How Long Can Malls Remain Open If Stores Inside Them Keep Closing Down?
Short Answer: Forever.
Now for the long version.
As I highlighted in Retail Winners & Losers Amidst Skyrocketing Real Estate Costs, many stores are unable to survive on the face of skyrocketing real estate costs. Although this post focused largely on standalone stores, mall-based stores face an even graver existential crisis since they incur 50-75% higher rentals than their high street counterparts.
When we keep witnessing stores, like the one in the adjacent picture, closing down, it’s natural to wonder if the malls housing them will follow suit.
IMO, there could be a slowdown in new mall openings but malls that are already operational can remain open forever.
If you disagree with this prediction, just ask yourselves how many malls you’ve seen closing down in the last 12 months.
If you want a clue before you read my explanation for my counterintuitive prediction, just think of all the people you know – directly or by reputation – who own property in London, Mumbai, New York and many other cities, live somewhere else but still don’t rent out their houses in these cities, instead keeping them locked for years on end.
Malls and stores belong to two different industries with very different drivers for revenues and profits. This is why I believe what I assert in this post.
Although the media, especially in India, often uses the terms store and mall interchangeably, the former belongs to the retail industry whereas the latter is in the real estate business.
Revenues of stores are driven largely by footfall, conversion and ticket size and their profitability depends on inventory, rental, employee and a few other costs.
On the other hand, malls make money from rentals, plain and simple.
Hypothetically, if all stores inside a mall were to close down, the mall owner would earn no rental income but, even then, they’d enjoy a huge upside from the capital appreciation of their property.
Historically, real estate prices have always gone up with time and many people think this trend will continue for the foreseeable future. So, mall owners, who own both the land and the building constructed on it, are under no great pressure to shut malls down regardless of the fate of the stores inside them.
UPDATE DATED 16 JULY 2020:
It’s seven years since the above post was published.
Only one mall has shut down – Pulse Mall in East Pune. Many new malls have opened e.g. Season’s in East Pune and WestEnd and Pavillion in West Pune.
Many malls whose stores shut down have pivoted into office space providers. In Orbit mall in East Pune now houses Amazon Customer Care, Barclays GIC and FiServ GIC. It’s rumored that Koregaon Park Plaza, also in East Pune, is being rebuilt as a coworking space.
All this was until March 2020.
Since then, malls have been ordered to shut down because of Covid-19 lockdown. This is obviously an existential crisis of a different nature. Only time can tell how many malls will emerge out of it unscathed.