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Retail Law Advisor

Preparing for a Retail Storm

Posted in Liability, Retail, Retail Sales, Risk Management, Technology

In the past few years, we have seen increasing temperatures, rising sea levels and extreme weather across the globe. According to NASA, 2016 was the hottest year on record and 2017 was the second warmest year on record. In 2017 alone, the world witnessed massive heat waves in the Arctic and Australia, dangerous droughts in Somalia and horrific hurricanes in North America and the Caribbean, just to name a few. As erratic weather promises to continue, businesses, including retailers, are taking note. In fact, the Center for Climate and Energy Solutions found that 90% of the multi-national, blue chip companies on the Standard and Poor’s Global 100 Index recognize climate change as a major risk to business.

Demand for products has always been driven by fairly predictable seasonal weather, both in brick-and-mortar stores and online. It seems obvious that colder weather boosts the sales of things like boots and snow removal products while warmer weather increases sales for sun care products and outdoor lighting. Planning tends to become more difficult when weather becomes less predictable. For example, when people are stuck at home due to winter storms, e-commerce sales do not increase like one may think; instead, when people are home from work, they are busy dealing with things like power outages and household chores, and are not online shopping like they may have been at their desks in the office. What becomes even less obvious is how to plan for extreme weather conditions.

Extreme weather, like storms or wildfires, has the potential to disrupt supply and distribution chains, cause inadequate staffing, render products too scarce or abundant and distort prices. Loss in revenue due to store closures or decreased foot traffic is business that is rarely made up. In fact, atypical weather disrupts the operational and financial performance of 70% of businesses throughout the world and weather variability is estimated to cost the United States about $630 billion each year. Small businesses and new businesses are especially disadvantaged by extreme weather.

Retailers historically plan for the year ahead based on the seasons. As businesses grapple with extreme weather, though, companies are understanding the value in weather prediction services. After all, the prior year’s weather is only an adequate indicator of the next year’s weather about 15% of the time. By utilizing weather data and analytics, retailers hope to better understand how weather affects customer traffic, sales, staffing, production and pricing.

Lucky for retailers, weather forecasting programs have also become more accurate, thanks in large part to artificial intelligence (AI) which enables researches to analyze massive amounts of weather-related data faster and more efficiently than ever before. IBM’s Deep Thunder, for example, utilizes weather, location and traffic data to predict the weather and therefore assist businesses in making smarter and more informed decisions ahead of time. Interestingly, IBM bought The Weather Company in 2015 to access its data in conjunction with Watson, IBM’s AI platform.

Similarly, there are weather-focused consulting firms that encourage companies to quantify the impact of weather on their businesses by measuring the impact across time and location. Weather-based sales distortions can then be removed from the company’s sales history to create a baseline for planning purposes. In a report by the National Retail Federation (NRF) in partnership with Planalytics, NRF found that businesses that remove the historical impacts of weather from their sales history can drive a 20-80 basis point annual improvement in profitability in inventory management alone.

As extreme weather continues to disrupt the globe, businesses will undoubtedly need to consider ways to develop more weather forecasting technologies and weather-focused planning services.

Credit Card Evolution: Goodbye John Hancock

Posted in Banking, Restaurants, Retail, Retail Sales, Technology

For years, the signature requirement for completing a credit card transaction has felt something like an obsolete means of confirming a user’s identity. Effective this month, however, four of the country’s largest credit card providers: American Express, Discover, Mastercard and Visa, will no longer require a signature to complete a purchase via credit card. The change is considered optional, leaving much discretion in the hands of retailers as to whether or not to require a signature. As a result, consumers may see inconsistent approaches in the marketplace.

Credit card companies, which generally cover the cost of fraudulent credit card transactions, were prompted to remove the signature requirement primarily by an enhancement of security that came with the chip-and-PIN card technology. In 2014, consumers saw the transition retailers made from accepting magnetic credit card strips to requiring updated chip-and-PIN technology for all credit card transactions, primarily as a result of a shift in fraud liability to merchants who did not adopt the new technology. Most consumers initially experienced this in the awkward form of swiping, then inserting the chip, then removing it too soon, all while holding up the line at the local coffee shop. Yet, the intent behind the change was a bit more sophisticated: such “chip cards” produce an encrypted mathematical code that is unique to each transaction, which makes counterfeiting stolen data much more difficult for would-be fraudsters.  While both retailers and consumers experienced some growing pains during the transition, chip cards now seem to be the near universal method of credit payment.

