With millions of enterprises across the country suffering from the ravages of the coronavirus pandemic, many business owners are now seeking rent concessions, as business has slowed to a halt due to government regulations and a dearth of consumers.
Starbucks is one of the more high-profile examples of a company seeking such concessions. The coffee behemoth would like landlords at the store across the country to cut it some slack on rent for at least a year as coronavirus social-distancing measures have destroyed sales at the Seattle-based global coffee chain.
CFO Pat Grismer told analysts in late April that the company has remained current on its rent, but he added that the company was pursuing lease concessions as the coronavirus keeps various locations across the country shuttered or operating under reduced hours.
“We are having ongoing conversations with our landlords in various markets regarding what may be commercially reasonable lease concessions in the current environment,” Grismer said.
Starbucks estimated it lost $915 million in sales during its fiscal second quarter due to store closures, reduced operating hours, and lower customer traffic as consumers shelter-in-place. Its earnings were slashed in half as catastrophe pay for baristas, hourly pay increases, and the cost of store safety items such as face coverings detracted from store profits.
“Effective June 1 and for at least a period of 12 consecutive months, Starbucks will require concessions to support modified operations and adjustments to lease terms and base rent structures,” read a May 5 letter to landlords, signed by Starbucks Chief Operating Officer Roz Brewer.
Starbucks requested the rent reprieve a day after the company released plans to reopen 90% of its 8,900 company-owned U.S. stores by early June. In an optimistic May 4 post on Starbucks’ website, President and CEO Kevin Johnson said that Starbucks “will not just survive, but with adaptations and new routines, it will thrive.”
The letter to landlords requested that they “adapt to new realities” such as an anticipated $225 billion decline in the American restaurant industry over the next several months.
The company referred to the closure of businesses across the country to stem the spread of the novel coronavirus “a staggering economic crisis,” adding that “the psychological and economic scars will last for months, if not years.”
“This is the worst recession since the Great Depression and far more devastating than the global financial crisis,” Brewer wrote. “What lays ahead is daunting but by no means insurmountable with a shared commitment and a clear path forward.”
Starbucks stock is down about 0.70% amid the news, while ETFs holding the stock such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares US Consumer Services ETF (IYC) are positive on the day.
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