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Rediff.com  » Business » Plunging sales, soaring rentals see retailers quit malls

Plunging sales, soaring rentals see retailers quit malls

July 18, 2008 01:46 IST

ETAM, the French lingerie brand that has a joint venture with Kishore Biyani's Future Group, recently pulled out of Palm Beach Galleria mall in Navi Mumbai, together with six other retailers such as grocery chain Foodland Fresh and Manoranjan sarees.

Reason: lower footfalls in the mall and high rentals charged by the developer.

In fiscal 2008, ETAM has so far closed four stores, all in malls, in cities such as Mumbai, Delhi, Surat and Ahmedabad, to save on exorbitant rentals.

ETAM is not an exception. Caught between lower sales and higher rentals, many more fashion, apparel and accessory retailers, among others, are either closing stores and moving to more economic locations.

According to international property consultancy Jones Lang LaSalle Meghraj, the number of retailers quitting malls has gone up 50 per cent in the last two to three years.

A cross-section of retailers told Business Standard that footfalls have dropped 20 to 25 per cent in the last six months in most malls in the country.

Retail rentals in Linking Road in Mumbai, South Extension in Delhi and Brigade Road in Bengaluru have risen 50 per cent in the past three or four years, taking the rental share of sales from 10-12 per cent to 40 per cent.

"Customer inflows in many malls and locations are making it unviable for us to do business, so we thought it is better to close the store there. Besides, property prices have also gone up drastically,'' said Jaydeep Shetty, chief executive officer of ETAM Future, which has decided not to pay more than 20 per cent of its sales as rent.

Shetty added that in the past two weeks he had seen an 8 to 10 per cent dip in customer inflows. "In the past seven to eight months we have not booked any new properties. We are waiting for property prices to come down. How can we pay all our sales as rentals?" Shetty asked.

In Mumbai, most big developers are favouring office complexes to retail malls, which earn higher rentals. Future Group, which bought landmark Crossroads from the Ashok Piramal Group, has converted a part of the mall into office space.

DLF, the country's biggest developer, is thinking of building an office block in its upcoming retail complex in Lower Parel, which was originally planned as a futuristic retail complex.

The National Capital Region has also seen the exit of retailers in the recent months with outlets such as Tuscan Verve and Maya's Toy Store moving out of DLF City Centre owing to poor sales.

Retailers in Mumbai and Delhi are not the only ones to be impacted. Poor sales and high rentals are pushing retailers out of malls in Bengaluru, Hyderabad, Kolkata and Lucknow too.

For instance, Spencer's, part of the RPG Group, has shifted 30 of its stores in the last one year in West Bengal, Kerala and Karnataka to other locations due to high rentals and lower footfalls in the places where store economics was not working out.

Big malls in Bengaluru, the country's IT capital and home to wealthy techies, is seeing vacancy levels of 50 to 90 per cent. Eva Mall on Brigade Road, Bengaluru's high street, has seen the closure of all its retailers and the mall owner is re-drafting sub-lease agreements with new tenants.

Purva Pavilion, in Church Street, has been half empty for the last four years and Sigma Mall, on Cunningham Road, has seen 50 per cent of small stores moving out.

Raghavendra Kamath in Mumbai
Source: