E-Commerce Disruption – Tenant’s Tizzy

Originally published by Cleve Clinton.

For over a decade On the Skware Toy Soldiers and its owners, Boo & Woo, the Skware brothers, have enjoyed the shopping traffic brought to their retail store that’s located in the same shopping center as Athletics Authoritiez, a popular sporting goods retailer. However, over the last couple of years the Skware brothers have seen their overall numbers of shoppers go down and, with slowing traffic, their gross sales revenue has dropped by over 15% – straight off the bottom line. Now, blaming E-Commerce woes, the news media (supported by local scuttlebutt) is suggesting that Authoritiez is on the ropes and may close its store. Can Boo & Woo do anything to save On the Skware?

Maybe. It’s time to pull out your lease with the landlord, and to get creative with your store.

The retail bubble is bursting.   Forty-three large retail chains with 10 or more locations filed for bankruptcy since January 2015.  Projections are that 8,640 stores could close this year – higher than the 2008 peak of 6,200 – requiring more than 10% of U.S. Retail space, or nearly 1 billion square feet to be closed, converted to other uses or renegotiated for lower rent.

The Skware brothers and their Toy Soldiers should get ahead of the approaching storm by dusting off their lease and carefully reading it to note the provisions affecting:

1. The lease term
2. Renewal
3. Who has liability – only their company or them personally as well
4. Any limits on use of the premises
5. Constraints on subleases and assignments
6. Going out of business sales, among others

If their lease is renewing in the near term and they think they still want to make a go of it, they should carefully consider and negotiate to add lease terms that allow them to address the possibility that Authoritiez closes. That might include language that expressly permits them to terminate if the Authoritiez store closes (not very likely) or a reduction in their rent or other accommodation. They might also consider reducing their overall store size and adding E-Commerce to their own shopping offering. The successful brick-and-mortar stores which seem to be growing are focusing upon improving the customer experience to make it fun and engaging, witness the Apple stores.

Tilting the Scales in Your Favor

If you have a lease in a retail shopping center, pull out your agreement and consider calling at least your tenant leasing representative, if not your lawyer. Those lease terms that seemed so unnecessary and irrelevant years ago when you signed your lease are now important. At the very least, consider what might happen and understand what your landlord may be able to do about it. Heck, maybe you had a great lawyer and tenant rep when you signed the lease and they already anticipated that this might happen. You will then know that you can sleep well at night. If not, forewarned is forearmed.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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