Retailers try new ways to counter soaring rentals

Fashion retailer ETAM Future, a joint venture between the Future Group and French retailer ETAM, has closed three shops in Delhi, Surat and Ahmedabad owing to high rentals.

For the same reason, Liberty Shoes has put plans to launch its high-end brand “Pairs” on hold.

Indiabulls, the new entrant in retail with its brand Trumart, recently closed five stores, one each in Thane, Jaipur and Pune and two in Ahmedabad. The company has opened five new stores (two each in Ahmedabad and Pune and one in Jaipur) with better deals with developers.

Sky-high rentals are forcing retailers to explore new ways to stay afloat. Many have done the obvious thing by shifting to cheaper locations or simply downing their shutters. But others are renegotiating deals with developers to ensure business sustainability.

New deals like longer “rent-free” periods, no “lock-in” clauses in agreements and revenue-sharing deals with developers are becoming common.

“Today, 90 per cent of retailers are not making money. Many of them are earning only half of what they should make to break even. Zooming realty costs is the main culprit,” said a property consultant.

A cross-section of retailers Business Standard spoke to said rentals should account for 10 to 12 per cent of sales to make business sense but now make up 20 to 30 per cent of sales in many cases.

“We have decided not to pay more than 20 per cent of our sales as rent. How can one pay rents that are equivalent to total sales in some high streets?” said Jaydeep Shetty, chief executive of ETAM Future Fashions.

Retailers have started bargaining for more with developers. “We do not sign up for a lock-in period. If you do not make money in a place, what is the point in staying there,” said Subir Ghosh, chief executive of music and lifestyle retailer Planet M.

Most retailers sign up for three-year lock-ins that require them not to vacate the premises in that time-frame.

Revenue-sharing agreements are also catching up as footfalls wane in many malls in the country. French brand Lacoste has already opted for such arrangement with three of its stores.

“As our occupation costs go up, the revenue sharing model can help sustain operations, especially in high streets,” said Vikas Gupta, managing director of Lacoste India.

Retailers that are unwilling to opt for revenue sharing are looking at new retail formats. Arvind Brands, for instance, plans to launch multi-brand stores for its international brands.

“Multi-brand outlets are cost-effective since they make a 10 to 15 per cent difference in sales per square foot. It will also help improve footfalls because many brands are available under one roof,” said J Suresh, chief executive of Arvind Brands.

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