High rentals at shopping malls are expected to make the going tougher in the speciality retailing sector.Shoppers’ Stop to focus on existing categories.
Companies like Shoppers’ Stop to focus on existing categories
MUMBAI: High rentals at shopping malls are expected to make the going tougher in the speciality retailing sector.
B S Nagesh, customer care associate, MD and CEO, Shoppers’ Stop Ltd said: “Malls are being planned and developed without keeping in mind the retailer. And with the kind of rentals, I don’t think any retailer will ever make money. It just didn’t make business sense. In my observation, going forward, speciality retail will prove to be a tough business.”
Industry experts are of the opinion that there is no outer limit or cost of leasing out retail space. “In fact, it is looked at as occupation cost as a percentage of the overall revenue,” said a senior official of a leading specialty retail company.
“For instance, the lease rentals for a specialty/small store should be around 12-15% of the revenue. However, I know retailers who are paying over 20% making their business unviable,” said the official.
As for lease rentals for the departmental store format, the ideal percentage for an Indian retailer is about 6-7% (between Rs 35 and Rs 50 per square ft except for Delhi and some pockets of Mumbai where it goes to Rs 100 as well). “But currently most of us are running at 8-9%,” said an industry source.
Raman Mangalorkar, managing director, Greenbox Realty (a retail focus real estate developer), said:
“While speciality retail is here to stay in the long run, the general departmental store category will be more vulnerable to the impacts of high rentals, operating costs and margin pressures owing to the market positioning they have to maintain.
Category killers like electronics, furniture, luggage etc at off-mall locations will though will flourish they might feel the impact in the near term,” said Mangalorkar.
Nagesh said Shoppers’ Stop will concentrate on the categories it currently has and will refrain from new additions to the bouquet.
“We are very much on track with our plans for speciality retailing business. However, if you ask me whether there will many more speciality businesses that we will get into, the answer is no,” said Nagesh.
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