If you go to any Mall, you will see several small stores. These vanilla stores, as they are called, easily form the majority of tenants in Malls. They are the ones who pay the highest rents too. They are taking the space despite these high costs because they are guaranteed significant high quality footfall on a consistent basis. The anchor tenants, a unique tenant mix, and Mall facilities like parking, washrooms and food courts are other factors that prove to be of benefit.
Malls are in the business to achieve a good return on their investment and efforts as are retailers. Unfortunately, in more cases than we would like to believe, the Vanilla tenants are short-changed! Even more so if they are not part of a large chain or a multinational. This can potentially lead to a breakdown of relationship and even confrontation.
One way to avoid this is to draw up a reasonable agreement, one that is fair to all involved. The central basis being that both retailers and a Mall’s management are in this business together and one cannot thrive without the other. Demanding a fair arrangement via the legal route or government lobbying based on protection laws existing in the West, are other options.
However, I feel that a more practical, quick and sensible option would be to adopt a genuine ‘revenue share’ model. This means the retailer pays as rent, a fixed percentage of sales on a monthly basis without a minimum guarantee. Needless to add this arrangement should be reviewed / renewed after a mutually agreed period. There also could be parameters set with the overall revenue generation zone, category wise. Arbitrary, unilateral decisions is not conducive to a healthy relationship, I hope we all agree.
The rest of the agreement also needs to be modified to bring parity and true collaboration for future growth and stability:
- CAM charges need to get more transparent and uniform; they cannot vary substantially among Malls, without good reason
- Liability clauses should work both ways for failures on obligations or errors from both
- Infrastructure responsibility clearly lies with the Mall management and promised performance here needs to be assured.
With the true spirit of a joint venture, both Malls and Vanilla Retailers can flourish to maximise results, ensuring customer delight. After all, the customer is not only of the Mall or of the retailer alone. The customer is the same for both.
Utopian idealism? Maybe, after all that is the flavour of the season. So, let’s hope for the best. I readily concede that building and running Malls is not easy. But neither is running a retail store. That’s why true collaboration is the only way forward. One cannot dispute that.