Renegotiate your lease….you have no choice, nor does your lessor.
I recently posted a blog entry suggesting that everything you do is subject to renegotiation. Today’s economic and business conditions are so radically changed from the point in time previous agreements were entered into, that a re-negotiation is not only prudent but absolutely necessary for most of us to weather this economic downturn. Payroll, supply contracts, loans, and yes leases amongst a few likely targets must all be reconsidered.
Leases are particularly sensitive to this issue as what was reasonable yesterday may be completely impossible today. With revenues plummeting all over the country, rents must follow suit. The landlords are aware of this and the tennants are lining up demanding relief or alternatively being forced out of business. The landlords are faced with the difficult decision to reduce rents or look at vacancies they will not be able to fill for a long time. They are renegotiating lowewr rents to keep tenants in business and paying something rather then receiving nothing at all.
A quick scan over the national business scene reveals some leading examples such as the following:( From Mish’s Global economic trends, a blog).
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.
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. ”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.”
While these chains have significant economic clout and thus strong negotiating positions, I believe the principle remains intact for every business. The landlords must face reality as must the retailers and oher service providers. Bringing the overhead equation in line with revenue expectations is neccesary for everyones survival.
Call your landlord, re-negotiate your lease or break the contract and leave. You have no option. Call me if you want some help. Call Norm, 413-584-2581. He will arrange a no obligation tele-coference.
