Leading chains such as McDonald's, Shoppers' Stop, Pepe Jeans and Barista are ramping up their organised retail presence in India through this route, doling out anything between 3.5 and 11 per cent of their sales turnover in a revenue sharing deal that makes partners out of shopping mall owners
"Such an arrangement protects us during times when footfalls are lower," said Yogesh Samat, chief executive officer of Barista Coffee.
Revenue sharing is becoming attractive for a variety of reasons. Firstly, more than 200 malls are coming up across the country over the next couple of years, with a recent Knight Frank Research report estimating 25 million square feet of organised retail space available by 2005. More significantly, tenants on fixed lease rentals have had little say in the positioning and marketing of the mall. Sanjay Badhe, director of operations at Shoppers' Stop, said: "As malls have a stake in your business, they become less of landlords and more of partners."
Linking occupancy costs to sales turnover helps retailers hedge against unpredictable business in a new outlet and during a lean season.
"Revenue sharing works because the synergies of mall developers and brands are the same," added Anuj Puri, managing director, Chesterton Meghraj Consultants, a property management firm.
Industry players see revenue sharing garnering 30 to 40 per cent of retail transactions in the near future.
Said Amit Jatia, managing director, McDonald's India (western region): "If a mall is not focused on the tenants making money, it's doomed to fail."