Amit Bagaria's Blog

No one will question the belief that shopping centres should but perform well for at least 20 years, if not more. The 5.3 million square feet West Edmonton Mall (the world’s third largest mall by GLA) in Canada started 29 years ago and still does relatively well – it clocked 29 million footfalls last year.  That may not be very high by Indian standards (Express Avenue Chennai will probably beat the footfall number in its very first year), but is big for the west.

Since there is no official global ranking, it is popularly believed that South China Mall in Dongguan at 7.1 million Square feet is the world’s largest mall by GLA and The Dubai Mall at 5.5 million square feet is the second largest. The GLA (gross lettable area) in this article is calculated as per Indian norms, by adding all covered circulation areas.

The 3.6 million square feet Mall of America (the largest mall in USA) has been operational for 18 years and continues to attract 40 million annual footfalls.  The GLA of MOA will more than double, to over 8.0 million square feet, with a major expansion project currently underway. Closer to India, the 1.8 million square foot Deira City Centre in Dubai clocked more than 20 million footfalls in its fifteenth year.  It is clear that no one is building shopping centres for one, two or even 10 years.

By now, most Indian real estate developers – at least in the larger cities – have also understood that development of shopping centres is a very different business model from development of residential buildings; as shopping centres have to be run like a business, much like hotels, schools or hospitals.

It takes about five years for a new shopping centre anywhere in the world to witness peak footfalls – Mantri Square in Bangalore and Express Avenue in Chennai (both opened in 2010) may have defied this generally accepted fact, although there is nothing yet to say that they will not have higher footfalls in 2015.  There may be cases where a mall hits its peak by the third year, and yet others may take longer than five years – but exceptions do prove the rule.

In India, it takes about four years to open a large shopping centre (GLA of >500,000 square feet), from the time it is on paper – literally, on a conceptual architectural plan.  So, any large shopping centre in India, where construction has not yet begun, will only open by mid 2015 and will only attract peak footfalls by 2020.

Aha!  This brings me to the topic of this article – do we know who the consumers will be in 2020, or in fact, where will they be? In other words, do we have a “Vision 2020” for Indian shopping centres?

The results of the 2011 national census will tell us that India’s urban population is somewhere between 357 million and 365 million; and is growing at between 2.6% to 3.6% per annum.  As per a 21-month long research study by McKinsey Global Institute (MGI), urban India will have 460 million people by 2020 and 590 million by 2030.  On analysing an urbanization study done by Ernst & Young (E&Y), it appears that urban India may have as many as 520 million people by 2020.

For this article, let us assume that the current urban population of India is 360 million and will reach 500 million by 2020.  This means an addition of 140 million people.  With almost negligible addition due to births, most of these 140 million will be migrants from rural India.  In fact, the E&Y study does predict that 140 million will migrate from rural to urban India by 2020. More than 60 million have already migrated in the last 10 years.

This means that, of the 500 million urban population in 2020, as many as 200 million (or 40%) will comprise of those who have migrated from rural India in the last 20 years.  Let us refer to them as MRIs, an acronym for “Migrants from Rural India”.

Do we know what these MRIs will buy?  Do we know where they will live?  Have we planned our new mega shopping centres as per their needs?  Does our Vision 2020 take these MRIs into account?  In fact, do we have Vision 2020 at all?

Before anyone assumes that the MRIs will be economically weak and will thus not be mall customers, let me remind you about two facts – first, while the prices of farm produce are consistently rising, the same is not the case with shirts or watches; and second, while Ambani, Biyani and Jagtiani still have to pay taxes on the small profits they earn from their modern retail businesses, their country cousins in rural India enjoy tax free income.  So, get ready to welcome the real Indian consumer.

If I said all this during a talk at a conference, I would get stares, or even boos, like the ones I got back in 2005, when I said that 75% of malls will fail, or the paper rockets that were thrown at me in 2006, when I said that affordable housing was the need of the hour for Indian real estate.  Was I correct on both occasions?  But of course!

Many people will scorn at what I am going to say now, but time will show them that I was right.  Most shopping centres have been planned for FAFOTOs or DPFBs.  FAFOTO stands for “Friends And Family Of The Owner”.  DPFB is not a new export scheme of the Director General of Foreign Trade – it stands for “Developer’s Personal Favourite Brands”.  This is exactly the problem. Most shopping centre owners/developers keep forgetting that they belong to a very small minority – after all, how many people in India make more than a billion rupees every year?  If Indian shopping centres were not really planned for FAFOTOs or DPFBs, why would a developer put a Rolls Royce car showroom in a shopping centre which caters to the mid-market segment?

What is even worse is that sometimes, these owners go and hire expat mall managers or leasing consultants who just don’t understand (or refuse to accept) that the average Indian prefers eating at a Shiv Sagar or a Sukh Sagar than a Subway or an Au Bon Pain.

It is really shocking to see the tenancy mix at many upcoming shopping centres across the country.  Adolfo Dominguez, Aftershock, Energie, Grassroot, No Code, Pollo Compero, Robert Graham, Rosso Brunello, Shorty Capone, Staccato, Ted Lapidus – I wonder how many of the 200 million MRIs have heard of these brands.  In fact, I wonder whether a majority of the other 300 million non-MRIs have even heard of these brands.

I have no doubt that urban India will have total shopping centre supply of more than 670 million square feet by 2020, spread across 1900+ shopping centres. This is based on the fact that, Asipac’s research studies of the demand and supply of malls in five metropolitan regions – NCR, Bangalore, Chennai, Hyderabad and Pune – which comprise just 11.3% of the total urban population – show a total supply of more than 83 million square feet by 2014 itself, spread across 191 shopping centres.

