The retail business model is changing in Tier I cities, as more and more mall retailers are going in for minimum guarantee and revenue-share models
Six months back, the minimum guarantee and revenue-share models were the trend in the business structure in Tier II cities due to the decrease in footfalls in shopping malls. But now, this model is being adopted in metros where most of the big shopping malls are following the minimum guarantee and revenue-share models; in a few cases, they are following only the revenue-share model.
A few renowned shopping centres in Tier I cities (Mumbai, Pune, Chennai, Bengaluru and Delhi) are following the revenue-share model. Shopping centres in Delhi (DLF Place, Select Citywalk, Ambience Shopping), Bengaluru (Forum Mall, Garuda Mall), Mumbai (Magnet Mall, High Street Phoenix, Inorbit) and Pune (Ishanya Mall) are following the revenue-share model.
“Out of 160 tenants, almost 50 of them are operating on the revenue-share model. In the first year, we had seven retailers ready to operate on this model; in the second year 14 opted for this model and now we have 29 retailers operating on the same arrangement. The minimum guarantee and revenue-share models get the mall owner completely involved in the business, because we are linked to the revenue. It becomes our interest to see that every brand does extremely well,” said Rajiv Duggal, chief executive officer, Select Citywalk.
“The developer is extracting more profit in this business model and simultaneously he is also making the business more sustainable because the cost of occupation of the property is minimised,” said Susil S Dungarwal, founder and chief mall mechanic, Beyond Squarefeet Advisory Pvt Ltd, a mall advisory firm.
“In the Magnet malls in Mumbai, we are following all three formats—fixed rentals, minimum guarantee and revenue-share with tenants. The business model depends on the category of the business, transparency that the retailer is able to share and the kind of trust that we have with the retailer,” said Mr Dungarwal.
As per industry experts, Forum Mall was the first one to start the revenue-share model in Tier I cities in 2003 which was followed by other developers. A few mall owners are still hesitating to switch over to this model because they think that this business model needs more transparency.
“Shopping centre owners do not like to go ahead with this kind of a (revenue-share) model with every tenant because it requires more transparency in billing,” said IS Narula, president and chief executive officer for value-added real estate and retail business, Deepak Fertilisers and Petrochemicals Corp Ltd.
He also added, “To sustain a revenue-share business model, the mall owner has to have a clear understanding of the business model (profit margins of different businesses) and there should be a degree of trust and transparency.”
“It is important for a landlord to understand what he is getting in the revenue-share model. You should always implement a revenue-share model with a brand (only after) knowing fully well what you can expect. The revenue-share model does not increase revenues. It only means if the business increases, then you have the potential of an upside,” said Shubhranshu Pani, managing director—retail, Jones Lang LaSalle Meghraj.
Most successful shopping centres are hoping that the revenue-share model will sustain itself during a slowdown. Besides a successful business model, the zoning of the shopping centres is also important. Most industrial figures say that out of 120 shopping malls operating in the country, only 10 to 15 of them are successful.
“Through the revenue-share business model, we have proved to the other retailers that zoning is very important in a mall. Our revenue-share model is totally dependent on zoning. If you have not zoned your retailers in the correct place, the customer will be disturbed. If you have zoned them well, people come back more to your mall. If they come back more (often), you convert more customers, you have more sales and your revenue is secure,” said Mr Duggal.
Indian markets failed to hold on to positive global cues, following a slump in Reliance Industries
Indian markets opened on a stronger note on the back of strong trade data from China for December 2009 and expectations of strong December 2009 quarter results from India Inc. However, markets lost momentum following selling pressure in index heavyweight Reliance Industries Ltd (RIL).
At the end of the day, the Sensex declined 14 points from the previous day’s close, ending the day at 17,527, while the Nifty closed at 5,249, up five points.
After the markets closed, Unitech was up 4% after the company said that it had booked sales worth Rs5,550 crore between 25th March and the end of 2009.
JK Tyre & Industries rose 3% on reports that the company plans to invest Rs1,200 crore over the next three-four years for capacity expansion.
Novartis India shot up 4% after its parent company reportedly secured a patent for a cancer drug.
At 10:20 hrs IST, the Sensex was up 96 points from Friday, 8 January 2010, at 17,637 while the Nifty was trading at 5272, up 27 points.
During this period, RIL fell 1% after Manisha Girotra, country head of UBS, said that the company had raised $763 million through a block sale of 3.3 crore shares. UBS was the sole arranger for the trade. She also said that the share sale at Rs1,050 each would be the last of the block trades by the company for a while.
MBL Infrastructure was trading at Rs209, a 16% premium over the initial public offer price of Rs180. The stock debuted at Rs190 on the BSE, a 5.55% premium over the initial public offer price.
Energy Development Company rose 10%, after the company secured an order worth Rs56.70 crore.
At 11:20 hrs IST, the Sensex was trading at 17,637, up 97 points from the previous day’s close, while the Nifty was up 28 points at 5,273.
