More than 6,800 stores will close this year, including hundreds of department stores, whose exit from shopping centers could spur other tenants to leave. While the anchors' importance has declined in recent years as consumers have shifted to e-commerce, many specialty stores still depend on them to generate foot traffic. Co-tenancy agreements, triggered by in-line stores, can redress leasing developments that negatively impact them. Smaller stores use an anchor's departure to win concessions from landlords such as rent reductions and terminating a lease with little or no penalty.There will be additional department stores turning out the lights or drastically reducing their presence. To reach previous levels of profitability, J.C. Penney would need to shutter one-third of its stores, Nordstrom, nearly one-quarter, and Macy’s about 9 percent of its fleet, according to a report by Green Street Partners.Specialty stores typically pay the brunt of mall common charges, but the unprecedented number of anchors going dark has given the smaller retailers more clout in their negotiations with mall owners. “Keeping the specialty stores happy is key because department stores and other anchors aren’t the key to a mall’s future,” said a retailer. “Specialty stores pay the bulk of the rent, since in many cases, shopping centers wooed department stores with free rent and built out their boxes.”Department stores have their own pacts with shopping centers, called reciprocal easement agreements. And while they certainly don't attract shoppers the way they once did, anchors can use the agreements to hold sway over a mall's attempts to redevelop a property and lease space to new tenants. REITs' thwarted plans to introduce gyms and medical offices to their centers — the types of tenants that don't compete with the Internet — were often shot down by department stores. Anchors have also objected to changes in exterior signage and are extremely possessive of their parking areas. Landlords, out of frustration, have been known to pay department stores as much as several million dollars for their cooperation, according to sources.How much leverage is exerted by each side and how much one party concedes to the other, is subject to market changes. "The leverage game has turned the tables," said Robert K. Futterman, founder and chief executive officer of RKF. "In three to five years, tenants will have the option to trigger co-tenancy agreements, which could come into play if sales or occupancy at a mall doesn’t reach certain [sales] levels projected by developers. Projects like Hudson Yards, the Seaport District and Brookfield Place will be affected."
Saks Fifth Avenue in 2014 closed its store at the Shops at Riverside in River Edge, N.J., in anticipation of opening in 2017 a full-price store and Saks Off 5th unit at American Dream, the long-delayed 3 million-square-foot shopping center-cum-amusement park under construction in the Meadowlands. Hermès announced it would leave The Shops when American Dream bows. Louis Vuitton, which was rumored to be exiting, continues to operate, but Burberry and Boss closed units at The Shops.
Some REITs use an anchor's closure as an opportunity to remerchandise the center. The Shops owner Simon Property Group embarked on a multi-pronged redevelopment that replaced Saks' square footage with a new Cheesecake Factory and AMC dine-in theater. The Shops has said it's counting on the upgrades to boost the luxury quotient of the mall to 50 to 55 percent, from 35 percent.Proposed in 2003 by Mills Corp., American Dream is being completed by Mall of America owner Triple Five. The $5 billion behemoth, whose opening is now set for 2019, has been beset by financing delays, lawsuits and work stoppages. American Dream is planning its own luxury zone. Upscale tenants that signed leases on the basis of Saks Fifth Avenue opening as an anchor, could defect if Saks loses patience with the project. That happened when an earlier roster of tenants, including Cabela's, backed out. Green Street Partners said Triple Five has a "deep hole to dig out of. It doesn’t mean it can’t be done. But which retailers will step up and be part of the solution remains to be seen.”
Back in Manhattan, Neiman Marcus will downsize its flagship at the Shops & Restaurants at Hudson Yards, a $25 billion project rising on Manhattan's West Side, could have implications for other retail tenants at the seven-level urban mall.