Dropping the signature requirement can be expected to have unintended consequences on particular retailers, namely in the hospitality and service industries. Typically, when paying at a restaurant, for example, the opportunity to add a tip to the check occurs when the credit card and check are returned to the customer for signature. By removing the signature requirement, we can anticipate that some patrons may unintentionally neglect to complete that step. Similar consequences can be expected for employees of industries that rely heavily on tips, such as bars, cosmetic salons and hotels.

Thus, these industries should use great care in choosing to implement the signature-free payment method, particularly when considering the effects it may have on the income of employees. One solution may be an enhanced reliance on the consumer interface: offering, for example, a tip input feature prior to the swiping of the credit card, as is already the practice in many taxi cabs. Alternatively, we may see these industries choosing to retain the signature requirement so as not to lose significant income for their employees.

These changes conform to a growing movement toward more secure methods of payment, a trend in which the United States seems to be a step behind many other developed countries. The EU had already been mandating the chip cards for years before the United States followed suit, and countries like China have been trending toward exclusive mobile payment methods like WeChat Pay and Alipay. Finally, with an increasingly present use of biometric data as a means of both collecting information and providing security, a Jetsons-like era of fingerprint and facial scanning to confirm identities of credit card users may not be such a fictional idea after all. As the nature of payments continues to evolve, retailers should be mindful not only of the unintended consequences their employees may face, but also a continued, and seemingly never-ending, need for enhanced data security.

Pop-Up Stores- From Mall Kiosks to Dedicated Mall Spaces

Posted in Pop-up Retail, Retail

It seems that everywhere we turn, there is another story about how the traditional, enclosed shopping mall is facing a slow and painful death. Big box and other brick and mortar stores are closing, and mall landlords are desperate to fill increasingly empty space. To do so, landlords are continuously attempting to cater and adapt to what the consumer wants. In today’s landscape, it seems the consumer wants pop-ups. But where does that leave the kiosk – the original pop-up store?

Mall kiosks as we know them have not enjoyed the best reputation. Known for tactics that make shoppers avoid them at all costs and for selling kitschy seasonal items, kiosks are generally not our main reason for taking a trip to the mall. The kiosks of ten, or even five, years ago meant small carts with little room for creativity or inventory that were susceptible to peak season rent increases. Despite these drawbacks, kiosks have served an important purpose for both landlords and retailers – allowing landlords to utilize otherwise dead space in the mall, and enabling retailers to test out new brands and concepts without a major investment in a long-term lease and a full-store buildout. Today, mall owners looking to include new and exciting concepts and retailers in their centers are utilizing pop-ups to do just that.

Pop-ups allow malls to bring in new, innovative, and buzzworthy brands at a time when malls are in need of a boost. Some malls are even dedicating permanent spaces, formerly occupied by traditional brick-and-mortar retailers, to various rotating pop-ups. Simon’s Roosevelt Field Mall, for example, now contains a 3,500 square foot section called The Edit where brands have the chance to feature their products and services in a temporary home within the mall.

With the pop-up store’s growing importance to the viability of the shopping mall, kiosks are seeing a bit of a revitalization. Dedicating large spaces to dozens of small, rotating pop-up retailers may make some landlords, who prefer the stability of traditional retail leases and long-term tenants, uncomfortable. That’s where kiosks come in. Landlords have already been catering to the growing needs of kiosks by running electricity and improved lighting to kiosk carts. These simple improvements have given kiosks greater control over how they showcase products and even how they charge clients. While the lifespan of a pop-up can range anywhere from days to months, kiosks can be let for somewhat longer terms, providing reluctant mall landlords with more comfort and stability.

The dedicated pop-up space has one important advantage over the pop-up kiosk, however: flexibility. When new brands come into a dedicated pop-up space—usually a blank canvas—they have the ability to design and transform the space to fit their brand and tell their story. With a kiosk, flexibility and creativity are limited by the size and space of the cart and the amenities and utilities available to it. As a result, while kiosks may have addressed some pop-up needs until now, it seems quite likely that pop-ups are here to stay and storefronts turned pop-up spaces will be the future.

Following An Evolving Retail Scene In New York City

Posted in Landlords, Leasing, Real Estate, Retail, Tenant

New York City, one of the world’s premier shopping destinations is about to get over one and a half million square feet of new retail space. Some will be delivered to Long Island City, an area that has been waiting for a retail resurgence for over 2 decades, and more will be constructed as part of a planned development dubbed “Hudson Yards” on the far west side of Manhattan. How will this influx of retail square footage affect the retail landscape, especially with uncharacteristically high vacancy rates in prime retail corridors in Manhattan?

