Mall Owner Simon Sues Starbucks Over Planned Teavana Store Closures
August 30 2017 - 4:50PM
Dow Jones News
By Esther Fung
Mall landlord Simon Property Group has gone to court to block
Starbucks Corp. from pursuing its plan to close its Teavana stores
in Simon's retail locations.
The Indianapolis-based real-estate investment trust last week
filed a lawsuit in a state court in Indiana alleging Starbucks
would breach its lease obligations by closing its Teavana outlets
in 78 of its shopping centers. The 18-page complaint also alleges
that Starbucks public announcement of the closures in July caused
"irreparable harm" to the value of Simon's malls and its
reputation.
A spokeswoman for Starbucks said: "We are responding to the
lawsuit and are working to resolve this dispute." She declined to
comment further.
Numerous retailers have been closing stores lately as the sector
have faced changing consumer tastes, weak balance sheets and
growing competition from online retail. But Simon's legal papers
point out that other retailers that have closed stores in recent
years have faced bankruptcy or financial ruin.
"That obviously is not the case with Starbucks, which is one of
the largest and most recognized companies in the world," said the
18-page complaint filed in Marion County.
Teavana, which operates a chain of tea shops stores, was
acquired by Starbucks in 2012 for $620 million. The coffee giant
expanded the chain hoping to develop a Starbucks-like experience
for tea drinkers.
The Seattle-based company said in July it will close all 379
Teavana stores. At the time, Starbucks cited weak foot traffic,
particularly in malls, for the chain's underperformance.
"Despite efforts to reverse the trend through creative
merchandising and new store designs, the underperformance was
likely to continue," Starbucks said in a written statement.
Two of the Teavana stores in Simon malls have leases that are
expiring before the spring of 2018. Other leases have terms that
are as far out as 2027.
Simon said in its lawsuit that Starbucks was trying "to deflect
blame from itself" by citing weak foot traffic in malls for
Teavana's weak performance.
Simon hasn't publicly disclosed its lease with Teavana. But
retail leases in shopping malls often require tenants to stay open
unless they face severe economic duress. This is because other mall
tenants can be hurt if stores next door go dark.
"Starbucks should not be permitted to put its stock price above
its contractual obligations, the viability of Simon and its
shopping centers, other retailers and consumers who count on the
Teavana stores in Simon's shopping centers and the communities
served by those shopping centers," Simon's complaint said.
Simon's legal attack against Starbucks comes amid a spike in
retailer bankruptcies and store closures. Many tenants have become
more aggressive about asking for lease concessions, but some
landlords say that retailers are taking advantage of the current
environment and are making demands for concessions that aren't
warranted.
In its lawsuit, Simon challenged Starbuck's public comments
about Teavana's poor performance, pointing out that Starbucks'
chief executive officer Kevin Johnson said in July that its tea
business has grown 40% since Teavana was launched in the U.S. five
years ago.
The mall owner also pointed out that Starbucks' chief financial
officer Scott Maw said in the second quarter earnings call that "we
do have a meaningful subset of profitable Teavana mall stores."
This lawsuit was earlier reported by Indianapolis Business
Journal.
Write to Esther Fung at esther.fung@wsj.com
(END) Dow Jones Newswires
August 30, 2017 17:35 ET (21:35 GMT)
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