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Keep Sales Out of Leases Altogether, Some Retailers Have Said

Photo Courtesy of Konstantin L.

Even as more retail leases take on percentage rent clauses in the wake of the pandemic, some retailers don’t think sales should factor in to leases at all.

“The concept of tying rent to gross sales is antiquated,” Ulta Beauty vice president of real estate strategy Maria Toliopoulos said at ICSC’s RECon Digital. “You’re seeing so many more retailers use space for various different reasons.” Retailers are currently charged the same rental rate for back-of-store space used for warehouse purposes as for customer-facing selling space. There’s also the contentious issue of accounting for online sales and returns. “The sales concept gets so muddy and takes up so much time,” she said. “I don’t think it’s as useful as it was 10 or 15 years ago.”

Leases should be more about operations and the use of the real estate, said Target vice president of real estate Laurie Mahowald. Her more fruitful negotiations with developers and landlords are with those who understand how retailers’ stores fit into their omnichannel sales ecosystems, Mahowald said. “Understand how retail is changing so that when you’re negotiating a lease, it’s going to be so much easier and positive for both sides to create a win-win situation.”

Source: 2021 ICSC.

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