Luxury brands seek rental reduction to cut losses

By

Maverick Martins

Published
Jan 25, 2017

Luxury brands have asked for rental reduction from top end malls in India's post-demonetisation climate, to offset losses as declining business over the past three months is adding to their woes. 

"They have asked for about 25% cut in rentals," said the head of a local mall, that is home to several luxury brands, such as Britain's Burberry and Armani Jeans, when speaking to the Economic Times.

Luxury retailers, such as Genesis Luxury that sells a bouquet of high-end labels in India including Jimmy Choo, Canali and Giorgio Armani, have also asked for rental concessions from malls, according to sources.

Similarly, Reliance Brands have sought a rental cut. Darshan Mehta, chief executive of Reliance Brands, said the company kept on undertaking rental negotiations with malls.

"This is an ongoing process and nothing in response to the demonetisation," he said.

The government's decision in November 2016 to scrap Rs 1,000 and Rs 500 notes and replace them with new notes led to a severe cash crunch. The demonetisation deeply hurt luxury retailers, as their goods are sold primarily in cash. Sales in the luxury sector have halved since demonetisation, according to estimates by some industry insiders.

Pratik Dalmia, chairman of ASSOCHAM's National Council on Luxury and Lifestyle, agrees that luxury rentals in India are high.

"Due to limited options, there has been a demand-supply mismatch with regards to leasing, which is driving up rentals. Our rental structure is similar to a mature market, but not the demand. Rent should ideally be 8-10% of turnover, but in India it currently stands around 16-20%," Dalmia pointed out.