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

[JGIGS]

But paying more than fmv is nuts. Apple isn’t in the charity business for landlords.

It's not FMV it's PMV (Pandemic Market Value) and what makes it more disgusting, other than Apple putting up record sales results during the pandemic, is Apple also trying to extend the leases for many years I'm assuming at this new PMV. Landlords are reducing and allowing struggling retailers who had to close stores to defer or pay less rent till they recover. Apple clearly doesn't need this help. For a company that's supposed to be about the people it comes off very icky. You want to do this during "normal times" fine comes off as distasteful to take advantage of landlords during a pandemic.

 

[SuperCachetes]

To anyone feeling Apple doesn’t have the right to be negotiating rent, just think for a second the kind of person who would own the kind of property Apple would be renting from in the first place. This isn’t your Aunt & Pop’s single investment property in the middle of London that are making ends meet with the rent. These are usually very wealthy corporate estates or corporations that own these properties in the locations Apple rents. The negotiation of reduced price for longer term leasing period is a fair trade and it’s up to those owners to decide if they would rather keep making the same money and have Apple find elsewhere in a few years or not.

Yep. I'm sure the landlords aren't doing great if too many of their tenants are seeing closures and walking out on leases, but I've also worked with/for enough landlords and property managers to know what they do when they have leverage. I don't have sympathy at all. In any case, "Sorry, Apple, but we don't feel that renegotiating the terms of your current lease at this time is in our best interests" is a perfectly acceptable response.

That'd be absolutely fair and normal business, I've done it myself and have no grumble. The timing of this however and the indicated rate cut they want is, well as Arn says, icky. Like I said in my first post though, economies will only recover if money continues to change hands and Apple based on this evidence seems to be even more eager than ever to stockpile it.

Their altruistic mask slips with this one.

I have never been cynical enough to think Apple expects us to believe they are altruistic. On the one hand, Apple does a lot of stuff w/r/t social reform, the environment, and lately COVID that they don't have to. But they also have some potentially predatory business tactics (App Store?) and their vendors in China are not the patron saints of fair labor practices. But I'm okay with the balance.

 

[JGIGS]

Why should landlords not be affected by COVID-19? What’s special about them? This is just one example, but there is millions and millions small businesses out there that go bankruptcy and a lower rent would certainly help.

Read the article a bit better maybe? Landlords ARE already massively struggling to keep paying tenants and thus giving struggling tenants breaks to help those business' not go out of business. Apple is not a business that has any risk of going out of business. They are clearly taking advantage of the pandemic and on top of that trying to add years of lease at this current unfair market value.

 

[dvanwinkle]

Former Apple Retail employee here. For those that aren’t aware, contracts with malls and retail outlets (at least in US) are typically based on how much your store brings in. Apple Stores bring in a TON of foot traffic compared to every other store. Because of this, Apple tends to negotiate contracts based off square footage instead of revenue based. They still end up paying a more than fair price, and the landlord typically charges more for units close to Apple Stores.

Where this bites Apple in the butt is during a downturn with store closures like Covid. Now they are paying an extreme premium compared to other stores even though the store isn’t bringing in any revenue.

it wouldn’t be fair for Apple to DEMAND a contract adjustment, but to ask for a reduction of rates to come more in line with the remainder of stores in the same shopping center is more than fair especially when they’re offering an extension to the contract. The landlords will likely (and should) accept the negotiated rate as losing Apple in their shopping center would be detrimental to it. Having a guarantee for another couple years means a guaranteed fruitful extra couple years.

For those arguing that the landlords likely have mortgages, even if they do they are usually cash backed assets and they’re only taking a mortgage to leverage the asset. Shopping centers the size of ones that Apple goes to are usually owned by investment groups and Apple typically has insights to their financials before signing a lease.

This is smart business, not taking advantage of a pandemic or trying to bully any landlords, let alone tiny landlords scraping by. This is asking to go to the negotiating table and both sides will have concessions and make decisions that are in both parties best interests.

 

[Isengardtom]

As long as they don’t furlough their employees I have no issue with this kind of renegotiations

yes, apple makes a ton of money. So do the landlords that own properties in Covent Garden and regent street

 

[Alan Wynn]

It's not FMV it's PMV (Pandemic Market Value) and what makes it more disgusting, other than Apple putting up record sales results during the pandemic, is Apple also trying to extend the leases for many years I'm assuming at this new PMV.

No. Retailers had been ceasing to exist at an accelerating pace. This pandemic has just made it worse. Wile some of the restaurants that close will be replaced by new restaurants, many retailers that close are gone for good. Apple negotiated many of these leases long before retail rents started to fall.

As for your other statement, Apple had record sales because people wanted to buy their products. They did not raise prices or force anyone to buy anything. How is it an issue that during a pandemic where people care more about working from home and their phones they decided to buy more Apple products?

Landlords are reducing and allowing struggling retailers who had to close stores to defer or pay less rent till they recover. Apple clearly doesn't need this help. For a company that's supposed to be about the people it comes off very icky. You want to do this during "normal times" fine comes off as distasteful to take advantage of landlords during a pandemic.

They are not forcing anyone to do anything. If these property owners all think everything will be fine before Apple’s lease is over, they will not take a deal. If they do not, and they would rather have a longer term lease they will. Apple is not threatening them, and as was noted, this is only for those properties where they have several years left on their leases, so it is not even a negotiating tactic for their current renewal contracts.

 

[now i see it]

someone's salary at  is dependent on this deal going through.
probably the "Retail Efficiency Manger" if there is such a position

 

[manu chao]

What? No idea what you're saying.

I’m referring to situations where stores owned by big brands applied for tax-funded relief efforts targeted at keeping small stores afloat. Depending on the precise rules that might have been legally correct but would by many be considered morally wrong.

