Simon Properties Attempts to Halt Teavana Closings
Mall giant Simon Properties has filed a lawsuit against coffee giant Starbucks for closing hundreds of its Teavana locations. The suit follows Starbucks’ announcement that it plans to do away with all 379 Teavana stores for, according to court documents, no particular reason.
Indianapolis-based Simon is the nation’s largest mall operator, and executives were more than upset by the coffee retailer’s plans. It is asking a judge to bar the closing of 78 Teavana stores located in its malls across the country, claiming there is no legitimate purpose and Teavana is not causing Starbucks to be in dire financial straits. In fact, Starbucks’ tea business has grown 40 percent since its $6.2 million acquisition of Teavana in 2012.
During the July 27 announcement, however, Starbucks officials said all Teavana stores will be closed by next spring and the 3,300 employees will be able to apply for jobs in Starbucks stores. The company claims the chain has been underperforming.
“Starbucks is a thriving company…that simply believes it can make more money if it violates the leases,” Simon alleged in the filing. Simon doesn’t accuse the coffee giant of trying to avoid payment of what’s owed on the leases but is concerned that closing a large number of Teavana stores will inflict a poor “public image” of its malls to patrons.
“Starbucks does not contend that Simon Properties 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,” the lawsuit states. “Instead, Starbucks simply believes it can make more money if it violates the leases than if it honored the contractual promises and obligations.
Simon Properties cites BCBG, Jones New York, Kenneth Cole, Bebe and Nine West as additional retailers responsible for distressing their malls’ landscapes by backing out of leases. “Those retailers, at least, claimed closure was necessary to avoid bankruptcy and that staying open and fulfilling their leases would cause them financial ruin,” the complaint said. “That is obviously not the case with Starbucks.” Simon execs are worried that closing Teavana locations will trigger other retailers to follow Starbucks’ lead due to decreased mall traffic. “Shuttering stores prematurely results in a ripple of negative, adverse economic effects in each shopping center’s community,” it said in the complaint.
Starbucks has agreed to not close any Teavana stores at Simon malls in the next 45 days as the two attempt to agree upon what the future will bring. “We are responding to the lawsuit and are working to resolve this dispute,” Starbucks spokeswoman Sanja Gould said. But, some believe this isn’t enough. “The proper way for Starbucks to handle this is to negotiate — maybe offering to replace a Teavana store with a Starbucks,” said real estate attorney Joshua Stein. “This shouldn’t be in litigation.”
Industry experts call Simon’s response unusual. “There are others that are looking at this case to determine what they’ll do,” said bankruptcy attorney Richard Weltman of Weltman & Moskowitz. “If there’s a favorable outcome for Simon, you’d better believe that other mall operators will follow them.”