REAL ESTATE AND MALL ECONOMICS
Biyani paid a cool Rs 250 crore to buy this mall from the Piramals
Retail, someone once said, is about three things: Location, location and location. In a real estate market gone crazy, retailers are finding rentals choking their profits. Consider Mumbai. Rentals in suburbs like Bandra and Juhu are in the range of Rs 150 to 250 per square foot. In Tardeo and Nariman Point, it's even higher at between Rs 250 and 400 per sq. ft. Says Ajay Bijli, MD, PVR Cinemas: "High land prices are pushing rentals beyond what retailers can afford."
The only way a retailer can survive the squeeze is by being someone the developer of, say, a mall would want as an anchor tenant. A position that some players like Pantaloon, Trent and Shoppers' Stop seem to have attained. "The anchor tenants, who are responsible for attracting the greatest footfalls to the malls, pay rents 40 to 50 per cent lower than those of other smaller stores," says Nagarajan Narasimhan, Head of Research at CRIS INFAC. In an evolving retail market, the profit zone for a retailer moves from purchasing to supply chain and then to real estate. But in India, where rental costs can be between 8 and 15 per cent of total costs, retailers like Pantaloon's Kishore Biyani are already discovering that there's more money to be made leasing space than retailing.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.