Long Island City has long awaited attention from retailers – its distinct lack of stores is a problem for the area. When Citigroup built the tallest building in Queens at 1 Court Square in 1989, the building was hailed as the start of a new era. Common thinking was that the new tower would kickstart development, which would mean retail. Even as more offices and residential towers are built, a commensurate increase in retail has not followed.

Maybe the lack of retail growth in Long Island City stems from the fact that there wasn’t much retail to begin because Long Island City was traditionally an industrial neighborhood. Since retail attracts more retail, it is hard to get it if you don’t have it. Additionally, when you bring retail to a “pre-existing” area, zoning changes, vacancy rates, demographics, and tenant mix are dealt with over time and each play an integral role in the type of space that will become available and the type of tenant that will be attracted to the area.

Whatever the reason, a new dawn may be approaching for retail in Long Island City. Long Island City has the infrastructure it needs to support retail, multifamily development in Long Island City is outpacing the rest of the nation with approximately 22,000 new residential units planned, and more than 465,000 square feet of retail development is anticipated by 2020. As fitness, medical and educational tenants are filling up vacant retail spaces, there is a sentiment that these “first wave tenants” are a sign that restaurants and big box stores are sure to follow, and residents appear to be ready for the next wave of retail. In a survey of 1,300 Long Island City residents, restaurants, pharmacies, and grocery stores were identified as top retail needs for the neighborhood.

Unlike Long Island City, Hudson Yards, a 28-acre mega-development on the far west side of Manhattan was planned from day one to be a “mini city”. The area will have the residential, office, and schools that Long Island City has, but this “mini city” is planned with retail as an integral part of the design. Factors such as tenant mix, access, and demographics were carefully curated from day one giving retailers a certain comfort that they will have a sufficient customer base.

Hudson Yards will be home to a retail area dubbed “The Shops & Restaurants at Hudson Yards” and will house Neiman Marcus’ first New York City Location. It is scheduled to open in late 2018, and already over half of the 1,000,000 square feet of retail is leased.  Although the tenant mix is not complete, 20 percent will be luxury retailers, with mid luxury, fast casual, and restaurants – some by well-known restaurateurs, rounding out the mix.

It will be interesting to see how the retail scene in New York City evolves over the next 3-5 years, since as of the end of 2017 vacancy rates on in prime retail corridors remained high – 24.3% on Fifth Avenue between 49thand 60thStreet, and 21.9% in Soho, well above the 5% “healthy rate”. Will The Shops & Restaurants at Hudson Yards become a more compelling venue for retailers traditionally housed on Fifth Avenue, Madison Avenue, and Soho? Will the influx of residents to Long Island City and Hudson Yards help boost retail throughout New York City?  Will Long Island City retail finally have its moment?

Bankruptcy Lease Auctions – Landlords Can Play Too

Posted in Bankruptcy, Leasing, Real Estate, Retail

Toys “R” Us filed for bankruptcy in September 2017, with hopes that a strong holiday season would facilitate a successful reorganization. After holiday sales proved to be far less lucrative than the company and its professionals had hoped, the announcement was recently made that the company would commence store closing sales at all 735 of its U.S. stores. What this means for the many landlords affected by the Toys “R” Us bankruptcy filing is that a probable anchor tenant in their center is at imminent risk of going dark, which may trigger co-tenancy requirements. However, Toys “R” Us is also pursuing the sale at auction of certain of the commercial leases in the company’s portfolio.

A bankruptcy lease auction process enables a prospective purchaser to pay to take assignment of a lease without having to obtain landlord consent (though such a purchaser would have to adequately show that, at a minimum, it will be able to perform the obligations of tenant under such a lease). Given the tenant-friendly terms of many anchor leases, which are oftentimes on the tenant’s lease form, an anchor tenant lease sale may be the perfect scenario for an opportunistic retailer looking to quickly expand its physical presence in the marketplace (Amazon.com being one retailer that has been rumored to be interested in certain Toys “R” Us leases).

