If you are stuck in a lease on bad terms, you might consider what Pier 1 Imports is doing: issue an ultimatum and threaten to leave. CoStar is discussing how Retailers Pressure Landlords Publicly for Rent Cuts, With Varying Results.

Faced with a deepening recession and declining shopper spending, retail chains are increasingly exerting public pressure on landlords to renegotiate leases to achieve rent cuts and other concessions, warning they could be forced to join the growing list of retailers closing stores unless their contracts are amended.

For example, Pier 1 Imports, Inc. (PIR) on Feb. 3 announced a plan it described as designed to “meet the challenges of the current environment and to position itself for optimum performance in a post-recession economy.” The furniture and home accessories retailer said it has already begun, via the services of Melville, NY-based DJM Realty, to open talks with landlords to “achieve rental reductions across the chain.” The company then warned that if such rental reduction negotiations were unsuccessful, it would terminate the leases of up to 125 stores.

[My Comment: Pier 1 Imports is sitting on about $117 million in cash and is burning up that cash at a rate of about $31 million per quarter. Its share price is 32 cents. I doubt Pier 1 survives the year no matter how much lower it negotiates is leases.]

Pier 1 isn’t alone. Following is just a sampling of retailers that have made their lease renegotiation efforts public, along with some commentary from retailers and their landlords — and their property disposition, tenant rep and lease restructuing specialists — on the degree of success they’ve have had in reducing occupancy costs.

Gap isn’t just trying to reduce rent paid for its stores, it’s trying to do so by reducing its store square footage by 10% to 15%, which also results in additional vacant space for landlords. In its most recent quarterly conference call with analysts, Gap Chairman and CEO Glenn Murphy, commented on the casual apparel retailer’s progress in negotiating with landlords.

In a Jan. 15 management presentation, women’s apparel retailer Chico’s FAS announced a formal real estate strategy to “pursue occupancy cost reductions” in order to increase profitability and productivity. Management is conducting a store-by-store review of the chain’s lease portfolio, ranking opportunities based on the level of success it expects it could have in rent relief.

Sports footwear and apparel retailer, The Finish Line, issued a warning in its January conference call that it is “willing to close unprofitable stores in cases where it can’t mutually agree” on terms with its landlords. Like others, Finish Line has commenced negotiations with landlords to downsize some larger stores, as well as “negotiate terms that work for both us and our landlord,” said Steve Schneider, president and COO. The retailer said 40% of its stores have leases that are either expiring or hitting “kick-out” provision dates in the next 12 to 15 months.

Schneider said that where kick-out clauses exist, Finish Line has even more leverage. “In those cases, we’ve been batting a pretty high percentage…of getting the landlord to come up with the minimal lease terms that make sense for both of us. In many of these cases, what may happen is that we push the kick out clause one, two or three years and go to some kind of alternative rent,” — usually percentage rent or a lower number, he said.

Schneider said that Finish Line planned to close 20 to 30 stores over the next five quarters, but warned, “If the landlords get really difficult then that number could go up some.”

Office Depot and Christopher and Banks were also in the report along with commentary from various industry consultants, most claiming that no one has the upper hand.

I believe landlords fall into one of two categories.

Landlord Categories

1. Those who are scared to death
2. Those who are not scared to death but should be

Mike “Mish” Shedlock
Click Here To Scroll Thru My Recent Post List