Retailers Treading Carefully on Realty Deals and New Store Costs.

Bangalore, March 3

The first signs of a receding recession is being reflected in retailers getting back their bargaining power in realty deals even though they are still taking a longer time to close.

“Retailers will no longer sign rental agreements at terms which do not make commercial sense,” says Mr Arvind K. Singhal, Chairman, Technopak, a management consultancy firm.

Retailers, who expanded because competition did, have learnt their lesson and therefore will not pay more than what their business model can support. Also, with retailers focusing more sharply on the cost of retail space, real estate deals have again become long and protracted.

For per sq ft efficiency, retailers are now toning down their expansion plans. For instance, food retailer Spencer's rationalised its operations by closing down 150 stores in the last year and opening 35-40 stores because of high rentals and wrong locations.

Similarly, lifestyle retailer The Bombay Store opted for expansion through mid-sized stores instead of larger ones, while consumer durable company TTK Prestige shut down or relocated 50 Smart Kitchen stores. This is in contrast to a situation couple of years ago when retailers would “rush” to occupy any available space, says Mr Farook Mahmood, Managing Director, Silverline Realty, adding, “The situation has changed from realtors' yesterday to retailers' tomorrow.”

Retailers, then, ended up opening stores of wrong sizes, adds Mr Zahir Laliwala, Chief Executive Officer, SportXS, a sports gear retailing outlet. “Mall developers now understand the retailers' profit and loss numbers and they have learnt to keep their cost down and expect return on their investment on the longer period.”

Unlike the pre-slowdown period, when valuations drove retailers' expansion plans, 2010 would see more realism, says Mr Sushil Mantri, Chairman and Managing Director, Mantri Developers, which has two malls in Bangalore.

“Both retailers and developers (mall-owners) have become cautious in their approach... while retailers look at business sustainability, developers assess the retailers' track-record and the value-addition they would bring to their malls.”

Rentals and lease values have gone up by 10 per cent in cities like Mumbai with low inventories. On the other hand, critical retail brands are also demanding that space-owners ship in with them in doing up store interiors, says Mr Gaurav Marya, President, Franchise India Holdings.
Bangalore, March 3