Re-Opening CHICO’s with Greg Baker
Guest: Greg Baker
Topics: Chico’s, retail
Chris Ressa 0:01
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.
Welcome to retail retold everyone. Today we have a interesting guest. We have Greg Baker, Greg is the SVP general counsel and corporate secretary at Chico’s. Excited we don’t have many attorneys on the show. He’s been a in house attorney at major retailers for years. He started in the private practice. And he’s been in our industry since 1998. And excited to have him on the show. Welcome, Greg.
Greg Baker 0:53
Hey, Chris. Thank you for having me. Man. It doesn’t feel like I’ve been in the industry that long, but it’s true. I left law school 98 and joined a big law firm. And I happened to land in the real estate group. And I had no clue if I’d like it. I told him that my interview like this, I want to be upfront. And I ended up loving it. I actually, I was a little bit intimidated by being in a big firm with all these smart attorneys that I used to put an X on my calendar for every day that I made it. Yeah. And I made it for 12 years. Which was pretty cool.
Were you putting axes for like your your near four, were you still putting axes on your calendar?
I was I was. But you know, I really cut my teeth, doing one of the very first lifestyle centers in the country, which was Easton Town Center in Columbus, Ohio. I know, the beginning attorney and doing lease abstracts. So I started at the very bottom. And then over time, I grew a great book of business with all the retailers that happened to be in Columbus, Ohio. So I was representing DSW value city department stores, the Victoria’s Secret Bath and Bodyworks express in the limited and you get a really nice book of business over 12 years. And I knew I had to leave. After my 12th year when a partner said to me, Greg, if you could you’d work for your clients for free. You love them so much. At the same time, my client, one of my clients said to me the limited Hey, Greg, you’re too expensive. Do you want to come work with us? So I decided to roll the die. And I joined the limited and they were spun off from Limited Brands at the time. And I became their first in house attorney and I had a nimble team of three people. And the first year, you know, when you are a lawyer and you join a company, and you’re the first one, they think you can do everything? And you can’t I was mostly real estate, right? So the first year I spent watching YouTube videos every night to learn about the different areas of the law that I was seeing every day. And it was kind of crazy.
That’s amazing. Yeah, what was so what are you watching on YouTube, like,
ah, you know, there are a Harvard law professor as you teach about labor and employment, about finance. So everything that you know, when you’re in house, you touch almost every substantive area you can imagine it gives you a great diversity of work. So I want you to have the topic and learn about it and go from there. That’s great. I was at delimited for 16 years.
And I think why I think that’s fascinating, is because here you are a big time lawyer heading up the legal team at a major retailer. And you’re still open to learn and grow and not only open to learning go grow. You’re using a technique to learn that I think, you know, many people would, you know, probably not have the initiative to do and just open up YouTube and start learning. So kudos to you, man, that’s awesome.
Well, when you’re thrown into those situations, you know, It’s sink or swim, it should apply to your life. So I needed to learn it. And I needed to learn it quick. And it worked for me. But I also knew what I didn’t know. So you can’t walk in thinking that you know everything. And so if you’re not open to learning, you’re going to stub your toe in a big way. But I was at the limited for six years from during my tenure there. I also took over business development, which gave me a whole new approach when it comes to being a lawyer. Because once you’re on the business side, when you realize that you have to get the deals done. It really helps you as a lawyer know the business better and how to balance a risk Get the, you know, hone in on what’s important. Sadly delimited fell on hard times, near the end of my sixth year in our CEO left, and she came to Chico’s. And then of course, I get a call saying, Hey, Greg, we happen to have a role open at Chico’s. So I came to Chico’s, about four years ago. And today, Chris, I oversee the legal department. I also oversee risk management, global compliance. And I also recently took over real estate and store design construction. So you’re the head of real estate.
You’re the head of legal, you’re the head of compliance. What else am I missing here? That’s it. I can do right now. That’s all you could do. So legal real estate compliance. Yeah. So all the business side deal makers funnel up to you, all the legal people funnel up to you. And then all the risk management compliance people funnel it to you how, what’s the combined totality of those teams?
Well, right now I have about 29 people, and that’s post COVID. are really during COVID. It was a little bit more before, but we had to make some really tough decisions during COVID To streamline our workforce. So we cut our workforce by about 35%. So my team has gotten smaller, but we’re nimble, and we’re mighty, and resilient. And we’ve got grit.
