Desi retailers set to cash in on realty slump
A clutch of big-ticket retailers, such as the Future Group, Landmark and Essar Retail, have accelerated expansion plans, taking advantage of a 30-40% slump in real estate rentals.
KOLKATA: A clutch of big-ticket retailers, such as the Future Group, Landmark and Essar Retail, have accelerated expansion plans, taking advantage of a 30-40% slump in real estate rentals. At a time when much of the organised retail is downsizing amid poor consumer sentiment, these companies are using the opportunity to acquire prime space cheaply and position themselves for an eventual upturn.
More so, since real estate accounts for the largest portion of a retailer���s operating cost. Analysts claim the less leveraged retailers, who have remained conservative in their expansion plans over the past few months due to high
rentals, are now going ahead full steam.
���True retail spending has slowed down in India, but still it is not so much affected as in the West, considering the fact that India���s growth story is largely intact. The current rental correction provides the best opportunity for retailers to keep their operating costs under tight control,��� retail consultancy Technopak Advisors chairman Arvind Singhal said.
Landmark has started signing up property for six new stores. ���This is nearly double the number of stores we usually set up in a year. We are even looking at up-market areas which previously didn���t even made much sense. All the six stores will come up in metros,��� said Landmark COO Himanshu Chakrawarti.
Mr Singhal says the realty cost needs to be less than 10% of the turnover for apparel retailers to maintain profitability. For book and music retailers, realty costs need to be less than 7-8% of turnover and less than 4-5% for food and grocery retailers.
More so, since real estate accounts for the largest portion of a retailer���s operating cost. Analysts claim the less leveraged retailers, who have remained conservative in their expansion plans over the past few months due to high
rentals, are now going ahead full steam.
���True retail spending has slowed down in India, but still it is not so much affected as in the West, considering the fact that India���s growth story is largely intact. The current rental correction provides the best opportunity for retailers to keep their operating costs under tight control,��� retail consultancy Technopak Advisors chairman Arvind Singhal said.
Landmark has started signing up property for six new stores. ���This is nearly double the number of stores we usually set up in a year. We are even looking at up-market areas which previously didn���t even made much sense. All the six stores will come up in metros,��� said Landmark COO Himanshu Chakrawarti.
Mr Singhal says the realty cost needs to be less than 10% of the turnover for apparel retailers to maintain profitability. For book and music retailers, realty costs need to be less than 7-8% of turnover and less than 4-5% for food and grocery retailers.
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Future Group has plans to add some 6 million sqft by June 2009 to its existing 11 million sqft area of operation. Essar Telecom Retail CEO and director Rajiv Agarwal said the current realty market provides a lot of opportunity to rationalise cost. Start a SIP with as low as ₹500 with ET Money App!
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