Nasir and Matt recap how some shopping malls required stores to be open on Thanksgiving.
NASIR: Welcome to our podcast where we cover business in the news and add our legal twist. We are starting an hour later than we originally scheduled, but you don’t know that.
MATT: And, really, neither did I until I looked at the clock.
NASIR: Oh, yeah, and my name is Nasir Pasha.
MATT: And I’m Matt Staub, and I guess we’re technically starting earlier.
NASIR: Because of the holidays, that’s true.
MATT: Yeah, we’re a day early – a day and an hour early. We won’t reveal what day or time we normally record.
NASIR: That’s a secret.
MATT: I think it’s pretty obvious we’re recording dead middle of Thanksgiving Day.
MATT: Sitting in a table, surrounded by thirty people.
NASIR: I have actually turkey in my mouth right now.
MATT: Well, I guess, by the time this comes out, it’ll be past Thanksgiving.
NASIR: I’m sure, like, at this time, all the local news channels will be doing the stories of all the chaos from last Friday and people running each other over, et cetera. But we’re not going to do that.
MATT: Yeah, and you won’t be there, obviously, because you opted outside.
NASIR: By the time this came out, I definitely opted outside. Hopefully, I hashtagged #optoutside in something or other. It may rain that day but, either way, I’ll be outside.
MATT: Yeah, you can still be outside when it’s raining. That’s fine.
NASIR: Oh, yeah, we’ll be hiking – you know, West Texas. Don’t stalk me there.
MATT: So, what we’re going to talk about, it’s pretty interesting and, you know, I never really thought about this being the possibility before but, I don’t know, to me, malls – shopping malls – are kind of going out of style, almost, it seems like.
NASIR: I think the traditional one is. But then, again, I mean, I have Galleria Mall right next to, you know, I’m right in the middle of the Galleria and it’s a pretty famous mall – at least in Houston – and it’s a very traditional indoor mall but it’s just huge and it has a bunch of stores. But I agree with you; that kind of style does seem to be kind of old or out of fashion.
MATT: Yeah, and the reason I said “the typical shopping mall,” it’s different from obviously like a strip mall or even the open air – is it called “open air malls”? Is that what those are called?
NASIR: Yeah, like in Fashion Valley Mall or Mission Valley Mall.
NASIR: What’s the one downtown? Horton Plaza.
MATT: Yeah, but that’s the point. You know, for those, every store has its own entrance into the store – well, I guess it’s the same case for shopping malls. In shopping malls, you have to go through some sort of department store, usually, in order to get to the actual other stores, right?
MATT: That’s the way you get in most of the time. I guess, sometimes, there are other ways. But, anyways, this is in Concord, California – the Sun Valley Shopping Center. I guess the department stores which they’re referring to as kind of the anchors of the shopping mall were going to be open on Thanksgiving Day so the mall is making these other stores that are not the main anchors of the shopping mall also be open on Thanksgiving Day. I believe, in this example, they are required to be open from 6:00 p.m. until at least midnight on Thanksgiving Day with the option of remaining open until 5:00 a.m. the next morning. This wasn’t a “Hey, this is a suggestion because there’s going to be a lot of foot traffic, et cetera.” This is the owner saying all these stores are required to be open from 6:00 p.m. to midnight whether you like it or not which I have a few questions about but, from a reasonableness standpoint, this can’t go over too well with a lot of these stores, I would think.
NASIR: Yeah, for some of them, it may be a surprise. Let’s just give some benefit of the doubt that they can legally do this, but how can a landlord make you stay open and, if you own a business and you’re in a retail location, it’s very often you’ll have store hours in which you’re actually obligated to stay open. Typically, it could be as general as saying, you know, “normal business hours” and maybe recognizing normal holidays and so forth – something generic like that. But, often, in these types of malls or large retail locations, they’ll specify, “Monday through Friday, you have to be open at least between these hours and these hours. You have to have your sign lighted up between these hours and these hours, and during certain holidays.” Compare that to, like, if you’re in a business building or a commercial building for office space, they may have certain days where they’ll be like, “Well, utilities like HVAC will be closed on weekends except Saturday between 12:00 and 4:00 or whatever.” Basically, that’s how this mall is able to basically justify telling their tenants, “Hey, you guys have to stay open on Thanksgiving.”
