Mall owner plans daily rentals as cushion against defaults

Mall owner plans daily rentals as cushion against defaults
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First Published: Sun, Mar 22 2009. 11 04 PM IST

New approach: A file photo of High Street Phoenix in Mumbai. The mall owner plans to beat rising defaults by installing software that will be linked to the sales counters of retailers who agree to sha
New approach: A file photo of High Street Phoenix in Mumbai. The mall owner plans to beat rising defaults by installing software that will be linked to the sales counters of retailers who agree to sha
Updated: Sun, Mar 22 2009. 11 04 PM IST
Mumbai: In a bid to protect itself against defaults by tenants, Phoenix Mills Ltd plans to charge daily rentals from at least some of the 120 retailers who have taken space in its sprawling shopping hub in central Mumbai.
Weak revenues have already ensured that a growing number of retailers now prefer to give mall owners a share of their monthly collections, rather than a fixed rent. The revenues are usually shared in the first week of every month. Phoenix Mills hopes to make it a daily occurrence.
New approach: A file photo of High Street Phoenix in Mumbai. The mall owner plans to beat rising defaults by installing software that will be linked to the sales counters of retailers who agree to share daily revenues.
The mall owner plans to install software that will be linked to the sales counters of those retailers who agree to share daily revenues, and thus allow it to track how much they earn every day.
“We are in the final stages of negotiation with (Singapore-based) Wincor (Nixdorf Pte Ltd) to get the software solutions which would support both the back end and front end,” said Anand Sundaram, executive director and chief operating officer of Market City Resources Pvt. Ltd, adding that many retailers are delaying rental payments while some are defaulting.
Market City is a 100% subsidiary of Phoenix Mills, and manages the mall’s operation. Phoenix Mills owns around 650,000 sq. ft in Mumbai, and is adding a high street section, Palladium, of around 300,000 sq. ft and 70 retailers later this year on a revenue-sharing model.
Surprisingly, though, even big name retailers at Phoenix Mills are unaware of the proposed move.
Kishore Biyani, chief executive officer of Future Group, which owns retail chains such as Pantaloons and Big Bazaar, said, “We have not yet been intimated of any such move and are not aware of what Phoenix is planning to do.” Phoenix has both a Pantaloons and Big Bazaar on its premises.
Revenue collection on a daily basis is not very popular globally, even though it is used in China and Taiwan, said Anuj Puri, chairman and country head at the Gurgaon-based money management and services firm Jones Lang LaSalle Meghraj, or JLLM.
“We are working on the modalities of how to do it, and since we have some component of revenue sharing with all the retailers, it would work,” said Sundaram.
Sundaram added that the company would also offer cash management services to retailers as part of the deal. “We will now try and link up the computers and will also offer cash management services to retailers. We are also considering if we can mange the credit card swipe machines in the bargain and provide retailers extra services as well.”
Even as Phoenix Mills tries out a daily rentals arrangement, renegotiations of rentals continue across the country, forcing mall owners to look for alternative solutions.
In north India, around 10% of retailers are either delaying or defaulting, said Arif Sheikh, chief operating officer of New Delhi-based Ansal API, a leading mall developer. “There are a few who are defaulting across the malls as they are not making money,” he said, adding that about 70 mall developers meet every Saturday in Delhi to discuss which retailers are expanding, those that are defaulting and other issues of the fraternity.
“The representatives collectively decide on how to deal with the defaulters and what extra benefits should be given to retailers, who are doing well,” Sheikh said.
Kumar Rajagopalan, CEO of the Retailers Association of India, a national industry group, said retailers were not necessarily at fault. “Retailers delaying payments is not deliberate. What can they do if the sales don’t pick up?” he said.
But Sheikh is more sceptical. “Most of the retailers come to us and say that they want to do business on revenue share. The moment we say it’s fine but then we will connect your computers through our servers and also connect your warehouse, they are scared and 90% back out as they are scared that their turnovers will be exposed,” he said, adding that “we are in the business for the last 10 years and we know how the pilferage is done and what are the pitfalls”. Of the 5,000 retailers operating out of the 1.8 million sq. ft of shopping area run by Ansal API, Sheikh said only 35 are on revenue sharing.
Sundaram, however, recommends a more flexible approach. “There is no point pulling (up) the retailers for delaying payments. Rather, mall owners should think of innovative ways to tackle the situation,” he said. “If the sales are really not happening and consumption is (in a) slump, how can they pay us? So (it is) better (to) help the retailers on how to drive sales and be a partner with them rather than just blaming them.”
Under the new model Phoenix is designing, the system will collect each store’s turnover and credit it to a bank account. At the end of the day, the bank sends a proportionate share to the mall owner. Earlier, the rents were collected from retailers on the first week of every month.
Shubhranshu Pani, president of JLLM’s retail services, said daily collection of payments from retailers is a good idea and would help both parties, as retailers would not have to pay out-of-pocket if sales were low, while mall owners could de-risk on delays and defaults on payment. “The only thing needed is the efficacy of the model,” he said.
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First Published: Sun, Mar 22 2009. 11 04 PM IST