By Asmita Dey & Rishi Ranjan Kala
Even as the retail sector is gradually picking up aided by pent-up demand and festival offers, retailers still expect recovery to stretch across 2021. Many in the industry fear the scenario could compel mall tenants to ask for more rental waivers from developers and landlords post-March 2021.
However, mall owners, many of whom have extended slab-wise discounts till March, say that rents are already down by as much as 25% in some places and rentals as well as footfalls would now be determined only after government rolls out the immunisation programme to check the pandemic.
The uncertainty on rental negotiations in FY22 is due to Covid altering shopping decisions as job and income uncertainty and movement restrictions are feared to further impact consumer and household spending.
BCG, in a December report on how India shops, spends and saves in the new reality, said, “In apparel, purchase decision was primarily triggered by social/celebratory occasions (accounting for 42% of triggers).
However, due to social distancing norms and an overall reduction in physical interactions, the social/celebratory occasions no longer hold much sway in purchase decisions. Instead, the single largest trigger is now functional — clothes for home workouts, an additional pair of jeans due to daily washing, worn-out innerwear replacement, etc.”
For instance, though Biba has struck revised rental agreements till March, the retailer fears that companies may need an extension as Covid-induced disruptions are still a concern.
“We are already having discussions now to discuss and plan for next financial year. The situation in metros is definitely quite bad as compared to small towns when it comes to mood and sentiment,” said Biba MD, Siddharth Bindra.
Going ahead, the firm also does not rule out a rental correction — about 15-20% lower than what it was pre-Covid.
“Our ask would be to continue with the current arrangement as the pandemic is very much around,” Bindra added.
Olive group of restaurants founder AD Singh, too, expressed similar concerns. He said the way forward on rentals would depend on prevalence of the virus and comfort of people in stepping out “which is quite unpredictable”. Support on rentals should be given as long as it is required. Consumption across India on an average has barely touched about 50%, he added.
Mall operators too are waiting for more clarity. Omaxe president (retail), Benu Sehgal said Covid has had a painful impact on all rental properties and in some cases, rental income has dropped by as high as 25%.
“While some retailers shut stores, others operated with renegotiated rentals. Increased consumer spending witnessed in last few months coupled with the news of vaccine has reignited hopes of a bounce back in rentals with expectations of shoppers returning to malls. The immunisation efforts of the government will determine footfalls and rental scenarios going forward,” she added.
Raheja Developers COO Achal Raina said the festive season led to an upsurge in sales. “Even though retailers are expecting some rental discounts, it is not something which has established as a practice,” he added.
“So demand is likely to spill over to coming quarters of next year with new collections. Rather expansion plans by retailers which were either put on hold or postponed are coming back to the market with expansion plans. Things are promising and may stabilise sales as well as footfall to retail outlets. There may be a little tweak here and there but one should look at a promising next quarter,” he noted.
Pacific Group executive director, Abhishek Bansal is more optimistic. He said, “We have been closely monitoring brands and category sales every month, and are anticipating to reach last year’s numbers by March. Majority of discount-related negotiations were closed during July-August including group brands, individual brands, etc. We are not getting any demand for a further discount on rentals from retailers, as we already have extended slab-wise discount till March 2021, but some are on 100% rentals as per sales performance”.