Apple Asks UK Retail Landlords for 50% Rent Cut Despite Record Sales

[SuperCachetes]

and then you lost it Lol. All of that above would have been factored in with the current agreement. And if it hadn’t passed you buy, Apples shops are closed currently, the Landlord has lost all of those benefits. Even you wouldn’t go to the mall!

Yep, all of that would have been a factor in an agreement that might've been brokered a decade prior. Obviously, the world is a different place at the moment. And yes, stores might be closed, but out of ALL of the stores in a shopping center, one of the few I can almost 100% guarantee will eventually re-open is Apple. So fast-forward to the end of COVID, when half the landlord's tenants have failed or had to move out, and they will be making killer deals, begging new tenants to come in and fill their vacancies. Apple will still be paying the potentially much-higher rent from the "current agreement" you reference. Would THAT be a more morally acceptable time to renegotiate? Why?

You can't even get apple to PRICE MATCH. How do you expect landlords to give apple a break? GTFO here. Use their billions upon billions of reserved CASH to help them thru the crisis. This is what savings is for. Basic course in accounting 101.

First off, yes you absolutely CAN get Apple to price match. I've done it more than once. Managers seem to have about 10% leeway on the MSRP of items, and I have found it works best on bigger ticket items where they are making a decent sale.

Second, why do you assume Apple is asking for this deal to "survive?" It's not emergency rent relief in a crisis for Apple - it's the free market, and they know perfectly well what they are doing.

You don’t deserve a break when you post $60B profit for the quarter. It’s tacky and ill timed, from the worlds most valuable company. Pathetic really.

Still no idea why people are bringing up Apple's financial reports or throwing around terms like "deserve" to make it some sort of moral argument. It's not a handout - it's a lease negotiation, plain and simple. As has been said multiple times, if the Landlords think Apple's request of 50% is egregious (or "greedy," or "tacky"), they are free to reject it or make a counter-offer. If nothing comes of the deal, then Apple is still paying full rent until the current lease is up.

Where is the moral outrage when tenants renew leases in a booming real estate market and the Landlords use their leverage to raise the rent?

 

[pers0n]

I hope they have to pay full rent. There are many regular people that are paying full rent during these times

 

[Alan Wynn]

Free to say no at what cost down the line?

At the cost of being in whatever bargaining position they will have when these leases come up for renewal. If they think that by the time these leases come up for renewal, things will have improved so much in the retail space market that they will be able to get a better deal from Apple than Apple are offering them now, they should absolutely refuse.

If on the other hand, they are looking at the trends in retailing and see fewer and fewer companies that will be able to drive traffic to a retail location and more and more flagship locations available for rent they would be smart to accept a longer term lease at more favorable conditions then they would otherwise get.

Apple: “Make him an offer he can’t refuse.”

This is a simple financial transaction, not extortion. The property owners simply have to evaluate what they think the retail real estate market will be. If they do not accept Apple’s offer and they are right, they will do well. If the do not accept Apple’s offer and they are wrong, they may end up with less money overall, and possibly no new revenue from Apple as they move to an equivalent or better location that is now open because the major retailer that used to be there is no longer in business and no replacement tenant that is even close to as valuable.

 

[Abazigal]

I hope they have to pay full rent. There are many regular people that are paying full rent during these times

Because they lack the leverage to negotiate for a lower rent even as their business dips, not because they willingly pay full rent despite lower earnings.

 

[Distantmemories]

The negotiating leverage Apple must have in the UK retail space is unreal.

 

[Alan Wynn]

and then you lost it Lol. All of that above would have been factored in with the current agreement. And if it hadn’t passed you buy, Apples shops are closed currently, the Landlord has lost all of those benefits. Even you wouldn’t go to the mall!

You are absolutely right, that those things were a factor in setting the current deal, as was the demand for retail real estate. Just out of curiosity, do you think that in two - three years the demand for flagship retail locations will be greater than it was before the pandemic, the same as it was (in other words down quite a bit from when these leases were first negotiated), or down substantially with many more major retailers going out of business?

