LIVE: President Trump holds rally for Alabama Senate race

Dismiss

Mall Owner Simon Sues Starbucks Over Planned Teavana Store Closures

By Esther Fung Features Dow Jones Newswires

Mall landlord Simon Property Group has gone to court to block Starbucks Corp. from pursuing its plan to close its Teavana stores in Simon's retail locations.

Continue Reading Below

The Indianapolis-based real-estate investment trust last week filed a lawsuit in a state court in Indiana alleging Starbucks would breach its lease obligations by closing its Teavana outlets in 78 of its shopping centers. The 18-page complaint also alleges that Starbucks public announcement of the closures in July caused "irreparable harm" to the value of Simon's malls and its reputation.

A spokeswoman for Starbucks said: "We are responding to the lawsuit and are working to resolve this dispute." She declined to comment further.

Numerous retailers have been closing stores lately as the sector have faced changing consumer tastes, weak balance sheets and growing competition from online retail. But Simon's legal papers point out that other retailers that have closed stores in recent years have faced bankruptcy or financial ruin.

"That obviously is not the case with Starbucks, which is one of the largest and most recognized companies in the world," said the 18-page complaint filed in Marion County.

Teavana, which operates a chain of tea shops stores, was acquired by Starbucks in 2012 for $620 million. The coffee giant expanded the chain hoping to develop a Starbucks-like experience for tea drinkers.

Continue Reading Below

The Seattle-based company said in July it will close all 379 Teavana stores. At the time, Starbucks cited weak foot traffic, particularly in malls, for the chain's underperformance.

"Despite efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue," Starbucks said in a written statement.

Two of the Teavana stores in Simon malls have leases that are expiring before the spring of 2018. Other leases have terms that are as far out as 2027.

Simon said in its lawsuit that Starbucks was trying "to deflect blame from itself" by citing weak foot traffic in malls for Teavana's weak performance.

Simon hasn't publicly disclosed its lease with Teavana. But retail leases in shopping malls often require tenants to stay open unless they face severe economic duress. This is because other mall tenants can be hurt if stores next door go dark.

"Starbucks should not be permitted to put its stock price above its contractual obligations, the viability of Simon and its shopping centers, other retailers and consumers who count on the Teavana stores in Simon's shopping centers and the communities served by those shopping centers," Simon's complaint said.

Simon's legal attack against Starbucks comes amid a spike in retailer bankruptcies and store closures. Many tenants have become more aggressive about asking for lease concessions, but some landlords say that retailers are taking advantage of the current environment and are making demands for concessions that aren't warranted.

In its lawsuit, Simon challenged Starbuck's public comments about Teavana's poor performance, pointing out that Starbucks' chief executive officer Kevin Johnson said in July that its tea business has grown 40% since Teavana was launched in the U.S. five years ago.

The mall owner also pointed out that Starbucks' chief financial officer Scott Maw said in the second quarter earnings call that "we do have a meaningful subset of profitable Teavana mall stores."

This lawsuit was earlier reported by Indianapolis Business Journal.

Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires

August 30, 2017 17:35 ET (21:35 GMT)