Simon sues Starbucks over Teavana closures
In this article (5)
US shopping mall owner Simon Property is taking coffee chain Starbucks to court over its planned Teavana closures.
In late July, Starbucks announced it would shutter all 379 of its Teavana stores, including 78 in Simon-managed malls, because they were “under-performing”.
In documents filed with the Marion Superior Court, Simon accuses Starbucks of “shirking its contractual obligations at the expense of Simon’s shopping centres and the dozens of communities they serve and support,” not to mention breaching its lease agreements.
The landlord is seeking temporary and permanent injunctions preventing the Teavana closures.
Starbucks paid US$629 million to buy the tea-store chain in December 2012, promising at the time “to do for the tea market what Starbucks had done for coffee”. While it will close all retail outlets, Starbucks plans to maintain the Teavana brand in its own cafe network and has been actively rolling it out Teavana-branded drinks in Asia during the last two years.
Simon says Starbucks has advised it will close all its Teavana stores in Simon malls by the end of 2017, despite some leases due to run as long as January 2027.
“In order to successfully operate its shopping centers, Simon depends upon each tenant fulfilling the covenants in their respective leases,” the company said in court documentation. “Crucially, each of Simon’s tenants promises that it will open and operate continuously for the entire term of its lease.”
Simon acknowledged in the suit that a lot of retailers have been closing stores in its malls in recent years because of financial stress – including Gap, Ralph Lauren, Sears, Macy’s, Rue 21 and American Eagle.
“to do for the tea market what Starbucks had done for coffee”
“Those retailers, at least, claimed closure was necessary to avoid bankruptcy, and that staying open and fulfilling their leases would cause them financial ruin,” Simon said. “That obviously is not the case with Starbucks, which is one of the largest and most recognised companies in the world.”
The landlord also claimed Teavana was not losing money, arguing it wasn’t growing fast enough to fit with Starbucks’ business plan.
“Starbucks’ decision to close its Teavana stores is simply an effort to further increase its economic gains at the expense of others,” Simon said. “Starbucks does not contend that Simon breached any lease or that Starbucks cannot remain viable if it continues to honor its promises in its leases for stores in Simon’s shopping centers. Instead, Starbucks simply believes it can make more money if it violates the leases than if it honored its contractual promises and obligations.”
Teavana stores were described by Simon as “a valuable contribution to the synergistic mix of tenants” in its malls.
“A shopping center is not merely a random collection of stores. Rather, it is a co-dependent ecosystem of tenants with a complex system of governance that ensures its wellbeing. Tenants depend on a mix of a certain types of retailers. Accordingly, Simon enters into long-term leases with its tenants to provide stability in Simon’s occupancy rate and tenant mix.”
Starbucks has not yet commented on the lawsuit.
Questions & Answers
Q.Why is Simon Property suing Starbucks over the Teavana store closures?
Why is Simon Property suing Starbucks over the Teavana store closures?
Simon accuses Starbucks of breaching lease agreements and contractual obligations by closing stores early. It claims Starbucks' actions negatively impact its shopping centres and the communities they serve and support.
Q.What is Simon's main argument against Starbucks' decision to close the Teavana stores?
What is Simon's main argument against Starbucks' decision to close the Teavana stores?
Simon states that Starbucks is not facing financial distress, unlike other retailers closing stores, and believes Starbucks is violating leases to increase its own economic gains. It also argues Teavana stores are a valuable part of its malls' tenant mix.
Q.What kind of legal action is Simon seeking against Starbucks?
What kind of legal action is Simon seeking against Starbucks?
The landlord is seeking both temporary and permanent injunctions. These legal measures aim to prevent the planned closures of the Teavana stores situated within Simon's managed malls.
Q.How long were some of the Teavana leases with Simon Property set to run?
How long were some of the Teavana leases with Simon Property set to run?
While Starbucks plans to close all stores by the end of 2017, some of the leases for Teavana stores within Simon's malls were due to continue for much longer, running as late as January 2027.
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