New stores, malls hit retailers' sales in big cities

The rush of new stores and malls in cities such as Pune, Mumbai, and Chennai is eating into sales of existing outlets of retailers such as Shoppers Stop, the Future Group and others.

For instance, Shoppers Stop has seen a mere two per cent like-to-like growth in the southern region in the first quarter of 2012-13 (and 10 per cent in the western region, mostly Mumbai and Pune) due to the cannibalisation effect, said managing director Govind Shrikhande.

LTL sales growth refers to that from stores in the business for at least a year.

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Eating into same pie?

"In Chennai, we added two stores not far from each other.

"So, effectively, we have divided the same catchments into three stores, effectively reducing total entry of a single store into three.

In Pune, we added three stores.

This is what happens when so many stores come up within a short period of time," Shrikhande said in a post-result conference call on Wednesday.

According to global property consultancy CB Richard Ellis, Pune has seen absorption of 123,800 sq ft of retail space in just the April-June quarter of 2012, one of the highest among Indian cities, and Mumbai saw an absorption of 34,800 sq ft.

Besides, the addition of new malls has resulted in LTL growth of retailers in Pune.

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It has seen four malls -- Inorbit, Phoenix Market City, Koregaon Plaza, Pacific Mal l -- come up with a total area of 800,000 to a million sq ft in the past year.

"In Pune, the total number of stores and mall additions is higher than what consumers can consume.

"Actually, one mall of 500,000 sq ft is enough to trigger cannibalisation.

"If you get six malls of a million sq ft, you can imagine the situation," said Shrikhande.

Says Rakesh Biyani, joint managing director of Pantaloon Retail: "In Pune, there is a problem and certain parts have seen over-expansion, which has triggered cannibalisation." Pantaloon Retail has opened two Central and one Pantaloons store in Pune in the past year.

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"Clearly, Pune has an oversupply of malls," says Kabir Lumba, managing director of Lifestyle International, which runs department stores.

In Mumbai, the commercial capital, the situation is no different. Apart from an addition of malls, the decline in stock markets has also hurt retailers' sales, says Shrikhande.

Four malls with a total space of three million sq ft have come up on or off LBS Marg in the central suburbs -- Phoenix Market City and Kohinoor Mall in Kurla, Phase-II of R City in Ghatkopar, and the Neptune Magnet mall in Bhandup.

"In Mumbai, a lot of malls have been set up in close vicinity. That is an issue for retailers.

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"Though retailers such as Shoppers Stop had done good planning, you cannot help it if new malls come up and new players open stores there," said Abneesh Roy, associate director, institutional equities-research, at Edelweiss Securities.

However. . .

Susil Dungarwal, founder and 'chief mall mechanic' at Beyond Squarefeet Advisory, a mall management company which manages Magnet Mall in Mumbai, says cannibalisation is not triggered by new stores and malls but because of competition among retailers.

"Competition is getting tougher but brands and products are almost similar in most department stores.

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"Customers are not very eager to go back to the same store again and again," he said.

And, LTL growth is also coming down due to the economic slowdown, which has forced shoppers to cut on spending, he added.

Retail consultants like Harminder Sahni believe such cannibalisation is a short-term phenomenon.

"Whenever a new mall or store comes up, there will be a slowdown in new stores for six months to a year, as there is a step-jump of sq ft space for consumers.

"After that, things settle down," he says.

Trent, run by the Tatas, is not seeing any cannibalisation, said a senior executive.

Trent established around 60 Westside department stores in the first 13 years of operations.

It has planned to add 24 more, around a third of its total count, in this financial year.