Rising mall rentals in major cities dampen retailers’ early euphoria

NEW DELHI, MAY 5 Even before the Indian shopper could fully exploit the experiences of a modern mall, high rentals have forced several retailers to head for the exit door. Mall rentals across major cities have made it an unprofitable proposition for these retailers, who in the initial brouhaha, bid high for these spaces. “The high rentals do not justify the sales registered by these retailers. A big retailer which has multiple outlets across India can sustain it but a local retailer finds it difficult,” explained Technopak Advisors principal consultant Gurpreet Randhawa.

The Future Group, one of the largest retailers which has big format outlets like Big Bazaar, Home Town and Furniture Bazaar, has slowed down on signing of lease agreements. “We are taking deliveries for mall spaces signed earlier. Rising rentals in metros are not in line with sales growth. Rentals have increased by 100 per cent in the last two years whereas sales growth for the same period has been hovering at 20-25 per cent,” said Future Retail CEO Rakesh Biyani.

Globally, mall rentals vary between 3-5 per cent of sales revenue whereas in India they hover between 10-15 per cent. This makes a mall, traditionally considered cheaper than High Street, an expensive proposition. But as experts point out, in India many malls have come up in central business centres where real estate costs are high. In addition, severe shortage of space has resulted in high rentals.

Rentals are also causing concern to retailers who franchise their operations. “If rentals are high, they indirectly affect the company as the increased cost has to be factored in the margins to be given to the franchisee. It forces the retailer to pass on the cost to the customer,” said V Govindraj, Titan Industries Ltd vice-president (retail & marketing-jewellery).

A discount format like Vishal Mega Mart prefers to stay away from malls and, instead, look at the High Street locations because of high rentals, said Vishal Retail CMD Ram Chandra Agarwal.

However, mall developers maintain that rentals have remained stable for the last 18 months. “Capital expenditure on inputs like cement and steel have gone up. Rentals are worked out factoring in the rate of return on investment, operational facilities and location. In India, the markets are still evolving. It will take another four-five years before mall rentals get cheaper than high street rentals,” said Parsvnath Developers COO B P Dhaka.

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Rising mall rentals in major cities dampen retailers’ early euphoria

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