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The glass and metal facade of the Sahara Mall in Gurgaon, a thriving township southwest of New Delhi, looks like a perfect emblem of the new India. Emblazoned with logos of clothing stores, gift shops and fast-food restaurants, the mall's glistening exterior seems to capture the exuberance of India's economic boom. Inside, however, except for a busy restaurant and supermarket, business is sluggish, and many shops are slathered with signs proclaiming SALE. "The customer response has been far below our expectations," says Atul Kaushal, owner of Threads & Toes Mart, a shop that sells jeans and shoes. "Many people come to the mall to look around, but very few actually buy anything." Kaushal says he's just about breaking even, but in another part of the mall, the manager of a shoe store is even more downcast. "We've been here for a year and a half, and we're still not making a profit," he says. He points to his signs offering discounts of up to 50%. "We came to a mall to be a retail store, but instead we've turned into a discount shop," he says.
Both for locals and for visitors from abroad, nothing seems to symbolize India's transformation from a stagnant third-world country into an emerging economic super-power as much as its sparkling new malls. American brand names like Levi's and McDonald's clutter the air-conditioned interiors, teenagers in low-cut jeans hang out in groups, cappuccino is sold at kiosks, and everyone appears to be having a great time. Eager to cash in, India's real estate developers are in a frenzy: up to 600 malls are likely to be up and running in India by the end of 2009—up from 20 malls this year—according to KSA Technopak, a New Delhi-based consulting firm. The capital is the epicenter of the boom, with as many as 100 malls—some estimates put the number at 150—planned for New Delhi and its vicinity in the next three years. There's only one hitch: many of these malls will struggle to make money.
"If all the planned malls do come up, 70% of them will fail," predicts Vikram Bakshi, managing director of McDonald's (Northern India), which is a prominent attraction in numerous Indian malls. Bakshi, who says McDonald's won't be present in 70-80% of the capital's new malls, points out a fundamental problem facing malls that are already operating around New Delhi: a lot of people come to see them and to enjoy the air-conditioned luxury, but not many spend money there. Usha Varadharajan, owner of The Next Shop, which sells gift items like crockery and soaps in the Centrestage Mall in Noida, another township near New Delhi, knows the phenomenon all too well. "Most people just walk in and walk out without buying a thing," she says. Standing outside her store, 17-year-old Ankur Malik, a teenager hanging out in the mall with a friend, agrees: "Eighty percent of young people come to a mall just to waste time. Actually, we're doing the same thing."
"Middle-class Indians are still hesitant about spending in malls because they think prices are higher here," adds Sanjay Singh, owner of Chikankari, a garment store in Noida's Centrestage Mall. Singh acknowledges that he has to pay more for rent and electricity than if his store were outside a mall—but like most retailers, he denies that he bumps up his prices to cover this added cost. Still, many Indians are convinced that mall-based stores charge more, so they tend to keep their wallets closed. According to KSA Technopak, the "conversion rate"—the percentage of visitors who turn into shoppers—is as low as 10-15% in Indian malls. Some retailers wish they had made that discovery sooner. "It's not been worth my investment to come here," laments Varadharajan.
Not all store owners in the malls are unhappy. "It's been a mixed reaction for shopkeepers here," says Daman Sarna, mall manager for Sahara Mall. He points out that the supermarket in his mall is doing good business, although he admits that some of the store owners might not be. Pia Singh, director of DLF Universal, a real estate firm that plans to build 18-20 malls in northern India over the next few years, says stores in the City Centre Mall, which her company opened in Gurgaon in late 2002, are making profits, adding, "That's what gives us the confidence to go out and build more malls." A visit to the City Centre Mall helps explain this upbeat view. "We're happy with our experience here," says Pawan Jaiswal, owner of Ybrant, which sells pillows and curtains. Every day thousands of Delhiites pour in to shop at the malls at Gurgaon, which has turned from a nondescript village into a sprawling city in a few years, thanks largely to its half-dozen malls. Indeed, the City Centre Mall shows that with the right blend of good design, top brand names and a central location, malls can be successful in India.