At risk in this process are the landlords who may be forced to live with a tenant for whom they did not bargain (under lease terms that may not have been offered to such a tenant) for, possibly, many years to come. If the lease is for space within a “shopping center” within the meaning of the Bankruptcy Code, a landlord may take some comfort that the Bankruptcy Court should not approve the sale of its lease if, in doing so, the exclusive use restriction of other of its tenants would be violated, the use is not permitted by the use clause in the Toys “R” Us lease or if the tenant mix of the center will be disrupted. However, these protections may not be supported by the lease language and, regardless, seeking the mercy of a court is never a sure path to victory. So what is a more viable option for a landlord focused on retaining retain control over its center? Bidding for the termination of its own lease at auction.

Last week, the Bankruptcy Court approved bidding procedures for the sale of as many as 157 of the Toys “R” Us debtors’ commercial leases and the auction is scheduled to take place tomorrow. Landlords were authorized to submit a bid (the deadline was Monday) to terminate their own lease(s) by “credit bidding” the amount of existing arrearages, which is effectively a claim waiver. If there is a competitive bidding process for a lease, a landlord may ultimately have to include a cash component as part of its bid, but a credit bid alone may be sufficient to secure the landlord a seat at the auction table, which is the best way to monitor the process to see who is out there bidding for a lease and what consideration is being offered. Landlords should be cognizant of the fact that there may be a bidder at auction who is prepared to offer a bid for a package of leases, which may be too valuable for the estate to break up for the sake of doing a one-off transaction with a landlord. And, of course, there may be a bidder who is simply willing to pay more for a lease than is a landlord. That said, if a landlord is worried about the fate of a lease, particularly that of an anchor tenant such as Toys “R” Us, the best first line of defense is for such landlord to submit a bid so that it has the opportunity to be the successful bidder for its own lease at auction.

No Relief in Sight from Website Accessibility Lawsuits

Posted in Retail, Technology

In February 2017, we reported on a surge in website accessibility lawsuits brought under the Americans with Disabilities Act (“ADA”). This litigation trend has accelerated over the past year and shows no signs of slowing down.

Title III of the ADA prohibits discrimination against disabled persons in places of “public accommodation.” Generally, businesses that provide goods or services to the public must provide disabled individuals with the same type of access to those goods and services as they provide to individuals who are not disabled, and must remove certain existing barriers to access. Although the ADA was enacted long before the ubiquity of websites and e-commerce, retail and hospitality businesses are targeted frequently with claims that their websites (and mobile applications) are inaccessible to blind and visually-impaired individuals.

These website accessibility claims present a challenge for businesses because, despite earlier efforts, the Department of Justice has not issued guidelines or promulgated regulations for website accessibility. In this void, plaintiffs and courts have increasingly looked to Web Content Accessibility Guidelines (“WCAG”) developed by a private standards setting organization. The WCAG, however, has not been adopted in an administrative rulemaking process and does not establish legal requirements for ADA compliance.

Typical defenses to website accessibility claims include arguments that websites are not public accommodations and that the WCAG cannot be used in place of regulatory rulemaking. A few court decisions appeared to support these defenses, with rulings that the ADA did not apply to websites or that only minimal accessibility features were necessary for compliance. Currently, there is a case pending in the Ninth Circuit Court of Appeals, which has jurisdiction over Alaska, Arizona, California, Idaho, Montana, Nevada, Oregon, and Washington, challenging the applicability of the ADA to websites and use of the WCAG on constitutional due process grounds.

Those court decisions are outliers. Many courts have allowed website accessibility claims to proceed under the ADA where a “nexus” exists between the physical place of public accommodation and the particular website or mobile application. As a result, websites or mobile applications which enable the public to purchase, view, or reserve goods and services should be considered as within the ADA’s scope. In addition, courts increasingly have incorporated or approved the WCAG as a website accessibility standard. For example, in June 2017, the first trial concerning website accessibility concluded in a Florida federal court. The defendant, Winn-Dixie grocery stores, was ordered to comply with the WCAG. More recently, in August and December 2017, a New York federal court held that the ADA and state civil rights laws applied to Blick Art Materials’ website and approved a class settlement agreement requiring Blick to implement the WCAG. In this decision, the court explained that the specific WCAG 2.0 Level AA standards provide “adequate controls to allow visually impaired individuals to access the Internet …. In the absence of competing standards, and through demonstrating that the standards are nearly universally accepted as providing adequate access to the visually impaired, the court can appropriately accept the present guidelines as presently adequate.”  Andrews v. Blick Art Materials, LLC, Case No. 1:17-cv-00767, Doc. #42 at 33 (S.D.N.Y. Dec. 12, 2017).