"We have a signed lease for three levels and progress continues on the buildout," said a spokeswoman for Related Cos., Hudson Yard's codeveloper. Neiman's originally announced that its store would have a footprint of 215,000 square feet. The Dallas-based retailer in October said it had adopted a more efficient layout for non-selling space, allowing it to revise the size to 190,000 square feet.Reports that WeWork will lease space on Neiman's third floor were dismissed by Hudson Yards. "We aren't talking to WeWork," the spokeswoman said. However, a guest at a recent event for brokers was told that "WeWork would attract different clients than traditional Neiman's clients. It would provide 8,000 potential shoppers and add diversity because it’s temporary, movable office space."The Shops, which was expected to bow in fall 2018, has postponed the opening until spring 2019. “We refined the opening date of the Shops & Restaurants months ago and communicated with our tenants after reviewing the schedule of the entire project, to better align it with the completion and occupancy of other buildings,” the Related spokeswoman said, referring to 15, 30 and 35 Hudson Yards. “We want to ensure a broad customer base and that the full collection of restaurants and retailers will all open at the same time and offer a full experience for visitors, residents and employees.”"Many of the deals in new projects have co-tenancy clauses that require a certain group of people to make a commitment," said David LaPierre, vice chairman of global retail services at CBRE. You've got a battle if some of those contingencies aren't being met."The Natick Mall in Natick, Mass., is a cautionary tale about wooing high-end tenants with an "if you build it, they will come" philosophy. Mall owner GGP in 2007 convinced Nordstrom and Neiman Marcus to open units at Natick, and on the basis of those deals, built a new wing for other upscale tenants, renaming the center the Natick Collection.J.C. Penney in 2015 closed its store at Natick Collection. No one expected that Neiman's would be struggling under crushing debt and closing 10 off-price Last Call units. "Now, Neiman's isn't the draw it once was,” said Jeffrey C. Paisner, partner, Ripco Real Estate Corp. “Who will want to fill the space [in the wing] leading to Neiman Marcus?"Natick Collection's multimillion-dollar 500,000-square-foot expansion was unveiled in fall of 2016. After a brisk holiday season, traffic reportedly slowed significantly. While Nordstrom is doing well, the large luxury wing is often an echo chamber devoid of customers. Piazza Sempione pulled out of the project, and other vacancies have retailers concerned.Taubman Centers filed a complaint with the Puerto Rico Superior Court against Saks Fifth Avenue earlier this month for failing to rebuild its store at the Mall of San Juan following Hurricane Maria, which ravaged the island in October. Extensive damage from the category 4 storm will prevent Saks and Nordstrom from reopening until well into 2018, said Robert Taubman, chief executive officer. But while Nordstrom is making progress, Saks hasn't, and Taubman alleged Saks hasn't made temporary repairs to cracks on its roof or addressed mold and water damage.If Saks doesn't start repairs soon, "it will have a devastating effect on the mall and other tenants who depend on Saks Fifth Avenue to generate traffic and therefore business for their stores," said a complaint filed in Puerto Rico Superior Court. The anchors signed agreements with Taubman promising to rebuild and reopen their stores as quickly as possible.Tensions like these, between mall owners and retailers, have been become more common since Internet's steady rise, with each side blaming the other for the tough business climate, store closures and declining traffic.Tenants at downtown Manhattan's Westfield World Trade Center have had to deal with water leaks and ongoing construction. Several stores closed, including Kit & Ace, which exited the U.S. to focus on Canada, and Michael Kors Holdings Ltd., which is shuttering 100 to 125 units over two years. "Westfield World Trade Center is challenged," Futterman said. "Bebe closed and Victoria's Secret is not happy and would like to get out of its lease. The food at the World Trade Center is underground, which is a problem."“Clearly, retailers are holding the cards these days. There's not a lot of velocity in retail leasing right now," said Paisner. "Even those retailers that are doing well are wary about opening new stores. The underlying foundation is crumbling right now."Luxury brands tend to create moats around themselves with co-tenancy clauses that stipulate adjacencies and nearby tenants be of equal footing. Stephen Stephanou, a principal at Crown Realty Services, said client APM Monaco, was shut out of the Houston Galleria by luxury brands' co-tenancy requirements. “Traditionally, Chanel, Hermès, Prada and Gucci have a lot of leverage," he said. "The malls try to ‘buy them in.’ Their leases are well negotiated and have all sorts of protections.“APM Monaco wants to open stores near luxury players,” Stephanou said. “This is APM Monaco's initial rollout, and their co-tenancy agreement states their desire to be in close proximity to high-end brands. The challenge in shopping centers is that a bunch of luxury brands also have co-tenancy requirements. The Houston Galleria said it can’t position APM Monaco beside pure luxury."Stephanou nonetheless finds landlords "more receptive to working on challenges, because retail keeps contracting and the number of retailers actively opening stores has declined.”“I insist on co-tenancy agreements for retailers going into troubled properties,” said a retail broker. “I even insist on them for the good properties. The retail climate gives tenants ammunition. It’s more of a fight with landlords than it used to be when it was more of a matter of course. It becomes such a house of cards when a center loses a department store. Landlords are saying, ‘Don’t make us replace a department store with another department store,'" as some specialty retailer co-tenancy agreements stipulate. "We’ll do a restaurant or iPic movie theater — anything, but a department store.’”When two department stores closed within a year of each other at Ridgmar Mall in Fort Worth, Tex., business at the center started to decline. Macy's was shuttered in early 2016, while Neiman Marcus moved to the Shops at Clearfork, where it unveiled a new ground-up construction featuring an open selling concept that's an incubator for its Hudson Yards flagship. Ridgmar, however, suffered from online's growing popularity and competition from newer centers in the trading area such as Clearfork. According to Trepp, which tracks CMBS loans, Ridgmar lost 40 percent of its stores following the anchor closures.
