Retailers baulk at proposal to share online sales revenue with shopping malls

The omnichannel model is encouraged by malls as it helps bring in the crowd and increases footfalls.

As the online channel adds sales muscle to offline retailers, they are now faced with a new challenge. Given the significant sales from the channel, mall owners are seeking a share of this pie. The mall developers claim that several of these orders are processed using shopping mall premises, and hence, the retailers should share the revenue generated through these sales with them.

The retailers, however, are opposed to the idea. According to retailers, given the omnichannel nature of sales these days, it is difficult to track the origin of sales, even as they also spend heavily on digital marketing and pay commissions to marketplaces.

“We spend large sums in brand building to attract customers on both online and offline channels. High-street stores do not charge for online orders separately. So, it is untenable for shopping malls to charge brands, over and above what they already pay, for delivering online orders. The rental value for the brand space is already being paid by the retailer,” said Vasant Nangia, CEO, Chumbak. Lifestyle retailer Chumbak operates over 60 stores in the country.

ALSO READ: In top 8 cities 16 new shopping malls start operations since 2020: Report

According to Nangia, global experience indicates that the customers who use the buy-online-pick-up-in-store option, also spend money in the mall on other purchases, including food and beverage.

Other retailers, too, are reluctant to the arrangement.
“We completely disagree with this practice, and yes, we also came across this clause from a few malls. As such the overheads for an offline establishment are very high, and online vs. offline sales do not correlate with each other, be it marketing spends or channel used to acquire customers,” said Harini Sivakumar, founder and CEO of Earth Rhythm.

Omnichannel retail has led to the emergence of models where consumers can order a product online and then pick it up at an outlet or order the product at a store, which is then delivered later to the customer. These models have sparked debates in the industry about sharing of revenue (generated through online sales processed using mall stores) between the developer and the retailer.

Industry experts also point out that given the challenges in tracking such orders it would be difficult to decide on a revenue-sharing model between retailers and developers.

“The discussions have been going on for a while but the developers and retailers are yet to arrive at a mechanism for this. It is difficult to track the orders and also the share of the online orders being delivered is low. Rental costs at shopping malls are quite high, and hence, a retailer cannot use it to stock large amounts of goods,” said Pankaj Renjhen, COO and Joint MD, ANAROCK Retail.

ALSO READ: Up to 80% of our sales originate online, says Shoppers Stop MD Venu Nair

Shopping malls typically, have two operating models. In some cases, these malls charge a fixed rent to the retailer, while in others, they share revenue. The revenue-sharing model had picked up during the pandemic as retailers were in dire straits, while in an attempt to retain the retailers, shopping centres offered to share revenue instead of asking for a fixed rent. Monthly rentals for a metro city-based shopping mall fall in the range of Rs 200-600 per sq ft, depending on the location of the shop within a mall, according to industry estimates.

Industry experts also point out that the omnichannel model is encouraged by malls as it helps bring in the crowd and increases footfalls, and most premium malls negotiate the terms of such an arrangement before signing the contract.

“Post covid, most retailers have increased their omnichannel integration thereby leveraging their mall stores'sfulfillment centres to either deliver orders booked online or encouraging their online customers to buy online but try and pick up the order from these mall stores. This has led the mall developers to include online sales, either booked through or delivered from the mall stores, in their lease agreements. Revenue sharing percentages for such sales can be typically lower by 10-30%, varying for different categories,” said Sharad Nagpal, Senior Director and Head (North India), Retail and Leisure Advisory Services, India, JLL.