On a recent afternoon, Select Citywalk, a new mall in New Delhi, was bustling with activity. Women in saris waited to order Italian coffee, teenage couples held hands as they rode escalators and shoppers stopped to examine a Lamborghini being raffled and clustered around window displays for the Body Shop and Esprit stores.
These kinds of scenes are normal at malls in the United States. Until recently, however, this kind of retailing was absent in India, the world’s second-most populous country. But with the spending power of middle-class Indians ballooning and demand for high-end products and services rising, the country is experiencing a revolution in retailing.
Whereas no large indoor mall has opened in the U.S. since 2001, nearly 100 have popped up in the past decade in India, most of them in just the past couple of years.
“It’s an upcoming market — very nascent — and has a huge potential,” said Shilpa Malik, vice president of business development for Select Infrastructure, the firm behind Select Citywalk.
Analysts believe that the retail sector in India is poised for tremendous growth. A recent report by McKinsey & Company lays out the potential: By 2025, Indian income levels will nearly triple, aggregate consumption will quadruple and the middle class will swell by a factor of more than 10, to 583 million people.
Poverty will shrink, discretionary spending will rise and the nation’s consumer market will jump from the 12th largest in the world to the fifth, the report posits.
Last year, India’s retail sector grew between 25 and 28 percent, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). Valued at $300 billion last year, India’s retail sector is expected to grow to $365 billion this year — and $440 billion in 2010.
Presently, less than 5 percent of that sector is located in dedicated indoor or outdoor malls. The shopping experience is still dominated by neighborhood stores and street vendors that typically aren’t registered for sales and income taxes.
Modernism is not without controversy, because many of the tens of millions of Indians with livelihoods tied to unorganized retail are fiercely fighting for protection. Because these retailers represent a vigorous voting block, their concerns can be important when politicians consider changes to, say, zoning laws and development applications.
Still, the trend is clear: India had just 1 million square feet of organized retail space in 2002, but nearly 14 million square feet last year, according to ASSOCHAM.
Malik estimates that one-third of India’s retail market will be organized within a decade. Indeed, many in India’s retail development industry believe that indoor malls have a bright future in this crowded and often intemperate south Asian nation. Air conditioning is a big perk, particularly in parts of India where spring and summer temperatures regularly top 100 degrees. So too is the nearly immaculate state of many of these shopping malls, in a nation where even the nicest outdoor commercial areas are often littered with garbage, overrun with stray dogs, dotted with beggars and plagued by poor electrical infrastructure.
“The indoor malls might have a much longer lifespan in India than in the U.S.,” said Jean-Pierre Raulot-Lapointe, a real estate analyst at Thomas Consultants, a retail development strategy consulting firm based in Vancouver that lately has been advising some of the region’s largest retail developers.
Rents at Indian shopping malls vary. Select Citywalk, with its cluster of international retailers, charges between $12 and $15 per square foot per month. Other malls charge as little as $1.50 per square foot per month.
“A lot of developers are looking to the future, and they want to establish their mall in Delhi and get people in the habit of going there,” Raulot-Lapointe said. “And they feel that over time, expenditure and rental rates will go up in their malls.”
Analysts say some of these malls have already failed because their layouts are poorly conceived. On a recent tour of malls in India, Raulot-Lapointe found numerous flaws that seem obvious to experienced mallgoers, like food courts near the ground floor entrance where the highest-paying tenant ought to be, a mall with a wastefully oversized atrium, and malls with hallways that zig-zag and lead nowhere.
“Malls are popping up like crazy, and you wonder how well thought out they are,” said Raulot-Lapointe. “It’s a race, and the ones that are going to stand the test of time are the ones that are done the best. I think that is something that is overlooked by some developers.”
These developers are, almost by rule, Indian. Each of India’s 28 states has its own laws, zoning rules and environmental standards — not to mention strict national rules regulating foreign investment in retail — so it’s difficult, if not outright impossible, for an international developer to build and operate shopping malls here.
“Entry is very hard, but if you can get in, you will make a good return,” noted Bill Rattazzi, CEO of Emaar MGF, a joint venture between an Indian and Dubai-based firm that has been building malls around the country.
Ben Frumin is a New Delhi-based reporter.