Reason for Failure of Malls in India and China

Ghost malls in China are nothing new. It has its roots in the real estate boom China witnessed in the past. Huge infrastructure was built in the expectation that it will be occupied over a period of time. In fact, the biggest mall in the world, in terms of leasable space, is in China. But it is virtually deserted. There are no shoppers or retailers in it! This shows that China overestimated its real estate appetite.

It seems that something similar is happening with India now. Most malls in the smaller towns are witnessing higher vacancy levels. In fact, in smaller towns one third of the mall space is unoccupied as per a leading real estate agency. This figure was at 7% in 2007. Thus, there has been tremendous rise in vacancy levels over the last 4-5 years.

And there are many reasons for it. The builders overestimated the demand for retail space during the boom period. They also failed to estimate the purchasing power capacity of small town individuals. They got carried away and built properties in the expectation that disposable income will rise in smaller towns pretty fast. However, that has not happened which means there is lack of demand for products. If there is no demand then the retailers who put their shops do not make enough money. This raises the vacancy levels.

We feel that unless the disposable income rises and spending power increases in these cities, vacancy levels will continue to remain high. And this will hurt builders big way.

The above is from the mails I receive from Equity master.

The people of China and India are from two ancient civilizations and have similar mentalities.

Since I consider myself an average middle-class Indian, I'll give my reasons why I do not visit the malls.

I live in Bangur Avenue.

We have about 10 Mom-Pop stores, one small size departmental store (J K Life Store), a larger Reliance One store.

About 1 Km from my home is a big Mall which has A Big Bazar and other multi brand stores.

Where do I make my purchases?

I am a semi retired man having all the time in the world to make my purchases.

Before making my monthly purchases, I visit Reliance One, J K Life Store and at least two Mom-Pop stores, compare the prices and then decide from where I will buy my household requirement.

Since its inception about two years ago, I have visited the Mall 1 Km from home just twice and bought items worth not more than Rs 200/-.

So if these Malls want to depend upon me, they are going to be failures.

Most of my Bengali neighbours have a mentality similar to mine.

Who visit these malls?

People working in the IT sector, BPO sector, top-level executives of private and government firms, doctors and Promoters in the Realty sector.

What is the percentage of our population employed in these sectors?

QED