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Mall operators cannot accommodate brands with poor sales; Report

The sales performance guarantee clause, in which a retailer must meet a certain sales target or the mall has the right to seek space vacation, is back, as malls have begun terminating contracts with brands that are unable to perform. While organized malls used to include this in their contracts prior to the pandemic, new malls are including it in their contracts as most retailers request revenue sharing.

‘We have a sales performance guarantee in our standard lease. We focus on minimum guarantee and revenue share during the first 30 months. We set a target for each retailer for the first 30-36 months of the contract, and if they do not meet that target, we have the right to terminate the contract. There was no action during Covid, but since sales have surpassed pre-Covid levels for the majority of retailers, we have resumed the review’,¬†Pushpa Bector, executive director of DLF Retail, which operates several malls in the National Capital Region, agreed.

Some malls give brands six months to perform and meet sales targets, while others give brands only two months. ‘ While leading malls used to have sales targets prior to Covid, many have only recently begun to do so. I believe that if retailers fail to meet this season’s sales target, which is likely to be the best in recent years, mall owners will begin sending notices’, Rehan Huck, vice-president of retail at ILC Group, stated Listed retailers are expected to post strong double-digit sales growth in the June quarter, the retail sector’s first disruption-free quarter after two years of Covid-19 impact in the base quarter.

According to mall operators, sales have reached record levels, and if any brand is unable to perform even at this time, they will be asked to leave. ‘If we have three traditional wear brands on a floor and two of them are selling 1,500 per square foot on average while one is only selling 800 square feet for three months, that brand is put on notice for three months. So, if a brand fails to perform for six months, mall operators have the right to terminate the contract and assign the space to someone else’, Ravinder Choudhary, assistant vice-president at Vegas Mall in Dwarka, Delhi, agreed. Malls compare sales of each segment on different floors and occasionally plan activities around the store that are not performing to ensure footfall is reaching there.

Because of the low base set by the disruption of the country’s second Covid wave, most retailers’ sales growth could range between 50 and 250 percent. While footfalls remained lower than before Covid, price increases and larger purchase sizes increased sales. The apparel industry was severely impacted by the pandemic and recovered the slowest among the consumer discretionary industries.

 

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