MATT: Yeah, and that was one of the questions I had – how exactly are they going about it? I would think that would be the most logical way this has all occurred, and there’s probably something in there saying the landlord has the right to require them to be open on holidays, things like that. I assume they’re covered from that standpoint but I’m stuck on this reasonableness of this – not just a holiday but requiring them to be open from 6:00 p.m. to midnight.
NASIR: You have to find the employees to fill that. I don’t know. Is it every store in the mall that has to do that? Because I’m thinking about some of these businesses, for example, that sign up with mall leases. In fact, a lot of times, if you’re a small business – whether you’re renting a kiosk or a small store in a mall – it’s very hard to negotiate those things because, of course, depending on how popular the mall is, you’re a small fish in a big sea. And so, it’s very hard to negotiate those leases. It may be a surprise that some owner of a kiosk has to open up his kiosk on Thanksgiving evening and, not only that, has to find an employee to cover them if they’re out of town. That can be a jarring surprise if you don’t read your lease well enough beforehand.
MATT: Right, and you mentioned the small shops, kiosks, and things like that. Obviously, they’re going to suffer from this, but it’s really going to be all the businesses because, like you said, you have to find employees or people to fill these positions and I guess, if you really wanted to, you could just have one person be there and say, “If people come, maybe they’ll get service and maybe they won’t and just say, ‘I’m technically open,’” but that’s not going to look good for your biz. You know, I don’t need to get into the whole Yelp review side of this where somebody goes there on Thanksgiving and leaves some bad review for the store because they had this one-time bad experience.
NASIR: You mentioned suffer; I mean, hopefully, they benefit from all the attraction of all the happenings of these anchor stores but I’ve never personally gone out shopping, definitely not on Thursday of Thanksgiving, so I just hope it’s worth it for them, I suppose.
MATT: I think the motivation behind this is, you know, the longer they can keep – I mean, the mall itself as a whole – the longer they can keep people there, the better.
NASIR: Oh, yeah.
MATT: At that point, if the other stores are open, they’re more likely to stay longer. I guess that’s the logic behind it.
NASIR: I mean, there’s a lot of things in play here when landlords require those kinds of hours. For example, sometimes, a landlord actually has percentage rent. They actually benefit from the gross sales that are generated. But let’s say that that’s not even the case. When it comes to the anchor tenants – like, it mentions here JCPenney and these other department stores – it benefits them to be in a mall, right? When people are coming for different things, they go through the department store. Like you said, almost all the mall entrances, they try to get you to go through the department stores on purpose and the mall entrance are always separate or harder to find. And so, it benefits them to require their landlord, “Hey, if you’re going to have any other tenants, we want to make sure that they stay open, too.” That goes to any other retail location. It doesn’t look good for JCPenney if it’s the only one on and the other neighboring tenants, either the lights are off, some are on, some are open, some are not. That just doesn’t look appealing. That’s the same reason why abandoning, you know, why they want you to be open during normal business hours – because it doesn’t look good for the property in itself.
MATT: Yeah. You know, the interesting thing too – you mentioned this a little bit earlier about leverage or bargaining power when entering into the lease – unless the landlord’s really suffering, they’re going to say, “This is take it or leave it. You know, we’ll find somebody else that will agree to it.” Let’s assume that that’s the case, some of these bigger national companies that said, “We don’t care what these malls say, we’re going to close our stores anyway.” Nordstrom, Barnes & Noble, GameStop which all those – well, I don’t know about Barnes & Noble but Nordstrom and GameStop I think are in a lot of malls.
NASIR: Yeah, they’re always in malls.
MATT: You know, their stance is, “Hey, we are company-wide, we’re closed on Thanksgiving and we don’t care what the landlord has to say.” I’m not saying this is their words but I guess their outlook is, if they want to fine us, so be it.