Yet even retailers who are doing well worry about the plethora of new malls set to open soon. Chikankari's Singh, who says he's satisfied with sales in his shop, is nevertheless concerned about a giant new mall due to open in a couple of years in Noida. "There will be a huge diversion of people into other malls," he frets. Indeed, a cloud hangs over the future of Gurgaon, with up to 20 malls scheduled to open in the next couple of years. New malls will soon be built in the upper-class Delhi neighborhood of Vasant Kunj, and will likely slash the inflow of wealthy Delhiites into Gurgaon. "We will see some big reductions in the numbers at Gurgaon malls; they will become less profitable for the retailers," says Sanjay Chandra, director of Unitech, a major real estate firm that is beginning to build malls.
What's driving India's mania for malls? Bakshi of McDonald's says real estate speculation is one major factor: "In many cases, it's the 'loot-and-scoot' model. You see an opportunity, you build a mall, you sell out and leave." Mall builders like Unitech and DLF acknowledge that there has been speculative mall building, but blame it on smaller competitors that lack their long-term vision. Instead of putting a check on the mall-building glut, says Bakshi, India's state and local governments are all too happy to encourage it. "Governments sell land because they get great prices for it," he says. However, an administrator with the Haryana Urban Development Authority, which oversees the development of Gurgaon, denies that the government has been reckless in sanctioning new malls, asserting that "20 or 25 malls is not too much for Gurgaon."
Another concern is that India doesn't yet have the infrastructure needed to support all of its new malls. The daily exodus of shoppers from Delhi to Gurgaon's malls is already creating excruciating delays on the roads. But that's only the start of the trouble, says K.T. Ravindran, an urban-planning expert at Delhi's School of Planning and Architecture. Because the electricity supply is unreliable in Gurgaon, says Ravindran, malls will have to run their own diesel-powered generators, which will cause significant pollution. And because the water supply is also shaky, he adds, many of the malls will have to dig wells and suck up groundwater, thus lowering the water table in the region. Such environmental concerns are a key reason to proceed with caution before sanctioning more construction of malls, agrees Bakshi. "Where is the water, where is the electricity, for all these new malls?" But DLF Universal's Singh, whose company has invested heavily in building malls in Gurgaon, disagrees. "The government has been picking up the pace of infrastructure building recently," she says, and she's confident Gurgaon's electricity and water problems will eventually be solved.
Sitting in the food court on the top floor of the Mega Mall, the latest shopping emporium to open in Gurgaon, with Domino's Pizza and Subway close at hand, it's easy to imagine you're in a city like New York or Sydney. Yet India's mall boom is premature for the country's level of economic development, says Bakshi, "Incomes in India have grown, no doubt, but we need to grow much faster—at 10% for five or six years, like China—before we can support all these malls." For shop owner Varadharajan, that much economic growth still wouldn't justify all the malls being planned for a small town like Gurgaon. "Even a prosperous country wouldn't have 20-30 malls in a radius of a few square kilometers."
Unitech's Chandra is more optimistic about the malling of India, predicting that the bulk of the country's retail business will move into malls within a few years. More Indians are starting to buy at malls, he notes, as retailers get better at pitching goods. "We're learning the science of retailing," he says. Yet even he concedes that "the larger malls will be the only ones that survive." KSA Technopak's Singhal is also bullish about the future of malls but adds, "It's very likely that quite a few of the new malls will see occupancy rates of only 50%." Far from being tangible evidence of India's new economic vigor, the numerous half-empty malls that look set to dot its landscape will more likely come to be seen as monuments to the country's inability to plan or regulate its growth.
- Aravind Adiga | Gurgaon
- There are plans for hundreds of malls across the country. Don't expect many to turn a profit