The Hindu Business Line : Malls partner with retailers

With footfalls droppping, mall developers and retailers are working together to reverse the trend. Revenue-share and lowering rentals are among the strategies being adopted.

Waiting for more shoppers.

Manish Basu

The relationship between mall developers and retailers is evolving from that of a buyer-seller to that of greater co-operation and understanding to overcome the difficult times together.

Sharing the risks

Faced by a decline in sales and footfall in the malls, some developers are looking to share risks of a business downturn by introducing revenue sharing model, while others are considering a reduction in rentals — at least temporarily. The retailers on their part feel they will have a greater say in future in deciding the fundamentals of business.

The customers also may have something to cheer about, as price of certain categories of products are expected to decline during the Christmas season if rental pressure on retailers are eased, according to industry experts.

While authorities at Mani Square, a mall flanking the Eastern Metropolitan Bypass in Kolkata, are not contemplating a drop in rentals, they are planning to purchase vouchers from the retailers equivalent to 14 days’ rentals, according to Mr Subesh Ray, Senior Vice-President and Head Marketing.

“In a pilot project for December we will purchase vouchers from all the retail shops in the mall and give out the redeemable coupons as assured gifts with every purchase to the customers,” he said. This will reduce monetary pressure on the shop owners at the same time serving as a promotional campaign during the Christmas sales, he said.

The mall has also introduced other incentives such as free car parking to draw customers. Footfall at the mall has dropped significantly due to inflation and the plunging the stock market. Only 4,000-6,000 people visit the mall on weekdays, as against 10,000 earlier.

During weekends the footfalls have decreased to 10,000-15,000 from nearly 25,000, he said. While Puja sales had been good this year, the sales during Diwali were not satisfactory. Rentals at the mall signed before Pujas, ranged between Rs 200 and 250 per square feet.

Revenue share

The mall has initiated revenue sharing model with 5-30 per cent of revenue to be shared with the developer (varying across product categories) above the minimum guarantee amount. This was particularly planned to deal with delayed rental payments from some retailers on account of lower sales. Over 12-13 per cent of the shops in the mall are already operating under the model. The scheme had been more profitable to the mall owners, fetching 20 per cent more earnings compared to fixed rentals, he added.

Mr Harshvardhan Neotia, Chairman, Ambuja Group, said that apart from helping retailers in tiding over the downturn, the revenue sharing model brings in an opportunity to ride the upside of business as well.

The developer however needs to examine the retailers’ scale of operation and credibility before applying the model. Space in Ambuja’s flagship mall City Centre in Salt Lake was rented out three years back on an average of Rs 60 per sq.ft without a single deal in the revenue sharing model. However, in the upcoming City Centre II, expected to be completed by June next year, there will be some revenue sharing deals with international brands, he added.

Lowering rentals

The fall in property prices in most areas in the country should ideally lead to fall in rentals, hoped the retailers. “The retailers have been on the receiving end (in deals), but the relationship will now be either on an even key or the retailers will have an upper hand,” said Mr Sanjeev Goenka, Vice-Chairman, RPG Enterprises.

“There were too many retailers running after too little space. But the things have changed in the last 2-3 months,” he added.

Mr Atul Takle of the Future Group’s flagship retail chain Pantaloon said the rentals in malls are expected to come down by 25-40 per cent in the next 2-4 months.

Majority of retailers will not look to sign contracts for opening new stores now, Mr Abhijit Das, Regional Director, Jones Lang LaSalle Meghraj said, adding that a number of upcoming malls in Rajarhat, VIP Road and Topsia will be delayed. To prevent exit of retailers, the developers may come up with concessions in rentals for a limited period, he added. While there have been some exits from a few Kolkata malls recently, retailer-exit from malls in Delhi has been to the extent of 30 per cent, said Mr Ray.

Mr Sanjeev Mehra, Vice-President, Mall Operations, South City, said the mall plans to “handhold” the retailers by providing them financial assistances in the form of some relief in rentals for a few months. Footfalls in the mall have declined by 25-30 per cent in the last few months. “The product prices may take a bashing from January,” he said.

On the slowdown of the retail sector in India, Mr Martin Dlouhy, Managing Director of Metro Cash & Carry India, the Indian arm of the German wholesale major said, “Though the retail market scenario is getting a little tough, it also provides opportunity for us to gain customer trust by bonding with them in difficult times.”

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