ibnlive » Business

Jun 03, 2008 at 09:55pm IST

High prices of real estate may hit retail mkt

New Delhi: The real estate market is doing well what with high rentals for commercial properties, for instance.

However, that also means it's difficult for those renting space in high-end malls, to turn a profit. So, what's the way out?

Here’s a typical scene in a mall in India. A family out in full strength gazing at the big brands and the experiencing the retail rush but look a little closer and you will notice that very few are actually buying anything.

Coming to a mall is not only about shopping – in fact in many cases a trip to the mall is a family's day out - some window shopping ending and perhaps catch a movie or two with a quick snack in between.

So, it seems while there is no dearth of footfalls at malls in India, mall goers are not shopping enough. For brands, the situation is compounded by the escalating rentals.

The retail sector is growing there is no doubt – but the double whammy of high rents that companies have to pay mall developers means even big brands are seeing their profits taking a knock.

McDonald's India MD Vikram Bakshi said, “Real estate has been something that really worries all the retailers including us.”

With their backs to the wall, many companies are trying to come up with innovative solutions.

The revenue sharing model has been adopted by some big malls namely Select City Walk, Metropolitan and City Square in the Capital.

The other could be an anchor tenant format like say a shoppers stop or lifestyle, who command lower rentals by 60-80 per cent thanks to their greater bargaining strength.

India is slated to have 400 new malls in the next 3 years - innovative business models could hold the key to converting these footfalls into some serious money.

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