Rented vs owned

Pandemic has taken huge toll on economic activity, especially on retailers. A prolonged lockdown ensured that people remained indoors and shops shut. People were mostly ordering – initially only essentials but subsequent all kinds of goods – from the comforts of their homes and e tailers and those delivering at homes managed to survive and in fact, a few of them increased their sales. Stand-alone shop owners and those having shops within the malls bore double brunt – no sales due to closure and zero footfall and overheads in the form of rental and staff cost. Many retailers laid off their staff and started negotiating with their landlords for relief in rentals. But closure of large number of shops all across bears testimony of the above steps making only limited impact.

Some of the marquee names have survived this onslaught and one of the explanations being offered is their premises being on ownership basis rather than on rental. This took my thought process to the age old commerce lesson on capital versus revenue expenses. Capital is not free but comes at a cost – in fact, even if it’s acquired free or is available to be used, it has a carrying cost or the loss in the form of income that it would have otherwise fetched if invested in other classes of assets. On the contrary, revenue costs are met out of generated revenue and in that sense it appears more prudent as long as revenue is sufficient to cover the cost.

In the end, the only conclusion is that as long as the business is flourishing, it doesn’t really matter whether you are paying rental or servicing capital. This pandemic has shaken businesses again to think about merits and demerits of rented versus owned. In pandemic, those operating businesses out of rented premises clearly seem to be suffering more, but it’s not all hunky dory for owners too! They may not have any outgo on account of rental, but a locked premises is like a white elephant – only eating without delivering anything in return!

Sent from my iPhone

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