Daybreak - Dead mall rising: The life and death of Indian shopping centres

Episode Date: December 12, 2024

The golden age of the Indian shopping mall is over. There are at least 400 malls across the country. But a growing proportion of them are either dead or on life support. A report by real estate consultant firm Knight Frank found that the number of ghost malls in the country rose from 57 in 2022 to 64 in 2023. That’s about 1 in almost six malls. The report estimates that between 2022 and 2023, the loss of value due to the rise in ghost malls was around 800 million dollars, so that’s close to 7,000 crore rupees. In this episode, Daybreak host Rahel Philipose is joined by Gulam Zia, senior executive director at Knight Frank and Abhishek Bansal, the Executive Director of Pacific Development Corporation to understand the ins and outs of the mall business — why some succeed and others fail.Tune in. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Listen to the latest episode of Two by Two here

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. A lot happened in the year 2000. It was the early days of the IT revolution and people were just starting to discover the joys of dial-up internet.

Vishwanathanananin became the country's first ever world chess champion. It was the year the once dominant Congress. lost its third consecutive general election. And somewhere in India, its one billion citizen was born that year. Now, this episode is connected to another very significant milestone that took place around that time. You see, the turn of the millennium was also when India was introduced to shopping malls. I still remember having conversations where we had about 300 shops and there weren't 300 brands in the country at that point in time who could open some.

So we were wondering, like, it's this big mall-bana-a-moh-m how will we go to fill it up. That's Abyshek Bansal. He's the executive director of Pacific Development Corporation, one of the oldest family-run companies in real estate today. The company operates about 10 malls across North India currently. But back in 2000, it was just entering the mall business. At the time, Abisheek was fresh out of college.

In fact, his first big project after joining the family business was setting up one of the first. first malls in Delhi NCR. It was called Pacific Mall Gazeabad. It was the first generation mall where the model again was to buy the land, build the shopping center, lease it to multiple tenants and sell the shops and move out. Luckily, we were able to develop a lot of local retailers who were on high streets, mom and pop stores. We convinced them to take a position in organized retail sector. into shopping centres and they did and it worked for us.

Yep, back then, mom and pop stores from the high streets were the early occupants of shopping malls. And it was pretty much the same story everywhere. You see, a bunch of other malls had also come up around that time between 1999 and 2000. The likes of Ansel Plaza in Delhi, Spencer Plaza in Chennai, a few had even come up in smaller places like Gurgao and Pooning. When the malls used to open back in the day, we used to see heavy footfall, heavy traffic from day one.

Because mall was such a novelty then. India's growing middle class very quickly took to the clean, temperature-controlled mall shopping experience. And then over the next decade or so, a bunch of international brands came in. The spending power of the average Indian started to increase. And with it, malls became an even-ynolds became an even-year-old. even hotter bet for real estate developers and investors. But that was then.

Today's scenario is drastically different. There are at least 400 malls across the country, but a growing proportion of them are either dead or on life support. The golden age of the shopping mall is over. Now, while Abhishek says his first big bet, Pacific Mall, Gaziabad, managed to stand the test of time. Most of the other malls that were set up around the same time weren't quite as lucky. There's actually a name for malls like these, the kind that are no longer pulling in brands or shoppers.

They are widely called ghost malls, zombie malls and even dead malls. And given how empty and eerie they tend to be, all of these names are pretty fitting. Now, a recent report by real estate consultant firm Night Frank found that the number of ghost malls in the country has risen from 57 in 2022 to 64 in 2023. Now, that's about one in almost six malls. The report also estimates that between 2022 and 2023, the loss of value due to the rise in ghost malls was around $800 million. That's close to $7,000 crore rupees. Look, the biggest problem is it's a national asset.

We have put in money. You know, it's not just about pouring concrete and steel into a structure and putting up a structure. You could have done something else with that money. with that space, with that land, with that, you know, the structure, you could have done something else. So for that thousand crore, especially in a tier two or tier three city, you could have, you know, changed the roads of the whole city. You could do the concretization of the whole city.