That’s awesome. That’s what you need in these times you need grit and resilience. There’s a quote by Hillary Clinton that she says that resilience is the most important quality a human can have the ability to adapt to change with confidence. So I, I that quote resonates with me, and being you know, the wrestling community, I’m sure you, your family knows that quote, all too well, I’m sure.
I think resilience is a skill, and people can learn it. So I talked to my people about how to build their resiliency, and get through times like we’re in today. So
you’re leading me into a follow up, then how, you know, how does one build resilience?
I think it takes planning it you have control, you have control over a situation by planning, it helps you adapt to changes, you can use your emotion as a tool, and not let the drama distract you. You can also flip your attitude. And you know, during COVID, every day, something significant comes up. So instead of viewing it as a problem, I view it as an opportunity to solve problems. So it’s about flipping your mindset, having a plan and knowing that it will change and being okay with that. I like it. sage advice. So
what an incredible career, I think it’s for anyone trying to like grow their skill sets and grow their career, I think you’re someone that they can definitely, you know, look up to you started out as a lawyer, you just focused on real estate, then you move to the limited you learn all about all these different types of law, then you become the General Counsel at Chico swear, you pick up risk management, and you pick up all of real estate. And you’re learning all the ins and outs of that. So I you know, it’s really, it’s really an interesting career. not over yet. But I’m just the so far I’m sure there’s more to come. So you work for a publicly traded retailer, in the soft goods world, and which is, you know, been a challenge through this. And you get to see things from a lot of different lenses from the big corporate world, you have a large team, you have multiple different departments that report up to you. All those things that are coming at you all that information. What’s going on in the world today, let’s pivot to this what’s going on in the market? What do you see in?
Well, you know, this is a very COVID has been a very challenging time for us, like many people, and I think it’s touched every business whether you know, some businesses, their business increased exponentially. And so they’ve had to adapt quickly to meet new demands, or a new business mix. In retail, especially retail, you know, we were hit very hard when we had to make the difficult decision to close our stores. And we weren’t alone in that you’ve seen all the retailers closing their stores because we had to, to protect the health of our associates and to our customers. So as a consequence of COVID, what I’m seeing in the industry is a flood of struggling retailers in the specialty area. So you’ve seen, you know, over 40, retailers that have filed bankruptcy at this point. In the apparel sector in particular, now, some retailers are thriving, you might look at Amazon, and Home Goods seem to be thriving. Walmart, and Walmart are those folks are thriving. But in our sector, a lot of these apparel companies, they came into COVID, with significant debt. And that really limited their ability to navigate their way through it. Before I came to Chico’s, you know, I looked at their financial condition, and made sure that they had low debt and high cash flow. And when a company has cash available to it, they’ve got a long runway, to address problems and to innovate. So luckily, Chico’s has been in a strong position when it came into COVID. And we’re navigating through it. But I will say when you close your stores, you become a digital business overnight. And that takes a lot of change, and driving sales to your website. And that’s super important to be able to innovate quickly.
The Yeah, for sure. And you guys were in a better position than most coming into COVID from a cash position. The, you know, you mentioned that others were not. And I think we should, you know, take a step back, you have three brands, why don’t you talk about the three brands for a second?
Sure. So we have three brands, the largest is Chico’s. And that is a brand that caters to the more mature woman. And then we have White House Black Market that caters to a little bit younger demographic. And then we have Soma, Soma intimates brand. So when you have three brands, you have three different customer segments, some of which overlap, and three different approaches. So you have to be mindful in your response to COVID. With respect to each brand, we know that Chico’s the customer is more mature. So she is very keen on making sure that we have a very safe and welcoming environment for her to shop in the store. But she also shops online, you know, people have the there’s a myth that more mature women aren’t technology, like savvy in terms of technology, but they are, you know, she’s very sophisticated person high income, strong demographic background, so she is sophisticated, she shops, both channels online and in store. And then as you go down, even White House Black Market and Selma, they’re very digitally savvy and shopping store as well. And they too are interested in making sure that the store environment is safe, but they’re maybe not as sensitive to it as the Chico’s customer.
You know, you bring up another good point. How are you having three brands? How are you all looking at this omni channel digital and physical in the future? And how in your business?
