Mumbai: Reliance Retail Ltd, the retail subsidiary of Reliance Industries Ltd, opened on Sunday, a hyper-mart in Santa Cruz in a building developed by the company itself.

The company plans to develop at least two dozen such properties and malls in next two years. The retailer will occupy 70%-90% of the space in these properties and lease the rest to food and beverage restaurants, banks for automated teller machines, and other retailers.

The mandate for managing and leasing space at its properties has been given to Jones Lang LaSalle (JLL), a property consulting firm, said two people directly involved with the deal who did not want to be identified.

Mukesh D. Ambani, chairman of Reliance Industries Ltd. Photo: Bloomberg

A Reliance Retail spokesperson declined comment for the story. A JLL spokesperson too declined to make any specific comment, but said Reliance Retail is one of the company’s large clients.

The first property, at Santa Cruz, Mumbai, houses a hyper market. By December, the company will launch three more, in Mumbai, Pune and Jaipur.

Reliance Retail is looking at two different models of self-developed properties—a large format of 1.75-2.5 lakh sq. ft and a smaller format of 60,000—80,000 sq. ft. The large malls will have a hyper market, department store, some of the company’s own specialty formats such as Reliance Digital and Reliance Footwear, a multiplex, food court and at least 30 to 35 retail stores to be leased to other retailers. The smaller buildings will have fewer formats with only about 10% space being leased out to other retailers.

Reliance Retail posted a net loss of 348.13 crore in fiscal 2011 on revenue of Rs5,019.71 crore. In the first quarter of fiscal 2012, the company invested Rs250 crore in the business, according to a July report from Antique Stock Broking.

In July, the company also brought in top executives from Walmart China—Rob Cissell, former chief operating officer of Walmart China as chief executive-value formats, and Shawn Gray, former vice-president, Walmart China, as chief operations officer—to turnaround its retail business in India.

According to a 26 September report from Antique Stock Broking, Reliance Industries’ retail business is spread across an estimated eight million sq. ft space and is expected to increase to 9.2 million sq. ft by end-fiscal 2012.

India’s largest listed retail company, Pantaloons Retail (India) Ltd (PRIL), with Big Bazaar and Food Bazaar retail chain formats has 15.5 million to 16 million sq. ft and plans to add 9 million sq. ft over the next three to four years, said a PRIL spokesperson.

The $28 billion (around Rs1.4 trillion) by revenue organized (or modern) retail industry accounts for 6-7% of the overall retail trade in India. By 2020, it can double or even treble its share, depending on the economic environment, a February report put out by the Boston Consulting Group and Confederation of Indian Industry said.

Real estate poses a challenge for retailers. “For developers, retail is less remunerative as it is not able to pay the same price as commercial or residential and hence there is a moderation in creation of retail space," said Sumit Dabriwala, managing director, Agre Developers Ltd, a Future Group company.

Agre currently has six properties spread across 900,000 sq. ft in which the Future Group’s retail businesses occupy approximately 50% of space.

Over the next one year, Agre plans to add three malls spread across 7,50,000 sq. ft.

The mandate at Agre is “a development play", which is the role of a developer as opposed to that of a retailer, said Dabriwala.

Retail is a capital-expensive business and the property costs as percentage of total costs are among the highest in India compared with other economies, said Abhishek Malhotra, partner, Booz and Company (India) Pvt. Ltd. Not all retailers have deep pockets to develop their own retail malls, he said. An increasing number of retailers are partnering with real estate builders and mall developers through revenue-sharing deals for their upcoming projects.