Among the gainers, TVS Motors rose 7% as sales rose 34% to 119,701 units in December 2009 over December 2008.
Natco Pharma was trading up 6%, after the government stayed the suspension of the company’s Albupax manufacturing licence.
At 12:20 hrs IST, the Sensex continued to remain firm at 17,601, up 60 points while the Nifty was up 20 points at 5,264.
During this period, NTPC rose 1% on reports that the company’s follow-on public offer was expected to hit the market in the first week of February 2010.
Suzlon Energy was up 1% after the company secured an order from Gujarat Alkalies & Chemicals for setting up a 21-megawatt wind energy project in Gujarat.
Minda Industries scheduled a board meet on 11 January 2010 to consider the raising of funds by way of issue of securities on a preferential basis. The stock was trading up 5%.
At 13.20 hrs IST, the Sensex hit a fresh intraday low following decline in RIL. However, the Sensex was up 32 points from the previous day’s close at 17,572, while the Nifty was up 15 points at 5,259.
During trading hours, sugar stocks moved higher on reports that the government may allow import of duty-free white sugar beyond 31 March 2010, to boost domestic supply and curb the rising price of the sweetener, which is expected to inch closer to Rs50 a kilogram. EID Parry and Shree Renuka were up 2% and 1% respectively.
Infrastructure scrips moved upwards following commerce minister Anand Sharma’s comments that the government would spend $1.5 trillion on infrastructure over the next 10 years. BL Kashyap & Sons and GMR Infrastructure were up 3% and 1% respectively.
At 14:20 hrs IST, the Sensex was up 37 points at 17,578, while the Nifty was up 16 points at 5,261.
During trading hours, SRF and Max India were up 2% and 1% respectively on reports that promoters have revoked a substantial portion of pledged shares.
During the day, Asia’s key benchmark indices in Hong Kong, Indonesia, Singapore, China and Taiwan rose by between 0.37%-0.68%. Japan’s market was closed due to a local holiday. As per Chinese reports, China’s exports climbed 17.7% in December 2009 from a year earlier, the first increase in 14 months, and imports jumped 55.9%.
On Friday, 8 January 2010, the Dow Jones Industrial Average was up 11.33 points while the S&P 500 and the Nasdaq Composite were up 3.29 and 11.12 points.
As per US reports, data revealed that 85,000 jobs were lost during December 2009, much larger than an expected decline of 10,000. The government, meanwhile, revised figures to show that 4,000 jobs were created in November 2009, having initially estimated a loss of 11,000 payrolls during that month. The unemployment rate remained persistently high, at 10% in December 2009 against economists’ estimate of a 10.1% rate.
In premarket trading, the Dow was trading 29 points higher.
Closer home, as per reports, the government will announce industrial output data for the month of November 2009 on 12 January 2010.
During the day, Anand Sharma, commerce minister, said that India’s December 2009 exports would be positive. He also said that food prices were likely to come down due to good winter crop prospects and there was no need to import wheat and rice.
Meanwhile, Ashok Chawla, finance secretary, was quoted in a media report as saying that the finance ministry backs administrative steps to tame inflation and wants a hike in policy rates only if food inflation escalates into general inflation. In order to augment supplies, all import duties may be suspended for the time being, possibly till the end of the current financial year, the report said. It further added that the finance secretary identified rice, wheat, pulses, potatoes, onion, fruits, milk, mineral oils, sugar and oil-cakes as the “commodities of concern”.
Pranab Mukherjee, finance minister, said on Saturday that the government would present its annual budget in Parliament on 26 February 2010 and was aiming at enacting legislation in the second half of this year for introducing a new Goods & Services Tax (GST). He stated that he is hopeful that growth rate could touch 8% in the fiscal year to March 2010, faster than the 6.7% clocked in the previous year.
As per media reports, industry bodies have urged the government to extend fiscal stimulus by six months this year, but a 16-year high fiscal deficit of 6.8% of gross domestic product estimated for 2009-10 has left little room for extending tax concessions.
Tomorrow, we expect Indian bourses to open higher on hopes of positive growth in industrial production, but the trend is not firm.
In the last 19 years, out of 13 times when the Sensex closed higher in the first week, on nine occasions it also ended the month in positive territory
How will January 2010 end for the markets? That seems to partly depend on how the first week ended. A study conducted by Moneylife has found that on most occasions, a positive start to the first week has led to the market gaining for the entire month of January. Over the last 19 years between 1991 and 2009, on 13 occasions the market made gains during the first week. Out of this, on nine occasions, the index also ended the month at a higher level. The Sensex has closed the first week of this year at a higher level, so this is a positive signal for investors. The phenomenon of the index closing higher at the end of the first week is explained by the fact that market participants start the New Year on a bullish note. Interestingly, of the nine times that the index ended higher for the first week as well as the entire month, on six occasions, it also ended the March quarter at a higher level.
What happens when the index ends the first week on a negative note? Interestingly, the same trend persists. Of the six times when the Sensex declined in the first week, on five occasions it also ended the month at a lower level.