Time to Work Together
Mar 1, 2009 12:00 PM, David Bodamer Editor-in-Chief Retail Traffic Magazine
For too long the landlord/tenant relationship in this business has been adversarial.
To be sure, in good times, everyone seems to get along. That's because leasing too often has looked like an order-taking business. Retailers — many facing intense pressure from Wall Street to grow, grow, grow — knew they needed to open a certain number of stores each year. Landlords, in turn, would spread site plans on conference tables and point out the many possibilities. Both sides would throw around data such as income and population projections and who else was looking at the space.
For the most part, deals got done quickly and perhaps without enough thought as to the long-term viability of the retailer in that location. As data and metrics have gotten more sophisticated, this process has changed. Retailers have been opening less stores in clearly wrong locations than in the past. However, when the going was good, it was inevitable that due diligence slipped and people took greater risks.
All of that is coming home to roost. And the result is not pretty. Retailers are facing bankruptcy, liquidation or simply closing stores. By our count, chain store retailers have announced 1,714 closures this year. Ten retailers have filed for Chapter 11 or moved to liquidate. And analysts have three dozen more retailers on watch lists as potential filers.
In this climate, landlords face a tough decision. With few healthy retailers to choose from, concessions may be in order to help keep occupancies in healthy ranges. On the flip side, landlords don't want to prop up retailers that, frankly, should be out of business.
But it appears that the conversations about concessions are not going well. Evidence of the fact that landlords and tenants aren't truly working together abounds. Take Pier 1. The company is struggling and desperately wants to cut its occupancy costs. How do we know this? Pier 1 has taken this campaign public. It's taken the conversations out of meeting rooms and from behind closed doors and aired its grievances for all to hear. In early February, the company essentially threatened its landlords, saying it would move to close up to 125 underperforming stores if rental reduction negotiations on those locations proved unsuccessful. The firm has set a deadline for the end of May (just after ICSC's RECon show).
Conversely, some landlords seem to be quite slow to accommodate troubled retailers. One head of real estate with a retailer, Larry Sidoti of Mrs. Field's Original Cookies Inc., talks about what he sees as landlord intransigence in our Expert Q&A (p. 48).
This dynamic — this lack of cooperation between landlords and tenants — is the reason Retail Traffic has launched a new e-letter, Site Optimizer, which will hopefully sow the seeds of an online community. We're trying to create a place where there can be more productive discussion on how landlords and tenants can work together to make sure the right decisions are made in regard to where to put new stores and ensure those stores are operating at peak efficiency. The community is also for retailers looking to expand or developers looking for sites and discussing best practices and the latest technology that will make site selection a smarter process.
Several features in this month's issue (Sidoti's Q&A and a report on J.Crew's Madewell concept on p. 16) are adapted from our inaugural newsletter. Please take a look and drop us a line if you have ideas about how to make the community more productive.
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