"Those departures have weighed on the property's performance, with the special servicer noting that NOI has decreased significantly since loan origination, due to the loss of Neiman Marcus and Macy's and the subsequent departure of the inline tenants," Trepp said, quoting the loan's special servicer. Rather than replace the anchors with more retail, Ridgmar moved in a different direction, leasing 28,000 square feet to Seaquest, an interactive aquarium. The center's owner, GK Development, plans to build residential and introduce new restaurants to stem the traffic and sales declines.
In honor the @CFDA’s announcement of @iamnaomicampbell receiving the Fashion Icon Award at the 2018 #CFDAAwards, which will take place on June 4, here’s a #tbt of the supermodel on @michaelkors’ runway in 1991. #wwdfashion #wwdarchive (📷: George Chinsee)
“I was making the guacamole when my scout saw me,” says model @stuckinteenage on being discovered just six months ago while working at @chipotlemexicangrill. Since then Williams has signed with @dnamodels, walked in her first show at @calvinklein and landed on the cover of @vogueitalia – a high point of any model’s career. To read @lisajlockwood’s full interview with the model on her experiences thus far, head to WWD.com – link in bio. (📷: George Chinsee)
“I love the idea of dialogue, period. It’s where I’ve always gotten my inspiration from: hearing other women speak, their journeys and their paths,” said @hereisgina, who delivered the keynote speech during @sxsw for @createcultivate in partnership with @fossil. For her two panels, Rodriguez chose female empowering, female-led and female entrepreneurs to focus on. Head to WWD.com to read more about her thoughts on Time’s Up, growing up in a family of women and why we “need a girls’ club.” #wwdeye #sxsw (📷: @jgreenery)
Leading luxury brand are shaking things up to keep up with streetwear. Case in point: the arrival of @mrkimjones as artistic director of @diorhomme. Jones, who succeeds @Kris_Van_Assche, is seen as one of the handful of designers who can actually straddle the luxury and streetwear worlds — which could lead to even more changes at established brands. What could this mean for the rest of the menswear landscape? Head to WWD.com to find out what experts predict #wwdfashion (📷: @franckmura)
“It’s like buying groceries. You’re going to buy the best mango, the best mozzarella, the best things. You have to, or others are going to take it all,” said @gabrielahearst on why she uses only the finest fabrics. Last week, Hearst received her first @cfda nomination for Womenswear Designer of the Year, and earlier this month she opened a permanent showroom in Paris. To read @jessiredale’s interview with the designer and find out why this is shaping up to be a big year for her, head to WWD.com. #wwdfashion (📷: @francoisgoize)
“It’s an interesting thing, playing a younger version of your mother. It’s an interesting concept. I adore my mom and love her in every capacity, but it was just something that had never crossed my mind,” says @anniemstarke on playing a young Joan Castleman in “The Wife.” The same role will be played by her mother Glenn Close. Read more about her growing up in the film industry as the daughter of producer John H. Starke and Close and what she has planned for the future #wwdeye (📷: @nataliamantini)
@asics is launching a new streetwear sneaker inspired by its latest ambassador, @steveaoki. The Hyper-Kenzen x Aoki, which will launch at @footlocker stores exclusively tomorrow, is a slip-on style that incorporates the brand’s proprietary Gel technology through beads integrated into the midsole for comfort and endurance. Read the full story on WWD.com.