Saks Global is butting heads with another landlord during its bankruptcy proceedings, this time about whether a Burlington store can take over a Saks Off 5th location in a Georgia outlet center.
At the heart of the issue is the concept that retail real estate depends on careful choreography. Landlords select anchor tenants to shape a center's identity, smaller retailers sign on expecting compatible neighbors, and lease provisions often limit how much that mix can change. When one anchor leaves, those safeguards can become flashpoints.
The Saks Global conflict underscores a significant complication of the company's downsizing effort: Unexpired leases can limit who is allowed to replace its departing stores, making it harder to fill vacated retail space.
The Outlet Shoppes at Atlanta, at 915 Ridgewalk Parkway in Woodstock, Georgia, is seeking to block New York-based Saks Global from "assigning," or essentially selling, its unexpired lease for a 25,000-square-foot Saks Off 5th anchor space at the shopping center.
The outdoor mall, owned by CBL Properties and Horizon Group Properties, alleges that a location of Burlington Stores replacing Saks Off 5th will "destroy" The Outlet Shoppes' image as a home to "luxury and near-luxury brands," according to bankruptcy court documents filed Wednesday. While Burlington Stores is widely described as an off-price chain in the retail industry, the landlords characterized it as "a discount or bargain store."
The owners also charge that a Burlington location isn't a permitted use for the anchor site, and that the chain possibly coming in will trigger co-tenancy rules, already bringing an objection from another tenant at the mall — the preppy clothing brand J.Crew — that's seeking to have its rent lowered.
And it's not the only battle that Saks Global — parent of Saks Fifth Avenue, Neiman Marcus, Bergdorf Goodman and Saks Off 5th — has had with landlords. The company's biggest landlord, Simon Property Group, has asked the bankruptcy court to terminate two leases Saks Global has with it, for a Neiman Marcus in Palo Alto, California, and a Saks Off 5th store at Woodbury Common Premium Outlets in Central Valley, New York.
These tensions all stem from Saks Global slashing its U.S. store fleet, including closing nearly all its off-price Saks Off 5th stores — about 60 locations — as part of its Chapter 11 process.
Stores closing nationwide
Saks Global, CBL, Horizon Group, Burlington and J.Crew didn't respond to emails Thursday from CoStar News seeking comment.
The Georgia outlet center debuted in 2013, and the Saks Off 5th lease was signed before it even opened and was integral to the property's development, Andrew Pelmoter, an executive vice president at Horizon Group, said in an affidavit filed with the court.
"The shopping center’s anchor concept and tenant mix were built around Off 5th as an anchor tenant," Pelmoter said. "The shopping center would not have been built without Off 5th as an anchor tenant and Burlington would never be in consideration for that space."
Burlington does not mesh with the outlet center's high-end tenant roster, which includes Polo/Ralph Lauren, Coach, Kate Spade, Michael Kors, Brooks Brothers, Cole Haan, Hugo Boss, Vineyard Vines, Banana Republic, The North Face and J.Crew, according to Pelmoter.
"These stores are operated as brand-forward 'small shops' selling their own branded merchandise," he said. "Burlington does not sell its own brands, and many of the brands it carries are those of companies that have gone out of business where only the intellectual property of the defunct company remains. Outlet shoppers recognize this distinction, and Burlington’s presence would diminish the shopping center's positioning as a high-end manufacturer outlet destination."
Replacing Saks Off 5th with Burlington "jeopardizes the shopping center’s status as a high-end manufacturer outlet center and will likely alienate current tenants," according to Pelmoter.
"If the anchor profile shifts drastically from Off 5th, a high-end outlet anchor, to Burlington, many brands may refuse to renew leases or may otherwise reconsider their continued presence at the shopping center," he said.
Objection from J.Crew
J.Crew, one of the outlet center's tenants, has already told the landlords that it is entitled to pay less rent because Burlington's presence will violate its lease's co-tenancy clause, according to court documents. A co-tenancy clause in a retail lease allows tenants to pay less rent or terminate their agreement if specific conditions aren't met, such as an anchor store closing.
Nearly 60 Saks Off 5th leases were put up for sale, and Burlington bid $22 million for 22 of them, according to court documents filed in March.
Burlington, based in New Jersey, has roughly 1,212 stores and is rapidly expanding, assuming leases for a number of stores from chains that have downsized or liquidated. As of last year, there were 21 Burlington stores in the Atlanta metropolitan area, according to court documents.
The issue that landlords raised with Burlington, tenant curation, is crucial for a retail landlord, according to Hue Chen, president and CEO of Saglo Cos., which owns four open-air strip centers and isn't involved in the case.
"I'm not an attorney, so I'm not going to give a legal opinion on a bankruptcy matter," he told CoStar News. But he said tenant mix is "what differentiates retail properties from other asset types like office or industrial because in retail properties, tenant mix really does matter."
Chen also mentioned a concern that the Georgia landlords cited in their court filings, namely the fear that Burlington customers would not cross shop at the luxury outlets at the same property.
"What the landlord is saying, and maybe even the other co-tenants, what they're saying is that with Saks Off 5th, the people that would go are accustomed to maybe paying a $100 or $50 or $200 per item for a nicer quality item," Chen said.
If Burlington replaces the Saks Off 5th, its average item cost could be only $50 or $20, according to Chen.
"Now the question, the thesis or the theory would be that Burlington customer wouldn't go to J.Crew to spend $300 on a dress," he said, adding there are analytic tools that could track that.