Many stores are pushing to negotiate lower rents, warning that they mightn't be able to make it unless their costs are cut. Those in stronger positions are finding that the market's turmoil has provided them clout to haggle for lower lease rates.
"It's the best of times [because] landlords are trying to hold on to people like us," Gap Inc. Chief Executive Glenn Murphy told investors on a recent conference call.
The rush for concessions threatens to sap U.S. mall and shopping center owners' cash flow at a time when many are struggling to refinance debt coming due and cope with mounting store closures. General Growth Properties Inc., for example, the country's second-largest mall owner, has warned that it will have to seek bankruptcy protection if it can't renegotiate new debt terms with banks. While General Growth's problems are primarily due to its huge debt load, pressure on vacancy and rents are adding to its woes.
The list of retailers angling for concessions is long. Office-supply chain Office Depot Inc. confirmed that last month it hired Gordon Brothers Group's DJM Realty division to help it close 112 of its 1,275 North American stores and haggle with landlords for concessions on others. Women's apparel retailer Chico's FAS Inc. has hired consultants to help it renegotiate, renew or end 340 of its leases coming due through 2011, according to the company.
Pier 1 Imports Inc., a furniture and décor seller that has had sales declines for several years, now is seeking to win lower lease rates on the 200 leases that it has coming up for renewal in the next year, the company says. And Gap, a mainstay in many U.S. malls, has gained more negotiating leverage in its monthslong effort to shrink many of its 3,190 stores. The apparel chain wants to cut its 40 million-square-foot portfolio by 10% to 15%, mostly by reducing the size of its stores and, subsequently, the rent they pay.
Colliers Retail Services Group, a division of brokerage Colliers International, recently helped franchisees of a women's gym chain gain a 50% cut in rent for six months at five locations. In exchange, the tenants allowed the landlords to add one or two years to their lease terms, said Pat Duffy, chairman of Colliers' retail brokerage.