The No Nonsense Viewers Circle #8 (I/O) - Page 107

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The Dreams Mall, in the Mumbai suburb of Bhandup, rents out empty corridors for wedding receptions. PHOTO: IAN PEREIRA FOR THE WALL STREET JOURNAL

BHANDUP, India"It was supposed to be one of India's hottest shopping centers, catering to the growing middle class of the world's second-most populous country.

But four years after its grand opening, Dreams Mall has turned into a retail nightmare.

A smattering of struggling stores on the ground floor front a maze of dark hallways lined with mostly empty shops. Space intended for retailers now houses call centers. The four-story mall, in the bustling Mumbai suburb of Bhandup, rents out abandoned corridors for wedding receptions. The top floor is being converted into a 170-bed hospital.

Across India, many of the nation's more than 300 malls have been struggling with weak sales and high vacancy rates.

Developers over the last decade built more than 250 shopping centers, according to JLL's Indian arm, to tap into India's burgeoning consumer culture. But while some analysts had estimated India's middle class would swell to more than 400 million people, it turns out that only a sliver of them"less than 10 million by McKinsey & Co.'s estimates"have enough disposable income to make them steady mall goers.

"Everyone jumped into the mall business with little understanding of who they were actually targeting," said Benu Sehgal, a vice president at DLF Ltd., one of the nation's biggest developers. "There's just no need"or demand"for hundreds and hundreds of malls."

Similar scenarios are playing out in other emerging markets. In Brazil, more than 130 malls have been opened since early 2010 by developers anticipating stronger demand from the country's growing middle class, according to the Brazilian unit of Cushman & Wakefield. As the economy has weakened, the addition of more than 40 million square feet of retail space has pushed up vacancy rates and weighed on rents, the firm said.

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There also has been overbuilding in Turkey, with 25 million square feet added in the past three years, according to Green Street Advisors LLC. Developers underestimated how fast new buildings were being built, and city-planning rules"among the least stringent in Europe"failed to deter new construction, said Peter Papadakos, a Green Street analyst.

At Bhandup's Dreams Mall, only a handful of people at any given time lumber up long-dormant escalators, making the place resemble something out of a zombie movie.

"The only people who show up are the ones working at offices inside the mall," said Akshay Jain, who runs a small clothing shop there. "Maybe we'll get some more customers once the hospital opens."

Dreams Mall's builder, Housing Development & Infrastructure Ltd., declined to comment.

India didn't get its first mall until the late 1990s. Spencer Plaza in Chennai was so successful that developers soon started building others. In some neighborhoods in New Delhi and Mumbai, construction companies built three or more malls right next to each other. Between 2004 and 2011, more than 160 malls opened in India, adding 55 million square feet of retail space to the market, according to Ashutosh Limaye, head of research at JLL India.

Developers had limited experience building malls and overestimated the size of their target consumer group, analysts and retailers say. They also designed spaces with poor layouts and the wrong mix of shops.

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The Big Bazaar supermarket chain, the anchor tenant at the Nirmal Mall, closed its outlet there in April. PHOTO: IAN PEREIRA FOR THE WALL STREET JOURNAL

"Everyone was opening malls left, right and center," said Govind Shrikhande, chief executive ofShoppers Stop Ltd., one of India's largest retailers. "The consumer was never at the center of the planning process. That's what led to this whole mess."

Each big city in India has at least one successful shopping center. High Street Phoenix in Mumbai, Quest Mall in Kolkata and Select Citywalk in New Delhi all are doing well. But nearby venues, some adjacent to the biggest winners, have been forced to slash rents and change their business models.

Construction of mall space hit a 10-year low last year, says the Indian arm of Cushman & Wakefield. Many of those already built are trying to reinvent themselves as everything from furniture and liquor marts to wedding venues and spas.

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The Neptune Magnet mall is healthier than its rivals, but most of the pedestrian traffic is on the ground floor. PHOTO: IAN PEREIRA FOR THE WALL STREET JOURNAL

"I don't mind converting," said Mr. Jain, the clothing-shop owner. "As long as that brings me customers, I'm all for it."

Dreams Mall was the third big shopping center to sprout up on the same strip in Bhandup.

A smudged glass display containing a scale model of the mall shows what was originally envisioned for the space. The miniature version has billboards of global brands across its glass facade, cars lined up in a multilevel parking facility and people ready to shop at global brands like Lee, Dior, Timex and Reebok.

Today, the only notable brand in the mall is Samsung. Its space there is a phone-repair center, not a store.

Two miles north at Nirmal Mall, things are worse. Its sprawling open-air courtyard is a ghost town of sleeping dogs and empty shops. Cobwebs hang from doors that once housed brands like Pizza Hut, Puma and Nokia. Its anchor tenant, the Big Bazaar supermarket chain, closed its outlet there in April.

Nirmal Lifestyle, the company that runs the mall, said it plans to tear it down but wouldn't say what it plans to build in its place.

A mile south of Dreams Mall is a somewhat healthier shopping center, Neptune Magnet Mall, where only a third of the store spaces are empty. Still, most of its traffic is confined to the ground floor, which includes a McDonald's and a cash-and-carry supermarket run by Germany's Metro AG.

Neptune Magnet Mall officials blame property companies that failed to finish apartment blocks planned for nearby that would have brought more affluent customers.

"The whole idea was that malls would cater to this new [group] of people," said Sasank Patro, marketing head of Neptune Group. "Malls overcrowded the neighborhood and began feeding off the same, small catchment of consumers."

"Eric Bellman contributed to this article.

Write to Preetika Rana at preetika.rana@wsj.com

http://www.wsj.com/articles/a-glut-of-mall-space-echoes-in-india-1434473696