Negotiate for a Level Playing Field with Online Competitors

November 10, 2016
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With the wild popularity of online general-store retailers like Amazon and the steady numbers of individual brand retailers, it’s a guarantee that cyber shopping is here to stay. This has caused steep declines in sales for some retail tenants. If you’re feeling the pinch from online competition and fear that it might put you out of business or at the least you’ll have to rethink your business plan, you can guard against this by negotiating lease provisions that will give you the option to leave your space if online competition diminishes your profits, and by being proactive when sales start to slump.

Despite a vast improvement in the economy since 2008, downsizing retail space and rent restructuring are still on the table for tenants and an owner won’t be surprised when you voice your concerns over online sales issues. The key to getting rent relief for declining sales from online competition is having a problem-specific plan to present to your owner. Owners don’t want to just give rent relief, but when they understand that the situation dictates and supports rent relief, they’re more willing to consider it. If you’re going to just go in and ask for rent relief without a well-crafted plan, you won’t get it; you have to support your case with facts so that the owner sees why it makes sense for it to help you.

You can also consider offering incentives. Keep in mind that your owner will be more likely to give rent relief or renegotiate your lease if you offer incentives, such as adding an additional term to the lease in exchange for lower rent, or giving up an exclusive or a right you have in the lease that may be of value to it. This isn’t a one-way street; you have to come up with a solution that works for both of you.

Then, make the facts of your situation clear. If you can quantify the impact that online sales have had on your business, it helps your cause. So quantify exactly how you’re being affected by online sales—instead of throwing everything at the wall and seeing what sticks.

For four fail-safe items to negotiate in your lease that will protect you from a sales decline due to online competition and Model Language that will help you achieve this, see “Negotiate for a Level Playing Field with Online Competitors,” available to subscribers here.