News: Samsung offers rental-sharing to enlarge franchisee base
(TNN 16/05/2006) New Delhi - In one of the first instance of its kind, Samsung, is believed to be considering a proposal for a long-term rental sharing agreement with its franchisee operations.
This is a result of the rising real estate costs in large cities including Delhi & NCR which is making it difficult to find stand-alone investors, to put large sums of money for the infrastructure, given the gestation period involved.
Though rental sharing is not new, companies, usually stretch it to 5-6 months at the maximum. This would be one of the first cases where a large company, might go long, on rental partnerships with its retailers.
According to sources, Samsung is evaluating the idea of sharing rental for its large exclusive retail stores called Samsung Plaza which are spread over retail spaces exceeding 1.5 lakh square feet.
At present, there are 70 such Samsung Plazas in India mostly in Tier I cities and the company is taking this number up to 100, by the end of this financial year.
A senior Samsung official told ET, “This particular format, demands a huge retail space and due to increasing real estate costs, not many dealers are vouching for it.
As a possible incentive, the company is harping on a rent sharing model, in which half the rent will be borne by the retailer, and the other half directly by the company.”
When contacted Ravinder Zutshi, deputy MD of Samsung India, said, “There have been some proposals from the retailers but we have not taken a call on it. As on date we have only been investing in the interiors of these stores and we have not got into the rent sharing model as yet.”
According to real estate experts, the developments are related to the rate at which commercial rentals have increased, over the last few years.
“Though rents of commercial properties have shot through the roof, the dealership margins in consumer durable products have not increased that significantly.
Sooner or later, most companies in this segment will surely come out with various ways to help their large format dealers cope with real estate price movements,” said an industry source.
Adds Harminder Sahni, senior partner, KSA Technopak, “Similar trends have already existed in lifestyle retail. Most brands have shown a tendency to work in a partnership with the retailer. Increasingly, my feeling is that the same will happen in consumer durable retail as well,” he said.
This is a result of the rising real estate costs in large cities including Delhi & NCR which is making it difficult to find stand-alone investors, to put large sums of money for the infrastructure, given the gestation period involved.
Though rental sharing is not new, companies, usually stretch it to 5-6 months at the maximum. This would be one of the first cases where a large company, might go long, on rental partnerships with its retailers.
According to sources, Samsung is evaluating the idea of sharing rental for its large exclusive retail stores called Samsung Plaza which are spread over retail spaces exceeding 1.5 lakh square feet.
At present, there are 70 such Samsung Plazas in India mostly in Tier I cities and the company is taking this number up to 100, by the end of this financial year.
A senior Samsung official told ET, “This particular format, demands a huge retail space and due to increasing real estate costs, not many dealers are vouching for it.
As a possible incentive, the company is harping on a rent sharing model, in which half the rent will be borne by the retailer, and the other half directly by the company.”
When contacted Ravinder Zutshi, deputy MD of Samsung India, said, “There have been some proposals from the retailers but we have not taken a call on it. As on date we have only been investing in the interiors of these stores and we have not got into the rent sharing model as yet.”
According to real estate experts, the developments are related to the rate at which commercial rentals have increased, over the last few years.
“Though rents of commercial properties have shot through the roof, the dealership margins in consumer durable products have not increased that significantly.
Sooner or later, most companies in this segment will surely come out with various ways to help their large format dealers cope with real estate price movements,” said an industry source.
Adds Harminder Sahni, senior partner, KSA Technopak, “Similar trends have already existed in lifestyle retail. Most brands have shown a tendency to work in a partnership with the retailer. Increasingly, my feeling is that the same will happen in consumer durable retail as well,” he said.
posted by InCar Group Press Room at 14:05
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