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Retail expansion set to slow down inspite of revenue share
Posted On: 28-08-2009 00:00:00 09

Revenue-sharing is in. The deal is simple: retailers pay a minimum guarantee which is likely to be 25-30% less than what the fixed rental would have been or they pay a revenue-share, whichever is higher. Hypermarkets, would typically part with about 4-5% of revenues, while a department store could pay anywhere between 6-9% and a plain vanilla apparel store may need to let go 12-15%. This is true only for malls though. No oneís talking of revenue sharing for high streets and neighborhood stores. But the real benefit of lower rentals kicks in only when companies expand aggressively. Itís quite possible that when the economic cycle turns, rents will actually start moving up once again. And this is where the problem lies ó most of the companies, including Pantaloon, are too stretched to be able to expand fast. Pantaloon, despite its good growth, has a debt-equity ratio of 159% and there are doubts about its ability to fund the aggressive expansion of the past. It is likely therefore, that notwithstanding revenue share deals, the heady days of rapid retail expansion are over and in the next few years the market will see a slower, internal accrual and debt funded pace of growth.

 
 
 

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