Well, we think that brick and mortar is incredibly important. And I don’t think you’ve seen pure play companies that have dipped their toe into brick and mortar, because I don’t think that a pure play can exist. Without it. They hit a ceiling. So we believe in brick and mortar, you need to have the right number of locations. And you’ve got to digitize the experience. And there’s got to be a seamlessness between the digital channel and the physical channel. And you can digitize it by for instance, we have a tool called style connect. And that tool allows our customer to enter act with a live associate, who will share fashion with her via this tool, and they communicate. So you’re delivering it to her there. We also have other technological tools like a virtual closet, where we know what’s in her closet, and we can see that and then make product recommendations, our product recommendations based on what’s in her closet already. So it’s starting to blend, what world you’re in. And the same thing, you know, buy online pick up in store, you know we have she wants to be able to shop wherever she wants however she wants whenever she wants. So we provide all those outlets to her. And it’s shown that you know, the customer who shops cross channel shops the most. Got it?
How much more does a customer who shops cross channel shop than someone who shops? One?
I don’t have the exact statistics on it, but it’s a material. It’s got it serial. And, you know, we,
we both I’m in the real estate industry, real estate reports up, do you come from real estate background? How are you all looking at the landscape of what’s happened to the physical product of real estate in the country now, as it relates to, you know, reflecting your brand, on a go forward? You know, you guys were you guys have had lifestyle locations, enclosed malls, you guys have had outlet centers, you guys have had high street retail or street retail, you know, given COVID? And what’s going on? How do you all now, you know, as anything changed? How are you looking at that on a go forward?
Well, I will say that one of the strengths of our portfolio when I walked into it in January, was that we had a nice mix of locations. So approximately a third were lifestyle, a third were in outdoor centers. And a third were an enclosed malls. So that gave us great flexibility to weather something like this.
And when you say outdoor centers you talking outlet or just like any power center,
it could be a strip center, or more like a strip center, as opposed to as opposed to a power center. Got it. You know, the the strip centers are were convenient, there was a trend for, you know, it’s easy to pull up to a strip center, when we’re a destination, you know, we are a destination. So they come to see us at the malls. Especially, you know, they’re cross shopping anchor department stores, but so I think that portfolio mix is interesting to have gave us great flexibility. And then when COVID hits, you know, the the ability to shop in an outlet center, or something that’s not enclosed, people felt more comfortable doing it, then going back into enclosed centers. But we took precautions to make sure that when she came to enclosed centers that she knows that it was very safe. We took the product out of the store to create plenty of room for social distancing, encouraged use of contactless forms of to transact instead of cash and had enhanced cleaning procedures. And we do track the delta between indoor outdoor centers. And for a time there was a difference. But I think over time, that difference is getting smaller. And I think that’s as people are becoming more comfortable returning back to normal, whatever that may mean. Got it? What do you think
the the footprint of stores looks like, you know, you know, for Chico’s, you know, in the foreseeable future, whatever you can say that’s not that that’s not private, confidential information.
You know, we, it’s interesting, we announced a, like many other retailers, we announced a fleet optimization plan, where we were going to scale back the number of stores over a period of time. So we announced that we were going to close over 250 stores over a three year period. But going into COVID, we had great momentum, and we thought Ooh, maybe we should start opening more stores. And then COVID hit, and it’s given us a time to reflect on what is the right size of the portfolio? And we don’t necessarily know the answer to the question yet. But we do know that brick and mortar is still going to be a critical part of our strategy. We need to have the right locations. And I think it will be a nice mix of locations consistent with what we currently have. But in terms of the physical footprint, I’m not sure of any changes that we have in store for that yet. But also, you know, I didn’t mention this, but when I took over real estate, at the same time we were closing stores, we were renegotiating all of our leases. So during that time, you know some landlords recognizing the gravity of the situation they gave us rent relief. That was meaning For and are encouraging us to stay. And the cash flow generated from staying is important to us. And so we will give some stories that we wouldn’t have given a chance before, to see how the pandemic plays out. Interesting,
what anything else you’re seeing out there, that was a great overview, anything else that’s going on anything.
A lot of folks are filing bankruptcy there they’re getting that gives them the opportunity to reject locations that weren’t working for them. And also, when they emerge, I think they really need to be prepared to show sales improvements. Because at the same time, in that bankruptcy process, I think landlords were obtaining termination rights releases. So it’ll be very interesting to see how 2021 shakes out for those emerging. And if they, you know, how their sales are doing?
