India Retail Center

Mall owners woo retailers with irresistible offers in sluggish market

2012-07-16T00:15:00.000-07:00

Mall owners are being forced to woo retailers by making offers they can't refuse in a sluggish market. While some are slashing rentals by as much as 30%, others are waiving off the minimum guarantee that retailers had to pay, or are offering a rental-free period of three months and a relaxation of lock-in , deposit and notice periods .

The retail real-estate segment in India is currently in doldrums with the retail sector experiencing de-growth of 10% in like-tolike store sales as buyers continue to shy away from spending. This has impacted the amount of new space retailers are leasing.

"There was a time when retailers sealed leases for seven years but now they are looking at a band of six to twelve months. If things do not improve in the next two quarters we will see another correction , something similar to 2008," says Susil Dungarwal, chief mall mechanic at mall consultancy firm Beyond Squarefeet Advisory.

After the downturn in 2008, mall developers agreed to work on a revenue share model with retailers unlike fixed rentals earlier. "Retailers are cautious now as times are getting tougher and developers are wiling to renegotiate since there is a risk in refilling space. It is all about giving breathing space so that brands can perform ," says Ashwin Puri, chief executive officer of Pioneer Property Zone, which manages malls like R City in Mumbai, Pacific Mall in Delhi and Kumar Pacific in Pune.

For example, in the January-March 2012 quarter, Pantaloon Retail posted lowest same-store sales in 13 quarters at 3.6%. Arvind Lifestyle Brands' value format Megamart saw its growth drop from 18% a year to 11% in the same quarter. "Retail industry will be under pressure till the economy rebounds ," says Govind Shrikhande , chief executive officer of Shoppers Stop.

"The retail sector does not expect double-digit growth in same-store sales. The expectation for the year is moderate." To improve profitability from their stores, retailers are cutting down on store sizes. "Retailers are also relooking at their expansion plans and are turning down properties.

There are moving to newer locations to save cost," says Prashanth Sambargi , partner, Mars Realty, a realty brokerage, which has seen a 30% growth in demand from retailers to renegotiate on their behalf .

Mall owners and developers are willing to do anything to get retail tenants in this market. "It is about getting something out of their properties compared to getting nothing," says a senior executive at a Mumbai-headquartered retail company. Retailers are also willing to close non-performing stores. Madura Garments' men's formal wear brand Louis Philippe closed three such stores last year.

"Real estate throws a lot of opportunities but we are very careful now as we want to be profitable or else we cannot run the business. If selection and negotiation goes wrong then it hits the brands hard," says Jacob John, brand head at Louis Philippe.

OFFERS GALORE

Retail realty segment is currently in doldrums with the retail sector experiencing de-growth of 10% in like-tolike store sales After the downturn in 2008, mall developers agreed to work on a revenue share model with retailers, unlike the fixed rental model earlier.

Soaring rents worry retail chains

2012-02-22T05:48:00.003-08:00

Both Indian and international retailers find the challenge of locating suitable commercial space daunting. Now, such space is also one of the most expensive internationally. So much so retailers say the ‘shocking’ and ‘unbelievably high’ property prices savage their rent-to-revenue ratio, making their business unviable.

On an aggregated basis, Indian retail rentals are considered cheap as some pockets command prices comparable to cities in the US, to Tokyo in Japan and to London in the UK, says Nimisha Jain, principal at The Boston Consulting Group India.

Still, most international retailers are willing to stretch their budgets for a highly lucrative retail market as India. Retail analysts say rentals have climbed to 2007 levels again after dipping in between. Premium malls and high streets like Linking Road in Mumbai command significantly high rentals as every premium brand is practically fighting for the same limited space.

This also impacts their rate of expansion. But the retail industry, experts say, is a cash-guzzling business and takes years to break even. The wait for newer players to make a profitable business thus is usually longer. Brands like Miss Sixty are exiting non-viable properties and looking to shift to multi-brand formats rather than expanding under standalone stores. The brand is shutting down its store at the DLF Place Mall , Delhi, saying it is non-viable due to high rentals. The brand has also been scouting for properties on Mumbai’s high street Linking Road for sometime now.