Businesses should take notice of the growing number of website accessibility lawsuits and majority view that the ADA applies broadly to websites and the WCAG provides accessibility standards. Although the lack of clear regulations raises multiple questions about the scope of required website accessibility measures, a proactive approach to accessibility should help businesses reduce the risk of being targeted by a lawsuit.

#Trending: Omnichannel Loyalty and Leveraging Social Media Channels

Posted in Retail

Technological advancements in the current digital age allow consumers to browse and buy products on smartphones and tablets, bringing an unlimited number of retail options to their fingertips—literally. Thus, in an effort to distinguish themselves, many brands are adopting omnichannel-based customer loyalty programs in favor of more traditional programs. Omnichannel loyalty is the practice of providing customers with seamless connection to a brand across all possible media, while simultaneously rewarding those customers for purchasing and engaging publically with the brand. These loyalty programs have significant long-term value because they serve to develop customer relationships, which ultimately leads to customer retention.

What constitutes all possible media in 2018? While traditional print, broadcast and online address channels are still important and necessary to an omnichannel approach, an increasing emphasis has been placed on socially driven engagement strategies due to the success of social media platforms and their 24/7 accessibility on our technology devices. Websites and mobile applications like Facebook, Instagram and Twitter are helping brands develop a social strategy, which, when implemented effectively, can improve customer experience. These newer channels work to create a digital community where retailers can interact with customers in real-time, allowing them to provide a desirable level of personalization in shopping and rewards programs. Additionally, customers can provide feedback to other customers or the general public, and are often motivated to do so. Posting a “selfie” online used to be a way to show off your newest clothing and accessories, however, through hashtag marketing and loyalty campaigns, the pictures and comments you post on social media channels might actually help you save money or gain access to exclusive offers and discounts in the future.

The effectiveness of strategic omnichannel loyalty is best illustrated by its impact on millennials. That’s right. While they might get a bad rap for their participation trophies and avocado toast, millennials are fiercely loyal, with over half of the generation saying that they are “extremely or quite loyal” to their favorite brands. This emotional loyalty is significant because it translates directly into dollars and cents for retailers. In fact, a recent study suggests that customers are willing to spend money on brands to which they feel an emotional connection, even when there are other similar alternatives available to them. Why? Because a brand’s social influence on its customers, which used to occur almost exclusively in person, can now be developed more quickly and efficiently through digital media on social media.

Thus, in this day and age, it has become essential for brands to engage consumers with the right message at the right time using the right channel, in an authentic and fun way.

So how can retailers ensure that they are keeping up with the trends? Prioritizing customer loyalty through an omnichannel rewards program is a must. Retailers should consider developing social media platforms that can be leveraged to create a digital community of costumers where engagement with the brand is incentivized and feedback is used to create a personalized shopping and rewards experience. At a time when retail options are limitless, consumers want to be engaged, and will develop emotional loyalty to brands that make these efforts.

Bringing Residential Uses to Existing Shopping Centers- A Win Win

Posted in Multifamily, Real Estate, Retail

Tenant curation, experiential retail, and social media-based marketing are thriving trends in today’s brick-and-mortar shopping center industry. Retail is not the only real estate asset class susceptible to trends, and a recent dominant trend in the multifamily residential sector may offer valuable opportunities for shopping center owners.

For those in the multifamily residential real estate sector, resident “amenities” is the buzzword for attracting and retaining tenants. Almost invariably, descriptions of the amenities trend describe it as an “arms race” as multifamily residential owners seek to offer newer, hipper, and better services and features to their tenants. For instance, rooftop pool lounges, dog parks, spas, business centers, community kitchens, bike centers, and technology are among the many, many varieties of amenities that landlords are offering their residential tenants. Increasingly, an amenity coveted by residents is proximity to retail choices. Therein lies the opportunity for shopping center owners.

With retail and dining options being viewed as residential amenities for multifamily developers and owners, some shopping center owners might find an opportunity by bringing multifamily uses to the shopping center. The pitch from shopping center owners to their multifamily counterparts is surprisingly simple: we have what your residents want. Residents increasingly want walkable access to restaurants, coffee shops, yoga studios, grocery stores, and the other shopping, dining, and entertainment experiences offered by retail uses. The benefit of this arrangement to shopping center owners is readily apparent. For retailers, residents living in close proximity to their shopping center translate to shoppers and patrons who can visit the shopping center multiple times per week. “Retail follows rooftops” is transforming to “rooftops within retail.”

