The retail landscape has some undoubtedly difficult times ahead, as new legal woes for Starbucks
Changing plans doesn't make friends
According to The Wall Street Journal, Starbucks is being sued by property owners and developers who claim the company needs to pay up for rent or other expenses at stores that have been closed or are no longer opening as formerly planned. Whole Foods Market
Many retailers are deciding to pare down store counts, or put the brakes on expansion plans, as consumer spending slows. Talbots
Needless to say, all this desolate retail space does many property owners no good. I'm no expert on commercial real estate, but I'd say some of the companies in that industry face major ramifications, too. Their fortunes were tied to the bubble -- and some retailers' possible overexpansion -- so these real estate firms are feeling the pain in full as the weak get winnowed out.
The news isn't all bad
On the other hand, an interesting CNN article about Circuit City's
By that logic, perhaps some real estate companies simply figure that stronger companies like Starbucks and Whole Foods are worth the skirmish; however slow their current traffic, they've historically attracted an upscale clientele.
On a brighter note, companies that have managed their resources well enough to keep growing amid the downturn, tough times like these could mean cheaper rent. American Apparel
Worst of times, best of times
In truth, retailers' operating leases are considered debt-like, even though they aren't required to be disclosed on balance sheets. Since they represent contractual obligations that must be paid, they can therefore be considered hidden debt, even for retailers that appear otherwise debt-free. While that's just part of the retail business, it might bite some of our companies particularly hard in the present climate.
It's easy enough not to think about these obligations when times are good, and it's taken for granted that well-run retailers pay them. But many retailers are obviously finding that "business as usual," and the models they used in planning their growth, no longer apply. If shopfrontss and offices start emptying out amid a deteriorating econony, commercial real estate will only suffer.
These may be the worst of times, but nimbler, savvier retailers could come through them in better shape than before. In addition to grabbing cheap retail space, they may also be able to steal away market share from weaker, failing rivals. In the retail world, survival of the fittest now prevails, and the coming months should distinguish the sector's winners from its fair-weather friends.
Starbucks is a Motley Fool Inside Value recommendation. Whole Foods Market and Starbucks are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.