Strolling the Agora column from the April 7, 2009 issue of SHOPPING CENTER DIGEST
What was once a long-running and irritating minor bone of contention between landlords and tenants–requiring the latter to give up some control at the store level–has grown to a stronger issue as retailers try to reduce their operating costs. That is, in order to lease space in a shopping center – malls especially – they must abide by agreements determining when they must open and close their stores.
This was a major point made by one national retailer in our column of February 16 concerning ways to get the industry moving again (See SCD, Agora, P. J303): “… we need creative ways to manage expenses to establish a New Norm in terms of the levels of sales we are able to achieve and total occupancy costs that are in line with these sales.” As an industry, he continued, “we should reduce hours of operation, agree to open and close an hour or two later, and closing specific evenings and maybe Sundays. This would save everyone not only on operational cost but it could have a significant impact with energy savings (Think Green).”
Since then, at least two major mall operators, Simon Property Group and Westfield, have begun measures to reduce hours. It also served as topic for discussion by Todd Burton, VP-real estate at Aerosoles, on an industry blog. His question, “Have any retailers been effective in getting reduced hours of operations from landlords in the following venues? Malls, Lifestyle, and Outlet centers?” elicited a number of responses. He noted that existing long hours and work weeks “… in these economic times have become, for many retailers, not just a period of slower business but a financial liability.”
Before getting into some of the replies from concerned dealmakers, a little background.
All tenants leasing space in malls have to abide by the REA (Reciprocal Easement Agreement) made between the owner-developer and the anchors, usually department stores and other large users; this included establishing days and hours when tenants must be open. It was an especially acrimonious issue with Moms and Pops, especially when most malls shifted into operating seven days a week, with late hours on weekdays and during holidays, and early openings before most consumers were ready to shop. Smaller operators either had little free time or vacations, or were forced to add to their occupancy costs by hiring full- and part-time help; larger companies had to increase their staffs and overhead to meet these requirements.
Burton noted that “Morning and evening hours are not historically productive for most retailers, whether national, regional or 'Moms & Pop'. Further, those hours in these economic times have become, for many retailers, not just a period of slower business but a financial liability.”
Several tenants pointed out that “blue laws” in some communities prohibit most retail sales on Sunday; most notably they point to Paramus, NJ – which has perhaps the highest density of major malls in the industry–where this is still the case, except during the annual Christmas/Hanukkah/Holiday Season. Yet, dealmakers stress, retail sales there are amongst the most productive in the industry.
Mike Zorehkey of Zorehkey & Associates, calls shorter hours “a great idea.” And, “In many cases where we have had poorer performing locations, we the retailers have decided to adjust our operating hours with or without the malls permission.”
He is also in favor of shortening the work week: “… being closed on Mondays would be something that I would highly support. The weekend days is when most of the population is off from working.”
Michael Piazzola of Palatine Asset Management supports “training the consumer with market sensitive, consistent operating hours… ” He contended that “Executives, under the ruse of 'offering the customer more choices', when the goal is to drive percentage rents, whip out hours [then amend them when anchors wail] that mall teams and retailers wince at during holiday periods, and sometimes all year round.”
“Doesn't it make sense,” he asks, that the individual malls should “survey the 100 or 200 tenants under their roofs in establishing hours within which retailers perform at their best? And then let regions establish market-by-market mall hours that satisfy consumers, retailers, and mall operators?”
Kaan Keri of Corio NV agreed that modifying hours and days may be efficient and useful, but should be studied carefully. “… there will be great difference in properties which are in metropoles and in other urban areas. The regulation should be applicable in every property within a portfolio of a company, in terms of putting standards.”
On the impact on Moms and Pops, Burton points out that “they are often the ones bringing fresh new ideas to the market. Isn't it in the best interest of the landlord to facilitate healthy conditions [for] them for that very reason? They may just be the landlord's most important customer tomorrow.”
Several tenants have approached their landlords on the subject, but though some developers concede it would help reduce operating costs to their tenants, and suggest it could be an alternative to rent reductions, others nod their heads and “take it under advisement,” said dealmakers.
There are indications, however, that the movement to shorten hours could spread.
Said Chuck Breidenbach of MDC Retail Property Group at Mountain Development Corporation: “It makes perfect sense to everyone's bottom line right now. I've been considering this for awhile now.”
More information on SHOPPING CENTER DIGEST and our associate publication, DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com.
Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts. A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.