An article on Bloomberg.com states that Starbucks Corp. is asking some U.S. landlords for a 20 to 25 percent reduction in lease rates. The Seattle-based company, which is the world’s largest coffee-shop operator, began rent-reduction efforts in January as part of an overall expense-lowering plan. Starbucks is attempting to curb plunging profits, after reporting a 69 percent year-over-year decline in its fiscal first quarter earnings.
In April, the company announced that it was expecting to lower total costs by $500 million in the fiscal year that ends in September, including amounts paid for labor and food. Starbucks–which has said that it anticipates closing 300 cafes this year–has been negatively impacted by an economy in which consumers have reduced purchases of premium coffee.
The rent-reduction initiative is targeting the U.S. stores operated by Starbucks, which totaled 7,035 as of March 29. Excluded are the more than 4,400 stores in airports, supermarkets, and other licensed locations. Specific figures on either the number of leases being renegotiated or the size of the requested reduction are not available.
According to Tara Darrow, a Starbucks spokeswoman, “We’re taking advantage of the opportunity in as many cases as we can. We feel like it’s a positive program for us. Most of the landlords we’ve worked with have felt it is a mutually beneficial situation.”
Faith Hope Consolo, chairman of Prudential Douglas Elliman’s retail leasing, marketing and sales division, is advising landlords to work with Starbucks on lowering rent. The hope is that the retailer will remain a tenant.
This is preferable to the alternative of having a dark store, which reduces traffic, she states.
A trend noted by Hudson Riehle, senior vice president of research at the National Restaurant Association, is that landlords are offering lower rents in exchange for longer lease terms. “In this recession, compared with the last one, we do see developers and owners being much more willing to work with the operators to make sure the restaurant remains where it is,” he says.
“It’s much more of a partnership than it used to be.” He indicates that landlords hope that lower lease rates will enable tenants to remain open.
According to a May 19 report from Moody’s Investors Service, commercial real estate values have declined 21 percent through March from the level a year ago. They anticipate a further fall in prices. Reis Inc., a real-estate research firm based in New York, notes that vacancies at malls and shopping centers rose to 9.5 percent in the first quarter. This is the highest level in a decade, reflecting the closure of both stores and restaurants.
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