Malls object to retail stores promoting their online business

India’s biggest malls are pressing brands such as Uniqlo for minimum guaranteed payments rather than pure revenue-sharing deals for retail space, people aware of the matter said. That’s a change from a year ago when the malls were going all out to woo Zara and H&M, two of the hottest brands, with the lowest possible revenue-share pacts and throwing in free fitouts and other largesse, they said.

The latest development follows some malls objecting to Zara advertising Zara.com on storefronts, arguing that online sales hurt brick and mortar commerce. Malls have also refused to pay half the goods and services tax (GST); they used to pay 50% of the service tax on rentals.

DLF, the owner of Mall of India in Noida, is said to have asked H&M to slash its store size by onefourth amid a mismatch between sales and space the Swedish retailer occupies, people said. Japanese brand Uniqlo finds itself negotiating for space in this tougher environment.

Even though malls were enthusiastic about Uniqlo’s entry into India and some of them were looking to create space for the Japanese retailer, they are not ready to concede the demands of the top brands for large areas of around 20,000 sq ft and pure revenue-sharing deals.

“Uniqlo is asking us for pure revenue sharing and we are not agreeing on it. We want an agreement with revenue sharing plus a minimum guarantee,” said the top executive of another mall asking not to be named.

“So, there is a disconnect.” A spokesperson for Uniqlo in Tokyo said the company was waiting to hear from the government on its single-brand retailing proposal. “We will be able to discuss potential future steps at a later date,” the spokesperson said in an emailed response. “We are confident that when the time comes, we will be able to reach mutually beneficial deals with all of our business partners.”

Pushpa Bector, head of DLF Premium Malls, said prominent malls such as the ones it operates invest a lot in creating the best possible experience for consumers. “But giving that customer experience is an expensive proposition,” Bector said in comments that were general in nature and specific to any brand. “So we cannot be in a state where brands take very large spaces which do not justify the sales they do. Area means currency for us. Every square foot counts. So we will be very cautious of giving how much area or too less area.”

Malls pressurize big brands for minimum guaranteed payments

Bector and H&M denied that Mall of India in Noida has asked H&M to return one of the four floors to the operator. About half a dozen sources had said this was the case. Anupam Tripasuri, vice president at Oberoi Mall in Mumbai, said the developments were part of the evolution of malls in India.

“As markets mature vis a vis demand vs supply and relationships between the landlords and tenants mature vis a vis understanding the commercial impact of the agreed terms, we find that terms of lease will become more balanced rather than one sided,” he said. “This is similar to what we have observed with regards to early movers like Lifestyle, M&S.”

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