You may do the stormwater drain of the whole city. You may actually put up a fantastic bus service system in the city, etc. Lot of things can be done with that 1,000 crore, which that does. mall has taken away and sitting on it. So the worry is that. You know, it's not about that business. That's Gulam Zia. He's the senior executive director

at Knight Frank and I spoke to him about the Think India Think Retail report that they published earlier this year. I wanted to understand why so many malls are dying despite the fact that people seem to have more money to spend than ever before. Hello and welcome to another special episode

of Daybreak. I'm your host Rahil Philipos and in this episode, we talk about the retail apocalypse and why so many shopping malls across the country are dying a slow, painful death. What makes a mall successful? Now, that was the question I asked Abyshek Bansal last week. And his answer was that, well, it's complicated. To begin with, he said that between 2000 and 2024, pretty much everything that makes a shopping

mall successful in India has changed. But the one thing that hasn't is actually the first rule of real estate. location, location, location. How do you decide which mall to go to? I'm going to go out on a limb here and assume that the convenience of getting there probably tops your list of priorities. Now, back when the Bansals decided to set up Pacific Mall in Gazabad, that was still top priority. And Abyshek says that they were convinced they had hit the location jackpot. So my plot number was plot number one of Gazabat.

So it was just on the border, which meant that I was also going to service a big part of Delhi and a big part of Ghazaba. Which meant that I knew my catchment was right. Okay, back in the 2000s, when there weren't too many malls to choose from, it would make sense for people to go all the way to Ghaziabad. But now, when malls are a dime a dozen, and there's very little land left to develop, picking the right location has become a little more meta. Just take one of Pansar's latest shopping centres, for instance. It's an outlet mall in Jasola, New Delhi. Okay, Abyshek, I want to understand how you decide that a certain location is the right location. And I want to talk about one of your malls in particular.

Okay? Full disclosure, I've lived in Delhi before. And if I'm being completely honest, Jasola feels like the last place I would expect a mall to come up. I'm assuming that quite a few of our listeners aren't familiar with the geography of the national capitals. so let me fill you in on what Jassola is. It's this very residential part of town right on the border of Delhi and Noida. I want to understand from you, Abyshek.

Why was that the right location, according to you? Okay, so first of all, in Delhi, you're getting land where you can't make a mall that itself is a rare commodity. So that's point one. Second, you must have noticed how Jasola market has been an outlet market forever. If you see that main high street market, it's all about discount stores. So, Jasola as a market was always looked at as a discount format outlet market. And another important point we thought about was that Jasola as a location is extremely

close to Noida and Noida has a Mall of India or Great India Place. So 20 minutes drive to Sakhet where you have your select city walk and your DLF Avenue, etc., etc. So for a customer who's living around me, my primary and a little bit ahead catchment, what gives them a reason to come to Jasola where I'm doing a 250,000,000 square feet center compared to a mall of India or a Saqate, even if he has to drive 15 minutes extra, he'll make that effort and go there. So I needed to create a new reason for people to step out of the house and come to my shopping centre. And that's when I thought an outlet centre is something which this area needs.

Fun fact, Abyshek says the Pacific Mall in Gazabad was actually the first mall in the country which had a small hotel attached to it. Now that's pretty common now, but back then it was quite revolutionary. Back in the day, it was unheard of 25 years ago to have a hotel within a mall. common thing now, but 25 years perly not. It was a small 50-room hotel that we built and it's still running. But remember at the end of the day, this was still

a shopping mall. So more than a hotel, Abysheek had to figure out the right mix of stores that would attract shoppers to his mall. Remember, there were no decathlon, H&Ms or Zaras back then. Actually, there were hardly any international brands. So once he was able to bring in the likes of Westside

and Spencer, Abisheek had to figure out how to fill the hundreds of remains stores in his mall. And that is when he approached popular old-school family-run retail businesses. So we managed to create a very fine mix of national brands and local brands. Brands like people in Delhi would recognize like a Chunmun or a Ritu wears back in the day. So all those things came together and we formed this good tenant mix, which, of course, was success for the mall.

Now, this isn't just limited to Pacific malls. A big part of a mall's success is dependent on what Abysheq just said. A good tenant mix. The only difference is that while back then, it mainly meant having a nice mix of stores available at your mall, today the stakes are considerably higher. Apart from a good mix of national and international brands for things like electronics or apparel,

you also have to have a good cinema. an arcade, maybe even a five-star hotel, and of course, ample parking. Basically, if a family of four is visiting a shopping mall one weekend, there has to be something for everyone. And here's the thing, that perfect or ideal tenant mix that you can simply copy-paste from one mall to the next does not exist. In fact, that's one of the big lessons Abhisheh has learned along the way. The kind of research that should have gone into building shopping centres at that point in time,

that was not being done. Like, we had to see what is the kind of a shopping centre that a city like Agra would need, that a city like Muradabad would need. I don't think enough research was being done at that point in time. It was just a very, you know, one after the other kind of a scenario

that every city needs them all. Every city will take this kind of retail. Chalo, banado types. And remember how I said it's complicated? Well, the right tenant mix looks different for every single mall depending on where it is and who it is catering to. So something that worked in Jasola, Delhi, will not necessarily work in Salem, Tamil Nadu.

