Genesco’s Loving the Landlords
By Tom Ryan
Genesco Inc., the parent
of Journeys and Lids, is clearly enjoying the leverage it’s gained on landlords
in the downturn. Besides outright rent reductions, CEO Bob Dennis said
money is being saved on remodels, new store openings and even in store
Speaking at Piper Jaffray’s retail
conference in New York City this week, Mr. Dennis said that for the first
time in "many, many years," rent per square foot is growing slower
for the company than its total square footage.
In terms of rent cuts,
Mr. Dennis noted that the company had renegotiated 181 leases across its
store base that were up for renewals or had kickouts in
2008, 2009 and 2010. Across the 181 lease renegotiations, Genesco received
a five percent reduction in rent on an accounting basis. On a cash-on-cash
basis, the reduction was in the double-digits. Mr. Dennis said, "That’s
a sizeable reduction after seeing rents going up greater than comps for
years." With 1,000 stores up for renewal or having a kickout clause
over the next three years, Genesco expects to pick up 30 basis points in
operating margin improvements.
In conversations when
closing unprofitable stores, Genesco has been able to achieve "very
meaningful" rent reductions as landlords have become more eager to
keep stores from going dark.
Meanwhile, the cost of
remodeling stores has "gone down dramatically." Although this
is partly because contractors are more flexible around pricing in the current
environment, the bigger reason is because landlords have become
"much more flexible." In the past, landlords would demand the latest
– and often most-expensive – upgrades in remodels, but have softened
those stances. "Now we’ll remodel with a little paint and carpet, which
is the right answer now from an economic standpoint," said Mr. Dennis.
new stores, Genesco is opening significantly fewer stores in 2009 than
last year, but the stores being opened are negotiating attractive lease
rates. Both its Journeys and Johnston Murphy chains are either getting
into malls that were unreachable before or accessing better spots in some
malls – both at attractive terms.
However, a Reuters article implied that landlords weren’t
doing enough to offer concessions to avoid vacancies. In 2008, the amount
of space occupied by U.S. retailers fell for the first time since 1980
and has yet to recover, according to research firm Reis.
In the article, Nina Kampler,
executive vice president at Hilco Real Estate, said she expects more retail bankruptcies
ahead as consumers file for personal bankruptcy. This could lead to another
rash of store closings that could further squeeze landlords.
"The consumer is disincentivized by
a dark miserable experience," Ms. Kampler said. "It
is depressing to be in a place where nobody else is."
How might the shift in leverage from landlord to retail tenant in lease
negotiations reshape the retail climate, particularly the mall? How should
retailers look to further capitalize on any newfound rent leverage?
Does it seem that landlords are doing enough to keep stores from going
- Retail landlords need a
"reality check" – Reuters
- Genesco at Piper Jaffray Consumer
Conference – Genesco.com (Webcast)