Your argument seems to be that Apple should always pay based on what the retail real estate market was at close to its peak when they signed many of these deals.

It is very simple. In two to three years when these leases come up for renewal, one of three things is likely to be true:

1. Against all the trends, the market for retail real estate will have improved so much that Apple will have no choice but renew their leases at even higher prices.
2. Against all the trends, the market for retail real estate will have recovered enough that Apple will just have to renew under the same terms as they are paying now.
3. The market for retail real estate will have continued its collapse and Apple will have a choice of many new flagship locations formerly occupied by no longer existent marquis retailers. This will mean they either get a much better deal then they are currently offering (and amazingly better than what they have now).

You seem to believe that the first two options are likely. If you were running one of these property owners you would not take the deal on offer and hope that you will so many retailers competing for that space that you can raise your rents.

Most people seem to think that option three is more likely. That would mean that if you were running one of these property owners and you did what you said you would do, when that lease comes due, you will either get a much lower offer from Apple or, even worse, Apple might move to a new location that has become available and you will be left with no tenant in the space and very small prospects of one of Apple’s marquis value.

The owners of these properties can do nothing and trade short term value for an uncertain future value, or they can accept the deal being offered (or counter with their own) and trade short term revenue a more certain future revenue stream. No moral decision here, just financial ones.

 

[nickgovier]

.

 

[AZREOSpecialist]

The answer is easy: No

 

[cmaier]

Who is even stating they must? We get it, you think Apple is the victim, but you don’t have to fill the gaps with fantasy

I said if the landlord doesn’t want the deal, apple is free to leave at the end of the lease, and said “fair is fair.”

The response was “that’s not fair.” So that is what I was responding to - someone actually said It is NOT fair for apple to leave at the end of the lease.

 

[ani4ani]

You are absolutely right, that those things were a factor in setting the current deal, as was the demand for retail real estate. Just out of curiosity, do you think that in two - three years the demand for flagship retail locations will be greater than it was before the pandemic, the same as it was (in other words down quite a bit from when these leases were first negotiated), or down substantially with many more major retailers going out of business?

Your argument seems to be that Apple should always pay based on what the retail real estate market was at close to its peak when they signed many of these deals.

It is very simple. In two to three years when these leases come up for renewal, one of three things is likely to be true:

1. Against all the trends, the market for retail real estate will have improved so much that Apple will have no choice but renew their leases at even higher prices.
2. Against all the trends, the market for retail real estate will have recovered enough that Apple will just have to renew under the same terms as they are paying now.
3. The market for retail real estate will have continued its collapse and Apple will have a choice of many new flagship locations formerly occupied by no longer existent marquis retailers. This will mean they either get a much better deal then they are currently offering (and amazingly better than what they have now).

You seem to believe that the first two options are likely. If you were running one of these property owners you would not take the deal on offer and hope that you will so many retailers competing for that space that you can raise your rents.

Most people seem to think that option three is more likely. That would mean that if you were running one of these property owners and you did what you said you would do, when that lease comes due, you will either get a much lower offer from Apple or, even worse, Apple might move to a new location that has become available and you will be left with no tenant in the space and very small prospects of one of Apple’s marquis value.

The owners of these properties can do nothing and trade short term value for an uncertain future value, or they can accept the deal being offered (or counter with their own) and trade short term revenue a more certain future revenue stream. No moral decision here, just financial ones.

I am pretty sure that our World has changed for ever, i.e. online activities will grow even faster and bricks and mortar locations will suffer very much as a result of the pandemic. People wont see the Mall as an event, in the short term because many shops will be closed, those that are open will be a hastle to visit [masks, queues, food courts, who knows?].

I believe Apple should honour their current leasing agreements, since everyone is facing difficulties at this time; lets be fair, if Apple closes their stores, which they have been doing, then the landlord has lost one of the key benefits he promises his other tennants [footfall] which probably led them giving Apple very preferential terms to have Apple to be there in the first place. I seriously doubt Apple pay the highest rates in any event; I seriously doubt Apple would be asking for higher prices if the Mall was booming. Apple are entirely free to ask to change the terms, but personally, I think their timing is extremely cynical and exploitative, given that [at least here in the UK], Malls have been closed in full eliminating the landlords entire income stream, whereas Apples loses [hardly] a tiny proportion of their income stream and by the latest results, probably more than compensated for the stores with online performance.

