Why Landlords Are Forcing Whole Foods 365 and Teavana Stores to Stay Open

Starbucks and Amazon/Whole Foods discover that mall operators prefer a low-performing store to a shuttered one.

This article appears in print in the February 2018 issue. Click here for a free subscription.

Businesses close all the time, for all sorts of reasons. That’s not a bug of the capitalist system. It’s a feature. Churn can be tough on the participants, but the continuous testing of ideas, products, services and technologies in the marketplace is what makes them better. The ones that don’t work or fail to garner acceptance are discarded; the ones that do survive get to face another round of competitive challenges.

Because of that construct, we don’t force businesses to stay in business if they don’t want to be or aren’t making it. Creditors, among others, would prefer that businesses cut their losses rather than try, try again and waste more time and money in futility.

But not everyone sees it that way. Employees would certainly prefer their employers to stay open. And government entities collecting tax revenues would like to keep the money flowing.

Those entities can’t force businesses to stay open. But one interested party is testing the intriguing legal notion that it can. In a fascinating near-simultaneous occurrence involving big, locally based companies, Starbucks has been taken to court over a plan to close its Teavana chain of stores, while Amazon subsidiary Whole Foods is similarly being hauled in front of a judge to keep it from closing one of its Whole Foods 365 stores.

The plaintiffs in each case? A landlord.

Ordinarily, landlords might not object to a business closing, especially if that tenant has been delinquent on the rent. But this isn’t an ordinary situation, starting with the fact that the defendants aren’t small, struggling businesses.

Nor are the plaintiffs exactly small fry. In the Teavana case, it’s Simon Property Group, one of the nation’s biggest shopping-mall operators. In the other it’s a local independent, but one you might have heard of — Kemper Freeman’s Bellevue Square.

Lest you think there’s no way a business could be told it has to stay open when it doesn’t want to, think again. A judge in Indiana issued a temporary restraining order preventing Starbucks from closing 77 Teavana stores in Simon properties. With a similar order, a judge in King County told Whole Foods to reopen the 365 store in Bellevue Square.

Former employees of closed businesses — from the print version of the Seattle Post-Intelligencer to Washington Mutual to every busted dot-com — are no doubt smacking their foreheads and lamenting, “If only we’d thought of that!” Sadly for them, the disputes over Teavana and Whole Foods 365 are rooted in the arcane nooks and crannies of property-lease and contract law, and such relief is likely unavailable to most.

Mall operators like Freeman and Simon, however, have good reason for rooting around in those seemingly obscure corners of the law, given what a tough market it is these days to locate viable, traffic-attracting retail tenants. Even if Starbucks and Amazon fulfill the financial obligation of their leases, one more empty storefront does a mall no favor.

Forcing a business to stay open against its wishes isn’t such a far-fetched concept. An entire regulatory scheme, for the transport industry, was based on it. Back in the days of such now-long-departed bodies as the Civil Aeronautics Board and the Interstate Commerce Commission, airlines, railroads and truckers were often told to continue offering services for passengers or freight (or both) on routes they wanted to shed.

The era of deregulation took care of most of that stipulation, but now retailing is having its moment. That sector is all too familiar with the signs announcing, “Lost Our Lease — Going Out of Business!” Perhaps it’s time to print a new version: “Can’t Get Out of Our Lease — Staying Open!” 

Monthly columnist Bill Virgin is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.

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