Yeah, I think I think that’s a good point. Because when you come out of bankruptcy, if it was just about expense cutting, and you don’t grow the business, and you don’t fix the core of the business, it’s just an add of inevitable that it will happen again, it’s just a future. It’s just when not if, and so having a growth plan, you know, for whatever business, you are to grow revenue, and that could be opening locations or same store increases or whatever it is for the business that you’re in. But I think having a plan actually grow. And, you know, I think that starts with the groups that have a well organized reorganization plan, a well thought out plan prior to filing, obviously, you know, the ones that got caught with their hand in the cookie jar, by the pandemic, and they didn’t have a plan before they filed. It’s tough to get through. And once you get through, you’re not necessarily set up for success to grow the business. So yeah,
we were steadfast that that was not our path. And we have been we’re, you know, we worked vigorously to make sure that that wouldn’t happen. And that’s why, you know, going into COVID, we did everything we could to preserve our liquidity. And we partnered with our landlords, and they gave us rent relief, because they realize that it’s a two way street. And we have three brands with multiple locations and many centers. So our occupancy is important to them. And what will occupancy look like next year, when you have major announcements from you know, anchor tenants, JC Penney closing hundreds of stores, Macy’s closing lots of stores, what does a co tenancy situation look like? So preserving occupancy of tenants who are driving traffic to centers is really important when we bring that traffic to centers. So I think that bodes well for us. But it is interesting in terms of there’s been legal disputes going on to during this time, you know, a lot of when the pandemic hit. We closed our stores in march along with lots of other retailers who followed suit. And lots of us needed to preserve cash and therefore did not pay rent. And that is public information. And that meant that we were working with landlords to renegotiate the terms and there was a lot of discussion about force majeure. You know, what rights do tenants have not to pay rent during this period of time? And, you know, the force majeure clauses in these leases often say, yes, you’re excused from performance sport from an act of God. But that does not excuse you from paying rent. So that’s typically what you see in a force majeure clause. But there are other legal theories floating
there definitely legal theories. Yes.
And I know you’re on one side of the spectrum. And
I can’t wait to talk about as we get into a little bit more and a little bit later, because I know that the audience is looking forward to have retailer and landlord talk about the philosophy behind it. So so I
can respect your opinion, even though mine’s right. But there is this concept, you know, frustration of purpose, you know, the, we want to be open in a center. And when we’re open, we can generate income and pay you rent. And if the government deprives us of that opportunity, that’s frustrated the whole contract, you know, that’s one legal theory that’s out there, and what is fair, like what is fair under these circumstances? So, we realize that, you know, these are long term relationships. We paid our rent faithfully for 35 years, you know, we’re a good tenant, and we were a hit, you know, by by COVID, just like many others, and it’s a partnership approach. So my point of view is we can talk about the legal theories, but I I think the way out is a negotiated discussion, to remain partners where the outcome works for both parties. That’s my thinking.
So we’ll go more to that. I think the last thing I had on kind of just what’s going on in the market is, you know, don’t talk about it a lot on this show, but someone in your position, just curious what’s going on with product in the store? What’s going on with product these days, the the, you guys have some, you know, the product in your store, you have some vertically integrated product, right? It’s all you know, all vertically integrated, right? So you guys, it’s all yours, right? Mostly, yes. Mostly, can I find your prop most of your product anywhere else?
