Indian retail boom fights soaring rentals, space shortage
Monday, 24 December 2007
BANGALORE, Dec 23 (AFP): First came political misgivings and then street protests by small-store owners across India, fretful they will be put out of business by the deep pockets and discounting power of retail chains.
But that perhaps didn't worry Indian tycoons as much as the surge in rentals and space shortages they are now battling in a bid to open thousands of stores and change the way the subcontinent shops.
In the glitzy, glass-and-steel malls that dot Indian cities or are being built, square foot prices have almost tripled in three years, according to retail consultant Arvind Singhal.
"Rentals have shot up to a point where very few retailers will make a profit," said Singhal, head of the consultancy KSA Technopak, who says retail chains may have to slow expansion.
"Retailers don't want to get into a mall it if there's no financial viability, so a lot of current retailers and likely new entrants are putting their growth plans in review mode," he said.
Mall rentals shot up as an economy expanding nine percent a year drove up land valuations and rising prices of steel and cement forced developers to pass on the increased cost of construction to tenants.
Retailers may get no relief until more space comes into a market in which 250 malls are under construction, on top of 300 that have opened this decade in what pundits call the "great retail gold rush."
"The share of real estate in the cost of our operation is increasing, and that is certainly a very unhealthy trend," said Bijou Kurien, a senior executive at Reliance Retail, an arm of India's biggest conglomerate.
"Sometimes you find that the cost of space being sought is so high that it doesn't make business sense for us to go into a particular mall," Kurien said on a recent visit to Bangalore in southern India.
But that perhaps didn't worry Indian tycoons as much as the surge in rentals and space shortages they are now battling in a bid to open thousands of stores and change the way the subcontinent shops.
In the glitzy, glass-and-steel malls that dot Indian cities or are being built, square foot prices have almost tripled in three years, according to retail consultant Arvind Singhal.
"Rentals have shot up to a point where very few retailers will make a profit," said Singhal, head of the consultancy KSA Technopak, who says retail chains may have to slow expansion.
"Retailers don't want to get into a mall it if there's no financial viability, so a lot of current retailers and likely new entrants are putting their growth plans in review mode," he said.
Mall rentals shot up as an economy expanding nine percent a year drove up land valuations and rising prices of steel and cement forced developers to pass on the increased cost of construction to tenants.
Retailers may get no relief until more space comes into a market in which 250 malls are under construction, on top of 300 that have opened this decade in what pundits call the "great retail gold rush."
"The share of real estate in the cost of our operation is increasing, and that is certainly a very unhealthy trend," said Bijou Kurien, a senior executive at Reliance Retail, an arm of India's biggest conglomerate.
"Sometimes you find that the cost of space being sought is so high that it doesn't make business sense for us to go into a particular mall," Kurien said on a recent visit to Bangalore in southern India.