'Rent is the last consideration': Atul Ruia

Image: Joshua Navalkar

Q. You’ve been in the mall business for 15 years. How would you describe it today?
Fundamentally, the growth path has not seen any material shift due to ecommerce. That is my immediate perception, but I do detect that second-rung malls are seeing a greater impact. I do not know whether that impact is coming from ecommerce or the general economy or from retailer cash flow issues. I would think it is due to retailer cash flow issues. This trend has been evident after 2011-2012: A plethora of malls opened, which impacted second-rung malls.

Q. With only a few malls slated to come up, do you see the industry consolidating through acquisitions?
We are very keen to continue to acquire malls. In the last two years, we have made significant acquisitions of stakes of our PE (private equity) investors in our own malls. Now we are ready to look at third-party acquisitions. The truth is that sellers tend to over-price the asset. We find it very easy to trade with a fund that understands valuation, but find it difficult to do business with someone who sees ego in the asset. That is what has prevented us from making acquisitions. It is the same with hotels, but I am now seeing certain assets that have become so ripe that they can no longer get traded.

Q. Your recent expansion has been a very challenging journey in that you constructed so many malls simultaneously across India. Now that they are complete, what was the process like?
I would not wish this on my worst enemy. To construct five gigantic malls simultaneously was too ambitious, and to have Lehman [crisis] happen bang in the middle of that… It resulted in no new retailers wanting to build stores. It was very challenging. But having achieved this, we are thrilled with the portfolio.

Q. How important is location to the success of a mall?
Bangalore now does exceedingly well. I’d like to believe that our centre there [at Whitefield] is as good as any in spite of a weak location. And with regard to Kurla [in Mumbai], I am going to say a contrarian thing: Kurla didn’t do well despite it being a strong location. We have made our mistakes and I am setting them right. It was also a combination of bad luck and some timing issues. There were delays in permissions. The metro in that area got delayed. Some of our key anchors got delayed. We made mistakes, too. We compromised on quality for speed and scale.

Q. How would you allocate space to apparel, food, entertainment and so on in your malls?
There is no straight answer. This is the heart of the business. The shopping centre is a living, breathing animal that is constantly growing, changing and ageing. There is no one static position that you can take. When you go to High Street Phoenix in Lower Parel, Mumbai, there is nearly no entertainment [barring cinema]. In my opinion, the real anchors to a shopping centre are things like a hotel, a casino, an opera house, a cinema complex and a convention centre. Mega destinations within the mall are the best. We are in the journey of adding these to our malls. The idea that a department store is an anchor is of the past.

Q. Given that there is no significant mall stock slated to come up in the next five to six years, there will be a dearth of quality retail space. Will that place existing mall operators in a position where they can charge more?
We don’t believe in charging more. We believe in charging 15-20 percent of sales. If the brand is paying us more, then we are doing something wrong and it should be shutting shop. If it is 10 percent, the brand should be paying us more. We would not only base our rental decisions on how much someone is willing to pay us, but also base it on brand, adjacency and what the malls want. Rent is the last consideration.

Q. From a valuation perspective, how do you look at this industry? Is it a defensive bet for investors? You certainly have those valuations…
It is a phenomenal business to be in. Once you build, most of your fixed costs are out of the way. What is left is that you are a beneficiary of inflation and the increase in the nation’s consumption. That is why you can have an outlier where you keep on growing at 20 percent every year as India grows. Ten percent is coming from inflation [and the rest from price increases].