Well, I would say the product is a whole nother level of COVID, that the public may not have seen. So let me give you I’m gonna back up a teeny bit. When the, you know, the life’s, the production cycle takes a long time to get product. So you’ve ordered products, sometimes six to nine months in advance of when to hit the store. And then when you’re closed for 13 weeks or so whatever your clothes were, as a retailer, you hit, you couldn’t sell the product sitting in your store. So retailers had to get rid of product, because it was stale in terms of freshness. And you know, the customer when she returns to shopping wants what’s new, not what’s old. So retailers are sitting on a ton of product. And what we did early on, is we cancelled purchase orders. And we got rid of the old product. And we wrote it off. And we got new products. So by the time we opened, we had freshness in the stores so that she could have different products from what others are offering. So we acted very early to make sure that we are addressing it. But to your other point. We brought in talent over the last year. New gmms if you will, like general merchandise managers with tremendous experience in product who have honed in on the DNA for each brand. So Chico’s has its own DNA. And we have we designed specifically for that we think we’re in a nice niche, and our product is definitely distinguishable from our peers. And the same thing with White House, you know, Chico’s, you know, they, they cater to a more mature woman who’s the life of the party, she’s well heeled, and she has great taste and class, White House Black Market, we have designer details, but at an affordable price a little bit polished, and then Somas intimates and we focus on solutions for women, and comfort and view in the elevated aesthetic. So those are, you know, I’m speaking the way the merchants would speak. Maybe that’s my impression of it as a lawyer saying conveying as eloquently. But the product is definitely distinguishable. So
yeah, and I think the the the piece that I was getting at is if I want to Chico shirt. I can’t necessarily go to a different store, I may have to come to Chico is to buy that Chico shirt. Yeah,
we don’t. Wholesale Yeah, to department stores, currently, and we have franchise relationships, internationally, but not domestically.
Yeah, I think, you know, that was the allure of direct to consumer brands. And I think that is right, you couldn’t buy it somewhere else. And I think that is, you know, something that can, you know, will help you’re really focusing on and driving that through that we have a product that you like, and you have to come to my website, or you have to come to my physical store to get it, I think is you know, to make sure that you have if you have the right product and design that she wants. You can put yourself in a good position in the future because, you know, it’s hard to compete with target Walmart, Amazon, I always say if everyone’s selling pampers and Pepsi, it’s hard to compete with those guys and and pampers and Pepsi. And I use those two examples just because they’re they’re two peas, but they’re products everyone knows. But it’s hard to, it’s hard to compete on those. But if you have something that you can’t get anywhere else, it’s unique. It’s different. It’s used the word distinguishable. Then you have you know, something that there’s there’s real purpose to coming to the store. Outside of the experience, right. That’s one of the things that the experience matters. It’s one of the things I didn’t like about it is like, can’t be the only thing I need to have something that they really crave that they’re coming for as well to sell them.
Right. And I mean, the other thing that we pivoted on immediately as we knew that the casualisation of our assortment was really important. So we shifted to more casual wear, that, you know, she can wear working from home or working remotely. It’s kind of dusk up, you know, what do you look like from there and there is a comfortable. So we shifted the entire assortment to make sure that we’re meeting her new work needs, which changed overnight.
What are you telling me right now, Greg, about this conversation? We’re on video here
that I got a dress shirt on top, but I’m in shorts. All right, basically, right. So a great
overview of what’s going on the market market from legal to real estate to product. You and I think the story that you have is interesting, we typically talk about one store, but you have the story of opening 1300 stores, you know, you were closed down and you opened up 1300 stores? So walk us through, you know, opening up 1300 stores across America?
Sure. Well, I’ll first start with saying that closing stores is easy. Except the decision to close them weighed heavily. Because they’re the lifeblood of the business. Right. They’re generating sales.
So let’s so just one thing, you mentioned the decision to close. Did you decide to close or be forced to close?
Well, you know, we decided to close. And we made that decision early because it was the right thing to do. Got it? No, we it was the right thing to do by our customers, it was the right thing to do by our employees. And we were one of the first people to do that. And However, shortly after we closed, there were mandates that would have required us to close. So from if you want to fight with me in court, over whether or not my voluntary closure precludes me from getting pre routed for the date of closure, you know, we can, you’re forced to close anyway. But but it did teach me that, you know, I was at the table, and we made that decision. And you have to have a layer of humanity in all decisions that you make during these times. So I don’t, it was a hell it weighed heavily on our shoulders to make the decision, but it was the right one to make. And it was easy to close physically, you know, you send this OSI Tome and you close the doors. But reopening is not as easy. You know, when you have that many stores, you’ve got to it takes a couple days, you’ve got a turn the lights back on, you’ve got to clean the space, after it sat to make sure it’s safe, you’ve got to re merchandising it to make sure that you can have the appropriate meet the appropriate capacity limitations in terms of social distancing, you’ve got to have the protective equipment for associates, you have to secure the hand sanitizer from preferred providers well before you open to make sure that you’re in line to get it in time so that you can provide it to your customers and employees. So it takes a little bit of time to reopen. But when you do, and you also have to be prepared to close again, you know, if there’s a COVID case, which has happened or when there’s a riot, or threat of a riot, or when your stores looted, then you’ve got to close, repair and reopen. So it’s a complicated process. And on top of that, you have to follow all the legal guidelines that vary state by state, city by city, so you’ve got to make sure that you’re minding all those as well. So it’s not easy, but I am glad to say that, you know, we’re about 99% open today. And when you reopen, the customers missed us so they came back in our shopping and
how our sales compared to pre, you know, this time last year.
