Online retail struggles with profitability, physical retail is the mainstay: Atul Ruia, chairman, Phoenix Mills

Atul Ruia, chairman and Shishir Shrivastava, managing director of The Phoenix Mills Limited; Image: Mayur D Bhatt for Forbes India

Phoenix Mills opened Palladium mall in Ahmedabad on February 25, in a joint venture with real estate developers B Safal Group. This is Gujarat’s first luxurious mall. In an exclusive conversation with Forbes India, Atul Ruia, chairman and Shishir Shrivastava, managing director of The Phoenix Mills Limited, talk about their expansion plans and their target to reach 14 million square feet by 2026. They discuss how the next quarter looks like for the company. Edited excerpts:

Q. Why did it take so long for you to enter Gujarat?
Atul: It didn't take long. When we were ready for Gujarat, we tried our best to come. And then we came.

Shishir: We actively started our acquisition search sometime in 2018. And we were fortunate to collaborate with real estate developers B Safal Group, very early on in our search. That is how we entered into a 50-50 partnership. This mall was in the in the making for almost four years, and we finally opened it up on February 25.

Q. Has the current economic volatility shown its effects on customer footfalls and consumption pattern?
Atul: There is no economic volatility. India is at a good all-time steady pace of growth. In spite of Covid-19 earlier and inflation around the globe, India remains in a solid steady place. Malls are doing very well. Most of our malls are showing 20-30 percent growth. Last year was really good for us, especially with the return to physical shopping.

Q. Can you tell us about your expansion plans? What is coming up next?
Shishir: We have more openings lined up this calendar year. Last December, we launched a mall in Indore which is a million square feet. In the coming months, we are going to launch a 1.2 million square foot mall in Bengaluru, followed by another million-plus square foot mall in Pune. As part of these large mixed-use developments, we also have offices getting added to our portfolio offices. So with projects that are currently under development, we see us reaching a gross leasable area in retail of about 14 million square feet by the end of calendar year 2026 or early 2027.

We have offices that are getting added to all of these large developments as part of the mixed use. So that portfolio is growing from the current two million to about 7.2 million square feet. We are also adding another hotel into our portfolio in Bengaluru as part of our retail mixed-use development. We are also coming up with malls in Surat and Kolkata, with which we will hit 14 million square feet.

Q. After ecommerce, digital technologies like metaverse and NFTs are gaining momentum post the pandemic. How are the retail stores catching up with these new trends?
Shishir: We are working on several digital initiatives. Right now, our focus is to create physical spaces in urban India where there is a lack of good quality, leisure entertainment shopping spaces. But there certainly are plans to have a digital integration. It is all work in progress.

Atul: In 2010, the big talk started about how ecommerce will impact or destroy physical retail. And this gained momentum between 2010 and 2020, especially during the last two years of Covid-19. But the reality is that we have seen a 15-20 percent compounded growth at all our malls in sales each year from 2010 to 2020, and even now in 2023. And therefore I think that India is at a stage where online and physical retail will coexist. Of course, online retail struggles to be profitable. But I do believe physical retail is profitable and mainstay of retail.

Also read: How quick commerce can become a game-changer in the ecommerce business in India

Q. Are you planning to raise more funds?
Shishir: No, at the moment we have adequate liquidity to fund our growth aspirations. We have raised a lot of capital in the last three years. And we have great partnerships with our long-term financial investors such as the Government of Singapore Investment Corporation (GIC) and the Canadian government. We have a current run-rate of about Rs1,200 crore of free cash being generated annually. We have roughly another Rs1,300 crore of cash sitting in banks. We have conservatively leveraged today. So, we have the war chest for growth and to fund our expansion plans.

Q. How was the past year for Phoenix Mills, and what does the next quarter look like?
Atul: The last year was very good, and there will be a similar trajectory this year. If we compare with the year before last, we would be 100 percent up. If we compare with three years ago, we would be 50-60 percent up in terms of profits. Over the next quarters, we expect 15 percent annualised growth appearing to be the trend going forward. I think in the last three years, we built as much as we built in the last in the 10 years before that. And maybe in the next three years, we'll build three times of that.

Shishir: Our income is a function of the consumption as well. So the more sales that you see at the mall, our rental income keeps moving up, because it is a function of percentage of sale with a minimum guarantee rent. So just to put things in perspective, our blockbuster year pre-Covid was financial year 2020. We had an overall consumption or sales across all our malls of about Rs6,800 crore. In the last nine months, our consumption is at Rs7,850 crore, which is almost 29 percent higher. Gross for the year, it will be 45 percent higher than 2019. So the next quarter is looking good across verticals.