Avoiding the ‘CAP Trap’
With cutting costs top-of-mind for every retail chain trying to make ends meet in a lingering downturn, the National Retail Tenants Association (NRTA) is using its influence and expertise to address the occupancy side of the retail expense equation.
According to the NRTA, if your retail real estate leases are capped, you may easily fall into the “CAP trap” that can be increasing your occupancy costs. In other words, the fact that your leases are capped may lead your lease auditor to believe you don’t have to worry about them. However, says the NRTA, often the opposite is true.
NRTA member Rick Burke has studied this issue extensively, and will be presenting his review at NRTA’s Annual conference later this year in Anaheim, Calif. Burke, who is president of Lease Administration Solutions, LLC, cautions that leases that have NTE (Not to Exceed) Caps may in fact need more review to determine if a landlord has accurately billed the tenant.
“An NTE Cap should never be confused with a fixed amount or fixed percentage increase,” said Burke. “The NTE Cap can be a source of overcharges to the tenant rather than the protection from an overcharge, which it was initially designed to be.”
This type of cap can come in many different variations depending on how the lease is negotiated. It may be calculated on the base year, or on the prior year. It can be tied to a percentage or an external derivative such as a Consumer Price Index or Porters Wage. The cap may begin on the first year, or in future years. The increase may be cumulative and/or compounded.
“It is important for a lease administrator to read the lease carefully to avoid applying the cap in an incorrect manner,” advised Burke. In fact, he said that there are several scenarios in which a tenant may be at risk of overcharges from them. These include:
- Stated first year with a year-over-year percentage increase;
- Controllable vs. non-controllable expenses; and
- Cumulative and compounded caps.
To learn the specifics of the above examples, and how they can translate into significant overcharges, attend Burke’s session on the subject at the annual NRTA conference in Anaheim, Calif., Sept. 26-29. For more information about attending the conference, visit retailtenants.org.
American Eagle Outfitters to open in Hong Kong, China
Pittsburgh American Eagle Outfitters said Wednesday it will open retail stores in Hong Kong and China via a franchise agreement with Dickson Concepts (International) Limited.
The exclusive agreement with Dickson, an international retail company that operates more than 400 stores throughout Asia, will allow American Eagle to continue its presence overseas with a planned series of stores over the next several years.
According to the companies, the first three are planned for early 2011 in Hong Kong, Beijing and Shanghai. American Eagle Outfitters introduced its brand in the Middle East in March of this year with stores in Dubai and Kuwait.
“There is significant appetite for the American Eagle Outfitters brand internationally, and we are excited to bring our high-quality, affordable fashion to customers in China and Hong Kong,” said Jim O’Donnell, CEO, American Eagle Outfitters.
Dickson Poon, group executive chairman of Dickson Concepts, said, “There is a burgeoning demand for trendy young fashion in Asia, and I am very confident that American Eagle Outfitters will achieve the same level of phenomenal success in Asia as in its home market of North America.”
The American Eagle stores in China and Hong Kong will offer the complete AE seasonal assortments, as well as intimates and dormwear lines from aerie by American Eagle. American Eagle Outfitters will provide merchandising and marketing input, while Dickson Concepts will handle all operational functions.
American Eagle Outfitters currently operates more than 1,000 stores worldwide.
Whole Foods eyeing Scotland for growth
Glasgow, Scotland Whole Foods Market is negotiating to enter Scotland, according to a report by The Herald Scotland on Wednesday.
The grocer, which currently operates in and around London, is said to be in advanced negotiations to take over a former Safeway space in Giffnock, near Glasgow.
The multimillion-pound development could result in a jobs boost for the south side of Glasgow and should, according to the report, help local businesses recover from the slump that coincided with the closure of the Safeway store in Fenwick Road almost three years ago.