India is obsessed about discounts and savings, but online retailers and malls retain their distinguished importance.
India is changing, social habits are changing, demographics are changing; urbanisation, growth of disposal income, and foreign investments are fuelling retail growth. The Indian retail market is poised to grow to a size of USD 1 trillion by 2020, a 70% jump from the current size of USD 600 billion. With a significant amount of foreign brands registering their presence in India, where do people shop? Online or in malls? Difficult as it seems, the question really has a different basis: discounts and savings. With more work to be done in education, literacy ratio, infrastructure, and economic development, the rate at which disposable income increases is low compared to a country like China. Thus, the basis of shopping remains more in the intent of saving and negotiating discounts.
Malls had been a darling investment segment for developers and landowners since 2000 until 2007 when e-commerce entered in India. The pace at which malls were built has gone down drastically, but there are other factors other than e-commerce to blame. The 2008 financial crisis, high land prices, bureaucratic exposure for approvals, and low investment in starting an e-commerce business are seen as obstacles in the streamline growth of malls in India. Mall development require upfront investment in land, construction, and then negotiating better rentals with tenants which again is market dependent to an extent. These cumbersome hurdles are seen as primary issues in exponential mall development across the country. E-commerce clearly requires much smaller investment to start, as it is a market place conjoining the seller and the buyer for a cost. The investment is spread across online infrastructure, logistics, and storage. Comparing these two modes informs us why one is growing fast and the other slow.
The exponential growth of online retail clubbed with the outreach of internet and smartphones has fuelled significant growth for online retailers cashing in through more user per application. Cheaper internet, increased rural accessibility, and ever growing delivery centers has made online retailers a favourite choice for first time product buyers, largely because of the discounts they offer. Malls are largely driven by speciality retail, retail that is hard to sell online such as furnishings, foods, selling experiences and thrill, speciality and custom made products, and ultra-luxury fashion brands that require touch and feel and experience to make a ‘buy’ decision. Although online retailers are encroaching merchandise segments of malls, it is difficult to achieve the precision sales that malls deliver to loyal customers, and certainly cannot match the personal experience of shopping that malls so openly offer. A clear comparable example would be the high streets of developed cities like New York, London, and Tokyo where both segments have had decades of co-existence. Many mall brands have entered their own online shopping, but retain offline presence as the primary strategy for brand recognition. Besides, lack of 100% foreign investments into market places bars online retailers to expand as they expect, thereby giving malls a sound opportunity to capture the ideal mall shopper who delves into experiences while shopping.
Malls and online retailers are distinguished retailers, and shall retain their individual importance, as government shall not be biased toward a single mode of retailing, helping both to continue their gradual expansion.