Retailer CFOs Securing Better Lease Terms

December 16, 2009
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Following last year’s holiday season defined by significant sales declines, excessive inventory, and deep markdowns, a new study from Karbus Management, a subsidiary of PricewaterhouseCoopers LLP in Canada, examines the efforts retailers have taken to improve business and financial performance this holiday season and into 2010. The second annual survey of 26 U.S. and Canadian national retail chains in the specialty and department store sectors looked at how retailers are leveraging the environment to secure better terms on real estate leases.

According to Karbus, several of the CFOs surveyed said that while they were not getting substantial rent reductions, they were getting more favorable co-tenancy and “kick out” clauses, more tenant allowances, and better lease terms. They felt the days of the big rent reductions are over unless landlords really feel it is crucial to have a particular retail brand in their malls as landlords now have much better access to financing than they did a year ago and do not feel as compelled, especially in the “A” malls, where there is still competition for space.

Highlights from the survey show that:

  • Over the past year, 35 percent of those retailers surveyed said their efforts to renegotiate leases in the past year have resulted in modest savings in occupancy that had some effect on their operating performance.
  • Twenty-two percent of retailers surveyed said they did not make any efforts to renegotiate leases.
  • Seventeen percent said their efforts to renegotiate leases in the past year had produced substantial savings in occupancy costs.
  • Efforts by those retailers surveyed to renegotiate leases in the past year produce three to five percent reduction in their real estate costs.
  • Thirty two percent used co-tenancy clauses as a negotiation vehicle.
  • Sixty percent said they did not defer new store openings for 2009/2010; 40 percent deferred new store openings during that time by an average of 55 percent.