Global luxury brands call the shots as malls rewrite retail rules

Written by Kirtika Suneja | New Delhi | Updated: Mar 10 2014, 14:43pm hrs
Mall-retailThe clutter of malls, plus the bigger threat of online retail, is forcing mall owners to devise strategies.
When Spanish brand Zara opened its first store in Delhi's Select Citywalk mall in 2010 it was desperate to get there it paid an advance security deposit for the space. Today, when Zara signs up a contract with a mall owner anywhere in the country, the latter provides fit-outs and floorings over and above the revenue-sharing rental agreement.

Nothing succeeds like success, and mall owners are waking up to this reality by offering special benefits for big brands. The clutter of malls, plus the bigger threat of online retail, is forcing mall owners to devise strategies and get hold of such 'anchor tenants'.

The idea is to offer higher lease periods to premium international brands. Fashion retailers like Zara, Mango, Promod and Aldo have recently signed up lease agreements for up to nine years in some upcoming malls, which would have otherwise been four years for kidswear brands or three to six years for perfume retailers. The upcoming DLF Mall of India in Noida, for instance, has given six-year lease contracts to smaller shops whereas, the corresponding lease period for large and international players is nine years. Pacific Mall in west Delhi has chalked out a similar strategy for different kinds of brands.

Analysts say the strategy is a throwback to the past when, depending upon who needed whom, concessions were granted or premium extracted. Zara is a case in point.

Similarly, at one point of time, mall developers in Raipur in Chhattisgarh desperately wanted KFC and Pizza Hut to set up shops in their properties, for which they even offered freebies. There was a time in Delhi too, say analysts, McDonald's used to get space on the ground floor due to its exclusivity tag, which is wearing out now.

We are planning short-term lease periods between five and six years to weed out less popular brands, while those, like Forever 21, would get longer terms. Also, as we work on the revenue-sharing model with brands where we get anywhere between 8% and 12% of their sales, our share is usually on the higher side when it comes to big brands, says Abhishek Bansal, executive director, Pacific Mall.

The vanilla brands or smaller shops have six-year leases; only a few international or big domestic brands have long-term agreements. It depends upon the kinds of brands and their popularity, says Pushpa Bector, senior vice-president and head (leasing and mall management), DLF Mall of India, which is set for launch later this year.

Hypermarkets, multiplexes and international brands are anchor tenants for malls which attract crowds besides adding value for them. Hence, they get easier leasing terms and become preferred retailers for most malls. If a mall needs a particular brand badly, it does bend backward, adds Pranay Sinha, shopping centre specialist and founder of mall management firm Starcentres.

Most of these stores are set up on the ground floor and can't be seen empty, say mall developers. The best way of pulling in the crowds is foreign brands and hence, going ahead, H&M, GAP and Uniqlo would be the next anchor stores for many of these malls.

While ultra-premium malls don't bother about such freebies, the middle-level malls with high footfalls have made nine- to 12-year lease terms the norm. Long-term leases involve holding on to the brands for more than six years because they attract higher footfalls. It is due to this that malls have entered into revenue-sharing models with brands as compared to the fixed-rental model earlier, explains Samir Jasuja, founder and chief executive of real estate research company PropEquity.