Tapestry Inc (TPR.N) Chief Executive Officer Jide Zeitlin has been negotiating lower rents for the company’s Coach and Kate Spade stores for more than a month, using the brands’ power to draw in U.S. mall traffic as leverage in tough talks with landlords.
The company, whose handbags have won it a place among the big names of the fashion world, is just one of a raft of major U.S. retailers seeking to lower rent bills to make sure they have enough cash to weather the COVID-19 pandemic.
But with thousands of stores closed under strict lockdown measures and multiple national retail chains crumbling, mall operators’ rent collections have collapsed, raising doubts about their future.
Mall operators collected only 15% of April rent and trends are looking worse for May, according to CenterSquare Investment Management, which specializes in real estate.
After a decade of change that has shaken up the U.S. retail landscape and driven some out of business, Zeitlin says mall rents need to fall anyway for retailers’ brick-and-mortar strategies to make sense.
But the talks are still “challenging and difficult” and he has a warning for his landlords: “What they need to do is be really thoughtful about not killing the goose that lays the golden eggs,” he told Reuters last week. Retail rents in the United States have increased by 2.6% a year over the past three years, and currently average $21.80 per square foot, according to real estate analytics company CoStar Group (CSGP.O). However, the coronavirus crisis has lead the firm to estimate retail rents falling anywhere from 8% to 13% in 2020.