Even as organised retail is in its infancy in the country, there are fewer options for brands that want to open their stores at proven locations, says Niladri Mazumdar, vice-president, sales and marketing, Seiko Watch India. “Currently, retail rentals are astronomical because there are so few options. It is a business reality, you have to hedge your bets and understand that on some places, you cannot invest and keep bleeding.” If rentals had worked out better, the watch company that plans to have ten exclusive boutiques in a couple of years, would have liked to open at least 20, Mazumdar adds.

Last week, French luxury women’s footwear brand Christian Louboutin opened its first store in India at Delhi’s DLF Emporio, followed by American home and lifestyle chain Steuben that recently started its India operations. In the second half of calendar year 2011, the mall had seen rentals appreciate by 10-11% while Delhi’s neighbour Gurgaon had seen rentals increase by 15%, according to a study by real estate services firm CB Richard Ellis. In the last few months, Gurgaon has also seen international brands like Bebe, Steve Madden and WH Smith open shops.

The study also suggests that key locations in Mumbai saw a 15-20% increase in rentals as retailers’ inquiries have increased significantly since the second half of 2011.

The high rentals are a result of real estate demand as well as the demand-supply mismatch of quality retail space. Since 2008, most retailers have initiated renegotiation of rentals while chalking out various models like revenue sharing with property developers. But revenue share where the retailer pays the property owner a percentage of his revenues or a minimum guarantee pre-decided rental (whichever is higher), has only been adopted by 20% of the market so far.

Gudjon Reynisson, chief executive officer of the world’s largest toy chain Hamleys, says that while its Indian partner Reliance Retail has been handling all rent negotiations and scouting for properties, rentals in cities like Mumbai and Delhi were indeed high — sometimes even higher than many international markets. “Rent is a very important part of the equation that all retailers have to look at and at times when they are high it becomes very challenging.

Malls, Malls Everywhere And Nowhere To Go

2012-02-07T04:38:00.001-08:00

The last few months have seen a lot of mid-sized office and mixed-use buildings in Mumbai going under the hammer. Not very surprising, considering the wave of real estate redevelopment that has swept the city. What is so unusual about these buildings is the fact that they are going to be redeveloped into stand-alone retail formats. The plots are just perfect - located inside dense residential areas with abutting sub-arterial roads, and of sizes suitable for constructing hundred thousand square foot spreads on three levels.

This new trend is not confined to Mumbai - almost all cities in India are witnessing it. The reason? Substantial mall space is being built, but only half of it is worth a second glance from retailers. We are still stuck with the mistakes we made three or four years ago - jumping on the bandwagon and creating too many malls without reason. Few understood that building and running malls is a science, and that factors like catchment viability, location, supply benchmarking and mall management matter in their success.

So, we have quite a few mediocre shopping centres with substandard locations in inappropriate catchments, designed experimentally and sold by strata (strata-selling mall space is like issuing a death warrant to the mall). These are ruins of hastily-commissioned projects where no retailers want to come, thus adding to the pile-up of vacant retail space in our cities. To compound this problem, there are very few new launches that can lure retailers on project merit.

The Indian retail industry is healthier than ever, scaling new heights and confident of its markets spread over 53 cities that house more than a million people each. 2011 saw a retail real estate supply of 13.8 million square feet hit the market, with 10.7 million square feet getting absorbed (JLL Real Estate Intelligence Service, 4 Q 2011).

That amounts to 130% of the figures for the years 2009 and 2010 put together. Retailers are in the market again, looking for space, willing to invest with long-term business plans and offering a premium for even half-decent properties.

What they find is a stark market reality - all worthy properties are fully consumed and good properties on hand being leased within the blink of an eye. Delaying decisions by even a few days means diminished hopes of business expansion. There is simply not enough good retail space to sell their wares. It can well be imagined what the scenario will be when FDI into multi-brand retail opens up...