More to be revealed in our upcoming earnings. But I will say that what we announced in q2 is that we saw significant improvements in sales. And we saw really significant improvement in digital sales, you know, online website sales. I mean those grew exponentially. So more to come on that but as doors open, and as time passes, you know, customers are coming back. The show
Let’s talk about reopening 1300 locations for a second. So the you said that decision weighed heavily to close? How was the decision to do was the decision heavy to reopen for the same reasons?
It is because you always want to make sure that you’re protecting your customer and your employees. And, you know, some people reopened as various municipalities allowed stores to reopen. But we applied our own set of criteria into when it was appropriate to open. And some of those criteria would include what is the trend of COVID cases in that area? You know, we looked at that, wow, what is the availability of hospital beds? In that area? Really, we want we wanted to make sure that we were being good stewards. And those are the criteria, you know, those and other are some of the criteria that we’d look at to influence our reopening decisions.
whose job was it to look to see how many beds are available in the hospitals?
It actually we have a crisis management team. And the lawyers on my team are part of that crisis management team. And they were tracking every regulation, and they’re tracking those things. And Excel became their best friend. We have Excel spreadsheets that helped us track it to make sure when it was appropriate to reopen. And
so you make a determination that it was appropriate to reopen. How when was the first reopening?
I think it was in March, April may be met on May.
And they were 99. year at 99%. When was the when was the last reopening?
Well, I can’t I don’t have the definitive date. Apologies for that. But I will say that we did as much as many as we could when we could. And sometimes the Reopenings were because we may have had to close because of damage to the store because there was a riot. So they may have opened and then closed and then reopen. But we’ve been open for a good period of time. Now. I don’t have the exact date, though. And then,
in this reopening, you mentioned, you know, the first thing you were checking is like your determination if it was safe to open. The next piece was that you were looking at it was you know, the cleanliness of the store the the sanitizing of the store getting the lights on, and merchandise. And I think you know, it’d be good color. What is it cost to reopen a store?
Well, I’ve not actually quantified it. But I will say you know, the biggest cost is staffing. So when you bring back staff, and you’ve got to make sure that the staffing is appropriate for the level of sales that you’re generating. So you don’t bring back everyone at the same time. So you’ve got to be mindful of that. And the supplies to clean are important and to hire a cleaning company to come and make sure it’s scrubbed and ready. That’s not cheap. Obtaining the you know, protective gear, it’s all it all adds up. It’s significant. When
you multiply it by 1300 locations it starts to really add up. It does.
But it’s you can’t you can’t open without it. And the
the you can’t open without it. Anything differently you did in the stores.
Yeah. Well, we had capacity limitations. So we would monitor to make sure we the appropriate number of customers in the store. We provided hand sanitizer at the entrance. We had signage at the entrance. We you know trained our employees. You know, what do you do with someone who doesn’t want to wear a mask because we the mask policy, trained them how to address that which can be a sensitive topic for people. Limiting the number of people checking out people so that they’re maintaining appropriate social distancing. encouraging them to use tools like an iPad in the store to help customers find product online that might not be available in stores. We implemented a curbside pickup, different shopping hours for people shopping by appointment. So we did everything we could to maximize sales and balance that against the need to have a safe shopping environment
while shopping by appointment stay?
I am not sure. I think it’s it feels like it’s easier. You know, when you think of some of the Insta carts and Grubhub. Like, for restaurants that might stay longer, but it could. I think we really like some of the tools that we’ve adopted, especially the one that I mentioned style connect, that allows her to engage with someone. And that worked well for us. And that will definitely stick around. I’m not sure if the other ones will.
And so the part of reopening that we didn’t talk about really and reopening 1300 locations was one of the key things in the reopening process was renegotiating all these leases, you had 1300 leases. And so when you made the decision not to pay rent in in March, and by your admission that the one clause in the lease, doesn’t remove that obligation. Did you start communicating with landlords? What did you do? What was your plan? How did it go? What did you do?
