Whole Foods Market sought to rent out space in CityCenter mall in San Francisco this summer, one of the most popular retail spaces in the city. However, retail giant Target, the largest tenant in the mall, was not enthusiastic to share shopper traffic with Whole Foods. Target feared competition from Whole Foods’ new owner – Amazon.
City Center’s case shows the challenge of Amazon’s mission to re-shape Whole Foods. Retailers such as Target, Bed Bath & Beyond and Best Buy have rights in many lease agreements that enable them to restrict what Amazon can do with nearby Whole Foods stores and where Amazon can open new ones.
In-store pickups of online orders are a way for Amazon to increase their sales and revenue, using their new brick-and-mortar acquisition. The leases of Whole Foods’ big box neighbors may disallow Amazon from selling its online inventory that would compete with those stores, such as electronics or bed sheets. Even Whole Foods stores aren’t near big box rivals can face constraints imposed by local government. In White Plains, NY, the local store has faced restrictions on the hours it can use the mall’s loading dock. Some shopping center proprietors and land agents say Whole Foods will in seek landowners who are anxious to have the prominent occupant driving foot activity to their shopping centers, and see rivals continue to attempt to keep Whole Foods out.
In August, the world’s biggest online retailer cut prices in the popular organic and healthy food grocery chain, and started offering its Echo home speaker in select stores as well as revealing plans to add package pickup lockers to a few stores. However, big box rivals have used various approaches to resist those changes. Retailers ensure that their landowners won’t lease their space in shopping centers, if it will lead to decrease in sales. A 16-page notice from July, itemizing the rent limitations administering Miami’s shopping center, offers a look at the assurances retailers are securing from their landlords. Reuters reported that 7 percent of existing Whole Foods’ U.S. stores are within a quarter mile of a Target. Target requested the Regency Centers Corp to bar “Any lockers, lock-boxes or other type of storage system that is used to receive or store merchandise from a catalog or online retailer.”
Target isn’t the only one to seek limits on Amazon. German grocery chain Lidl said in an arrangement this year it would “prohibit the operation of pickup facilities” by rivals such as “Wal-Mart and Amazon… that sell grocery items” close to a planned store on Long Island.
A Bed Bath & Beyond store in Manhattan bars the next-door Whole Foods from selling linens, bathroom items, housewares and frames, its lease said. A rent carve-out for a store in Miami, which states other tenants can sell gadgets on less than 250 square feet of floor space, allowed Whole Foods to display the Echo speaker, according to a memo seen by Reuters and a reporter who visited the location.
Gabe Kadosh, VP at real estate firm Colliers International, said Amazon and Whole Foods “want to have freedom to do whatever they want. The challenge is in brick and mortar, and in multi-tenant shopping centers, you can’t just do that.”
Read more from Reuters here.