The initial euphoria on retailing in India has calmed down in the past 12 months as retailers slowed down and even shut down non-viable stores. To survive and grow, retailers are now looking for cost cutting measures from controlled staff spending to rationalized property rentals of showrooms. Even after a healthy 30% correction on retail rentals, retailers are still finding it difficult to run the show and hence emerged the new business Model – Retailers sharing Revenue with Mall Owners.
Lets first here the Mall Developers. They argue that, they invest huge funds in developing shopping malls by selling units for developing the project. once sold to investors, the mall has no right to give out space to retailers on revenue sharing. Unreasonable land costs have made mall development an expensive
Additionally, realty developers doubt on retailers as they are yet to establish themselves as as totally professional outfits with transparency in operations. They further question if retailers have revenue share agreements with suppliers, multiplex operators, producers / distributors ?
On the other hand, retailers argue that they are fairly nascent industry in India and are paying as high as 12% of sales as rentals compared to 3% in the west. Such exorbitant rentals put pressure on retail margins and thus end the year in red.
Additionally, retailers are concerned that the developer may abandon the mall after construction and sale. A mall owners stake in retailer will ensure more responsibility and participate in mall management and promotions. Revenue sharing will also help retailers expand in untested waters as rent pay-outs will be lower and will be tied to sales.
Ultimately, they need to strike a synergy on which both can bank upon and grow.
Brand Franchising in India on Revenue Share Model