that they have a steady stream of repeat footfalls. To achieve this, they have to face inevitable transition – where apparel is no longer a crowd puller category. It shall be replaced by experience-based categories.
The void created by the reduction in apparel’s share will be primarily filled by the F&B segment, which will increase to 20-25% from current levels of 15-20%. Apart from F&B, categories such as FEC (Family Entertainment Centres), cinema, fitness, e-gaming centres, mini stores (dealing with daily household articles), kid’s wear and brands aimed at senior citizens will see their shares rising. Also, there will be higher allocation for common activity areas (designated spaces in malls where various activities related to fitness such as yoga, art classes, etc., can be conducted during various hours in a day). Even the lower-revenue-generating segment such as hypermarkets are set to stay with a marginal increase in the space allocated to them. This is because grocery shopping is taking the shape of a quality-time-spending exercise rather than a simple in-and-out shopping phenomenon.
Structure of malls and structure of deals with lessees: These are set to change in the rapidly changing environment. A typical lease deal in the past used to be 9 years with a 3-year lock-in period. In newer leases, this has shrunk to a 3-year tenure with a one-year lock in period. Neither the lessor nor the lessee are comfortable about longer lease spans in this fast-changing environment. The size of outlets in malls is also shrinking, especially for hypermarkets and apparel players, as they have started employing digitized efficient inventory-management systems.
Many mall developers are set to throw out conventional mall formats – which comprised of dedicated zones to segments on lower floors with F&B, FEC, and entertainment segments on the top or upper floors. Upcoming malls and malls on the chalk board have a diversified layout with a varied category mix on each floor and a multi-level car park, which can flush in footfalls at each level, rather than only at the ground level.
According to Anarock Property Consultants, India’s organised retail sector is expected to add about 39mn sq. ft. of space in four years to the end of 2022, of which 71% will be in metros and tier-1 cities, We believe that – to survive – this upcoming supply will have to adapt itself to a speedily changing scenario. Even existing malls would need to incur heavy capex to continue enjoying high trading density and footfalls.
Despite the flux, Grade A malls will continue to enjoy incrementally higher rentals due to the dual impact of lack of per capita modern retail space in India and change in layout. This will be a shot in the arm for retail players, as low-rent-yielding categories are naturally paving the way for high-rental-paying ones.
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