The Shopping Centres Association of India (SCAI), organised its first virtual roundtable – ‘Future of Shopping Centres’. The inaugural session was the first in the webinar series called ‘SCAI Mondays’.
Hosted by Amitabh Taneja, Chairman, SCAI and moderated by Anuj Puri, Chairman, Anarock, the session witnessed a live conversation between four of India’s leading shopping centre industry veterans:
- Atul Ruia, Chairman, Phoenix Mills
- Abhishek Bansal, Executive Director, Pacific Group
- R Jaishankar, CMD, Brigade Group
- Rahul Saraf, MD, Forum Projects.
These industry captains dissected how the Indian Shopping Centre Industry is reeling under the pressure of a lockdown, bank loans, dried up revenue streams and no relief from the government amid the Coronavirus pandemic.
Shopping Centres v/s Neighbourhood Stores
In a late night order on Friday, April 24, 2020, the government of India had allowed opening of shops as part of the easing down of lockdown restrictions announced on April 15 with neighbourhood shops and others being to re-open allowed within the city. Shops were allowed outside the city limits – except those in malls – with 50 per cent workforce while wearing of masks has been made compulsory.
The Ministry of Home Affairs on Saturday issued a clarification saying that only standalone shops have been allowed to open as per the directive and that the order does not apply to COVID-19 containment zones, or liquor stores. The ministry also stated that sales by e-commerce companies will continue to be restricted to essential goods only.
No shops have been allowed to open in multi-brand or single brand malls, the order had further said.
Talking about this development, Atul Ruia, Chairman, Phoenix Mills, said, “In China, shopping centres have opened recently and 70-80 percent shoppers are back in the mall and in IKEA stores in Germany around 63 percent customers are back. It is expected that within three months of reopening, normalisation is expected to be back in the malls. So, the biggest question is how to reopen safely.”
In Dubai too, reopening of malls was a top priority on the government agenda.
“Organised retail largely operates out of shopping malls. A lot of nationalised players are present in this industry. Fundamentally, the government can, through a single instruction – i.e. follow strict sanitization and social distancing norms – give a diktat to a billion square feet which is the Indian shopping centre industry. We will follow them precisely, including following other precautions for example: every staff member and customer must a mask, every cinema should have only 50 percent occupancy, restaurants should have partitions and distances between tables, guidelines on air-conditioning, parking and entryways and exits in malls,” Ruia said.
He added that these kind of restrictions were not easy to impose in neighbourhood shops and therefore it was extremely logical for the government to promote re-opening of malls in the country.
“Also, if the government does not open malls, it will have a larger cascading effect on the economy,” he stated.
Adding to this, R Jaishankar, CMD, Brigade Group said, “In malls, we can control the number the of people who can enter and shop at any given point in time. Shopping centres are comparatively spacious to neighbourhood stores and social distancing can be easily maintained. Even retailers housed within malls have started coming up with their own SOPs to adhere to social distancing and sanitization directives.”
Repayment of Loans
The Indian Shopping Centre Industry is reeling under the pressure of repayments to banks, even as revenue streams dry up and no relief seems to be coming from the government amid the coronavirus pandemic that has forced malls across the country to shut down for non-essential items.
The industry, which had written to the government seeking financial help, is now struck with several banks writing to mall owners directing them to deposit rental payments for the month of April in escrow accounts against lease rental discounting (LRD) facility availed by the industry players.
“During this lockdown period, the only business that seems to be running in our country is the banking industry. I feel bankers should be asked to charge interests only equal to their cost of fund. They should also take the burden of the economy. There should be a kind of interest subsidy announced by RBI ensuring that cost of funds to a bank is what should be their lending costs to the businesses till the businesses don’t open up,” said Rahul Saraf, MD, Forum Projects.
“I have been brainstorming what the possible solution would be. The only thought that ccame to the mind was, we all have 4 years, five years, six years of rental as LRD, and we all pay monthly EMIs from or rent collections back to the banks. I think banks should look at allowing 6-9 months of top up against the LRD sanctioned, which adds to put a moratorium wherein you only service the interest for less than 2 year period. What it will do is that top-up will allow you in a way to keep the account in order and service your interest in case there is revenue deficit happening. This will allow the mall developers to work with the retailer and come up with some kind of the staggering of the rent, where in you charge a much lower rent for this period of lockdown or initial few months till the consumer come back to the mall. The time till then we find a cure to the problem and make up for that lost over a year or 18 months so that the retailer can survive his cost today and the mall developer also doesn’t loose the revenue. And this can happen only with the support of the bank. Banks will have to come forward and look at topping up those centres, where they have previously sanctioned a much bigger amount of loan and over a period of time , a lot of LRD money has been paid back to the bank. The EMI needs to be split between the Principle and Interest, and bank should look at collecting interest every month and give a moratorium of a year or year an half on the principle amount,” he added.
