Retailers mull revenue-sharing model

Organised retailers, faced with lower-than-expected footfalls in many malls, are looking to bring at least 20 per cent of their total stores under ‘revenue-sharing’ model with mall owners or real estate developers in two years' time, according to industry experts.

The model, under which retailers share a percentage of their sales with real estate companies, is seen as a fair way of sharing risks between the two stakeholders.

Five companies contacted by Business Standard cite higher rentals charged by real estate developers, coupled with lower-than-expected footfalls, as the reason for their preference towards a revenue- sharing model.

“Revenue-sharing model increases the responsibility of the developer to bring in footfalls in the mall by providing good upkeep of the infrastructure,” said Raghav Gupta, president, Technopak, a consulting firm. "The model is sustainable during the downturn as the retailers do not have to take the hit alone. Low sales mean low rentals," he added.

“The rentals have fallen dramatically in the past few months, bringing retailers and the developers on equal footing. Now, the developers are ready for flexible revenues instead of fixed rentals,” said, Samar Shekhawat, vice-president, Spencer’s Retail, the RPG Group’s retail venture.

At present, industry experts say, only about 10 per cent of the stores are under revenue sharing model in the organised retail industry, which is only 5 per cent of the country's estimated retail market of $350 billion, according to a McKinsey report.

Future Group, India’s largest retailer, has completed 15 transactions under revenue sharing model. “We believe this is the way forward for all the retailers as it is beneficial for both the developer and the retailer,” said Kishore Biyani, Group CEO, Future Group.

Vishal Retail, a New Delhi-based retailer, has decided to open most of its stores in future under the revenue sharing model. “We are in the midst of clinching a deal under revenue sharing model. Although this is going to be our first deal, in the future most of our deals would be under this model only,” said Ambeek Khemka, president of Vishal Retail.

Spencer’s Retail, has 10 stores in line to open under the model. Spencer's first store under this model will come up in Kanpur by the end of this month. Select City Walk, which is one of the first malls in India to start with revenue sharing model and minimum monthly guarantee, has all its tenants under this model. Unitech, the second largest developer, said it is also planning the revenue sharing route.

“We take minimum guarantee or between 1.5 per cent to 25 per cent of net sales from our tenants depending upon their format. Mobile retailers pay between 1-1.5 per cent of their net sales where as fashion apparel, food and beverages retailers pay between 12 and 25 per cent of their revenues,” said, Rajiv Duggal, chief executive officer, Select City Walk.

“We have recently started with this model and it is better than fixed rentals, specially at a time when the retailers are not in a position to pay to pay high rentals,” said a Unitech spokesperson. Unitech has two malls in the NCR region with 15 per cent of its deals on revenue sharing basis.