New Delhi, May 13, 2020: It has now been 6 weeks since the nation has been under lockdown. As public places, the malls were the first to be shut and probably will be the last to re-open. Business for all mall occupants – retailers, restaurants, and movie halls has now come to a standstill. There is now talk of re-opening in the next few weeks, the elephant in the room that has to be dealt with is this sticky issue of rents during the lockdown and going forward. All mall-based businesses are hurting badly with the double whammy of having zero revenues and yet having to pay salaries, fulfill statutory obligations and pay its vendors. No wonder that the news from the West is so gloomy, the landscape is littered with corpses of once-mighty retailers. Iconic names like Debenhams, True Religion, J.Crew have already filed for bankruptcy and if reports are to be believed, Neiman Marcus, JC Penny, Ann Taylor and Bath&Body Works are to follow soon. Even a lingerie brand like Victoria’s Secret can’t seem to find a fig leaf to save itself from the embarrassment of going down. So, the pain is real. But the mall owner is also in the same boat. They have raised millions of rupees by way of debt, almost all of them have raised this debt only through lease rental discounting. With no footfalls, they have had to contend with costs towards upkeep of the mall while they continue to service their debt.
Given this precarious business condition, as expected, many tenants have come together and appealed to the mall owners for a rental waiver and reduced rentals once the malls open. Further, they have proposed that rent going forward be calculated as a percentage of revenue generated so that both parties benefit as revenues gradually increase. Again as expected, mall owners have taken a rather tough stand – some by not agreeing to any rental waiver, some agreeing to only a partial waiver and some unwilling to discuss the matter until the lockdown lifts. It appears we’ve reached an impasse with none of parties willing to let go and each for their right reasons. The tenant may be unwilling to restart operations without reaching a settlement regarding the rent since in all likelihood, he may have no cash left. What’s likely to ensure is days, weeks and months of painful negotiations between the parties with some ending up at court while during this time, both parties continue to suffer due to the lack of revenue.
Is there a way out?
Let’s understand that the only way out of this situation is if customers come pouring in, spend money with the retailer and the retailer has the cash to pay the mall owner and keep his business alive. Customers are likely to come if all the retailers are open and ready for business. What if the mall owner does everything possible to help his tenant restart operations on Day One even at the cost of his own profitability (and his ego!) in the short term? What if the mall owner were to accept the retailer’s proposal for a pure revenue share with a few riders, of course. Riders being:
The retailer offers the customer a better price – say 10 to 25% off MRP on all merchandise (without distinguishing between new and old season) so that more customers are incentivized to come and buy The retailer agrees to pay the full rental from April 2021 or sooner if the revenues reach 90% of the pre-Covid levels.
Just imagine if the mall can advertise to the world that 100% of the mall is sanitized and operational on Day One after the lockdown! I am willing to stick my neck out to say that there will be a rush of shoppers. This mall will have a huge PR story, something like the Hermes store in China generating $2.7 million in one day soon after they lifted the lockdown.
The mall owner might argue that the tenant is the greater beneficiary in this deal. But, so what?! The mall owner shouldn’t begrudge the tenant making an extra buck after such pain. The tenant will be both – indebted and financially healthier, something that the mall will certainly benefit from over the long run.
The need of the hour for the retailer and the mall is to survive and cash is like the oxygen that is required to do so. Only if both the retailer and the mall owner can work towards this common objective, can the cash register start ringing, the mall start bustling and the economic engine start humming again. I shudder to think what would happen otherwise – endless negotiations, prolonged legal battles, shuttered retailers and empty malls.
Corporate Comm India (CCI Newswire)
