Retail majors cashing in on sub-letting to other brands

Big retailers like the RPG Group's Spencer's Retail, Kishore Biyani's Pantaloon Retail and the Rahejas' Shopper's Stop have opened a new revenue stream by selling space within their shops to other brands.

These shops-in-shop and food stations guarantee a revenue to the large retailer, which is normally based on the higher of the two options: a fixed percentage of monthly sales or on a per square foot basis.

Prominence of the brand, its positioning and location within the shop are some of the important determinants of rent.

With organised retail taking firm root in the country (it is projected to leapfrog from $12 billion now to $239 billion by 2015, according to retail consultancy Technopak), large retailers face the twin issues of rising mall rentals and falling prices.

With Reliance Retail scaling up its operations and Bharti Retail and Wal-Mart setting up its outlets next year, the product pricing game is expected to get even more competitive in the near future. This new income will give the retailers better cushion to cut prices.

"It is an emerging business model. This source of revenue is significant as retailers are trying to offer all sorts of discounts to customers," said Sanjeev Goenka, vice-chairman, RPG Enterprises, whose Spencer's store has 125 outlets today.

Goenka, however, said there was no fixed formula and each contract for sub-letting was decided on a case-by case basis.

"We were offered a package where we would have had to pay the higher of the two options: a rent of either Rs 600 per square foot for 30 square feet or 15 per cent of monthly sales," said a businessperson who wanted to open a food kiosk in the 63,000 square foot Spencer's store in Gurgaon.

A spokesperson for Pantaloon Retail confirmed that the company leased out space within its shops to other brands. He, however, declined to provide financial details.

Pantaloon Retail's "Central" malls "" a concept along the lines of large department stores like Selfridges in London or Macey's in New York "" sublets practically its entire area of 135,000-150,000 square feet. There are currently four Central malls at Bangalore, Hyderabad, Pune and Vadodara.

Industry experts said anchor retailers at shopping malls were now able to make up their rent and other expenses by sub-letting space. An anchor store pays less than half the rent that another shop would pay in the same mall.

While the idea is to provide a full bouquet of services and products to the customers, the big retailers are able to charge for the footfalls.