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Simon's (SPG) 77 Starbucks Teavana Stores to Remain Open

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Shareholders of Simon Property Group (SPG - Free Report) have reasons to cheer. The company recently clinched a victory over Starbucks (SBUX - Free Report) in a lawsuit to refrain the latter from proceeding with its plan to close Teavana stores in Simon’s malls.

Specifically, according to the New York Post, Starbucks has been temporarily barred by an Indiana judge from shutting down its 77 Teavana stores in Simon’s malls. Per the order, the company can better absorb the financial loss by keeping the stores open than Simon bearing the brunt of withering vacancies.

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

Simon fought back and alleged that Starbucks’ Teavana store closures in its malls would result in a breach of lease obligations. However, there were no specifications in the lawsuit about the amount of financial relief or damage sought by Simon, per the Indianapolis Business Journal news.

Simon further alleged that this was just a lame excuse by Starbucks to refract the blame from itself. In fact, the mall landlord pointed out that the decision of store closures from several retailers like Sports Authority, Gap Inc. (GPS - Free Report) and Macy’s Inc. (M - Free Report) , among others, was an outcome of either bankruptcy or financial ruin.

However, this is not the case with Starbucks, which has earned reputation for being “one of the largest and most recognized companies in the world.” Rather, the Teavana store-closure move came as the business failed to expand at Starbucks’ anticipated pace, going by Simon’s allegations.

As a matter of fact, mall traffic continues to suffer amid rapid shift in consumers’ shopping preferences shifting to online retail. This has made retailers reconsider their footprint and eventually opt for store closures over the last several quarters.

Further, retailers unable to cope with competition have been filing bankruptcies. This comes as a pressing concern for retail REITs, as this trend has been considerably curtailing demand for the retail real estate space.

Moreover, the choppy retail real estate market situation is said to have led to tenants demanding substantial lease concessions, which is considered unjustified by landlords. Also, significant store closures in the middle of the lease term not only harm mall landlords, but also the tenants occupying space in the mall because their shop visits also depend on the mix of specific type of retailers.

Shares of Simon Property have underperformed the industry it belongs to, in the year so far. This Zacks Rank #3 (Hold) company’s shares have dropped 8.4%, while the industry recorded growth of 11.4% during this time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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