Is mall mania helping Retailers? - Views on News from Equitymaster

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Is mall mania helping Retailers?

Apr 4, 2011

How often does one typically visit a mall? The simplest answer to this question is - more often than one would go shopping. And this is exactly what retailers are cashing in on.

Visiting malls is not just restricted to shopping for they accommodate entertainment and dining as well. Others look at them as an option to rewind after a hectic weekend. But, have you ever wondered if the extra visits enhance the chances of making impromptu purchases? Statistics show that it does. Owner of a luxury accessories showroom reveals that 30% to 40% people who walk into the store actually make a purchase. This is why malls are so important for the retailing biggies.

Malls Vs Standalone shops

Rentals

Rentals are the main cost of retailing. Traditionally, retailers pay more rent for stores in malls as compared to standalone shops. But, over the past couple of years, rentals have softened by almost 15-40%. The retailers are spending about Rs 600 to Rs 750 per square feet as mall rentals. With abundant supply of mall space in coming years, mall rentals are expected to remain stagnant.

Revenue sharing

Under revenue sharing, retailers share a part of their sales with mall developers. Thus, retailers will pay more if they are able to sell more. They typically opt for a mix of mall rentals (fixed) along with revenue sharing (variable). This puts a responsibility on malls to ensure more and more visits. Also, in times of downturn, retailers are not the only ones to take a hit. This arrests the downside to the retailers' revenues. Retailers like Future Group Pantaloon and Shoppers' Stop are getting into more of such contracts.

Additional Services

Malls provide basic amenities of rest rooms, dedicated parking space and food courts. The standalone shops lack these facilities or they come at an extra cost. While shoppers prefer visiting malls as against standalone shops, even retailers find the former more affordable at times.

Plenty of reasons to visit a mall

Food courts, gaming parlours, entertainment zones, rides, exhibitions, movies are some of the reasons why people visit malls and at times accidentally end up shopping. Thus, retail companies want to set shops in malls so that they can benefit out of the footfalls in the malls. Mall footfalls are potential footfalls in their outlets which may be converted into sales.

Do's for Retailers

Although malls are too tempting- retailers should be very careful while deciding where to set up shop. The location of a mall is very important. A more centrally located mall has better chances of high footfalls than a remotely located one. There should be ample parking space at the malls to make shopping convenient and enjoyable. These days, mall management services are also on offer.

Conclusion

Supply of mall space in India is expected to increase in the next 2 years. Retailers are also looking at expansion in a substantial manner. Whatever may be the excuse for going, the fact is that Indians are likely to spend much more time at malls these days than what they are used to. This means more chances of shopping- higher conversion rates for retailers. However, it is important to note whether the high footfalls and sales are sustainable for the retailer. Also whether they are adding to the company's profit margins. If not, the mall mania may end up being yet another wealth destroyer for investors.

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