Facing veiled costs

It is better to check the hidden costs in mall rentals at the time of signing agreements to avoid complaining later
Hidden costs of malls

Retail might sound like an attractive and glamorous model, but like all other business concepts, it has its hassles that need to be tackled by either the government or the concerned body in the country. Otherwise, the retail-mall revolution in the country will cease even before it has built itself up.  

Reality bites

Obscene rentals are not the only one that is serving the retailers in current economic situation. Retailers also reel under a number of hidden charges levied by malls owners in the form of property tax, common area maintenance (CAM), service tax, marketing costs, etc.  “Normally these are about 10 to 15% over the actual rent and it is best to ensure clarity on this before finalising the deal. Then it is upto the retailer if it suits him or not”, says Ms Divita Kanoria, Founder and Chief Wellness officer, Tatha. One of the reasons Loot India Ltd, which owns the multi-brand discount format chain, has steered clear of malls. With more than 100 stores across tier I and II cities, yet they only have one of these in a mall. Insiders of Loot India said the decision to not open stores in malls has been a conscious one. Pradeep Hirani, Chairman of Kimaya Studio, the fashion retail chain with outlets across the country said, “When a retailer decides to open a store inside a mall, he only looks at the rental costs, and to receive numerous bills alongside rental can be shocking. The hidden costs are many — CAM, water supply, chiller plant (for air-conditioning), service tax, etc. There is no transparency on these,” he said. Most of the retailers feel that it’s the lack of transparency that is the biggest challenge, not so much the charges. “It is a transactional issue between the mall and the tenant. There has to be more transparency,” said Mr. Hirani. Talking about transparency it is not as if the mall managers do not realise the need to be more vocal about these clauses, justifying this stance is Mr. JP Biswas, VP-Marketing, Vivacity Mall, who says "Some of the major clauses in the agreement of any retail entity include four main factors – license fees, common area maintenance, HVAC and utility charges that are applicable to the retailer. Being a part of a principle based organisation; Vivacity focuses on transparency in all its dealings. We are one of the few developers in the country who ensure that our agreements with retailers incorporate all concerned clauses and there are no hidden costs involved."

Taking prudence

Challenges are part of retailer’s strategy till the day he exists. They need to make sure that such conditions do not arise for them, in order to realise that, one should be careful with their agreement clauses etc, this view is further sponsored by Ms. Kanoria, stating, “We are very careful when we deal with malls and have a thorough due diligence done and get the agreements whetted by our legal department including the commercial terms. Therefore, we like to have everything on paper including CAM charges, taxes, etc. and make this very clear to the mall owners that we will only pay what is in the agreement”  

If every retailer can be as pro-active as the ones we already have then there is no doubt that retail will come through this obstacle with flying colours which will bode well for the future of retailers and retail industry in the country.






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