In the US too, a number of large mall owners have taken equity positions in retail stores, but whether this will be replicated in India is a whole separate question. Abhishek Bansal, Executive Director, Pacific Group answered this in one sentence saying, “It will really depend on how important is that tenant to my shopping centre.”
Gaining Consumer Confidence Back
Many consumers have become used to the convenience that e-commerce is providing in these tough times. Also, with the no entertainment or social events in malls for the foreseeable future, what will mall developers do to bring back the consumer. How will malls ensure that consumers are confident of coming to malls while ensuring social distancing once they are allowed to function again?
“Let us not think that humans are going to live like this forever. We humans have been and will always be social animals. And as far as e-commerce is concerned, it was present even before COVID-19 and people used to still come to malls. The experience of going out and shopping is just not about the need of buying a particular thing, it is about the need of stepping out of the house, going out on the road, getting to the shopping centre, moving around in an open space and then buying it. E-commerce can never replace the joy of socializing,” said Bansal.
“In other countries, we have observed that slowly and gradually consumers have started coming back and similarly, I am optimistic about India too. As soon as consumers start coming to the shopping centres, we have to give them the confidence that they are safe in this environment and we have to assure the government that the number of people entering any particular area can be controlled,” he added.
A New Category Mix For a New Normal
Since the spread of the virus and the shutting down of many F&B outlets, reports have been doing the rounds that many eateries are going to permanently shut shop, especially the ones who did not have enough capital or were not funded by private equity or whose business models were not sound. However, the panel did not agree with this.
“Yes, there will be casualties, not only in F&B but in every other business. However, everyone should use this period to be innovative and come up with new ideas of doing business and also de-leverage as much as possible. All mall owners, including us, we all discount lease rent, in order to get bulk amounts, so that ways, we may need to reduce the percentage of Lease Rent Discounting (LRD),” said R Jaishankar.
Explaining the impact of COVID-19 on the category mix in shopping centres, he added, “If the category mix in the shopping centres is going to change, it will move towards F&B, not away from it. As e-commerce is growing in India year-on-year basis, shopping centres going ahead will become places of entertainment and F&B much more that what they are now.”
“When we started our mall business, we were working along with retailers discussing footfalls, conversions, average billing per customer and a lot more. Over time we took a different position and also with the advent of e-retailing, it became very difficult to track sales. The time has come, that mall developers and retailers sit together and try to work out solutions to try and ease the pain across the industry,” said Saraf.
Clearing the Air on Air-Conditioning
There have been apprehensions that air-conditioning in malls is not safe and up to standards. Clearing the air on the same, Ruia explained, “International research agencies ASHRAE and Rehva have issued an interim advisory that air-conditioning does not propagate or spread Coronavirus.”
“Technically, the duct split system may or may not have fresh air intake, but all our malls have chill water systems which have fresh air intake, so there are no grounds to believe that shopping centres will be unsafe because of air-conditioning,” he further stated.
Suggestions For New Mall Developers
Atul Ruia’s Phoenix Mills is developing 7 new malls in India and his advice to new mall developers is simple. “That this too shall pass. Do not change your plans, do not take any rash decisions and postpone all decisions for three months. Do not take any long-term decisions right now,” he said.
“In our malls, we are still creating open spaces, social spaces, open-plan restaurants, libraries, skating-rinks and building more spaces where consumers can interact and mingle with each other and that is the destiny of the mall as this pandemic gets over,” he added.
Role of Government
The industry has been seeking government intervention and SCAI has already written to the Finance Ministry, RBI and the IRDA. However, the government is yet to take cognizance of this.
“The government has come out with a stimulus which is only one percent of GDP, whereas in other countries it is between 5-15 percent. We are eagerly waiting for some major stimulus to come over next week. In terms of GST, taxes etc., the government has really squeezed the industry to the hilt and now the time is to let go something like do not charge GST for 6 months or reduce the GST by 25-30 percent for this period,” Jaishankar concluded.
