Skyrocketing rents and rising operating costs have compelled organised retail companies to devise cost-efficient strategies for their expansion. Retailers are considering options like going in for revenue-sharing deals or opening independent stores.
Future Group, promoted by Kishore Biyani, is striking revenue-sharing deals with mall developers to do away with heavy monthly rentals. “We are in the process of signing five or six revenue-sharing deals in places, including Cuttack,” said Rajan Malhotra, CEO of Big Bazaar.
The company is also not opening stores at locations where rents have gone through the roof. “We have not started any stores in Delhi’s NCR area in the last two months because rents have risen from Rs 40 per square ft to Rs 150-200 per square ft in a period of two years” Malhotra added.
Vishal Retail, the Delhi-based discount retailer, is opening more standalone stores “Setting up a store in a mall is costlier as mall rents are at a premium,” said Manmohan Agarwal, CEO, corporate affairs, Vishal Retail. By setting up independent stores, it is able to bring down rents to Rs 45-50 per square ft.
Ajit Joshi, CEO and managing director of Infinity Retail, which runs the Croma chain, agrees that the strategy makes sense. He added, “Those dependent on malls for their stores are the ones who are badly hit. Sometimes, malls open late due to various reasons like delay in getting concessions due to which the retailer may also suffer.” Joshi said Croma was going ahead with its expansion. According to reliable sources, it will increase its stores from 18 to about 35 by December this year.
There are various factors that have contributed to the slowdown in retail expansion. Shashi Kumar, chief investment officer at the Ajay Piramal-controlled Indiareit explains why things have gone wrong, “In places like Aurangabad and Indore, 1.5 million square ft malls are coming up. Even in Nagpur, four to five malls of a similar scale are being built. Little thought has been given to catchment areas or tenancy mix. Moreover, the local flavour has not been retained. In short, this rapid expansion has been a very unscientific process.”