Steep realty costs give hiccups to retail boomers
Industry analysts say the shortfall in space is so acute, India needs around 400 million square feet of real estate, reports Archana Khatri.india Updated: Aug 08, 2007 02:52 IST
All that talk of Indian retail bigwigs may gobble up mom-and-pop stores around the corner may not turn out to be true after all!
Industry analysts say the shortfall in space is so acute that looking at the current growth of 25 per cent in the retail industry, India needs around 400 million square feet of real estate. But the costs are not working out.
Looking at the current developments, in 3 to 4 years, not more than 150 million square feet will be available. Retail space is costing 200 to 300 rupees per square foot per month, against Rs 150-225 a year ago, and that is bleeding most of the retailers. The 25 per cent appreciation per year threatens profit margins.
In textile and clothing, 6-8 per cent of revenues is marked as profit margin. Likewise, 2 to 4 per cent of revenues in food and 12-15 per cent of revenues in luxury goods are considered as profit margin. “Most of the retailers are bleeding,” says Arvind Singhal of management consulting firm KSA Technopak. “The Centre talks of mom-and-pop stores being affected by big retail brands. That is not true. The realty costs are so high that it is in fact the controlled rent that will protect the mom-and-pop stores.”
Even the players who delayed their launch but had booked the space have not escaped the high costs on account of their prior commitments on rentals. “Availability and affordability have become the core challenges for the growth of the retail industry,” Rajan Mittal, managing director of Bharti Enterprises, told a recent business seminar.