Okay, so far we've covered the two cornerstones of a successful mall that have stayed the same, getting the location right and also having a healthy tenant mix. But everything else about the mall business has fundamentally changed, starting with ownership. Back in the day, real estate did. developers focused just on the, well, the real estate side of things. So they bought the land, they built the shopping centre, leased it out to multiple talents, sold the shops and then moved on.

But they very quickly realised that that model just isn't sustainable. But essentially, you are not the owner of the shopping centre. So that was the generation one malls, which most of the shopping centre developers during that time did. we did a couple of more after that in multiple cities but gradually we realized that those shopping centers essentially are not working and that's when we shifted to a model where now we own and operate about eight centers where we take up land we built up we built the shopping center we lease to the tenants and then we own and manage those shopping centers essentially month on month. And it's more about an annuity income than an income that we can get up front by selling

the shops. So, yeah, the last 20, 25 years have been pretty exciting. I bet when you visit a shopping mall, you aren't really thinking about who owns it. But Abysheek says that an owner makes all the difference. It's what sets a successful mall apart from a ghost mall. And according to him, it's the developer of the mall who has to be the owner and operator. He could have a fun. attached to it, like a private equity fund or something like that. But there has to be one captain of the ship who owns and drives the shopping centre. That's one lesson many malls in India learned the hard way. Today, malls fail or turn into ghost malls, not because of the rise of e-commerce

or the COVID-induced economic slowdown. Sure, they contribute to it. But the main reason is because of bad management. And what's perhaps even more surprising is that a majority of these malls are aren't actually in small towns or cities or run by smaller developers. Most of them are actually located in the heart of bustling metropolises like Delhi, Mumbai and Bangal. Let's talk about ghost malls, shall we?

I'm sure you've come across a few of them in whichever city or town you've lived in over the years. They were probably once bustling with activity, but then somewhere down the line, things started slowing down. It may have started with a couple of its most popular stores, suddenly shutting shop. And then slowly the other. would follow, almost like dominoes. Until one day, apart from a couple random kiosks,

maybe a solitary McDonald's or KFC, the mall is practically empty. It starts looking a little bit like something out of a horror film, eerie, decrepit. Now, this, unfortunately, is the life cycle of many, many malls here in India. Don't get me wrong, there are malls that are thriving. The malls that hit the nail on the head with location, with tenant mix and with management, the kind of malls that are regularly visited by lacks of happy customers every single day.

And then there are ghost malls. Now, to offer a technical definition, a ghost mall is essentially a shopping centre with a vacancy of more than 40%. Meaning more than 40% of its stores are empty. That is a definition laid down in Nightfranck's recent report. The report also found that the most number of these ghost malls, 21 out of 64, are in New Delhi. Bangalore is number two on the list, followed by Mumbai.

Gulam Zia, senior executive director at Nightfrank, said this was mainly because of herd mentality in big cities. In Delhi, there's a road called M.G Road, Meheroli-Gurgaon Road, on which I recall there were some six or seven malls coming up at the same time. Same as in Mumbai, same as in Mumbai also. In Navi, Mumbai, on one stretch, it's very similar to M-G Road. We had some five malls coming up in one location. So typically what happens is,

developers who are responsible for creating malls also go by a complete herd mentality. You know, it's a lack of survey, lack of research to understand what kind of product will sell in a particular location is the reason behind it. So when you feel that a mall is doing well, next door guy also says, I have a land, I'll also do a hall, and that's a recipe for disaster. So you need to be cautious, you define your primary and secondary catchment area, you do enough of research. where will the people come to your mall from?

And what other options do they have? As I said, when all these things are falling in place, that's when gradually you're reaching to a formula for success for a mall. When you have multiple malls to choose from, you're obviously going to pick the one that ticks all the boxes. So in Tier 1 cities, it's essentially survival of the fittest. And Gulam says not more than five or six malls will end up surviving. Most of these ghost malls are legacies.

You know, they have been done in some 10, 15, 20 years back and languishing. Okay, but Kulam, that begs the question, what changed, right? You hear the words retail apocalypse being thrown around a lot. And the assumption is that shopping malls will actually be the first victims of the quote-unquote retail apocalypse. Do you actually think that that's the case? Well, this is pretty natural, you know, because our shopping habits are changing. If you recall, say, about 20, 25 years back, you know, the term mall was new to India.

