Zara expands in Mumbai – leases nearly 30k of premium ground floor space in Oberoi Mall

Garnering unprecedented success, Zara – the global apparel retailer, continues to expand its presence in India. In November 2016, it leased nearly 30k sq ft of carpet area on ground floor in the Oberoi Mall in Goregaon. The lease is structured in a way that Zara pays the higher of a minimum guaranteed rent of INR 100 psf per month on a carpet area basis or 9.5% of net sales (revenue share). In addition to the rent/revenue share, it is also bearing an additional INR 26 psf per month towards heating, ventilation and air-conditioning charges (or CAM charges) in Oberoi Mall.

Featured in Business Standard

Such revenue sharing arrangements have become a mainstay of retail leases in India, and ensures an alignment of interest between owners and retailers. However, the rent that a retailer pays for a store is typically governed by the trading density of its store i.e. annual sales per sq ft of carpet area. Zara’s store in Palladium in High Street Phoenix pays the higher of a minimum guaranteed rent of INR 319 psf per month (carpet area basis) or 8% revenue share. Arguably, Zara’s store in Palladium is likely to be one of its highest grossing stores in India, which enables it to guarantee such high rents. The occupancy costs to the retailer is still higher. In Mumbai, the 5th store of Zara in Fort is also approaching its opening date fast.

This is yet another case of a global brand edging out a domestic brand in a prime mall – in this case, Future Group’s Central that has downsized. Also, Zara’s bargaining power and appetite for more store space can be judged from the fact that it has been able to secure the right of first refusal over any space that gets vacated adjacent to its store in future. Symbiotically, it works well for the mall owners as well to have a successful global retailer driving footfalls and revenues.

It is pertinent to note that the lease was signed just before the currency demonetisation reform announced by PM Narendra Modi. It is quite likely that discretionary spending will be hit over the next 3-4 months due to the impact on liquidity and possibly negative “wealth effect” that a certain segment of the population may face. However, it is also estimated that nearly 70-75% of the spending in shopping centres is through electronic modes of payment, and hence the severity of the impact may be limited.

The likes of Zara, H&M, Gap and Uniqlo shall continue to expand their presence in Indian metros, and spoil the urban shopper for choices!

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