Hidden charges at malls a salt rub for retailers

It’s not just obscene rentals that are ailing retailers in these times of economic slowdown.

Even as they rush to renegotiate lease amounts, they’re reeling under a number of hidden charges levied by malls owners in the form of property tax, common area maintenance (CAM), service tax, marketing costs, etc. On an average, these charges inflate the cost of an outlet in a mall by about 10-15%.

Roli Malhotra, manager (marketing and customer care) at jewellery chain Sia Lifestyle Ltd, said there is little clarity on these charges at the time of signing the lease agreements. “Also, the staff costs of the mall (for CAM) are not openly discussed with retailers,” she said. Malhotra said that Sia has had to foot the property tax bill, too. Pradeep Hirani, chairman of Kimaya Studio, a fashion retail chain which has outlets in UB City in Bangalore and Emporio Mall in Delhi, said, “When a retailer decides to open a store inside a mall, he only looks at the rental costs, and to receive numerous bills alongside rental can be shocking. The hidden costs are many — CAM, water supply, chiller plant (for air-conditioning), service tax, etc. There is no transparency on these,” he said.

This is perhaps why Loot India Ltd, which owns the multi-brand discount format chain The Loot, has steered clear of malls. The retailer has 100 stores across tier I and II cities but just one of these is in a mall. Jay Gupta, managing director, Loot India, said the decision to not open stores in malls has been a conscious one. “Along with the rent, I received as many as 5 bills a month for service tax, CAM cost, marketing charges, generator cost and property tax, which should actually be paid by the property owner,” he said.

However, some like Neeru’s Ensembles Ltd, an ethnic womenswear company, don’t mind them as long as the rentals are slashed. Harish Kumar, managing director, Neeru’s Ensembles, said, “We are ready to bear the hidden costs if they lower the rentals by 40-50%. Otherwise we are ready to say goodbye to those malls.”

Many malls also charge for what they call the ‘sinking fund’. The amount of Rs 3-4 per sq ft per month is meant for ‘out of ordinary’ expenses. Sia’s Malhotra said retailers have to pay this non-refundable amount for the entire time they are in the mall.

Arif Sheikh, the head of Ansal API’s retail division which owns Ansal Plaza in Delhi, said mall owners charge only rental and CAM that includes everything from parking to chiller to marketing, water and other expenses. He said the charges are not hidden but are mentioned in the lease agreement and that the mall doesn’t benefit from these charges.

Retailers, on their part, feel it’s the lack of transparency that is the problem, not so much the charges. “It is a transactional issue between the mall and the tenant. There has to be more transparency,” said Hirani of Kimaya Studio.