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Friday, February 26, 2016

Survival of Malls in India

It was some five years back when I visited a Mall in Gurgaon with some friends and afterwards, thought of sharing my take on their present and future.  It was put on my blog and my friends, who read it, were skeptical as to whether what I was preempting was really something that was reality of the future.

In this backdrop in all these years whenever I visited a Mall, whether in NCR, Delhi, Mumbai, Bangalore, Guwahati, Lucknow or any other small city my belief got confirmed.  Of late I kept reading stories of empty malls and some of them closing down, it started giving me a feel that business opportunities when not defended by viable research and when it is just following herd behavior, it is bound to result in what is happening in many of the cases.  And that is the challenge before entrepreneurs of all sizes and from all geographies, to respond and work on.

One of the issue raised in my earlier post on sustainability of malls was that many of them were involved in some kind of practices through which the transactions get recorded resulting in conversion of unaccounted cash and bringing it to the books of accounts.  This helps some of the owners of the outlets to carry on with such shops without much of risk on sales.  I am not too sure about the size of such shops in the malls but looking at the operational cost involved and the cost of bills to be borne by them, it gives me a signal that there must be some truth in this.

It is also reported that in order to escape from scorching heat, many enter a mall and spend time in air-conditioned environment.  The conversion of visitor into customer is yet another challenge for the shop owners in the malls.  Just around ten percent of the malls operating in and around Delhi are said to be successful so far as their financials are concerned.  Though Delhi is considered the best option for future growth potential for this sector and builders and marketers are eyeing for this geography, yet my skepticism sees better scope in smaller cities rather than metropolitan cities.  Bangalore, Kolkata and Mumbai have far better proportion of successful malls than Delhi but still Delhi is able to catch attention of investors as there are multiple options for the use of infrastructure put forth for shopping malls.

There are many factors that are important for Indian market environment which is visibly fast changing but it is going to take more time to get transformed into an environment where our culture gets blended with that of geographies where small shops and down-town market culture has faded away.

The factors, which traditionally determine success of a mall, could be its layout design, location, availability of brands, amenities provided, proximity with residential blocks etc.  And most of the realtors keep these in mind.  It does help them position themselves better depending on their approach and priority.  This is conventional route followed by most of them.  

The future of malls would lie in the fact that how they are able to reduce their size and cater to the needs of the masses rather than classes through adding small entrepreneurs into their portfolio by providing them an opportunity to showcase their products and services.  It would result in driving more population towards visiting the malls and possibly may allow them to explore other products available within the premises.  This complementary possibility would certainly help them grow better.  Specialty malls and theme malls are some options that are already in place but they have to be further explored and experimented in different geographical segments.  The size of the mall is also an issue to be tackled strategically as the maintenance of large size malls involves large operational expense, which has to be apportioned through corresponding increase in sale.  And as such that is a challenge.  

For metropolitan cities, specialty malls could be a better choice like exclusive malls for garments, or for different types of gadgets, or food only malls with provision of grocery outlets.  These malls should provide enough scope for small entrepreneurs to come forward and may be some kind of differential pricing for there space could be followed.  

In case of smaller cities multi brand formats which primarily focus on organizing highly unorganized retail sector in India, would be good choice. It would help in systematizing the retail sector as well as facilitate market operations for the benefits of customers and users.

The mall owners have to think differently and have to focus more on the small entrepreneurs who are bringing in innovative products and are willing to take risk.  They need a better platform to launch their products and malls could provide them that opportunity.  The proliferation of multi-national branded products and their availability through malls and exclusive outlets in many ways hinder the growth of small business segment in India. Hence initiatives have to be taken at government as well as private level to develop SME malls at different places to encourage small and medium size entrepreneurs to portray their products and services and to develop linkage with effective market. 

This place should provide them an opportunity to network with their clients and study the market for redesigning or introducing innovative products.  This has become more important in the wake of the initiative of the government through launching make in India campaign.  SME malls could be an opportune outlet for market exploration and product launches.

The future for malls is not bleak if its format is changed and instead of its concentration it is expanded in the length and breadth of the country.


[published in SME World July 2015 Issue]
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