New Delhi: Indian retailers and reality firms are increasingly hopping on to the idea of revenue sharing model to beat the recession blues.
“It is definitely a new step and direction. As the business environment changes, new business models like revenue sharing will evolve, particularly when infrastructure and retail are going through an imbalance and critical situation,” Select City Walk director Neeraj Ghei told the agency.
Due to uncertain economic condition, most retailers and developers have scaled down their expansion plans in the last few months. Besides, high rentals have made properties unviable.
FMCG player Dabur, which had recently ventured into the retail business through its NewU stores, is also in favour of the model to beat back the slowdown in the sector.
“Dabur had ... tweaked its retail business plan in view of the changed market conditions. Under this, we are now increasingly entering into a revenue share arrangement with landlords instead of fixed rentals,” Dabur India chief executive officer Sunil Duggal said.
He said all the 12-15 new outlets which the company is planning to open across the country will be adopting this model.
Duggal said the new model has started paying rich dividend and has halved the losses of the fourth quarter 2008-09 from the retail business.
Large format chain V-Mart managing director Lalit Agarwal, who currently operates 53 hyper markets, said the company has already adopted the model in two of its stores.
“It is specially useful for retailers in maintaining outlets where the level of profits and footfalls is below average. We are ready to expand it to some more stores,” Agarwal said.
While companies declined to disclose the percentage of sharing agreements, sources said it could be around 10 to 15 % depending on individual retailers.
“We have adopted two methods to ensure sustainability of our stores — relocation of some of our unviable stores and going for revenue sharing model in case of some others,” Vishal Retail Group president Ambeek Khemka said.
Global consultancy Ernst & Young said the revenue sharing model might very well prove to be the trend in future.
“Retailers and real estate players have no other choice but to adopt revenue sharing... It is win-win for both the sides and it might become a permanent fixture. Most of the retailers are likely to adopt it,” Ernst & Young Partner and Industry Leader (retail and consumer product practice) Pinaki Ranjan Mishra said.
“The model is based on transparency. The earnings are more if the footfalls and sales rise, and the profit is shared,” he added.