Empty Promises

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Empty Promises

By Jim Dudlicek, EnsembleIQ - 12/13/2016

Progressive Grocer covers issues impacting our industry all across the country, and occasionally one of those issues hits home.

Captive leases aren’t a new or localized concept; retailers have been using them for years to keep competitors off their turf, often to public outcry, sometimes provoking legal challenges.

Where I live, in Chicago’s northwest suburbs, several communities are trying to get a string of vacant supermarkets occupied with new operators, but captive leases are making these efforts difficult.

Community outreach is a key component of retailing in this day and age. Faced with fierce competition from multiple channels, traditional grocers have found it to their advantage to partner with community organizations; donate money, product and volunteer hours; and otherwise make their presence known in the neighborhoods where their shoppers live and work.

But captive leases can put a retailer at odds with the best interests of its community. Especially during the holiday season, as retailers boast about their philanthropy, such efforts ring hollow in the face of a captive-lease scenario that forces storefronts to sit vacant, to the consternation of local governments eager to fill revenue-generating retail space, and residents seeking more convenient shopping venues.

In my neighborhood, an independent chain grocer recently purchased a shopping center anchored by one of these vacant supermarkets, only to discover that the former occupant’s current parent company (which inherited the lease via merger) had exercised its option to extend its lease for five years at the eleventh hour before the deal closed, effectively killing plans for a new store.

One community leader told local press that the move “upset a lot of our residents, as well as business owners. It was extremely frustrating.”

The former operator denies that it’s thwarting competition, telling local press that it aims to work with towns to fill the spaces, because “it’s extremely important to us that we keep communities vibrant.”

But it’s hard not to think that thwarting competition is the intent, when this retailer still operates three other grocery stores within a 3-mile radius of the vacant site.

Last month, leaders from nearly a dozen Chicago suburbs met to express their concerns over the captive leases. One town’s mayor told a local newspaper that “the communities are not being put first. … We need to see some participation,” while another said, “So many of our residents do not realize that leases are being paid on these sites. They assume they are vacant because there is a lack of interest, but in reality they’re empty on purpose.”

I’m all for private companies exercising legal options to protect their interests. But maneuvers like a late-hour lease extension to prevent a new owner from opening a grocery store ignore the greater good of the community.

Retailers that want to prove their commitment to the community should stop playing real estate games.