Making money from malls


Malls are now everywhere. Every city has them. The smaller ones are getting them. The metros cannot do without them. This means that it makes good business sense to start one going by the way they are spawning all over the country. Through information gathered from different sources we are trying to draw some conclusions to find out the business model that mall owners across the country aim to hit upon for more profits.

Let us project the information of each type of mall as to how they are making their money like minting gold to just average. The movie malls did not say that they melted gold at the end of the quarter, nor did most of the shopping malls say so. So it was a toss up between rent from retail outlets and earnest money being paid for moving in with the merchandise.

Restaurants and food courts came in for scrutiny too. They seemed to be another likely candidate for the lucre filling the coffers of mall owners. Popular brands pay nominal rent, but they are the ones who get the mall the highest footholds.

It turned out to be the teenage couples and guys hanging out spend little on snacks and drinks in the odd stall. This is hard cash but very little of it. Go further and you see that the departmental stores such as Big Bazar, Sabka Bazar and Home Store are the ones where the consumers spend quite a bit. These brands pay good money to book floor space and also pay substantial rent for the same.

Mall owners get into a contract of either revenue sharing or for a lump sum amount for the floor space. So is it that attractive a proposition that every shopkeeper, trader and similar others are busy booking space in malls? Not really. The question is who pays what to get floor space in malls?.

The activities that bring in maximum number of people actually generate the least amount of money for the mall developers. Be it the multiplex, the food court or the anchor store. When a multiplex company or a known brand enters a contract, they dictate their own terms and pay a nominal rate. But they are a major attraction to create footfalls and to bring in other retailers. For instance, if a
Nike, PVR, Haldiram or an Adidas comes in, they may get away with less rent. But this brand will likely to bring in more people than an unknown brand does. So mall owners accommodate these bigger brands and go out of their way to give them what they want.

Though it is acknowledged by all mall developers that a combination of the right kind of product mix is cardinal for the success of the mall and it is the multiplex, the anchor store and the food courts that generate footfalls that attract other retailers to the malls. These retail outlets are the real money spinning arm for the mall developers. The higher rentals are provided by the smaller shop owners, bringing in maximum revenues. This is echoed by all developers. To further their profits with respect to the retail outlets the developers are now introducing performance based arrangements, sales targets are being set for the retailers and for the known brands lock in periods and escalation charges are being laid out.

This means if some retailer sells more, he gets the privilege of paying more to the mall owner as commission for the floor space. Lady luck favors the brave! This arrangement does away with the need to pay regular rent. The idea is a happy one and rich trader pays happily.

Developers are now attracted to the smaller cities. Aspirations of smaller town people are much more. Their entertainment options are limited and people long to be a part of this mall mania. In smaller towns, the returns are also better as cost of land is less but the cost of construction is the same. The mall entrepreneur profits more in the B grade or small towns.

But the road ahead would be a bumpy one. There is a need and a definite market for malls in the B grade towns but one has to keep in mind that in these cities the infrastructure is poor, bad roads, electricity remains a big problem. Even though people have money they are price sensitive in smaller areas. The psyche of the people differs, concept and buying behavior is different. They would still walk in and ask for a discount.


Developer’s View

· Proximity to traffic and accessible to people.
· Visibility from main arterial road.
· Parking: easy drive in and drive out facilities.

Consumer’s View

· Air-conditioning all around the mall is a must.
· Something to chew and sip on should be available.
· The parking should be easy and the attendants should be pleasant guiding properly.

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