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Avalanche of Online Returns Hit Mall Owners Too
By Dennis Kaiser
A new challenge is emerging on the retail horizon that’s vexing for mall owners. There’s a growing number of retailers that are now deducting returns for products purchased online from the sales figures they report.
Simon Property Group Inc.’s David Simon told Bloomberg that a “significant number” of tenants have adopted the practice of underreporting sales. The returns are adding up and Simon is negotiating with retailers in order to determine a resolution. Simon indicated a standard response hasn’t yet been formulated, though he notes the issue needs to be addressed in future leases.
Sales per-square-foot is a crucial metric of the retail industry, helping to gauge a mall’s financial health, not to mention it can be a key component when negotiating leases. Typically, higher rents can be justified by larger sales numbers.
The returns are causing problems to the practice of basing rents on sales from a physical store. That’s because, generally, a retailer pays a base amount plus a percentage of sales above an established threshold. If a retailer deducts the returns from its sales number, that reduces what it pays to landlords.
Happy Returns Inc., a company that handles returns for retailers, estimates the rate of returns for online purchases is as much as four times the rate for physical-store sales. People tend to prefer to take back things so they can get return credits sooner. That could work in a landlord/s favor though, since returns generate extra trips to a mall. The additional foot traffic could be valuable, if shopping centers convert those additional spending opportunities.
For comments, questions or concerns, please contact Dennis Kaiser
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