Apple of course are free to move to another flagship location, but I wonder what the definition of that will be in 3 years time - perhaps not shacked up in another half empty mall / shopping centre? Note, at least here in the UK, 95% of the flagship malls are operated by the same pair of landlords, so perhaps not that much freedom for Apple?

 

[4487549]

Apple's courageous innovation: making landlords look good.

 

[manu chao]

I believe Apple should honour their current leasing agreements, since everyone is facing difficulties at this time.

There is zero indication that Apple isn’t honouring their current leasing agreements. Making an offer for a different leasing agreement is hardly the same as breaking an existing agreement.

 

[Sedulous]

As a property owner it may be tempting to look at a tenant making $$$ but unless occupation of your property is what drives those $$$, then be wary, your tenant can easily move.

 

[ani4ani]

There is zero indication that Apple isn’t honouring their current leasing agreements. Making an offer for a different leasing agreement is hardly the same as breaking an existing agreement.

I never said otherwise

 

[manu chao]

I never said otherwise

By saying they should honour the agreements you basically said that it looks like they want to break the agreements. You either honour an agreement or you don’t. And not honouring an agreement is a polite way of saying ‘breaking an agreement’.

 

[ani4ani]

By saying they should honour the agreements you basically said that it looks like they want to break the agreements. You either honour an agreement or you don’t. And not honouring an agreement is a polite way of saying ‘breaking an agreement’.

If you want to play semantics, by asking to change an agreement, by implication you have to break the current one to make the change!

 

[oldwatery]

How is it Apple’s fault?

Because they are the ones asking for a deal. And using the pandemic to better their own bottom line. Typical Apple under Tim. There comes a time when profits are not everything but you will never see that time in Cupertino. So very sad that they think sticking it to someone else is cool at a time like this.

 

[greenmeanie]

Isn't this like us asking Apple to cut their product prices in half since most are out of work?
They haven't so why should the LandLords?

 

[Alan Wynn]

I am pretty sure that our World has changed for ever, i.e. online activities will grow even faster and bricks and mortar locations will suffer very much as a result of the pandemic. People wont see the Mall as an event, in the short term because many shops will be closed, those that are open will be a hastle to visit [masks, queues, food courts, who knows?].

Given this, do you think that the property owners will be in a stronger position to negotiate rates in two years or now? That is the only question they need to answer. If they think they will be in a better position, they should stick with their current deals and take a risk that their position has crumbled completely.

I believe Apple should honour their current leasing agreements, since everyone is facing difficulties at this time;

You keep saying this, but Apple is honoring their current leases. They are paying their rent exactly as they are required to do. What they are offering is a trade. Discount our current payments and in return we will give you a contract extension for several years.

lets be fair, if Apple closes their stores, which they have been doing, then the landlord has lost one of the key benefits he promises his other tennants [footfall] which probably led them giving Apple very preferential terms to have Apple to be there in the first place.

If Apple’s stores are closed, most (or all) of the other stores in the mall are closed as well, so your point is moot. However, the property owner’s decision is not just based on the situation today, but what they think the situation will be when these leases come up for renewal.

I seriously doubt Apple pay the highest rates in any event; I seriously doubt Apple would be asking for higher prices if the Mall was booming.

Nope, but the Mall owner might be making the opposite offer that Apple is: Stay with your current contract, or lock in a new deal for a few extra years at a 50% increase today. Something that used to happen in desirable properties in their first or second option period.

Apple are entirely free to ask to change the terms, but personally, I think their timing is extremely cynical and exploitative, given that [at least here in the UK], Malls have been closed in full eliminating the landlords entire income stream, whereas Apples loses [hardly] a tiny proportion of their income stream and by the latest results, probably more than compensated for the stores with online performance.

