Though the market for branded apparel is growing at 20 percent, escalating property prices and mall rentals have put the retail expansion plans of brand owners on the backfoot.
Bela Gupta, CEO-retail, Kewal Kiran Clothing, said, "In the past two years, the mall rentals have increased 40 percent, affecting the profitability of the brands and their margins. Despite taking calculative risks, no brand would be able to survive beyond a certain limit with a weaker business viability."
Most brands were doing a balancing act between tapping the growing demand in the market and keeping their balance sheets in check.
Explaining how high rentals were affecting apparel brands, Subrata Siddhanta, business head, Cottons By Century, said, "Real estate prices in Mumbai have shot up from Rs 60 per sq ft to Rs 250 per sq ft. Mall rentals, too, have risen by about 50-60 percent. Currently, rentals constitute about 30 percent of the gross margins. And sales are not expected to rise dramatically."
The increasing demand for branded clothes coupled with higher spending power has prompted branded apparel firms to set shop in smaller cities after due deliberations.
Siddhanta said, "The company is slowing down the expansion in metros and is focusing more on smaller towns as property rates are relatively cheaper. We will book new properties only when there is at least 10 percent price correction."
According to an official from Raymond, the crux of the problem is the availability of prime locations at high streets or malls, which could provide an apt retailing platform to the brands.
The metros are almost saturated while the smaller towns lack good properties, which could be developed for retailing. Bappaditya Basu, general manager (retail), Trammel Crow Meghraj, said, "Currently there is a herd mentality among brands to be present everywhere. Brands are ready to pay high rentals inspite of abnormal price hike in North India. The majority of the malls are mushrooming in north and west India with property rates shooting upto Rs 250 to 300 per sq ft."
Basu added that the brands are stretching their profitability with an anticipation of price rationalisation in the future.
This has also led them to undertake promotional activities like offering discounts and appointing brand ambassadors to convert the footfalls into sales. Another alternative is for like-minded brands to develop a synergy to retail together.
"In-house manufacturing facilities and an established brand name would give us an edge in retail expansion. We are equally optimistic about the franchisee model and are looking for family-owned properties, which will help in subsidising manpower costs," Gupta added.
