Retailers seek rent correction till full recovery
- India’s lockdown and subsequent restrictions placed due to concerns around covid have forced retailers to relook at their costs
New Delhi: Retailers across product categories as well as restaurants continue to seek lower rentals as they look at curtailing costs and ensuring that businesses reach pre-covid levels of recovery over the next few months.
“Rent corrections will have to stay for a while as business continues to be slightly depressed. The rent market pre-covid was over inflated and some degree of rationalization has come into the market for sure. And we are nowhere near or are ever going to sign the kind of properties we were signing at pre-covid rents," said Riyaaz Amlani, MD & CEO, Impresario Handmade Restaurants. Impresario runs more than 58 restaurants in the country across casual-dining, cafe-bar and other formats.
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The company had to give up five outlets last year. “We intend to replace all of them this financial year—albeit at corrected rentals," he said.
India’s lockdown and subsequent restrictions placed due to concerns around covid have forced retailers to relook at their costs. Many went into rental negotiations with mall developers as temporary store closures and subsequent dip in footfalls and business left them in a lurch.
The pandemic has also prompted landlords to lower rentals as businesses crumbled under the pressure of the lockdown leaving properties vacant. “We are overall seeing 25% to 50% correction in high street rents and about 25% to 40% in malls," said another retailer speaking to Mint on the condition of anonymity.
Now more than before ensuring that every outlet is profitable at a store level is going to be extremely critical, said others. "I'm not going to be lured by the fact that I have a very beautiful or large property available for 20% less than what it was last year. For existing stores profitability will be key," said Sanjay Vakharia, CEO, Spykar. For the retailer rentals are 18% of its retail store costs.
"Covid has done one very good thing for the whole industry: it's allowed us to bring focus on many areas, specifically around costs. The entire industry will surely be very conscious about paying the right rent given retail is one of the biggest expenses for us," he said.
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Retailers said they will be shy of going back to pre-covid rentals till business fully revives. Revenues generated over the next twelve months could dictate their ability to pay rentals, said others.
“So, it's about getting the rental for the kind of revenue we can generate, that's the guiding principle. We'll have to benchmark the kind of revenue we are looking at delivering this year and then accordingly negotiate with our landlords and the mall management, " said Sundeep Chugh, managing director and chief executive officer, Benetton India.
For Benetton, business in December quarter climbed to 90% of pre-covid levels. Chugh said rentals could also be an important consideration while picking future locations for the retailer. “If we were at a particular location and we feel the rental continues to be high and there is a store which is available in the vicinity with a fair rental, then there is a possibility of exploring it. But if you’re at the right location and revenues will take time to settle down then it is better to get into a negotiation with the existing landlord," he said.
Retailers are also contemplating a revenue sharing model as opposed to flat rentals in high streets as uncertainty still looms large over the retail business, said Abhishek Sharma, director, retail, at Knight Frank, a realty consulting firm.
“They (retailers) are willing to occupy but at their own terms, not the terms of the landlord anymore. I think it will take about one-and-a-half years for retail to recuperate," said Sharma.
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