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Mall developers wait for clarity as retailers push for modifying rent agreements

Most retailers are anticipating a scenario where discretionary consumer spends will take months to recover. (Pradeep Gaur/Mint)Premium
Most retailers are anticipating a scenario where discretionary consumer spends will take months to recover. (Pradeep Gaur/Mint)

  • Large retailers are appealing to mall developers to switch to a revenue-sharing agreement till the end of December
  • Mall developers said they were open to discussions with tenants, but were yet to reach any decision as things remain extremely uncertain

NEW DELHI : Mall developers and retailers are yet to find common ground on negotiating rentals, considering the business uncertainties owing to the countrywide lockdown.

India’s non-food retailers, such as apparel, footwear and home décor stores, have been in a bind since the government started imposing district-wise closures in mid-March, and malls were asked to shut down, barring grocery outlets.

With the lockdown unlikely to lift anytime soon, non-food retailers are grappling with zero revenue, anticipating a scenario where discretionary consumer spends will take months to recover.

Rakesh Biyani, joint managing director, Future Group, said several large retailers are appealing to mall developers to switch to a revenue-sharing agreement till the end of December.

“It’s an appeal to mall developers, to landlords to come and work together on how to restructure and rescue the retail business as we come back to the post-covid-19 world. We are hoping that things will settle down over the next three to four months, and take another three to four months to limp back to normalcy," he said.

“We are asking malls to let go of minimum guarantee for the period of the lockdown and probably come to revenue sharing for the next three months. In the end, malls have to survive, too," said Akhil Jain, executive director, Jain Amar Clothing, which manufactures and retails women’s fashion wear brand Madame.

“I don’t think any minimum guarantees will apply anymore. We will have to work on a pure revenue share basis," said Rohit Aggarwal, director, Lite Bite Foods, which runs several brands of restaurants across malls and high streets.

Others, such as Woodland, said they have not made any advance rent payments to landlords for April. “We are trying to talk to many of our landlords. Some are agreeing to either reduce or waive off rentals," said Harkirat Singh, managing director, Aero Club, which owns the Woodland brand of clothing and footwear.

Mall developers said they were open to discussions with tenants, but were yet to reach any decision as things remain extremely uncertain, with the three-week lockdown likely to be extended.

“For malls, rentals are the only earnings we have. And our costs are also fixed, such as loans, assets, LRD on books—a lot of our rents go to service that debt. We have to pay property tax and pay statutory dues, like minimum electricity bills, and even pay some of our housekeeping staff," said Pankaj Renjhen, chief operating officer, Virtuous Retail, which operates several malls in India.

Renjhen said developers are open to listening to retailers, but are yet to take a call on the future course of action.

“We are not even thinking about making any commitments right now because things are changing daily," said the head of a large mall developer in Mumbai on the condition of anonymity. “Retailers have been writing for support—but at this stage we have no answers, we have told them we will get back at a certain time."

Naveen Nandwani, managing director, commercial advisory and transactions, Savills India, said that retailers and mall developers are exploring various models, such as revenue sharing or substantial rent reduction, to mitigate the business loss.

However, Nandwani said the challenge for mall owners will be on how to manage their debt, as repayments are generally scheduled and determined well in advance.

“While some retailers have cited force majeure, few others have requested to waive off rentals. Given the unusual circumstances, retailers are likely to get some relief as the retail business works mostly in partnership with mall owners and the retailers," Nandwani added.

Malls are still waiting for some clarity on the lockdown from the Prime Minister this weekend before they can decide their future course of action, said Amitabh Taneja, founder chairman, Shopping Centres Association of India.

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