Plenty of examples of the mixed-use retail and multifamily model exist. Assembly Row in Somerville, Massachusetts features residential units integrated into the upper stories of an open-air outlet center. Ballston Quarter in Arlington, Virginia does the same. Both mixed-use projects were constructed over or adjacent to more traditional single-use shopping centers. Similar concepts are in progress elsewhere, and the trend is even more prevalent in larger cities. However, there are still plenty of shopping centers that would, and still can, benefit by adding multifamily to the mix, potentially by repurposing or infilling excess parking lots.

Adding multifamily residential uses to an existing shopping center presents unique legal challenges. A multifamily residential use in a shopping center has different demands and imposes different limitations than retail tenants. For instance, issues that may arise include:

  • Prohibited use provisions – some retail tenants may have leases or, in the case of either anchor department stores or big boxes, recorded agreements that expressly prohibit multifamily uses. For decades, retailers had a strong belief that non-retail uses should not be allowed in shopping centers and demanded leases or other agreements memorialize such restrictions on landlords. These agreements would need to be carefully studied and potentially modified.
  • Entitlements – zoning or other land use restrictions may prohibit multifamily uses in shopping center areas or may impose other restrictions, such as prohibiting any reduction in parking or a change in configuration of the overall site plan for the shopping center.
  • Common Area Charges and Maintenance Obligations – the shopping center owner and multifamily residential manager will have to reach an agreement on the responsibility and allocation of costs for maintaining common areas, such as access ways, parking, signage, and amenity areas. These agreements will likely require a recordable reciprocal easement agreement or covenants, conditions, and restrictions agreement to reflect all of the operational agreements among the parties, and may require tenant buy-in.
  • Construction period obligations – a shopping center owner may want to protect its property and its retailers during any build-out of a new multifamily use in the form of a temporary agreement that exists during the construction period. The shopping center owner may want to insist upon insurance and indemnity protections as well as other conditions unique to the proposed new construction, such as use of roadways by construction vehicles.

As shopping center owners look for opportunities to take advantage of trends in the multifamily residential sector to add value to their properties, each of these issues, and many others, will need to be addressed on a case-by-case basis for each shopping center.

Sustainability in the Fashion Industry: Kering Group’s Innovative Approach in the Luxury Sphere

Posted in Retail, Retail Sales

Retailers are facing an increasing population of ethically minded consumers. A Nielsen 2015 global survey found that 66% of respondents were “willing to pay more for products and services that come from companies that are committed to positive social and environmental impact,” up from 55% in 2014. The report also found that 73% of global millennials are willing to pay extra for sustainable products, an increase from 50% in 2014. Another 2014 study found that 81 percent of millennials expect companies to commit publicly to good corporate citizenship. Generation Z—the generation born between the mid-1990s and early 2000s—are even more environmentally and socially aware than millennials, and we have witnessed the strength of their convictions over the past two weeks.

The retail manufacturing industry, the second most polluting industry behind the oil industry, will be expected to meet the preferences of these consumers by developing long-term, industry-wide sustainable and ethical practices. This growing young generation of consumers will call out companies on social media that are not fully transparent or “merely pay lip service” to corporate social responsibility.

Some luxury brands have resisted this call for transparency. As the fashion industry has faced increasing scrutiny over its social and environment impact, these brands have hidden “behind sepia-tinted marketing images of craftsmanship,” suggesting they do not contribute to the pollution associated with mass production. Luxury brands also play up the “the necessity of confidentiality—for example, many won’t reveal the exact location of their factories.” Luxury brands typically do not collaborate to develop sustainable materials; “for Haute couturiers, the exclusivity of the materials is as crucial as the exclusivity of the designs.” Some fashion houses will “go as far as acquiring heritage ateliers and fabric mills to ensure the uniqueness of their creations.”

One exception is Kering, a global luxury group composed of luxury fashion houses including Gucci, Balenciaga, Alexander McQueen, and Stella McCartney. Kering is committed to bringing transparency and collaboration to the luxury sphere. Marie Claire Deveu, Kering’s chief sustainability officer, highlights that Kering has taken on the “responsibility not only to educate its own designers but also to let its competitors benefit from that research too, in the hope that peer pressure will force change.”

