Greedy Real Estate developers in India are all set to derail Retail 1.0 in India. The first one to face a burnout is American Company Levis. Levi Strauss India has said that it is pulling out of malls due to sky rocketing rentals. It will move towards small towns along its strategy to establish the brand in every district headquarters and thus establish a PAN India presence. Unfortunately, Real Estate accounts for 23% of the MRP of Levis Jeans sold in Malls.
Shumone Chaterjee, MD of Levis said,
Profit margins are getting lower and we cannot wait for the next four to five years for things to stabilize. Passing on costs to the consumers is not an option. So we will exit places [Malls] which are too expensive and increase our distribution network in small towns.
Mall Rentals in India vary between Rs 300 / sft / month to Rs 900 / sft / month according to our survey in December-2007. Realty developers are blaming it on the cost of construction which they are passing it on to mall occupants without absorbing any hit in their own margins. Some retailers like Arrow have started converting their single brand outlets in multi-brand outlets to increase the sales / sft of space.