Retailers across segments in India are on an expansion spree as the second wave of the COVID-19 pandemic subsides.
While some retailers are implementing plans that had to be stalled due to curbs, others are scouting for new locations to make the most of a drop in rentals due to the supply glut.
“Large retailers such as Shoppers Stop and Tanishq had already rolled out plans to open multiple stores across the country in FY22. The second wave during April and May halted their plans temporarily but now that its impact has receded, they are dusting off their previous expansion plans,” said Pankaj Renjhen, COO and Joint MD of Anarock Retail.
Reliance Retail, which houses retail chains including Reliance Fresh, SMART, Reliance Digital, Trends, Reliance Jewels, Project Eve and Hamleys, planned to open about 1,000 stores in the first quarter. However, the second wave of the pandemic disrupted those plans and it launched only 123 stores.
“About 700 stores are fitout-ready and would be opened in the second quarter,” Dinesh Thapar, Group CFO of Reliance Retail, said at a post-earnings briefing last week.
Jubilant FoodWorks, which runs Domino’s Pizza and Dunkin’ Donuts outlets in the country, plans to open 150-175 outlets this year. The company opened only 20 outlets in the first quarter and is now scouting for locations. Company CEO Pratik Pota said on an earnings call last week that the supply glut due to the closing down of several businesses is helping them close attractive deals.
Malls and metros lose sheen
According to experts, retailers are increasingly preferring to set up stores in high-street locations because the COVID-19 pandemic had significantly affected the operations of shopping malls.
“The preference is for high streets now because retailers are facing lot more restrictions in malls. High streets are easy to manage and control, while in most cases malls are the first ones to be closed down and last ones to be opened,” said Shubhranshu Pani, managing director for retail services at Jones Lang LaSalle India.
In line with this trend, major retailers closed 119 deals at prominent high-street markets in India from April 2020 to May 2021, according to property consultant Anarock.
Outlets such as Starbucks, Pizza Hut and KFC, apparel retailers, and even large-format stores Westside and Max, which are typically anchor stores in malls, are eyeing high-street locations, Anarock said in a report.
In addition, retailers are showing a growing preference towards opening stores in smaller towns over metros.
“Brands are also eyeing tier II and III cities, where consumer demand has grown significantly in the last few years, particularly during the pandemic,” said Renjhen of Anarock Retail.
A drop in rentals and availability of retail space are driving store openings by major retailers. Huge losses incurred over the past year have led to the closure of smaller stores and businesses, freeing up space in high-street locations and shopping malls.
“Well-funded companies and large players who have deep pockets are expanding stores rapidly. Also, value fashion retailers and hypermarkets are actively scouting for spaces,” said Pani of JLL India.
According to industry estimates, rentals at high-street locations such as Linking Road in Mumbai and Connaught Place in New Delhi have dropped by 10-20 percent. Retailers pay Rs 700 per square foot per month as rent on Linking Road compared with Rs 900-1,000 in pre-pandemic times. In Connaught Place, rents are now Rs 800-900 per sq. ft. as opposed to Rs 1,000-1,100 previously.
Many retailers have been able to negotiate good deals with property owners.
“New retail rental deals are now being crafted keeping in view the pandemic-infused lockdowns, so the revenue-share model has become more prevalent,” said Renjhen.