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“(Richard Baker) is doing what any prudent businessman would do. The question is: At the end, what does it look like? … There’s going to be stores, but they’re going to be smaller stores.”
Many retail analysts when HBC went private felt it needed to get leaner by closing some stores and making other ones smaller.
But transitioning to smaller stores would also affect mall landlords, which can find themselves in a bind during negotiations with big tenants. A store such as HBC is typically a mall’s biggest tenant, both in terms of rent and in square footage, making it harder for a landlord to play hard ball.
“If I had that type of clout and that much square footage, why on earth would I adhere to my existing lease and not try to re-write and do what’s in the best interest for the Bay in terms of operating?” Waks said.
It’s not abnormal, during the pandemic, for tenants to withhold rent and try to negotiate a better deal, given the circumstances, he added.
But for malls, losing any of those labyrinthine department stores would pose a huge problem. Few retailers are willing to step in to fill those spaces today, so the mall would need to spend money to split the space into a bunch of smaller stores.
In the meantime, the rest of the mall could be destabilized without an anchor tenant such as HBC. Many leases stipulate that if an anchor tenant is missing, smaller tenants don’t have to pay full rent and can eventually vacate their leases entirely.
“If I’m sitting there as Oxford, Cadillac, or any of the big guys, what are you gonna do if (HBC) says, ‘Okay, I’m closing the store’?” Waks asked.
That scenario, taken to the extreme, would be catastrophic, setting off a punishing wave through the Canadian retail landscape, with malls left to figure out how they’ll replace a giant such as HBC.
But, as Putnam at HBC has said, that is not where the company is heading.
Financial Post