I recall the first of those historically, the first mall was somewhere in Chennai, for all you know. In Chennai, a Spencer Mall was the first one which took shape, which was the first organized retailing in the country. And after that, we have seen multiple of them. Right now, I think we're talking about almost 400, if not more, malls all over the country. But when that was changing,

there was enough of dialogue those days as well, that someday the organized retail will take over the Kirana stores, the Mormon Pop stores, etc., etc. But both coexisted. And that coexistence is global. It's not just India. You know, so when from the old Mormon pop store to organize retailing as malls, then to e-commerce and then to Q-commerce, a lot of these things are changing. But for anyone to believe that any one of this module will, you know, eat at a lot of,

way the other, is a bit too much to say straight away. What I found really interesting was that both Goulam and Abyshek spoke about malls almost like they were living, breathing organisms. They both said that malls can't stay the same. Abishek, in fact, said that they have to keep evolving along with consumer behavior and demand. Those change every four or five years. So, you know, the consumer today was very different to consumer 10 years ago, 15 years ago. Like we used to see very large department stores when we started building out.

People were actually looking at 50, 60, 70,000 square feet department stores. Hypermarkets, 10 years ago, we were looking at about 1,000 square feet hypermarket stores. Suddenly, we are seeing department stores which are 30,000, 35,000 square feet. Supermarkets have shrunk to 10, 12, 15,000 square feet or even 30,000 square feet and some rare cases. So why is all that happening? It's happening because the consumer preferences are changing. Or the offering in general in the market outside has changed. Also because of online, quick commerce, essentials are being delivered at home,

but you are going to the mall for experiences. So that changed a lot. There were far and few FNB outlets and restaurants when we started out, very few. And now almost 15 to 20% of, of my mall areas are being dedicated to restaurants. Pre-COVID, my cinemas used to be extremely large, 10 screens, 12 screens. And now, suddenly after COVID, my cinema sizes have reduced. It's come back to four, five screens, six screens at best.

And we are increasing our family entertainment centres. From 5,000, 6,000 to now we are planning family entertainment centres to 20,000, 25,000, even 50,000 in larger centres. bold pivots are a big part of running a shopping mall. And sometimes that can also mean knowing when to quit. To understand how India's ghost malls could be revived, we can look to a place that went through the same boom and bust. You see, in the last decade or so,

the United States has become a lot like a giant graveyard for shopping malls. These were once the fulcrum of social life and suburban America. But since 2010, dozens are shut down every single year. So what happens to these malls when they die? So post-COVID, what we have seen in America especially, is that many of those malls have actually given way to some other kind of usages. It could be a community space, it could be a hospital or something else altogether. In the US, a lot of the once-gleaming shopping centres are being converted into mixed-use complexes,

complete with affordable housing, entertainment options and retail. And just like that, these once-dead malls are getting a new lease on life. It's as urban and as modern as it gets. Here in India, Goulam says the best option right now is turning them into office complexes. This has actually been happening a fair bit over the years. In fact, according to recent news reports, QuickCommerce platform Zepto's new headquarters in Bangalore will actually be the once thriving total mall

or Market Square Mall as it was formerly known. It's simply going to be repurposed into an office complex. Turns out Abyshek also isn't a stranger to repurposing shopping centres. He's actually done it before and it worked out pretty well for him. We started building a mall in a city called Muradabar. By the time we built the structure, most of our tenants walked away from the lease. It was that 2008-9-kata time the big crash happened during those years.

And so we converted the existing structure into residential flats, say about 200 to 50 apartments. We converted the whole structure into apartments and we made good money out of that. So once you, if you have that problem, of course, you will convert either into office or a resi because the underlying value of the land keeps increasing. So now we know that it's possible to repurpose a ghost mall. But what about revival? Is it possible to turn things around and possibly even succeed as a shopping center again? Well, I asked Goulam.

Honestly, I can't think of a single case. At least at India, I haven't come across any. Well, repurposing is definitely happening across. Many of them have seen repurposed. Something has changed. And these days, you have these. co-working things, you know, the V-Works, the co-work, etc. They're very keen to acquire larger spaces in malls.

And if possibly, because that's like running an office in a thriving and bustling and entertainment center kind of a thing. So that's something which is happening these days. Last couple of years we've been observing so many of these co-working guys picking up malls as their opportunities. But that's it. It's very rare. I haven't seen.

In fact, I still can't come up with any such experience where a dead mall would have been revived. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top. top of the Ken website. Today's episode was hosted and produced by Rahal Philipo's and it was edited by Rajiv Sien.