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June 17, 2016
Raghavendra Kamath, Business
Standard
Mumbai, 17 June 2016
To drive footfalls and attract
brand value, mall developers across the country are rolling out the red
carpet for prominent chains.
Recently, H&M signed a lease agreement with a Hyderabad mall
developer, wherein the latter gave the Swedish retailer six months
rent-free, promised an investment of Rs 2.5 crore on fit-outs (a term
used to describe the process of making interior spaces suitable for
occupation) and a 30-year lease, according to a source. This was over
and above the fit period of three to four months.
According to sector experts, department stores ask and get a rent-free
period of three to four months during which they do fit-outs, and get a
lease period of nine-odd years.
According to the same source, Mumbai-based Inorbit Malls has committed
to spend Rs 12 crore on fit-outs and interiors on H&M’s
upcoming stores in Mumbai, Hyderabad and Bengaluru. Inorbit’s public
relations agency did not want to comment.
“They (H&M) say they follow a standard format in signing deals
across 4,100 stores worldwide. If a mall developer is not comfortable
on the terms, they are ready to search for others,” said the source. An
H&M spokesperson said: “We never comment on rumours or future
expansion plans.”
Yogeshwar Sharma, executive director at Select Citywalk, which houses
both H&M and Zara, says they gave a rent-free period of six
months as H&M was new to the country and it would help the
brand to settle down. However, he denied the mall spent money on
fit-outs and interiors.
Sharma said the mall had given a rent-free period of four and a half
months to Zara when it opened in the mall. “Indian brands do not
enforce longer rent-free periods,” he said. Adding that in the longer
view of the mall, they sign 30-35 year leases with global brands.
A Zara spokesperson said: “We cannot comment on our commercial
relations.” Sources said H&M had worked out a special revenue
sharing deal with Phoenix Mills for two of its upcoming stores in
Mumbai. Though there is a buzz that Phoenix Marketcity in the Kurla
area had paid for fit-outs of Zara, Rajendra Kalkar, president-west at
Phoenix denied this.
Recently, Future Group’s Big Bazaar vacated its premises in High Street
Phoenix and H&M is set to open its 30,000 sq ft space on the
same place.
“We give the same treatment for all good brands and there is no
preferential treatment for any,” Kalkar said, adding every deal was
based on commercial negotiations and different from each other.
Added Mukesh Kumar, senior vice-president at Infinity Malls:
“International brands ask for capex on fit-outs and interiors. Some
agree to it and some do not.”
Devangshu
Dutta, chief executive at consultancy firm Third Eyesight, said
international marquee brands are seen as crucial anchors that can drive
high footfall to malls.
According to estimates, footfall at malls are down 20-25 per cent in
the past couple of years, due to economic downturn and onslaught of
e-commerce. Correspondingly, occupancy costs have also come down by
about 15 per cent. 
“Zara and
H&M have already demonstrated the excitement they are able to
generate, not only at launch but the traffic they are able to sustain
over time,” Dutta said.
As far as
recovering the income lost during rent-free periods or co-investment in
initial store fit-out, developers would be working that into their
commercial mix, and looking to recover that from other tenants or to
amortise it over a period of time, he added.
Susil Dungarwal, chief mall mechanic at Beyond Squarefeet
Advisory, a Mumbai-based mall management company, said despite the
terms and conditions, global brands were choosy about where to go.
“They go to a mall only where the latter adds value to the brand,” he
said
Mall owners, he went on, believe they’d be able to recover the
investment on fit-outs and interiors in a few years, as the new brand
will add value to its tenant mix and offer customers a new brand,
impacting in better rental realisation from other tenants, too.
Many malls had shut down in Mumbai, Bengaluru and other cities in the
past couple of years, due to low footfall and business. Beside Nirmal
Lifestyle in Mulund, Neptune Magnet Mall in Bhandup and Centre One in
Vashi, malls that have closed in Mumbai include City Mall and Mega Mall
in Andheri, and Dreams Mall in Bhandup. Kohinoor Mall in Kurla is yet
to become functional.
Eva Mall on Brigade Road and Sigma Mall on Cunningham Road in Bengaluru
have shut shop. Navi Mumbai has seen Gold Souk Mall, Wedding Mall and
Palm Beach Galleria converted into office complexes or showrooms for
automobile companies.
(Published in The Economic Times)
