High rentals force mall tenants to move to tier-II & III cities

More and more tenants in big city malls are moving to smaller cities, which promise better returns! Under pressure of high rentals and low footfalls, one-third of retail tenants at the shopping malls in the large cities like Mumbai, Delhi, Chennai, Bangalore, Kolkata are shifting in tier-II & III cities like Nagpur, Jaipur, Pune, Indore, Lucknow, Ludhiana and Chandigarh among other such cities, reveals an ASSOCHAM trend survey.

As per the ASSOCHAM estimates, roughly 300-350 malls came up in the country over the last two years but 75-80% of the spaces in these malls lie vacant. Around the same time, as many as 95 malls have shut shop, according to the ASSOCHAM latest paper on “Shopping malls increasingly loosing shine in big cities” reveals today.

Other such cities where the mall-based retailers are moving include are Goa, Kochi, Vijayawada, Visakha¬patnam, Mysore, Coimbatore, Trivandrum, Guwahati, Ahmedabad and Surat and they still hold more potential for growth, adds the ASSOCHAM paper.

In tier II and tier III cities, there is greater scope for growth.  Also, larger chunks of land are available in these cities compared to metros, and at lower cost, said Kapoor.

The shopping trends in metro cities have influenced the consumer behaviour in tier- II and tier-III cities that are now witnessing a major shift from conventional trader-run standalone shops to larger format retail malls.

The trend can be attributed to factors like the dynamic change in the shopping trend, average spending power of the socio-economic classes in the tier-II to tier-VI cities, demand of various products under one roof, increase in brand consciousness are a few factors that multi-brand discount franchising stores drives on, adds the ASSOCHAM paper.

The overall business is seeing a growth and Tier- II and Tier-III markets have a good scope of growth. The retail growth of about 15 per cent per year is expected through 2015 thanks to the increasing prosperity in the neighbouring rural areas, said Kapoor.

Seeing the current scenario in the metros, competition has intensified, rentals have soared and operational costs have touched the roof, which has affected the overall profitability of retailers in these cities.

“High cost of operation, economic slowdown and wearing down of the novelty values have all combined to reduce the number of foot falls in the malls in big cities. One of the main reasons for the high rentals in the big city malls is the exorbitant land prices and high development costs… Thus, in the foreseeable future, making such malls profitable ventures will remain a challenge…” said Kapoor.

The major three core benefits for the retailer-tenants to move to smaller cities are lower operational costs and comparatively lesser competition and the novelty values still left in these areas where even the nearby rural population is thronging the air-conditioned halls and getting the taste of comfortable shopping, adds Rana Kapoor, President ASSOCHAM.