Fashion
Retail leasing models may seem straightforward from the outside. But beneath the simplicity lie models that shape the functions of the retail ecosystem. The choice of rental model affects profitability, in some cases, even the viability of the business. The mainstay of this model is two elements: rent fixed against revenue share. This is what both a new-to-mall brand and a developer looking to create the best tenant mix must understand.
Retail leasing is inherently about strategy. The right lease model influences footfall, brand performance, and mall profitability. Whether it’s a global brand or an indie coffee startup, every tenant-developer relationship thrives on the fine print.
Among the many structures in commercial leasing, Fixed Rent and Revenue Sharing (often with a minimum guarantee) have emerged as dominant models. Developers and tenants choose between them depending on factors like brand maturity, location, expected sales, and even the stage of the economic cycle.
This blog breaks down how each model works, where they shine, where they stumble, and why a blended approach is becoming the future of retail in India.
A retail leasing model is the financial agreement between a shopping mall (or landlord) and a retail tenant. It defines how rent is calculated and paid. More than just numbers, it aligns space cost with business performance.
You'll encounter these in high streets, malls, food courts, cinemas, and multiplexes. What drives the choice of model? Think brand category, location, expected footfall, and market sentiment. For instance, a new D2C sneaker label might want flexibility, while a large anchor like Lifestyle prefers predictability.
Let’s say you’re a tech-led grooming startup launching kiosks across top Indian malls. Choosing the right leasing model isn’t just about cost. It’s about cash flow, exposure, and risk alignment. A variable lease structure in your initial locations could let you scale without burning capital. Once the brand gains traction, a fixed rent in prime zones becomes a logical move.
In this model, tenants pay a pre-set rent every month, calculated per square foot. Sales performance doesn’t influence rent. It works best for established brands or anchors in high-traffic locations.
Example: Zara leasing at Phoenix Marketcity, Bengaluru, uses this model. With high footfall and a consistent sales graph, the fixed model gives both parties confidence.
This model is commonly found in zones where footfall is consistent and demand outstrips supply. Think high streets of Mumbai, Brigade Road in Bengaluru, or the atrium zones of top-tier malls. Developers favour it because it offers income predictability, a must when managing a multi-crore mall portfolio.
Here, rent is tied to how well the store performs. Tenants need to pay a fixed percentage of their monthly gross revenue in the form of rent. Often, there is a minimum guarantee (MG) in place. Revenue shares are applicable beyond that threshold.
Example: A restaurant at Orion Mall might pay ₹200/sq. ft. MG or 8% of gross revenue — whichever is higher. If business is slow, rent stays manageable. But let’s say they hit it out of the park? Then the mall benefits too.
Revenue share models in malls have been gaining popularity recently, especially among the new-age brands. These brands are experimenting with formats like kiosks, experience zones, or limited-period pop-ups. It also allows developers to bring in fresh concepts without upfront rent resistance.
This blends the above two. Retailers pay a fixed base rent, and once their sales exceed a defined limit, they pay a revenue share on the surplus.
Example: A sportswear brand might pay ₹150/sq. ft. minimum rent + 7% of monthly sales beyond ₹10 lakhs.
It's the go-to model for post-pandemic resilience and shared risk. Many malls now design these terms with seasonal data in mind, setting thresholds that reflect real performance curves.
Retailers sign multi-year leases and agree to a fixed monthly rent, often escalating every few years (say 5-10% every three years). Rent remains unchanged regardless of sales.
| Stakeholder | Disadvantage |
|---|---|
| Developer | Misses revenue upside when tenant performs exceptionally |
| Tenant | Pays full rent even in slow months or off-season |
Rent is calculated as a percentage of gross monthly revenue (often 6-12%), with or without a minimum guarantee. Sales data is typically tracked via POS systems shared with mall management.
| Stakeholder | Disadvantage |
|---|---|
| Developer | Revenue is volatile; relies on accurate reporting |
| Tenant | May pay more during peak seasons; requires full sales transparency |
Also, from a legal and compliance standpoint, revenue-sharing models demand more robust agreements. Both sides must align on definitions, data reporting formats, and audit mechanisms. Some brands use cloud-based POS integrations to share live sales data with landlords — minimising disputes.
The hybrid model is both safe and scalable. Retailers pay a fixed base rent (ensuring the mall has baseline revenue) and a revenue share once they cross a certain sales limit.
This model works beautifully for new-age brands and experience-driven tenants.
Example: A homegrown fashion label pays ₹150/sq. ft. MG + 7% of revenue above ₹10 lakhs/month.
Hybrid models are not just compromises. They are data-informed instruments that balance risk. A Bengaluru-based mall operator told us, "Our strongest performing food court tenant in 2023 entered on a hybrid model. They now clock 4x sales vs. the launch quarter. That wouldn’t have happened under a flat rent."
| Factor | Influence on Model Selection |
|---|---|
| Brand Strength | Big brands lean fixed; new entrants favour revenue share |
| Location | High streets = fixed; suburban malls = revenue share |
| Category | F&B, cinemas = revenue share; fashion = fixed or hybrid |
| Market Conditions | In downturns, revenue share helps manage risk |
| Footfall Potential | High traffic = fixed/hybrid; niche zones = revenue share |
The impact of seasonality and changes in consumer preferences is very significant. An example is that many D2C cosmetic brands typically initiate their operations as a rev-share type of businesses during holiday seasons, then gradually develop towards hybrid models as the effectiveness of their marketing becomes clearer through their collected data.
COVID-19 and lockdown have changed retail forever. The biggest shift? Flexibility. Today:
Many malls are now incorporating more technology in their operations. These tech-led malls are using artificial intelligence to track heatmaps, average dwell times and conversion rates. A lot of leasing decisions are now being influenced by these metrics. We are seeing a shift where everyone is moving away from legacy models that are based only on square footage.
As we look at the future, expect to see:
India’s retail future will favour adaptability. Landlords aren’t just space providers. They’re strategic growth partners.
At its core, choosing between fixed rent vs revenue sharing depends on your business goals, risk appetite, and product category especially when evaluating a mall space for lease.
But increasingly, it’s not about one or the other. The hybrid leasing in retail trend is on the rise. It has been able to blend security with adaptability. It also aligns developers and retailers toward a goal that is shared by both of them equally: long-term, profitable growth.
Retail leasing models are evolving fast and the smartest brands are choosing partners who think beyond square feet.
Fixed rent is constant monthly payment; revenue share is variable, based on tenant sales, often with a minimum guaranteed amount.
Revenue-sharing or hybrid leases reduce risk for new brands by aligning rent with actual sales, allowing flexibility during scaling.
Malls use integrated POS systems, digital sales reports, and audits to track tenant revenue and calculate accurate rent shares.
The hybrid leasing model combines both fixed rent as well as revenue sharing above a sales threshold. It is meant to balance the risks between landlord and tenant.
It accelerated flexible lease models, shorter terms, and performance-linked rent structures to adapt to unpredictable retail conditions.
Yes, these sectors prefer revenue-based leases due to fluctuating sales, seasonality, and experimental business formats.
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