NASIR: Yeah, terminate the lease or what-have-you. By the way, I’ve never seen a lease, even a mall lease, that says that they have to be required to be open on Thanksgiving. I’m sure that may exist but, a lot f times, what these landlords try to do, it’s very interesting. Instead of putting the hours of operation within the actual lease, what they’ll say is something like, “Okay, you’re supposed to use this property under these kinds of rules and regulations along with these rules and regulations that are attached as Exhibit A or B,” right? And then, it will also say that those rules and regulations can be amended from time to time. And so, these rules and regulations will be a whole list of things – everything from what kind of locks you need to have on your doors or every little detail, where your customers should be parking, where your employees should be parking. Of course, the question is, “Okay, well, if I’m signing and lease and you can just amend these rules and regulations, sometimes, there’s not a restriction.” Now, often, a reasonable landlord will have in the lease already that no rules and regulations should be adopted that materially or unreasonably alter the tenants obligations but sometimes that’s not in there and so my point being is that, you could easily have a landlord that has rules and regulations that they could modify and say, “Hey, you know what, our new hours of operations include Thanksgiving Thursday from 6:00 p.m. to whatever the hours is – till midnight.”
MATT: With that as well is just to say, you know, “as long as we provide thirty days written notice of our intent to adjust in order to go on holiday,” then that’s fine and you have to do it. It’s one or both of those things is probably what ended up happening with this. It’s just one of the many things in a lease – especially a retail lease – that can be something that’s negotiated.
NASIR: People don’t realize that, especially people that are just entering into kind of commercial leases for the first time. You may have signed a residential lease but it’s a totally different ballgame when you’re dealing commercially. I mean, you can pretty much do almost whatever you want and every state is like that in the sense that California has, traditionally and famously, very protective rights over its residential tenants but definitely not the same when it comes to the commercial ones.
MATT: You’re the business owner, would you…?
NASIR: I’m opting outside.
MATT: Yeah. Well, that’s on Friday. Technically, this doesn’t…
NASIR: Oh, that’s true, that’s on Friday. Well, I’m sure that a mall would require it to be open. I mean, some would say, “Why would you not want to be open?” but I would assume that wouldn’t be a recognized holiday. Thanksgiving, I can see that. I mean, this goes to the common discussion each year about this trend of Thanksgiving Day no longer being an actual holiday as far as time off and so forth, but the question is, what about REI? They’re in retail locations. I don’t think they’re in any of the malls but if they wanted to opt outside and they somehow got caught into this lease, they would have a dispute with their landlord and would have troubles and tribulations in getting that done.
MATT: Yeah, and I think that’s it. if you’re going to require them to be open on Thursday, it’s probably going to have to be required to be open on Friday, too.
NASIR: That’s what I’m thinking but I could be wrong. Following the same position, I’m a rebel by nature so I’d probably be like, “I’m closing it down. I don’t care if I’m closing it down for the rest of the year. I don’t care how much money I’ll lose…”
MATT: Yeah, the prime time for… I don’t think you’d be a very successful storeowner in that aspect.
NASIR: Well, how do you know that? I’ve been operating my store for the past ten years. It’s been closed this whole time but out of protest.
MATT: You also failed to mention your store is purely seasonal. Everything from New Year’s to Halloween and nothing after.
MATT: It makes more sense.
NASIR: That’s my policy. But these commercial leases are very tricky. Sometimes, they’re designed in such obscure fashion purposely to confuse. It’s purposely to disorganize and then there’s some and, by the way, when it comes to like big reputable – so-called reputable – landlords and commercial property owners, it goes across the board. Some tend to be purposely confusing but some companies are like, “Look, let’s just put a reasonable lease out there. Let’s not spend so much time on negotiating back and forth and be strict on alterations to the agreement.” That’s my preference because it’s less BS, so to speak. You know, you don’t have to go through all rigmarole for nothing.
NASIR: Thanks for joining us!
MATT: Yeah, keep it sound and keep it smart!