Your next visit to a mall could spring a surprise: you may find your favourite brand missing.
For, ‘churn rates’ – it is a term to denote new retailers replacing exiting outlets at malls – have been rising in the past one year, said industry experts.
For instance, the churn rate is around 5-8% in the top five cities (Mumbai, Kolkata, Chennai, Delhi and Bangalore). Abnormal, given the normal average rate of 2-4% initially seen in well-managed malls, said Ashwin Puri, CEO, Property Zone, a retail space management service firm operating in the five cities.
The rate is worse at the pan-India level, particularly in cities like Pune and Gurgaon which have huge retail space and thus higher scope for churn.
Gulam Zia, national director - research and advisory services at Knight Frank India, a real estate consultant, said, “On an average, when the business is good, we see a churn rate of around 10% across India. This has now gone up to 18-20%.”
In terms of brands, the churn spans the entire economy-to-premium range of price points.
What’s been causing the churn is a combination of slowdown impact — some slump-savaged retailers have been exiting malls midway through their lease contracts — and future hopes (new players are taking their place in the hope that foreign direct investment or FDI will be allowed in multi-brand retail sooner or later).
Zia said expiring three-year lease contracts of retailers is one of the causes of high churn. Puri reasoned that retail chains shutting non-performing stores is a factor.
Agreed Shubranshu Pani, MD-retail at Jones Lang LaSalle India, a commercial property management consultant. “High churn rates are being seen where the space has turned unviable and consumption is low. The churn is both landlord- and retailer-driven. At some locations, landlords have initiated churn to improve their portfolio, while at unviable locations, retailers are driving the churn. Through this process, the market is realising its true value.”
Pani said the market has reached its ‘exit-enter’ equilibrium point. However, a JPMorgan research note last fortnight showed that last fiscal rentals in Mumbai, Pune and Chennai stagnated across many micro markets. Contrary to general expectation, rentals remain stable in spite of high churn rates.
Looking ahead, experts see mall rentals stagnating without falling. Zia said, “Rentals have been stable
as many retailers are hopeful of an FDI policy.”
