High rentals and low footfalls are putting mall tenants under pressure in India, prompting the move to smaller cities.
A report recently published by the Associated Chambers of Commerce of India (ASSOCHAM) reveals that one-third of retail tenants at shopping malls in big cities like Mumbai, Delhi, Chennai, Bangalore, Kolkata are moving to second and third tier cities like Nagpur, Jaipur, Pune, Indore, Lucknow, Ludhiana and Chandigarh.
ASSOCHAM estimates that 300-350 malls were set up in the country over the last two years but 75-80 percent of the spaces in these malls lie vacant. During the same period, as many as 95 malls have also closed shop.
Rana Kapoor, President ASSOCHAM, said among the main benefits seen by respondents in the ASSOCHAM survey in moving to smaller cities include lower operational costs, lesser competition and the novelty values still left in these areas.
In smaller cities, larger chunks of land are available compared to metros, and at lower cost. Moreover, consumer behavior in metro cities have also influenced consumer tastes and preferences in the smaller cities.
The shift from conventional trader-run standalone shops to larger format retail malls is part of a bigger trend now seen in the retail industry, influenced by factors such as increase in average spending power of the socio-economic classes in the smaller cities, demand for various products under one roof, increase in brand consciousness.
"The retail growth of about 15 percent per year is expected through 2015 thanks to the increasing prosperity in the neighbouring rural areas, said Kapoor. “Thus, in the foreseeable future, making such malls profitable ventures will remain a challenge.”