From ET Realty
HYDERABAD: Mall owners across the country are increasingly tightening the noose on non-performing brands as the Indian retail sector, which is weighed down by dearth of quality space, attempts to accommodate large international brands that were seeking an Indian entry.
Mall owners are now resorting to evict slumping brands, squeezing store size to accommodate more shops and also lowering the lease tenures to lift footfalls and revenues. The e-commerce boom has also led mall developers to reimagine and enhance the ‘offline’ shopping and mall-going experience of customers.
“Malls are not performing as they performed five years ago. Mall developers are now opting for 3 + 3 years lease terms in many cases for vanilla stores as they may want to reinvent the mall to keep with the changing environment,” says Neeraj Duggal, MD and CEO, Light House, a Bengaluru-headquartered mall management company.
Earlier, the lease term was, on an average, of nine years. DLF Place, Saket, has recently asked Black Soul, a jeans brand, to evict as they could not generate enough footfalls. Hypercity at Inorbit, Hyderabad, was asked to squeeze its size by nearly a sixth from 1 lakh sqft to 84,000 sq ft to accommodate more stores.
“If the retailers are not performing, they would not be able to provide what the customers are looking for and also it won’t be helping the footfall of the mall. Resultantly, it affects the revenue share of the mall,” said Benu Sehgal, senior vice president (mall management) at DLF Place, Saket.
Malls owners generally enter into a minimum guarantee deal with the brands and also ask for a certain share in sales revenues.
However, of late, an increasing number of brands are going for pure revenue share wherein mall owners collect a share in stores revenue instead of rentals. “So, a dip in brands’ revenue will directly impact the revenues of the malls. The revenue share of brands can be anywhere between 7%-12%,” said Puneet Varma, AVP (marketing and corporate communications), Inorbit Malls.
“We continuously evaluate the performance of brands at our malls, in terms of the revenue share and the amount of footfalls they receive. So, if a brand under-performs, we offer them marketing support and help revive their business,” Varma said. Further, developers, retailers and consultants say the amount of retail space coming up is miniscule.
“The timely delivery of quality shopping space by developers will also be crucial for the sector to reach its potential of becoming a leading retail market in the geography,” said Anshuman Magazine, CMD CBRE, South Asia.
Prestige Group, a Bengaluru headquartered development company that operates Forum Mall, has adopted a wait-and watch model apart from shortening the lease term for its upcoming shopping centres in the country.
“We are delaying leasing of new properties as many new brands are coming in the country, and we do not want to miss the opportunity,” said Suresh Sunagaravelu, executive director (retail, hospitality and new business), Prestige Estates Projects, India’s second-largest real estate company by market capitalisation. The company will have around 3 million sqft mall space ready by 2018.
In 2015, the Centre allowed the Foreign Direct Investment (FDI) reforms and liberalisation for single brand retail trading and duty-free shops. The move is likely to attract more brands in the country as well as make existing brands expand their presence.
Leading global fashion brands, H&M and Gap, opened their first and second stores in India at Delhi’s Select Citywalk and Ambience Mall, respectively. Other global brands to mark their India entry in 2015 included Juicy Couture, G-Star Raw, Aeropostale, and BCBG Max Azri.
According to an Assocham report in 2015, shopping malls in major cities were likely to witness a decline in footfalls to the extent of 55.58% in Diwali, with the trend of online buying catching up on the back of discounted sales by e-tailers.