The Resurgence of Shopping Malls in India

By Anuj Puri, Chairman – ANAROCK Property Consultants

With the advent of e-commerce in India, shopping converged into mobile devices in the form of websites and/or apps. At the click of a button, one could buy groceries, apparel, electronics and almost everything else. For a while, it appeared that ‘couch potato shopping’ was a real threat to physical retail, and that shopping malls will run out of business.

That has not happened – in fact, shopping malls are witnessing a visible resurgence in India. A clear measure of increasing focus on the retail sector is that private equity (PE) players invested more than $700 million into Indian retail in Q1-Q3 2017 itself – around 90% of the investments that came in during the past two years (2015 and 2016).

Shopping malls in India have come a long way indeed, from less than 5 malls in 2001-02 to more than 500 in 2017. Over the last few years as the overall economy struggled, there was a drift of negativity about Indian shopping malls being able to sustain and were ‘going to be out of fashion’. As it was, quite a few badly-conceived and executed malls did fail. The overall impression was that this was a larger trend and a sign of the times indicating that bad days were ahead for the physical retail sector. That said, one lesson learned is that there is a distinct need for developing multichannel retailing rather than just relying on the traditional methods.

Considering that the fundamental growth drivers of the retail sector remain intact, global investors and shopping mall developers remain bullish on the sector. In addition to rising disposable income, rapid urbanization, increasing purchasing power and other related factors, the notable indicators of a fairly bright future for Indian shopping malls include:

• Favourable policies: Several policies incentivize players in the retail sector in India. 100% FDI in single-brand retail, relaxation of sourcing norms for multi-brand retailers, 100% FDI in the marketing of food products, and the revised Model Shop and Establishment Act (that allows shops to remain open 24×7) are major growth drivers for the sector.
• Globetrotting Indians: A significant portion of India’s population are now globetrotters travelling for business or leisure. As a result, Indians now have an exposure to various brands and have visited the largest, fanciest shopping malls across the globe. The demand for reputed brands and good quality shopping malls is on a rise and will continue to drive the growth of the Indian retail sector.
• Holistic shopping experience: Shopping is no longer restricted to the mere process of buying products – Indians are now looking at a holistic shopping experience and a fun environment wherein they can spend quality time with friends and family. For all its size and indubitable scope for the future, online shopping is an essentially isolated dynamic that lacks a ‘social’ connect – which is a key reason for the continued growth of shopping malls.
• Limited organized retail presence: Organized retail presence is very low in India compared to the developed countries, indicating that there is scope for large-scale growth of shopping malls in the future. The organized trade’s penetration still hovers in the single digits – there is massive scope for growth and expansion for physical retail.
• Presence of foreign brands: Foreign brands such as H&M, Burger King, Apple, KFC, Dior, Michael Kors and now even IKEA have already entered India and also have future expansion plans. The entry of these global majors who certainly know a good thing from a bad one indicates that their enthusiasm for India is well-founded.

The changing business environment, favorable policy shifts and the entry of numerous global players indicates that a resurgence of shopping malls in India is definite. Also, with diminishing open spaces in the city, shopping malls are increasingly treated as a place to meet, greet and have fun with friends and family. The need of the hour now is to develop good quality malls that can attract occupiers for the long-term so that the entire value chain of the retail sector benefits.