Top retailers saved Rs 1,500 cr in rent in Covid winter

Mumbai | New Delhi: India's top ten listed retailers including Aditya Birla Fashion & Retail, Shoppers Stop, Jubilant Foodworks and Tata Trent have together saved more than ₹1,500 crore in rent in the past two fiscal years, after negotiating discounts with malls and other landlords for the lockdown days. Rentals, though, have now returned to pre-pandemic levels, with Covid becoming less of a worry and malls witnessing healthy footfalls.

Aditya Birla Fashion (ABFRL), which owns brands such as Louis Philippe and Pantaloon, said it saved ₹555 crore on rentals during F'Y21 and FY22, according to its latest annual report.

Costly real estate in India makes it important for retailers to generate high price realisation per square foot of space to maintain profitability. Shutdowns and then restricted operations of malls and high streets during the pandemic had severely affected retailers, who then sought discounts on rent to lessen the impact of business loss.

"ABFRL recorded an Ebitda margin of 14.8%, despite the continuing headwinds caused by the pandemic. A significant part of this turnaround was achieved through considerable cost savings in all parts of operations which include negotiating large rental savings with landlords and mall owners," chairman Kumar Mangalam Birla wrote in the report for FY22.

Nearly two-thirds of the company's rent savings were in FY21, when malls mostly remained shut and saw limited footfalls even after reopening.

Business has picked up strongly in the past few months for lifestyle retailers, which have recorded healthy footfalls and same-store sales growth in the top cities and malls, as well as added more stores to their networks. Sales expanded 18% in July compared with July 2019, according to Retailers Association of India. The segment has seen strong growth when demand was weak for daily essentials and consumer goods. Expenses, too, have now increased for retailers.

"On the expense side, there were no further Covid-related rental concessions and not just on rent but otherwise all expenses are now back to the pre-Covid level," Anand Agarwal, chief financial officer at V-Mart Retail, said during an earnings call last week.

Over the past two years, many retailers negotiated rent reduction or converted minimum guarantee agreements into revenue sharing. While mall operators offered full or partial waiver to retailers, they had to bear fixed costs. With good recovery in demand, malls have either reversed the terms of trade or hiked rentals. "Rentals are back to pre-Covid level as most retailers are reporting 7-15% growth in sales in comparison with 2019 levels," said Yogeshwar Sharma,CEO of Select Citywalk, a mall in New Delhi.