Fresh lease of air!

Re-leasing is equally imperative for a mall as it is for a brand to launch new collections every now and then to add flavour to their stores. Mall owners strategically plan this activity for a larger good. 

The shuffle of brands in a mall over a period of time is a result of re-leasing that takes place when a lease is renewed for the brands. Leasing to re-leasing is a six to nine year process. Bringing in a fresh flavour always works. Bappaditya Basu, Senior Vice President - Retail Services, Jones Lang LaSalle India tells, “Re-leasing makes the mall see new faces and makes the mall vibrant as the customers sees change. Sometimes it is necessary in the sense that unprofitable brands can make the mall bleed to death. Hence, new brands are introduced who will attract new customer and increase the foot falls.”

Sieving process

The decision of letting a brand go or of letting it continue operations is one side of the story. While on the other side of the hedge, the brand may want to continue operations or call it quits at the retail location owing to its reasons. Catering to the demand is what runs the retail show, and the same is applicable in malls. Benu Sehgal, Mall Head, DLF Place, Saket explains, “Malls are made for people to shop. They should match demands of the demographics. Brands matching the needs of the demographics and generating good revenue are always welcome; rest will have to be filtered out. Adding further on how they take this decision, she says, “This decision depends on the performance of the retailers and the performance depends highly on the kind of demographic mall has.” The story is the same at Inorbit as well.  Bhatija says, “The categories and brands that are housed in the mall is a result of a detailed understanding of the catchment which is being served. The performance of these brands is tracked on a continuous basis and necessary support in the form of signage, social media is provided for it to grow as per projections and the other brands in the category. A few of the brands may not perform as per expectations, which could be due to various reasons. Re-leasing would be the outcome of churns of such brands and also the change in brands due to repositioning of the mall to bring it in line with the changing requirements and aspirations of the catchment.”

Shooting up rent: an issue

The primary concern that comes along with the process of re-leasing is high rentals. Rental hike is inevitable; however, it differs from mall to mall. Each developer has laid down the percentage increase according to their own policies and business strategies, keeping in mind the business that the brands carry out over the years. Sehgal says, “The percentage of rental difference is 15 per cent, every time we renew the lease.” For Inorbit, it is a function of what business can be generated considering the potential of a brand. Real estate value is also what they consider. Owing to the plummet in real estate costs, Tinku Singh, Group President, SRS Limited tells, “Leasing price has dropped from what it was previously. During recession, there was a downturn and renegotiation happened. Rentals have gone down: from 2006-2008 retail space saw a boom and later with recession the prices came down. Growth rate has been really low.” This calls for worthy news for brands, as they no longer have to worry about or ponder over towering price rise while re‑leasing.

Retailers can have an upper hand to negotiate on the value augmentation if their contribution to the mall is of immense relevance. Basu articulates, “Retailers typically overestimate or underestimate their relative bargaining strength at renewal times. If they truly offer uniqueness to a mall through branding, leasehold improvements, high sales per square foot, or merchandise mix, then they may be able to extract concessions.”

Change over

The change over that has to take place with respect to the shuffle or the coming in of new stores takes about 60-90 days. This varies across the board for categories in retail. The leasing should always be done in different slots with retailers. The change of the store size is not a very widespread phenomenon as there are dedicated spaces in a mall. Also this is only feasiable when there is an empty space available within the mall for a retailer to shift. Bhatija tells, “Change is difficult as the adjacent store is already leased out, in case of additional area requirement. And if the size of the store has to be shrunk then the question arises on the beneficial use of the left out area. As that left out area needs to have sufficient frontage, length and width. Swapping of places or relocation seldom takes place.”

But if the change will bring something advantageous for the mall, it can be reconsoidered. Sehgal tells, “If a kids’ brand is doing good and I have another store free, I may give it to them. But if it doesn’t give me good result I may take it back as well. Depending on the availability of the space it can be considered. Also if the category is lost in zone where it does not belong is one of the cases where relocation helps.”

Changes within the store in terms of fit-outs can be made after the brand gets a go ahead from the developer.

Customer impact

The biggest concern if a brand shifts location within a mall or to a different location is the lost in clientele. The question that would pop up in their mind when they have to change their location will precisely be: Will customers continue to shop with us if we change our location? The answer to this is a “yes” and a “no”. A “yes” comes into play when we talk of brand loyalty. A customer would shop with a particular brand even if they have to divert from the usual route to reach a brand. And a “no” for an obvious reason – they feel they can get a similar product within the same catchment.

Explaining it further, Basu says, “It can go for a toss, but the brand only changes the location for two reasons – first, if the rent becomes unviable, and second, if the place becomes too small to create the experience the brand needs. There are a growing number of stores carrying more and more loss-making stores stripping group profits and putting pressure on cash flow. Better performing stores are carrying the burden of poor performers and are being starved of resources that could maximise individual store performance. Hence, most companies close their five worst performing stores every year irrespective of the footfalls. If they are making money, most brands don’t change the location even if the rent increased because on average the business increases 30 per cent YOY and the rentals increase once in three years.”

If a brand does change location and doesn’t have a strong loyal customer base, he can undertake some initiatives that can help the footfalls coming. Singh tells, “If the brand ensures proper guidance to its customers telling them that they are now placed somewhere else in the mall and also if the store services are good, I don’t think the brand loyalty is lost per se.”

Category modification

Category modification is always welcomed. An extension of categories facilitates footfall which is what mall owners and retailers strive for. Adding new categories can bring a whiff of freshness for customers who may feel they have something new to look forward to besides some of their favourite halts. Sehgal says, “We always do look at adding new categories. There is no harm is adding new flavours to the mall.”

Adding categories may be an easy decision to take but how to fit them in so as to compliment the rest of the offerings is what needs some brain exercise. Bhatija tells, “Category alteration is a question which has to be periodically addressed, but it cannot be carried out at the cost of shrinking the variety of brands in the category present in the mall. Over an extended period of time there are possibilities that categories need to be phased out due to various reasons.”

Dead moment in time

The word dead is enough to signify the impact that the ‘dead time’ can have on the mall. The change over and transition can take time and this leads to a dead time. This varies from mall to mall as per their guidelines. Larger spaces when left dead have an added negative impact than the smaller ones. Singh says, “Dead time affects the mall owners only where it is in terms of anchor stores or food courts or cineplexes if any. Larger space’s dead time is what is crucial.”

A little management helps avoid the dead time. Commenting on how this can be done, Bhatija says, “The dead time cannot really be avoided, one can reduce it by giving off site space for furniture work which can be carried out parallely and brought to the store in semi assembled condition. The total business to be generated by that particular store / brand is lost for that period.” At DLF Place, Saket, they avoid to let the dead time come. Sehgal tells, “We lease our retailers in such a way that there is no dead time. If it happens it does affect the annual turnover of the mall.”

Re-leasing as a process brings a whiff of fresh air to the mall and for the customers. If done in the apt way, it can work wonders!

Inputs by Gunjan Piplani