670 million square feet cannot be meant for just FAFOTOs.  If the 1900 shopping centres were to have 1400 owners (with some owning two or more shopping centres), each owner would need to have 159,524 friends, in order to sustain these shopping centres.  With so many friends, even the Facebook site would probably crash.

In order for these shopping centres to survive, more than 70% of the total urban population will have to regularly shop, dine and get entertained there.  A majority of the new projects have to thus cater to the mass population, and not just FAFOTOs or HNWIs; and I really doubt that the masses will be shopping at Energie or Pollo Compero.  In all probability, they will shop at Max, Reliance Trends, RMKV, Fashion @ Big Bazaar, Bata and Reliance Footprint. And dine at Rajdhani or Sukh Sagar.

Why do most Indian shopping centre owners not lease a shop to Bata, but opt for Pavers England or Aldo instead.  Is it just because Bata is too traditional, and not sexy enough for their shopping centre’s image? After all, Bata is also an international brand. Asipac chose Bata for Mantri Square, and that Bata store is doing business of Rs.45 lakhs per month.  I wonder how many of the “sexy” footwear brands are doing that kind of business.

So what will the MRIs really buy?  A majority of the men will buy denim jeans, as most rural folk tend to believe that the best way to fit into an urban population is to don the blue.  But they obviously won’t be buying Diesel, or for that matter, even Levi’s.  Coming to the women MRIs – that’s a tricky one.  I would bet on a majority opting for traditional (ethnic) attire, even in 2020.  Today, the trading density of ethnic fashion retailers across India is more than double of ladies western fashion retailers. And this situation is not likely to change very soon.

I recall a discussion with Mark Ashman (Managing Director of Hypercity) almost a year ago, when he was Managing Director of Marks & Spencer Reliance India, on the subject of ethnic versus western fashion. Mark was trying to convince me that, just like Chinese women have completely adopted western fashion, so would Indian women. My argument was simple – when western fashion entered China, the Chinese women had one (two? three??) ethnic dress design and four colours, so why would they not adopt to the various choices that were being thrown at them?  On the other hand, traditional Indian womenswear comprises hundreds of designs and scores of colours.  We’ve probably got more variety of ethnic womenswear in our country than the whole western world put together. Besides, another reality is that most Indian women (post the age of 30) are not as slim as Chinese women, and therefore cannot carry western clothing as well as their Chinese counterparts.

I’ve been consistently driving this argument forward in the media and at various industry forums in the past few months, and am beginning to notice that many shopping centre developers are now taking Asipac’s cue and allocating far more space for ladies ethnic fashion.  This is a welcome development, better late than never.

But this is not enough.  Does the shopping centre industry realize how many people in India – including thousands of HNWIs – eat Jain food or other restricted diets?  When airlines such as Kingfisher and Jet, and hotel chains such as Oberoi and The Leela, can cater to their needs, why not Indian shopping centres?  Here, even the FAFOTO rule does not apply, because I’m sure most shopping centre owners have friends who eat Jain food.

Coming back to the MRIs, another big need will be educational institutes – from English speaking classes, to finishing schools, from training on various musical instruments to training on different martial arts – and these can very easily be located in the normally difficult to lease higher floors of a shopping centre.  Experience in Thailand has proven that such institutes increase the lady visitor’s dwell time in the mall.

In fact, Thailand reminds me about another very important point.  No, it’s not about massage parlours. Indian shopping centre developers should try to learn from the experiences of their counterparts Thailand, instead of Dubai.  It’s true that Dubai has great shopping centres, but many of these are meant for tourists, which is not the case in India. Also, the spending power and income distribution pattern in Dubai is very different from India. Thailand, on the other hand, has a similar socio-economic distribution.  Our eastern neighbour also has a similar urban-rural divide.  Migration from rural to urban Thailand is also as rampant as India. A very successful concept in Thai shopping centres is the bazaar – as we love bargaining, why not bargain at a mall?  Asipac is incorporating bazaars of 8000 to 15,000 square feet in our larger shopping centre projects.

Apart from what they will buy, developers and tenants also have to be mindful of where the new 140 million MRIs are going to live.  They will obviously not fit into the populated areas that retailers usually look for, before they sign up in a new shopping centre project.  The 40 million new households – which can sustain 600 to 800 new shopping centres – will come up either next to newly developed workplaces, if vacant land parcels are available, or in under-developed suburban areas which are relatively inexpensive, have good access to the CBD and adequate ground water.

Isn’t this exactly what happened during the last 10 years at Gurgaon and Noida in NCR, Malad (West) in Mumbai, Whitefield in Bangalore and Salt Lake in Kolkata? And aren’t several shopping centres thriving in these areas? So, if we are building shopping centres for 2020 and beyond, we might as well build them where their customers will live.

Before ending, I must add that, according to the MGI study, the per capita disposable income in urban India will go up from Rs.67,000 today to Rs.136,000 by 2020.  So the total disposable income in urban India will go up from Rs.24.12 trillion to Rs.66.64 trillion, a whopping 176% growth.  Obviously, this is fantastic news for the modern organized retail industry and for shopping centres.  Atul Ruia will probably ask his team to double the rentals at HSP again, even before he puts down this magazine.

By the way, the same MGI study also predicts that Bangalore’s per capita GDP will be 14% higher than the NCR region, 43% higher than Pune, 58% higher than Mumbai, 70% higher than Kolkata, 85% higher than Hyderabad and 91% higher than Chennai.  So, it looks like Mumbai rentals are overpriced, whereas Bangalore is underpriced. Uh, oh – did I just hear that Market City Whitefield rentals were to treble?

Amit Bagaria is Chairman of Asipac Projects, India’s largest mall development and leasing consultants and Asipac Mall Services, India’s fastest growing mall management company.

This entry was posted on Sunday, November 13th, 2011 at 12:58 pm and is filed under Articles in Shopping Centre News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.