Kering’s commitment to transparency will benefit its competitors as well as non-luxury brands. For example, Kering developed a new approach to producing leather—which traditionally causes horrific damage to the environment and nearby communities—and shared each step of this approach, “herd to handbag,” with its rivals. Additionally, Kering created and made available to the public an app for designers called “My EP&L.” My EP&L calculates the environmental cost of a design—comparing carbon emissions, pollution, and waste—depending on the raw materials and manufacturing locations proposed for each design.

While its approach may be less competitive than its peers, Kering hopes to profit from its transparency with its investors. Kering makes all of its sustainable targets public in detailed reports alongside it financial results. Investment analysts and shareholders are taking notice of the fact that ethical considerations are part of a brands profitability, and “are taking a closer interest in, say, how ethically sound a luxury brand’s snake farm or cotton field is.”

Settlement Opens Door For Outer Borough Outlet Centers

Posted in Landlords, Leasing, Real Estate, Restaurants, Retail, Tenant

In August 2017, Simon Property Group (“SPG”) and the Office of the Attorney General of the State of New York (“NYAG”) entered into an Assurance of Discontinuance (the “Settlement”) regarding alleged anti-competitive effects of radius restrictions used by SPG in leases at the Woodbury Common Premium Outlets (“Woodbury Commons”) and The Mills at Jersey Gardens (“Jersey Gardens”).

Radius restrictions are very common provisions in retail leases. They protect a landlord’s investment in its property and in a particular lease by preventing tenants from operating additional stores within a set area, frequently expressed as a distance from a particular shopping center. When narrowly drawn, radius restrictions may benefit tenants as well as landlords by fostering a desirable mix of tenants and drawing retail traffic.

Nevertheless, because radius restrictions do limit a tenant’s ability to conduct its business, unreasonable radius restrictions may violate state and federal antitrust law. Whether a radius restriction is reasonable is generally a unique and highly fact specific inquiry that depends heavily on the relevant geographic area and the type of business involved.

Woodbury Commons is a large outlet center with over 200 retailers, located approximately 40 miles northwest of New York City. Woodbury Commons is one of the highest grossing shopping centers in the country and it draws customers from throughout the New York metropolitan area as well as a large number of international tourists.

NYAG noted that retail leases at Woodbury Commons are typically for 10 years and the majority of leases include a radius restriction of 60 miles around Woodbury Commons. The 60 mile radius includes the area between Woodbury and Manhattan, and extends to the Bronx, Queens, Brooklyn and Staten Island, as well as parts of Suffolk and Nassau counties. NYAG concluded that this 60 miles radius restriction may have prevented outlet retailers at Woodbury Commons from opening additional outlet stores in the New York City area and may have prevented other outlet developers from opening competing outlet centers in the New York City area.  Finally, the NYAG found that, under current market conditions, the 60 mile radius “is likely broader than necessary to achieve any legitimate procompetitive benefits.”

Jersey Gardens is a shopping center in Elizabeth, New Jersey, which SPG acquired in 2015, and which also contains outlet stores that draw consumers from the New York City area. NYAG concluded that the radius restrictions in leases at Jersey Gardens also have the potential limit retailers’ ability to open additional outlet stores in the New York City area.

SPG neither admitted nor denied the NYAG findings and conclusions in entering the Settlement.

Under the terms of the Settlement, SPG is required, in part, to waive and ultimately amend the 60 mile restriction in its leases at Woodbury Commons and Jersey Gardens to exclude the Relevant Area. The Relevant Area is defined in the Settlement as (1) more than 39 miles from Woodbury within the State of New York, and (2) Bronx County, with the following exceptions which are areas that may be included in the radius restriction: Community Districts 8 and 12 in the Bronx and all of Manhattan. By excluding the Relevant Area from the radius restriction, retailers would be permitted to open additional outlet stores in most of the Bronx, all of Brooklyn, Queens, and Staten Island, and all of Long Island.

The Settlement highlights the highly fact specific nature of antitrust review. While freeing the Relevant Area from the Woodbury Commons and Jersey Gardens radius restriction was likely an important goal of the Settlement, it should not be overlooked that NYAG permitted Simon to retain a substantial radius restriction covering a large geographic area, including all of Manhattan, Orange, Rockland, and Westchester counties, with more than 3 million residents.

While this Settlement is limited to radius restrictions affecting parts of New York (i.e., the Relevant Area), it would be prudent for landlords everywhere to be able to justify a legitimate business purpose in crafting any radius restriction contained in its leases.