With realty prices sliding, retailers are looking to renegotiate rentals signed in better times. In some cases, they are even shutting and relocating stores to offset the drag on profitability. Kishore Biyani, managing director of Pantaloon Retail (India) Ltd, India’s biggest publicly traded retailer, said store rentals are down by 25-50%. “We are renegotiating the rentals in some cases,” he said, but declined to elaborate.
However, Thomas Varghese, chief executive officer of Aditya Birla Retail Ltd, which operates the More retail chain, said while rentals have softened for big stores, they remain unchanged for smaller shops.
The latest to join the pack is The MobileStore Ltd, a venture of the Essar Group that sells telecom products such as mobile phones. “We have signed deals on high rentals a year back and now the rentals are coming down by almost 50%,” said chief executive officer Rajiv Agarwal. “We are renegotiating with the owners and whoever is refusing to revise the prices, we are relocating the store to a viable location having lesser rentals.” The company currently operates some 1,200 stores and plans to shutter 5% of those—primarily in metros—if rentals can’t be renegotiated, Agarwal said. Three stores have already been shut, even as the company plans to add another 600 shops across India, because volumes have gone up, he said.
The company is not alone in walking away from contracts signed at a time when the economy looked better, oil had yet to cross $100 (Rs4,640) a barrel and inflation was in single digits.
Rentals typically are 15% of gross revenues for small properties, 5% for hypermarkets and 7% for departmental stores, said Shubhranshu Pani, Mumbai-based managing director of retail services at realestate consulting firm Jones Lang LaSalle Meghraj.
