Retailers that have revenue sharing arrangement with malls for rental are seeking lower payout even as multiple states shut down shopping centres and people stop venturing out to public places, four senior industry executives told ET.
Leading retail chains including Reliance Retail, Future Group, Tata group firms, Spencer’s Retail, Shoppers Stop and Landmark Group are approaching malls for exemption or rebate in rentals to overcome a massive hit on sales due to the novel coronavirus scare.
Retailers that have revenue sharing arrangement with malls for rental are seeking lower payout even as multiple states shut down shopping centres and people stop venturing out to public places, four senior industry.
Future Group on Monday called for a meeting with the leadership team across its retail formats and decided to send letters to malls from Tuesday while several retailers have already sent letters to mall operators, executives said.
“We are telling the malls which are shut or have skeletal footfalls that we won’t be able to pay rent,” a top executive of one of India’s largest department store chains. “For others, we are asking for reduction in revenue share.”
Harkirat Singh, CEO of Woodland, said the footwear brand is asking for 10-20% reduction in rentals till the situation lasts as footfalls are very less in malls, with cinemas closed.
According to the industry executives cited earlier, some of the large retailers have also started debating amongst themselves on how to handle employee cost and salaries as their revenues have come down by up to 50% since last week.
CEOs of these firms are discussing this issue among themselves in Whats App groups, they said.
To minimise the impact, some retailers may ask employees to adjust their leaves with the period of shutdown. Harsher steps may be taken in case the scenario persists, the executives said.
Kumar Rajagopalan, chief executive of industry body Retailers Association of India (RAI), said a shutdown will land retailers in huge trouble considering 85% of their total cost is fixed such as rental, employee salary and interest outgo. “With a shut down for 5-6 days, all profit is wiped off from the books. Beyond six days, it depletes cash reserves,” he said.
Rajagopalan said retailers have to see how to survive since there is still no clarity how long this scenario will exist. “As far as rentals, we expect malls and retailers will come into a win-win proposition since both need each other,” he said. “We also have to approach the government on the interest outgo and tax component payouts.”
RAI expects the government to announce special relief measures to ease fund flow situation and to compensate for expenses like salaries.
A Reliance Retail spokesperson declined to “comment on direct business impact” due to company policy, but said the company is “complying with and supporting all central and local state government regulations to minimise the human impact of the virus”.
A spokesperson of Tata-owned Trent Ltd said the company has “no specific comments to offer with respect to any concession sought from malls or other landlords at this time” even as it is closely monitoring the situation as it is evolving on a daily basis.
Shoppers Stop, too, declined to comment while emails sent to Future Group, Spencer’s Retail and Landmark Group did not elicit any response.
Around 60% of all retail rentals in the country are fixed while the balance is mostly revenue sharing deals with the tenant. Some contracts are a hybrid of fixed payment plus revenue-sharing.
Almost all large cities have shut down malls and have only allowed food-and-grocery stores to operate. However, stores in high streets are still functioning.
Abhishek Bansal, executive director of Pacific Mall in West Delhi, said the mall has received some emails from retailers. “They are asking for rebates,” he said. “Everybody has their own version, so we have to sit together and figure out a solution and hand hold each other.”
Yogeshwar Sharma, executive director at Select Citywalk Mall in New Delhi, too, confirmed similar requests from retailers.
“We have to see how it pans out…it’s a little too early,” he said. “There are different scenarios. If the mall is shut then it’s a different decision. If the movie is closed, but mall is running then it is a different decision. So it is not easy to decide on such situations so early.”
Sharma said retailers have already paid their rents for March and for the next month they will pay between April 7-10.