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Retailers look for rental relief as slowdown bites

With consumer sentiment at a low and sales sluggish, retailers are looking at renegotiating rentals as part of their cost-cutting measures.

, ET Bureau|
Aug 08, 2019, 06.57 AM IST
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Agencies
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Fabindia has written to landlords seeking their “cooperation” to make its business viable.
NEW DELHI: Ethnic-wear retailer Fabindia is said to have written to its various landlords seeking a renegotiation of rentals. One of India’s largest listed retailers plans to postpone paying upcoming rental increments.

With consumer sentiment at a low and sales sluggish, retailers are looking at renegotiating rentals as part of their cost-cutting measures.

“We are going through a tough time,” said the top executive of one of India’s largest retailers. “We are working on a strategy. First thing, we are postponing the rent increments that are coming… We have discussed it at our last board meeting and there is no choice.”

He said same-store sales growth — a performance measure for outlets that have existed for a year or more — has fallen to below 5% at present from about 8-9% a year ago.

Retailers said things turned worse in July and even discounts of up to 50-70% didn’t help much in overcoming low consumer sentiment. According to a top executive of a fashion retailing group, footfalls at stores have fallen by up to 20%.

“I think the landlords will also understand that business is slack,” he said, asking not to be identified. He said things are relatively better at prominent malls where they have revenue sharing deals and do not need to renegotiate.

“It is mostly for high street stores where we have pure rental agreements,” he said.

“A-category malls are still doing well but for other normal malls, they have seen a 3-7% drop in walk-ins,” said Vasanth Kumar, MD of the Lifestyle department store chain. “In normal malls where it is not working out for us, we will reduce the space or release the area.”

The Dubai-based group pruned the size of the Lifestyle store in Bhopal by 25% to 30,000 square feet. It reduced the area of the Lifestyle outlet in Kalyan that stocks apparels by about 6,000 sq ft and carved out a space to sell furniture and home products.

Fabindia has written to landlords seeking their “cooperation” to make its business “viable,” according to a person familiar with the development. Fabindia did not respond to an email seeking comment on the matter.
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“We are going for renegotiation on properties where the occupancy costs are high and where rentto-revenue ratio is high,” said the business development head of a large listed retailer who is directly requesting for rent reductions. “We are telling them that we cannot survive with the current level of rents. If the developers don’t agree, we don’t have any other way but to shut the stores.”
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