Rate reductions and negotiating tactics

Today’s Retail Wire discussion talks about Sleepy’s, the mattress and bedding store that recently demanded a 25% rent reduction from its landlords and developers. My comments below:

Sleepy’s course of action is one extreme; it’s a familiar negotiating tactic to raise expectations higher than what you realistically expect to gain. There is nothing wrong with retail tenants asking for concessions but they should expect to handle these on a case-by-case basis. Leases are legal agreements, after all, and shouldn’t be taken lightly unless a retail tenant is prepared to declare Chapter 11 bankruptcy.

A more reasoned approach to lower occupancy costs probably requires a case-by-case approach. What are the vacancy rates in the particular development where concessions are needed? Has the landlord lowered lease rates for other tenants? Does a cost-benefit analysis show the developer that lower lease rates provide a win-win outcome by helping the retailer stay viable? A nuanced, well-researched approach to the issue of lower rent expense may pay more benefits than the more blunt tactics of Sleepy’s.

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