Again, Apple are offering these property owners something that is likely of value to them longer term stability. What you seem to fail to grasp is that these negotiations are going to happen at some point and Apple is giving the property owner the option of having them now. If the property owner thinks they will be in a stronger position they will say no and wait. If they think things are only likely to get worse for them, they will take the deal (or make a counter offer). You also do not seem to understand the financial value of a long term lease with a stable customer. Having that contract makes the property more valuable and makes it easier for them to secure financing based on that valuation.

Apple of course are free to move to another flagship location, but I wonder what the definition of that will be in 3 years time - perhaps not shacked up in another half empty mall / shopping centre? Note, at least here in the UK, 95% of the flagship malls are operated by the same pair of landlords, so perhaps not that much freedom for Apple?

Here in the U.S., many (most) of Apple’s Flagship locations are not in malls. I do not quite understand your argument here. All the malls with be half empty ghost towns, but since there are only two companies that control most of them, they will have monopoly power to charge Apple what they want. If none of these malls are attractive locations for Apple, they will either close the location completely or find an interesting non-mall location and move there. Either way, if I was a property owner who believed what you seem to be saying, I would jump at a chance to get a long term lease from an important anchor tenant with terms likely much better than what they will be in two years time.

 

[aaesta]

Why is this wrong? Its business. If Apple leaves , the stores near it crumble and rent goes up for the rest. This happened in malls all the time

 

[C00rDiNaT0r]

The way I see it, the property owners need Apple more than Apple needs them. Apple outperformed other traditional B&M retailers despite store closures, meaning their growth amid the pandemic was driven by their own e-comm channel and fulfillment centers, not their physical presence in any traditional prime retail locations.

If the pandemic prolongs for another year or two, which is very likely in the US, after leases are up, landlords can risk leaving those locations empty, or they can renew with Apple for guaranteed cash flow, for years to come. Who knows whether corporates like LVMH, who can actually afford to rent those places, would be willing to bid higher than Apple for the same spaces?

 

[malkovich87]

Well, Apple has lent a helping hand. ( as have others) This isn’t a stunt, it’s a smart business strategy.

A “smart business strategy” - if asking for a 50% reduction is a “business strategy” I guess I should have become a consultant.

 

[malkovich87]

The way I see it, the property owners need Apple more than Apple needs them. Apple outperformed other traditional B&M retailers despite store closures, meaning their growth amid the pandemic was driven by their own e-comm channel and fulfillment centers, not their physical presence in any traditional prime retail locations.

If the pandemic prolongs for another year or two, which is very likely in the US, after leases are up, landlords can risk leaving those locations empty, or they can renew with Apple for guaranteed cash flow, for years to come. Who knows whether corporates like LVMH, who can actually afford to rent those places, would be willing to bid higher than Apple for the same spaces?

You’re quite wrong about that. In the US - sure. Apple will just move to the next half empty shopping mall. Finding adequate space for an Apple Store in Europe is not very easy, especially not in historic city centers. Apple sometimes has to wait years for a place to become available.

 

[Alan Wynn]

A “smart business strategy” - if asking for a 50% reduction is a “business strategy” I guess I should have become a consultant.

First, we have no idea if this is 50% over the life of the lease, or 50% for the moment. Second, you seem to ignore the other half of the offer: a long term extension. Property owners will either be negotiating now or when these leases come due. They get to make the choice. If they think they will be in a stronger position in one to three years, they will not accept these offers (or counter them) and will just take their chances. If they think their position is only going to get worse, they will take what is offered or counter offer now.

 

[malkovich87]

First, we have no idea if this is 50% over the life of the lease, or 50% for the moment. Second, you seem to ignore the other half of the offer: a long term extension. Property owners will either be negotiating now or when these leases come due. They get to make the choice. If they think they will be in a stronger position in one to three years, they will not accept these offers (or counter them) and will just take their chances. If they think their position is only going to get worse, they will take what is offered or counter offer now.

the reductions aren’t long-term. They’re short-term corona relief.