With delays in completion and few retail-conducive projects being launched, it is malls, malls everywhere and nowhere to go for retailers. They have finally decided that enough is enough and have started scouting for stand-alone properties. With their eyes on old mansions, mixed-use buildings and small office blocks in established as well as emerging locations, big-format retailers and giant chains are mandating property firms to broker these deals for them.

High streets were never out of form, but now they are back with a vengeance. Properties which, with retrofitting, can enable retailers to start selling in no time at all are fast becoming precious assets for big retail companies. Even constructing glass cubes on plots that house the 'building next door' is seen as preferable over having to wait for properly located and configured malls to come along. In the world of retail, stagnation is the same as dying and these retailers have no intention of slipping into a market-induced coma. Moreover, these stand-alone stores are the perfect way of giving shoppers a personalised experience that many shopper often find missing in malls.

Retailers return to standalone stores, shun malls

2012-02-07T04:31:00.000-08:00

Faced with delays in completion, poor quality of property and dicey locations, retailers are returning to stand-alone stores, according to a top analyst.

This trend isn't restricted to Mumbai alone, says Ashutosh Limaye, Head - Research and Real Estate Intelligence Service, Jones Lang LaSalle India. He says that in Mumbai itself several mid-size offices and mixed-use buildings are being redeveloped into stand-alone retail formats.

"The plots are just perfect - located inside dense residential areas with abutting sub-arterial roads, and of sizes suitable for constructing hundred thousand square foot spreads on three levels," he said in a note issued earlier today.

The year 2011 saw a retail real estate supply of 13.8 million square feet hit the market, with 10.7 million square feet getting absorbed. That amounts to 130% of the figures for the years 2009 and 2010 put together. Retailers are in the market again, looking for space, willing to invest with long-term business plans and offering a premium for even half-decent properties.

However, retailers are struggling to find viable space.

Limaye says that mall developers have made the same mistakes as three or four years ago-too many units, unscientific construction and sub-standard locations-which is deterring rather than attracting retailers. "These are ruins of hastily-commissioned projects ... to compound this problem there are very few new launches that can lure retailers on project merit," he adds.

A solution that retailers have recently discovered is space on high-street, in mid-sized offices, old mansions, mixed-use buildings and small office blocks, to stay in the fickle consumer's eye. "Properties which, with retrofitting, can enable retailers to start selling in no time are fast becoming precious assets for big retail companies," says Limaye.

Spanish sportswear brand Kelme enters Indian market

2012-02-06T04:21:00.001-08:00

Kelme, the Spanish sports and lifestyle brand, has launched its first exclusive showroom at the West Gate Mall, Delhi. The new outlet offers footwear, sportswear, and sports accessories.

Speaking on the occasion, Luca Gios, Director International Business, Kelme, said: “The success of Kelme in the Indian market will be attributed to two things – creating desirability in a market which is quality conscious and building a young team to manage the brand in India.”

Kelme plans to open 7-10 EBOs and be present in over 600 MBOs across the country in the next financial year. Robin Chaudhary will look after its India operations.

The company also plans comprehensive marketing and promotion strategies making the brand available at 15-20 percent economical price as compared to the leading brands available in India. Kelme footwear are priced between Rs 2,000 and 5,000 and apparel range starts from Rs. 500 to 2,000.

Video games retailer, 'Games The Shop' opens first store in Bangalore

2012-02-06T04:18:00.001-08:00

Video and computer games retailer, “Games The Shop” has opened its first store in Bangalore (eighth in the country) at Mantri Mall. The new outlet will offer gaming softwares, hardware consoles, and accessories.
Speaking on the occasion, Anand Khemani, CEO, Games The Shop, said: “Bangalore is known for its vibrant and vivacious crowd and they would love to experience a gaming specialist store in their neighborhood with the launch of 'Games The Shop'.”
Currently, the retailer has outlets in R-City mall, Oberoi Mall, and Infiniti II mall, Mumbai; Korum mall, Thane; Express Avenue mall, Chennai; and Inorbit mall and Pacific Mall, Pune.
Games The Shop sells games on platforms such as PC, PS3, PS2, PSP, Xbox 360, Wii, and Nintendo DS.