India’s retail has a spring in its step: High-end shopping malls

India’s retail sector is undergoing a rapid transformation, and a few radical shifts. E-commerce was supposed to replace the brick-and-mortar retail, especially after Covid when a large number of Indians got used to buy small as well as big items online.

But the new consumption trend of premiumisation, where consumers are willing to splurge on expensive items, is bringing back brick-and-mortar retail in the shape of high-end shopping malls where customers can touch and feel high-value products and have a superior shopping experience. As premiumisation sweeps across India’s retail sector, demand for premium shopping malls is increasing.

The rise of premium India

Historically, Indian consumers have been cautious spenders, focusing on savings and purchasing essentials. However, with rising disposable incomes and evolving lifestyle aspirations, a shift towards discretionary spending is becoming evident. The trend may have picked up more during the Covid pandemic, when affluent consumers, unable to travel, would have begun splurging on luxury products such as large televisions, home appliances, and premium food and beverages.

The premiumisation wave continued in the first half of 2024, as consumer goods companies reported an uptick in sales of high-end products, reported ET, citing data from companies and researchers.

For instance, over 70% of the new products launched by Hindustan Unilever (HUL), India’s largest consumer goods company, over the past two years were in the premium segment. Similarly, ITC Ltd, a leading personal care products manufacturer, saw its premium segment products contribute 38% to the division’s sales, up from 19% four years ago. This trend was also visible in other sectors, including electronics and personal care, where companies like Samsung, LG, and Vivo introduced more premium products compared to budget options.

The need for better shopping malls

This shift in consumer preferences has thrown light on the limitations of many existing retail spaces, particularly the rise of “ghost malls” — poorly located shopping centers with high vacancy rates. According to a report by Knight Frank, the number of such ghost malls increased from 57 in 2022 to 64 in 2023. The vacancies reflect the growing demand for Grade A shopping malls that are well-located, offer a superior shopping experience, and provide a mix of luxury brands and entertainment options.This need for better retail spaces is leading to an expansion of high-end shopping malls across India. Cushman & Wakefield (C&W), a real estate consultancy, projected that 18 million square feet of new retail space would be added between 2024 and 2027 across India’s top eight cities. However, this is just a third of the estimated 55 million square feet required to meet the demand for premium retail spaces. C&W highlighted that India’s retail space per capita is still lagging behind other South Asian countries like Indonesia and Thailand, underscoring the potential for growth in the sector.

Smaller cities’ growing demand

In addition to traditional Grade A malls, factory outlet malls are also being planned to compete with the growing dominance of e-commerce platforms. These shopping malls aim to offer consumers premium products at discounted prices, appealing to broader range of shoppers who may be hesitant to buy luxury goods online.

In addition, the expansion of malls is not just limited to metropolitan areas. Tier 2 and Tier 3 cities are witnessing a surge in the development of high-end retail spaces.

Cities like Gurugram are seeing a rise in demand for one-stop shopping destinations that combine retail, entertainment, and community engagement, ET has reported, quoting Pradeep Aggarwal, Chairman of Signature Global. Similarly, Uddhav Poddar, Managing Director of Bhumika Group, said that the combination of shopping and leisure is one of the strongest draws for malls, further driving their growth in smaller cities.

Infrastructure upgrade and an increase in leisure travel may also become a big growth driver for highway retail, prompting developers to build malls on highways, according to experts. Brands such as Tata Croma, Starbucks, Uniqlo, Hippo Stores and Mothercare have either opened or are in the process of opening stores on highways.

Luxury brands hike demand

The rise of premium malls and the increased demand for luxury goods have opened lucrative opportunities for international retailers, just as global luxury brands entering India has led to demand for more premium mall spaces. Many global luxury brands are betting big on India, opening more outlets and occupying prime retail space in high-end malls. This influx of international brands is driving foreign investment into India’s retail sector, further boosting the country’s economy.

As India continues to develop its infrastructure and expand its retail spaces, the country is expected to attract even more investment. The combination of rising consumer confidence, increasing discretionary spending, and the development of premium retail spaces is positioning India’s retail sector for sustained growth over the coming years.