I was just trying to point out that there can be graduations of what is considered morally wrong depending on the nature of the party that is financially affected (state or private, corporation or individuals).

 

[826317]

Must have missed something. There’s something wrong with negotiating lease agreements? Why should apples earnings have any bearing on this?

Exactly. This how a business is run. Increasing profits for shareholders is number 1 priority.

 

[EfratBarTal]

And the landlords CAN refuse, you know.

 

[826317]

Why should landlords not be affected by COVID-19? What’s special about them? This is just one example, but there is millions and millions small businesses out there that go bankruptcy and a lower rent would certainly help.

Exactly and funnily, landlords are arguably in the most forgiving positions during this COVID stuff.
[automerge]1596403480[/automerge]

And the landlords CAN refuse, you know.

If you've got a customer like Apple, that would be a monumental mistake, unless the offer is just really THAT low. Perhaps they could find some other elite clients, but for some reason I doubt it.

 

[Abazigal]

Former Apple Retail employee here. For those that aren’t aware, contracts with malls and retail outlets (at least in US) are typically based on how much your store brings in. Apple Stores bring in a TON of foot traffic compared to every other store. Because of this, Apple tends to negotiate contracts based off square footage instead of revenue based. They still end up paying a more than fair price, and the landlord typically charges more for units close to Apple Stores.

Where this bites Apple in the butt is during a downturn with store closures like Covid. Now they are paying an extreme premium compared to other stores even though the store isn’t bringing in any revenue.

it wouldn’t be fair for Apple to DEMAND a contract adjustment, but to ask for a reduction of rates to come more in line with the remainder of stores in the same shopping center is more than fair especially when they’re offering an extension to the contract. The landlords will likely (and should) accept the negotiated rate as losing Apple in their shopping center would be detrimental to it. Having a guarantee for another couple years means a guaranteed fruitful extra couple years.

For those arguing that the landlords likely have mortgages, even if they do they are usually cash backed assets and they’re only taking a mortgage to leverage the asset. Shopping centers the size of ones that Apple goes to are usually owned by investment groups and Apple typically has insights to their financials before signing a lease.

This is smart business, not taking advantage of a pandemic or trying to bully any landlords, let alone tiny landlords scraping by. This is asking to go to the negotiating table and both sides will have concessions and make decisions that are in both parties best interests.

Finally. Someone who argues based on logic and not feelings. I think too many people here are too conditioned to automatically see Apple as the villain no matter what they do.

 

[manu chao]

So speculation. Likely or not, speculation.

If you consider the whole report of the Sunday Times speculation, then yes. Otherwise it says exactly that:
”Apple is supposedly offering a considerable lease extension in return.”

 

[koruki]

lol how much of the profits are from these walk in stores that serve people who are told to stay home... oh wait Apple is rich.. logic is not allowed here. Some of you know have no idea how much these prime real estate rent costs.

 

[koruki]

oh why are people making the billion-dollar corporate store owners sound like old Joe from down the road that only has this one store as his retirement income

 

[carestudio]

50% off? must be nice.. but at least Apple pays and pays on time

 

[jarman92]

This is obscene. After just posting those profits recently and only paying £8 Million in tax on UK profits of £1.8 billion, they've got some nerve. Never underestimate the greed.

No doubt fanboys will be along shortly to say how unfair it is to call them out etc, etc.

Apple are tone deaf to the pandemic. They need to look at the optics of how this looks.

Yes, it's perfectly within their rights to do this. But just because they can doesn't mean they should.

Amazing how the Apple haters are pretending to shed a tear for corporate real estate behemoths who are certainly initiating eviction proceedings against struggling tenants as we speak.

 

[hot-gril]

Landlords don't reduce their prices mid-contract, in the same way that landlords can't make increases (unless it's part of the contract). Apple made an arrangement with their landlords. The market has changed and Apple is using this as a tool to reduce the rates during their contract (in return for potentially extending their contract).

It sounds from the article like the contract is ending and Apple is deciding whether to extend. If not, Apple probably has the right to break the lease at some penalty.

 

[ani4ani]

Landlord to Apple....fine, pay the remainder of your current lease in advance (to allow you to terminate your current contract) and then we’ll negotiate your next lease which might have a discount for a longer commitment.

 

[carestudio]

I think Apple is rich but doesnt mean the department who runs the apple retail store can spend "Apple's" money arbitrarily. It's a huge company where has so many different business units and their own budget. Issue like this may need higher executives or VPs to cowork together and use the resources that other divisions can't use. Bottom line is, cutting 50% rental down on 37 stores in UK is probably nothing to Apple's executives and wouldn't get Tim's attention at all. Need the landlords to escalate it to higher managers.

 

[SW3029]

People, Apple is not renting the spare bedroom from your dear old mother and asking her for a 50% discount during trying times.

They are leasing retail space from billion-dollar retail and property developers who regularly screw over local governments and small businesses by demanding tax breaks that no mom and pop shop would get.

Being angry that Apple is trying to get a reduced lease on retail locations that have been less profitable is laughable. There are more pertinent things to be angry about right now that actually impact your life.

 

[Alan Wynn]

Landlord to Apple....fine, pay the remainder of your current lease in advance (to allow you to terminate your current contract) and then we’ll negotiate your next lease which might have a discount for a longer commitment.

Apple to Landlord: No thanks. We will just continue on our current terms and move to one of the million open locations when our lease ends. Nice doing business with you. Good luck in the future.

 

[ubersoldat]

Adidas did something similar in Germany and it caused a huge blowback: https://www.thelocal.de/20200401/adidas-sorry-after-outrage-over-virus-rent-freeze

 

[DblHelix]

rent is high period. Sales shouldn’t matter. Rents and housing/business locations costs have increased much faster than inflation.

 

[diipii]

Bastards