Pall Mall

Written by The Financial Express | Updated: Oct 21 2013, 09:17am hrs
More than two decades after organised retailing took offShoppers Stop opened its first store in 1991most chains are struggling to make money. While the high rentals have all along been a drag on the bottom line, the top line has never grown fast enough to leave much of a surplus; this has been true almost across all formats. Which is why retailers from Spencers to Pantaloon have been closing down unprofitable stores for several years now. With consumer spends falling, theyre becoming even more cautious, understandably holding back on opening new outlets.

Going by the oversupply of space, mall developers, unfortunately, dont seem to have anticipated the pace of the scaling back. The abundance of mall space suggests they misread the demand environment completely and nowhere is this overestimation more evident than in Pune where the average vacancy is hitting 27%, a shade lower than the 30% in Ahmedabad.

The average actually masks the much higher 60%-80% vacancy levels in some of the citys malls raising serious questions about the viability studies done by the developers; the 2,00,000 square feet Nucleus Mall in the Camp areawhich saw its anchor tenant Shoppers Stop exitis 60% empty while the Seasons Mall is half empty. Big brands like Tatas Croma and Spencers have moved out of their respective malls and the Jewel Square Mallhousing brands like French Connection, Forever New and Mangoclosed down late last year. Whats worrying is that the large investments made to build theseSeasons was built at a cost of R450 croreare in jeopardy because even if the economy recovers these projects appear unviable given the extent of the oversupply. Which means bankers could be staring at some really big hits to their real estate loan portfolios.