Mall Fall: Why retail destinations are shutting in Narendra Modi's Ahmedabad

Written by Avinash Nair | Updated: Sep 6 2013, 21:20pm hrs
Gujarat mallWe had to shut our store, as our lease expired
Its Wednesday and Rakesh Patel, with his wife and two children, starts early to beat the rush at a Big Bazaar store at the Iskcon temple crossroads in Ahmedabad. On Wednesdays, hafte ka sabse sasta din, the store offers special discounts, attracting large crowds, and forcing cops to manage the traffic around it. But to the Patels surprise, the parking lot around the store is near-empty. The shutters are down, and the sign Big Bazaar itself is gone. When did this happen asks Patel in disbelief. The guard has no answer, as he directs the family to another Big Bazaar store. We had to shut our store, as our lease expired, but we have taken measures to migrate customers of this store to the Big Bazaar in the nearby Himalaya mall, says a spokesperson of Future Group, which owns the retail chain.

The end of a lease period may sound like a legal and one-off reason, but the fact is that the Future Group has closed down three stores in Ahmedabad since 2008, and is now left with just two outlets. The company insists it is in a consolidation phase and cites a plan to launch three new stores by the end of 2014 as an explanation that all is well.

But all is not well. Not just with Big Bazaar, but with most malls and super/hyper markets in Narendra Modi ruled Ahmedabad. According to global property consultants Jones Lang LaSalle (JLL), nearly 7 lakh square feet of retail space has closed down in the last three to five years in the city. The average mall vacancy (jargon for empty space in malls) in Ahmedabad is 33 per cent, the highest in the country. This is more than double that of the national average (15 per cent) and far above figures for other major cities like Hyderabad (0.45 per cent), Chennai (6.48 per cent), Kolkata (4.5 per cent), Bangalore (11.68 per cent), Mumbai (15.46 per cent) and Delhi-NCR (15.69 per cent). Also, while rentals in malls in Mumbai and Delhi-NCR grew by upto 19 and 10 per cent respectively between January and March this year, they fell by six to eight per cent in Ahmedabad.

This is a far cry from 2007, when Ahmedabad got the countrys first, and largest, hypermarket a 1,65,000-square-feet Reliance Retail store that housed 95,000 products, at the Iscon Mega Mall. More than six years on, the hypermart has shrunk to one-third of its original size.

A similar fate has met stores run by Promart, Subhiksha, More and Spencers, among others. Malls, too, are closing down. Fun Republic, the citys first mall-cum-multiplex, downed its shutters in July 2011. Piramyd mall and Gallops mall followed suit.

Why is Ahmedabad, one of the richest cities in India, witnessing the most drastic retail slowdown Piyush Kumar Sinha, professor of marketing and chairperson of Centre for Retailing at IIM-Ahmedabad, blames it on the the real-estate model of retail. It is killing the industry. Between 2000-07, when big names like Birlas, Reliance, Adanis, etc., entered retail, everybody suddenly started seeing gold in the sector. Developers got into a race to build bigger malls and were more inclined to sell space to investors, rather than focus on developing their properties as suitable retail destinations, he says.

What goes into making a suitable retail destination The location, the sizes and positioning of stores, and the brand mix, says Neeraj Tomar, head of Ahmedabad operations of JLL. A good example of the right brand mix, he says, is to house apparel and clothing-related accessories stores on the ground floor, footwear, childrens apparel and toys on the second floor, and food courts, gaming zones and multiplexes on the top floor, as it helps improve accessibility and ease movement of customer traffic. But most malls in Ahmedabad were sold piecemeal to investors, without a brand-mix plan in place. There were instances where a painter (selling his personal creations) occupied space between two footwear brands. Or where a chemist and an electrical appliance retailer were parked between international apparel brands, says Tomar.

Such inadequate planning led to fewer footfalls, thus forcing stores to wind up. Malls such as Dev Arc, 10 Acres, Balaji Agora and R3 Mall wear a half-empty look. They began with very few or no retailers and continue to struggle for occupancy. Except for Alpha One (Gujarats biggest mall located in Vastrapur) and Iscon Mega mall, most mall owners in Ahmedabad continue to struggle. The vacancy level in some of the malls is as high as 60-70 per cent, says Tomar.

Retailers Association of India CEO Kumar Rajagopalan says that malls built like a real estate business only meant for resale to investors have been exposed and found wanting across the country. Malls without infrastructural or mall management efficiencies are forced to shut down thanks to poor economic viability, he says.

Many brands have, thus, moved from the malls to shopping streets such as CG Road, Law Garden, Prahladnagar and Satellite Road. Dotted with standalone stores of national and international brands, these streets are now preferred over malls by many a Gujarati customer for whom shopping is more a functional exercise than entertainment. Rohini Joshi, a 52-year-old homemaker who lives a stones throw away from superstores like V-mart and Reliance Fresh in central Ahmedabad, relates her shopping experience. We earlier used to go to malls and superstores even for our daily groceries. But we realised that we not only overshot our budgets, we also ended up wasting. Now we prefer our neighbourhood grocer who caters exactly to our limited daily requirements and that too at price-points that are below the MRP. I also feel that the vegetables and fruits supplied by the neighbourhood vendor are fresher than those available in air-conditioned retail stores and malls.

Experts also point to lopsided development of retail in Ahmedabad as a cause for concern. Shopping hubs are concentrated in the western part, which has the highest purchasing power. But that has also led to saturation there, and competition has killed many a mall such as Gallops and Piramyd. As bulldozers bring down the once shiny glasses and pillars of Gallops mall, the management of NG Group that has taken over it is readying a plan to build a five-star hotel on its site. There is an overcrowding of malls in western Ahmedabad; a hotel makes more business sense, says an official of the group who did not wish to be named.

JP Iscon Ltd, one of the oldest mall developers and operators in Gujarat, trashed a mall project they had planned in Bopal locality, and are building a residential project in its place. This, despite, their successful 4.5-lakh-square-feet Iscon Mega mall in western Ahmedabad. The market for retail in Ahmedabad is not right at the moment. So we have postponed our plans to build a second mall by a couple of years, says JP Iscon chairman Pravin Kotak who is planning to build a 10-lakh-square-feet mall near Gota crossroads on the SG Highway.

Retailers are learning from their mistakes. Reliance, for example, is opening stores in self-owned properties. Alpha G Corp, the Gurgaon-based developer that operates and manages Alpha One mall, the states biggest and most successful mall that opened in October 2011, has adopted the revenue-sharing model, in which the retailer pays to the mall owner or the landlord a fixed percentage of the profits generated by the outlet. We currently have 98 per cent occupancy (the maximum for any mall in the city), says Prodipta Sen, executive director, marketing, of Alpha G Corp, adding that the mall has seen 100 per cent growth in rentals in the last one year.

Rajagopalan says the modern retail sector is now going through efficiency tuning. The sector has companies that are serious about retailing and are in the business for the long term, he says. Retailers can take comfort from a study by Booz & Company, according to which the size of the retail segment is expected to grow from $455 billion in 2011 to $731 billion by 2016.

with inputs by George Mathew