Trading Density of Retailers in Malls

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Trading_DensityIn India, modern retail is just 22 years old (with the exception of Bata), beginning with the first Shoppers Stop outlet in Andheri, Mumbai, which sold only menswear. For an industry expecting to touch revenues of US$50 billion within the next two years, it is imperative to know and analyze the average trading densities (ATD) of various modern retail formats across the country.

The trading density in India’s modern retail sector has grown at an average of about 6.2% p.a. over the last four years.  The highest growth rate was achieved by Apple stores, perhaps because of the increasing popularity and proliferation of the iPad and the iPhone.  Other categories that grew far better than the industry average were Health & Beauty Products, Beauty Salons & Hairdressers, and Pharmacy.

The two worse performing categories, both with negative growth rates, were Leisure Megastores (brands such as Landmark and Reliance Timeout), obviously due to the global decline in sales of music and books, which used to be the mainstay of these type of stores; and Watch MBOs, perhaps because of an increasing number of people depending on their mobile phones to tell the time, the primary function of a watch.  While the ATD of Watch MBOs had a negative 1.3% growth, the ATD of Watch EBOs went up by 4.7% p.a. during this period. Another major underperforming category was Fine Dining Restaurants.

The overall ATD for most malls nationwide (falling within a GLA range of 250,000 square feet to 800,000 square feet) is INR 1184 per square foot per month (psfpm), based on carpet area.  Larger malls have a lower ATD, with the ATD falling by about 5% for every increase of 100,000 square feet in GLA.

Mall ATDs should come very close to INR 1500 psfpm by FY16, but this will depend on micro-market factors such as demand-supply mismatch. If there is substantial oversupply in any micro-market (which is happening in many cities), the ATD growth for such micro-markets may be lower.

The estimated ATD of the best performing mall in the country – Select Citywalk in Delhi – is INR 2300 psfpm, almost double the national average.

The High Street Phoenix & Palladium mall complex in Mumbai reported an ATD of INR 2013 psfpm in FY13, with a year-on-year growth rate of 18%. Against this, Phoenix Marketcity in Mumbai (Kurla) reported an ATD of only INR 383 psfpm in FY13, showing a huge contrast in ATDs within the same city. Phoenix Marketcity in Pune reported an ATD of INR 628 psfpm in FY13 and Phoenix Marketcity in Bangalore (Whitefield) managed to do INR 664 psfm.  All these three malls had average occupancy rates of less than 75% during the year and the ATDs have been estimated on a carpet area efficiency of 54%, the same as that of High Sreet Phoenix & Palladium.

In Bangalore, compared to an ATD of INR 664 psfpm for Phoenix Marketcity, Forum Mall in Koramangala’s ATD in FY13 is estimated at about INR 1500 psfpm, Garuda Mall on Magrath Road at about INR 1100, Mantri Square in Malleswaram at about INR 1000, Brigade Orion in Rajajinagar at about INR 750 and Gopalan Signature Mall on Old Madras Road at about INR 550 psfpm.

The ATD for malls in USA is about INR 2925 psfpm (USD 45 psfpm) and hardly has any growth. In Bangkok (Thailand), it is INR 2750 psfpm, and is growing at less than 5% p.a.

As per a report published by the International Council of Shopping Centres recently, the Mall of Emirates in Dubai (the #1 mall in the world ranked by ATD) has an average trading density of INR 7700 psfpm.

Apple retail stores have an ATD of INR 32,770 psfpm in USA, against INR 8650 in India. Jewelry retailer Tiffany & Co. has an ATD of INR 16,342 in USA, against an ATD of INR 11,000 for the jewelry category in India.

CDIT retail giant Best Buy had an ATD of INR 4377 last year in USA, compared to INR 2800 for CDIT megastores (such as Reliance Digital and Croma) in India.

What these numbers prove is that Indian modern retailers’ trading densities are quite low, not just compared with the western countries, but also compared with emerging markets. Are Indian malls attracting the wrong retailers?  Modern retailers’ contribution to total Indian consumer spend is less than 15%, but they occupy more than 95% of the mall spaces.

Unless malls attract traditional local/regional retailers, they will continue to flounder. And the India modern retail story will be over, even before it has started to take off. Tamil Nadu retail giant RmKV and Kerala retail giant Kalyan Silks have estimated ATDs of about INR 1450, compared with Shoppers Stop’s INR 653.  Bangalore-based family-run CDIT retailer Girias has an estimated ATD of INR 3700 psfpm, compared with INR 2800 of Reliance Digital and Croma.

With real estate costs going up 8-9% per annum, for how long will modern retailers survive with just 6.2% growth?

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