—The following is an excerpt from an article published in “Real Estate Investment Smartbrief” on March 24, 2021.
Rents based on percentage of sales leave room for interpretation as line between online and store sales blurs
Fashion retailer Pinko has signed a yearlong sublease in Manhattan for $30,000 a month or 15% of sales, whichever is greater. —By Suzanne Kapner and Esther Fung
Stores are reopening and customers are streaming back in, which means retailers that withheld rent during Covid-19 shutdowns are now able to pay. But first they have to agree with their landlords on how to define a sale.
Landlords are increasingly offering deals in which retailers pay a percentage of their monthly sales in rent, rather than a fixed amount. Percentage-rent leases give retailers breathing room when sales decline and allow landlords to reap the upside when sales recover.
But there is a sticking point.
With e-commerce soaring, some landlords want to include a portion of online sales in the new leases, arguing that physical stores play an important role in many of these transactions. Retailers are pushing back, according to landlords, real-estate brokers and retail executives.
“We’re just looking not to get hurt when they do sales” if the store is involved in that sale, David Simon, chief executive of Simon Property Group Inc., the country’s largest mall owner, told analysts in February. “If the store interaction is important to [retailers], we don’t want our sales to be reduced because the store is providing a service,” Mr. Simon said.
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