One barometer of our economic woes is the fact that liquor sales are strong. But, Gene Veronesi of Shaker Wines and Spirits says people are drinking cheaper, these days and some beverage makers are learning that the hard way.
GENE VERONESI: For example, California sparkling wines --- they're almost dead in the water…
Another concern for Veronesi is the fact that his store is in a shopping center awash with empty units --- six vacancies in a row, right next door. They're known as "dark spaces" in the real estate business and shop owners like Veronesi say they scare away customers and cut into profits at a time when money isn't exactly rolling in.
GENE VERONESI: As a tenant, I have a couple choices. Choice One is cutting my expenses way back, like not taking a paycheck, but wait, I haven't had a paycheck in two months, anyway…. The next option is to go to the landlord and say, "Will you work with me to reduce my rent, so that I can stay, pay my bills, pay you, and perhaps make a little bit on the side?"
The phenomenon of retailers asking for rent breaks is a growing trend. In fact, 90% of new shopping center tenants nationwide are building them into their contracts to protect themselves from dark spaces.
ROBERT SIMONS: "Co-tenancy" is the issue.
Cleveland State Real Estate professor Robert Simons explains.
ROBERT SIMONS: If I'm a tenant, I have the right to leave the center if the big anchor that I'm hooked into, say Walmart, leaves. The point is, if one of these leaves, there is all the sudden this huge ripple effect.
And in a market where it's hard to find new tenants, many landlords have signed off on these co-tenancy agreements --- and that's been a game changer in the retail world.
ROBERT SIMONS: You've got market power shifting from the landlord to the tenants, because the tenants don't have to stay unless they want to. And what they'll do is use this opportunity to try and twist the arms of the landlord to get their leases cut.
Simons refers to it as the "toxic lease side of the business". One local broker notes that the increasing number of dark spaces across the state has forced the owners of some shopping centers to consider leasing to less upscale retailers --- the dollar stores… the bag-it-yourself grocery stores. They'll gladly you're your vacant store right now, but will you still want them when the economy turns back around? Wine merchant Gene Veronesi faced that dilemma in a small strip center that he owns in Chesterland.
GENE VERONESI: They wanted to pay some astronomically, unbelievable negative rent and they wanted it for like 20 years. They're not stupid, they know people are hurting, and let's see who nibbles at it. Be that as it may, it's tenuous. Once you go down that slippery slope, it's very tough to recover.
ROBERT SIMONS: Look, they both have to survive. The landlords are in no better shape.
And Cleveland State's Robert Simons says the choices for landlords or retailers aren't going to get easier anytime soon.
ROBERT SIMONS: It's going to be a rough couple years.
