Of pincered malls, rental innovation & chary tenants

With the economic downturn raising spectre of defaults and delayed payments by retailers, malls are looking at innovative solutions to tide over their problems.

Mall owners, who are already losing clients as retailers tighten operations and shut non-profitable outlets, are looking at switching to a daily rent collection system.

“We are looking at the option of starting daily rent collection from retailers based on a revenue-share model but we will seek (clients’) inputs before rolling it out. This concept is popular in China, Taiwan and Singapore and could work well in India too,” Anand Sundaram, executive director and chief operating officer, Market City Resources, which owns which owns High Street Phoenix in Mumbai, said.

The matter will be discussed first with the bigger clients and will be enforced if a consensus is reached, he said. But the idea doesn't seem to have gone down well with retailers. Sanjay Bindra, the director of women’s wear company Biba Apparels Ltd, said, “It is a sign of desperation and just shows the lack of confidence the property has in its tenants. It could be an option for a retailer that is not performing. But players like us, who have only good news to share, don’t have to go for this arrangement.”

The concept hasn't found favour with industry analysts either, especially in the current scenario, where sales are weak. Raghav Sehgal, an analyst with Angel Broking, said, “A daily rent collection model doesn't seem feasible even on a revenue-sharing basis as it will mean a lot of logistical and transactional hassles for both retailers and mall owners. We need to wait and watch how this model, if implemented, works out.”

In fact, strict collection systems and inflexibility could backfire on mall owners, as retailers just might decide to close outlets if the pressure gets becomes immense.
Sehgal felt mall owners could go for revenue share on a long-term basis where collections are monthly as is the case now.

“This will mean a win-win situation for both retailers and mall owners in the long run. When retail sales pick, mall owners will benefit, too,” he said.

On the other hand, stores that are still up and running are demanding lower rentals. While some have slashed rentals to zero and opted for revenue-sharing, they have done so only reluctantly. And the sustainability of these models is under question.

Nikhil Chaturvedi, managing director of Provogue India Ltd and its retail infrastructure subsidiary Prozone Liberty Infrastructure, said a mall's business depends on retailers and the situation calls for both parties to work together to beat slowdown blues.
“A mall should do whatever required to help the retailer because they too are under immense pressure,” he said.

But Sheikh Arif, chief operating officer of Ansal Retail, the retail division of Ansal Properties & Infrastructure Ltd that operates 5 malls in north India, doesn't endorse drastic cuts in rents. What the company is doing instead is extending branding and promotions support to client for stimulating sales.

“We are on revenue-sharing model with only a select few retailers and we don't think it is wise for us to offer zero rentals or waivers. We may try and help retailers via branding and promotions. But we can help only to an extent. We too have a business to run,” he said.

Ansal Retail is promoting clients both externally and in different sections of the malls.
Arif said only 3-4 of the 5,000 retailers it has across malls have defaulted on payments.