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Simon, Starbucks Reach Settlement Over Teavana Store Closure

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Retail REIT Simon Property Group Inc. (SPG - Free Report) and Starbucks Corporation (SBUX - Free Report) have reached a settlement over a lawsuit to refrain the latter from proceeding with its plan to close Teavana stores in Simon’s malls, per a report from American City Business Journals.

An email from Starbucks, that was cited in the report, read, “We are thankful to our customers who have enjoyed Teavana tea at these specialty retail locations and will continue to emphasize Teavana tea in new and different ways at Starbucks.” The terms of the settlement were not disclosed, but the move removes the litigation overhang issue from Simon.

In July 2017, Starbucks had made an announcement of store closures involving a shutter down of all 379 of its Teavana stores in 2018, with majority expected to close by this spring. While some of the stores in Simon malls have leases slated for expiry before this spring, majority of the leases run through January 2027. Starbucks cited lackluster traffic in malls for the decision to close these stores.

However, Simon fought back and alleged that Starbucks’ Teavana store closures in its malls would result in a breach of lease obligations. Further, it claimed that this is just a lame excuse by Starbucks to refract the blame from itself.  

The mall landlord pointed out that while the decision of store closures from several retailers like Sports Authority, Gap Inc. (GPS - Free Report) , Macy’s Inc. (M - Free Report) among others was an outcome of either bankruptcy or financial ruin that was not the case with Starbucks. Rather, going by Simon’s allegations, the Teavana store-closure move came as the business failed to expand at Starbucks’ anticipated pace.

Later in 2017, according to the New York Post, Starbucks was temporarily restrained by an Indiana judge from shutting down its 77 Teavana stores in Simon’s malls. Per the order, Starbucks can better absorb the financial loss by keeping its stores open than Simon bearing the brunt of withering vacancies. Although Starbucks planned to make an appeal, this week the company announced reaching a settlement.
 
Notably, retail REITs have continued to bear the brunt as mall traffic continues to suffer amid a rapid shift in customers’ shopping preference through the online channel, resulting in an increasing number of retailers joining the dot-com bandwagon. These have made retailers reconsider their footprint and eventually opt for store closures in recent years, while others unable to cope with competition have been filing bankruptcies.

Such an environment has led to tenants demanding substantial lease concessions but mall landlords are finding these unjustified. In addition, when there are substantial store closures in the middle of the lease term, not only are mall landlords hurt, but tenants occupying space in that mall are equally affected because their shop visits depend on the mix of specific types of retailers.

Shares of Simon Property have underperformed the industry it belongs to, over the past year. This Zacks Rank #4 (Sell) company’s shares have dropped 11.6%, while the industry has recorded growth of 5.1% during the same time frame.



You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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