A'bad developers opt for revenue sharing model

Say shift from fixed rental model takes pressure away from retailers

Amidst market slowdown in retail, developers in the city are increasingly moving towards a revenue-sharing model from a fixed rental model. Under the new model, developers get a share of whatever monthly revenue a retailer earns which may vary depending on market sentiments.

Developers believe the new model takes the pressure away from the retailers and allows them to grow, thereby helping the former too. Moreover, the demand-supply gap scenario in the Ahmedabad retail market warranted such a new model.

"We are trying to create a win-win situation. If I ask my retailer clients to pay a fixed monthly rental, during slowdown times, it clobbers them down. Also, today there are less number of retailers and more number of mall space, hence, we see common brands across malls. They cannot sustain everywhere," said Pranav Shah, MD, Navratna Group, owner of Gulmohar Park, one of the premium malls in Ahmedabad.

One of the initial entrants into this model has been Alpha One Mall of Alpha G: Corp. "We are the pioneers in the revenue sharing model with retailers in Ahmedabad. No more do we need to bind our clients with fixed rentals. Instead, in this model, we grow more when our client retailers grow in their businesses. Of course, the revenue share agreement varies from product to product and retailer to retailer," said Prodipta Sen, executive director - marketing, corporate affairs and retail at Alpha G: Corp.

According to industry experts, under the new model, the revenue sharing agreement varies based on certain parameters such as type of product segment, retailer client and business cycle, among others.

"Lately, amidst prolonged slowdown, it was becoming hard for retailers to shell out monthly rentals and still push for break-even or even profits. Hence, more number of retailers and mall owners are agreeing to shift to the revenue sharing model. The percentage of revenue that goes to the mall owner may vary depending on various parameters," said Neeraj Tomar, head- Ahmedabad operations of the real estate consulting firm, Jones Lang LaSalle India (JLL).

The revenue share may vary from 8 per cent to 35 per cent, depending on the nature of retail business as well as the retailer. At times, retailers also enter into agreements with mall owners such as offering a minimum guarantee of Rs 15 per sq ft or 12 per cent revenue share, whichever is higher.

Meanwhile, Shah is also of the view that the new model binds even mall owner developer too into a certain responsibility.

"It becomes imperative for mall owners like us to ensure our retailer clients make business. If we promote our mall well, we will only get more footfalls at clients' premises," Shah added.