Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/74664
Factoring the Internet into leases By Steve McLinden THE POPULARITY OF ONLINE shopping and the prevalence of "show- rooming" are changing the way some merchants use store space and forcing shopping center owners to redefine the term "tenant-initiated sale" and to recal- culate percentage-rent formulas. "More and more, it's apparent that retailers are leveraging their stores to drive on- line transactions," said Ken Lamy, pres- ident of the New Orleans–based Lamy Group, a financial management con- sulting firm. Lamy has been working with landlords to adapt lease language to define gross sales as any purchases that stem from a store, even if shop- pers are not exiting with merchandise in hand. "That's the nexus for this: if a store 'touched' the sale." For instance, even when a customer receives merchandise home-delivered special because the desired size or color was unavailable during the initial store visit, that transaction should be counted among the store's gross sales and be subject to percentage-rent cal- culations, Lamy says. "It's not even a gray area," he said. "It's clear and has to be reported, because the store was involved in the fulfillment." Cata- log and Internet sales initiated in the store, too, are areas in which the re- porting of gross sales often comes into question, Lamy says. "This has been measured to be as high as 10 percent of store sales not originally reported to the landlord." Lamy talked to RECon attendees who urged him to help educate the in- dustry on the need for more-accurate accounting of Internet sales, returns, refunds and related activities at stores. In a compliance examination for a cli- ent, Lamy identified one tenant that failed to report some $250,000 in store-related Internet sales per year, or an annual average of 24 percent of previously reported gross sales over the time span. The client recovered some $30,000 in percentage rent. The issue has international ramifi- cations too, and marks the latest stage in the evolution of retailer-landlord partnerships, says Gerard Groener, CEO of Holland-based Corio, one of the largest retail owners and managers in Europe. Given the showrooming trend where smaller-prototype stores carry limited lines but offer in-store online purchasing, "some of the rent may have to come from store PR bud- gets," he said. Corio, which selects re- tailers based in part on whether they have a sensible online strategy, is see- ing more outlets open up for what had 46 SCT / AUGUST 2012