Reliance Retail to end leases for UP stores amid lack of clarity

Reliance Retail to end leases for UP stores amid lack of clarity

The retail arm of Reliance Industries Ltd, Reliance Retail Ltd, which last year kicked off India’s most aggressive retail plan, is breaking the leases for at least 100 commercial properties it leased in Uttar Pradesh (UP) after it was forced to close the outlets because of a state directive barring the deep-pocketed firm’s entry in organized retail.

It has already axed about 1,000 jobs in the state and will now snip the leases, as it minimizes expenses amid lack of clarity on its future in the state.

“We are already working it out," said a senior Reliance Retail official, who asked not to be named as he is not authorized to speak to the media. The official said the firm had lined up stores—each ranging between 2,000 sq. ft and 4,000 sq. ft—in seven UP cities, including Lucknow, Varanasi, Bareilly, Kanpur, Allahabad, Meerut and Agra. All the stores are leased with different agreements with different owners, he said.

“Yes, it is happening," confirmed another top Reliance official, who also wished not be identified.

The company fears that its plans to return the stores will face fierce resistance from the landlords. “It’s not going to be easy," one of the officials said. “There will be repercussions as people have invested a lot of money (in those stores)..." Some of the landlords had evicted existing tenants to let space to Reliance.

Reliance Retail suffered its biggest setback since it started its business as the UP government, without warning, asked the company to shut all its grocery stores in the state, charging the retailer with creating potential social tension in the region. Large firms that are investing aggressively in retail, including overseas giants such as Wal-Mart Stores Inc., the world’s biggest retailer, are being targeted by small store owners on concern that deep discounting will put the unorganized sector out of business. This caught the ear of the state government, which has commissioned a study on the impact of modern organized retail.

Reliance had ambitious plans for India’s most populous state as it was planning to invest Rs4,000 crore to open 15 million sq. ft of shopping space, including 250 Reliance Fresh stores, 75 health and beauty outlets, dozens of hypermarkets and consumer electronic stores. The company was targeting 15% of its projected Rs1 trillion in revenue in the next three years from the state. Its business plan envisages an expenditure of Rs25,000 crore over three years. Meanwhile, Reliance Fresh has more than 1 million sq. ft of retail space in 19 cities in the rest of the ­country.

It wasn’t clear what the lease terminations would cost Reliance in terms of money paid as deposits or if it would have to pay compensation to landlords for early termination of agreements.

R.K. Arora, managing director of Supertech Ltd, at whose mall in the New Delhi suburb of Noida Reliance Fresh has leased a store for 10 years, says the company can “discontinue" its lease agreement by giving three months’ notice. “Getting new tenants will not be a problem," Arora said. “So many people are looking for space."