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Retailers look for fortune at bottom of pyramid

Posted by retailigence on January 12, 2009

NEW DELHI: Major retailers around the country, who had adopted a ‘wait and watch’ policy till sometime back in the hope of real estate prices coming down, are now back in action. While on one hand, retail majors are pressing developers to go in for revenue sharing model along with providing other freebies, most of them that SundayET spoke to say that action will now shift to tier II & III cities.

Says Sanjay Dutt, CEO (business) Jones Lang LaSalle Meghraj; “In 2009, retailer brands will look at tier II and III cities. Luxury brands, however, will stick to metros. Pan India mall developers will look at more practical rentals in 2009. High streets may see consolidation with a high possibility of a revenue-sharing model in terms of the overall cost-to-retailer on many high streets. We have seen a decisive scaling up in transactions in the hypermarket category.

The demand is clearly higher for stand-alone high street locations rather than mall-based locations. This year is expected to be a year of consolidation for Indian retail sector. As a result of adoption of best practices and restructuring of business models by the retailers, organized retail is expected to realign itself to the market conditions and create new areas of growth in 2009.”

Future Group, the largest retail company in India, that has a presence of about 11 million sq ft plans to expand to about 30 million sq ft by 2011. But the retail space, the company says, was already finalised sometime back.

Says Kishore Biyani, CEO of Future Group; “So far there were no deals happening. Now suddenly there is activity being seen. We are also looking at striking new deals at a few places. Seeing the condition of real estate market, even developers are willing to negotiate now. We plan to expand our presence to at least 100 cities and the focus is now tier II and III cities.”

He feels it will be a win-win situation for both the retailers and developers. Future Group’s Big Bazaar aspires to be present in all the cities with a population of more than three lakh. They have stores in cities like Chandigarh and have recently opened a store in Nashik.

According to industry sources, the retailers are not only in negotiations on the fresh deals but the existing deals are also being discussed again. Brand House Retail (BHRL), a subsidiary of Mumbai based S Kumar’s Nationwide, has so far 700 stores across India and plans to open at least 400 more this year.

“With the situation changing, developers have realized that its no point charging the tenant what he can’t pay. Property prices coming down have ensured that our plans are on track,” says Tarun Joshi, MD, BHRL.

Developers, who till sometime back were not ready to even negotiate prices, are now offering freebies to attract tenants. According to industry sources, majority of the developers across the country have lowered the common area maintenance charges that include facilities like air-conditioning, toilets and general space upkeep. In fact this itself constitutes almost half of the rentals paid.

Says Ambeek Khemka, president, business development of Vishal Retail: “The situation has reversed now. There is more space in market than the demand. The developers don’t want vacant space in their malls as no one wants to be in a mall with low footfalls.”

Ajit Joshi of Infiniti, which runs the Croma electronics retail chain says, “Developers have accepted that they cannot dictate terms any more. Both retailers and developers are now arriving at an understanding that is beneficial for both the parties involved.”

According to a recent Cushman & Wakefield report, in certain micro-markets many retail spaces saw conversion into office space for quick revenue returns due to continued and increasing demand for office space. This trend is expected to continue in the coming few quarters too.

Sources :- Economic Times


2 Responses to “Retailers look for fortune at bottom of pyramid”

  1. I think you are thinking like sukrat, but I think you should cover the other side of the topic in the post too…

  2. I am amazed with it. It is a good thing for my research. Thanks

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