You know, we? Well, we didn’t look at every lease because some of the force majeure clauses don’t have that one caveat that I mentioned. So we could have. So I won’t give that argument up. But good try. But I will say that we had a plan. And we immediately I had calls with each of our top landlords, to let them know what was going on. And let them know the things that we’re doing to make sure that we are going to survive through the pandemic and thrive. So I had calls with each of those major landlords. And then we did use, we leveraged an outside provider to help us mobilize for the lease negotiations. And we let the landlords know that we would be renegotiating the leases. That was the fair thing to do under the circumstances. And we also let them know that we would not be paying rent. And from time to time, we would have calls hosted where all of our, you know, with hundreds of landlords. So there’s a lot of chaos going on. During this time, landlords were inundated with work. And we thought it would be easy to have townhall calls from time to time. So we had a couple of those where we invited every landlord in our portfolio to listen in to a call with our CEO, who talked about the things that we were doing, and talked about what we were asking for from our landlords, and what our path was in terms of reaching out to them. So we had a couple of those calls. So communication for us, was important to let them know that we weren’t ignoring them that we had a lot of work to do, and that they were in the line and important to us. And that’s how we approached it. But it was a it was a very well thought out and methodical plan that has worked well for us.
All your attorneys and dealmakers in real estate doing a lot in their part in the COVID workouts and you were kind of strategizing assigning who was doing what? Yes,
we help we assign, you know, we had an outside partner, AMG Realty partners who was there Excellent. And in between them and our team and their use of outside resources, we mobilize a very big team. And we divided and conquered, who would reach out to which landlords and when and what our ask was, and how we would approach those discussions. And we have have had and still have weekly meetings to discuss the progress that we make weekly. And
and how were the how were those deals? Approved internally.
We had a lean and mean team that would we cut out bureaucracy during this time, and we had a lean real estate committee that looked at the deals on a weekly basis and made decisions on the spot as deals were presented. And you know, some of them were packaged deals with big landlords with whom we had multiple locations, and some could have been the mom and pop shop who had one location with us.
You know, in this reopening process, did you get sued or locked out?
We did. I can’t count the number of lawsuits. I mean, it’s been significant. And, you know, lots. And we understand, you know, they needed to do that they thought to preserve their rights, or to get our attention. And it did. And we were locked out in some locations, which is something that we were willing to do in certain locations. But I will say that, as you have discussions with the landlords, those cases go away when you reach terms on a business deal. So
let me ask you, the real, the tough one here does, did when you get locked out, right, no one wants to go there. Does that get the attention to get to a deal quicker all those landlords who were in the, you know, who were in the discussion about, you know, the hundreds of landlords that you had on that townhall that you said, you know, we’re working through it. And someone landlord goes, they’re working through it, I’m not, I’m not waiting for these guys to work through it, and then he locks you out, then he gets to the front of the line,
they might get our attention. But locking a tenant out is a serious proposition, especially when the tenant believes that they have a legal basis to contest being locked out in the first place. So landlords be very judicious before you do that. And not all states allow it. Not all states are more lenient than others. You know, Texas might be the Wild West.
It’s definitely, definitely different. But I
do think that it’d be whose both party instead of going down the legal path and spending all this money on a lawsuit. Like I don’t want to be the test case for the legal theories that I raised. That’s a lot of time and money. I think it’s better for both of us,
I think the punch line that I do appreciate, while you run the business side of real estate and risk mitigation, you’re also an attorney by trade, and you’re the General Counsel of a public company, for you to say that a business solution is better than a legal solution, I think is important for the listeners to hear. You know, that is that is that it’s really interesting. Do you do you think you’ll end up in going to actually, you know, defending cases in court, or will you settle?
I’m trying to be judicious in my response. I think a business solution isn’t it makes sense for everyone to have a business solution to any dispute. It doesn’t make sense to spend the time and money. Because it’s a waste. I’d rather use that money to make sure that we have a solution for both that works for both of us. And we listened to our landlords, they were going through their own share of problems at this time to some of them, you know, their lenders are breathing down their backs. They had tenants who are filing bankruptcy and rejecting their leases. So we we realized that we weren’t alone in feeling the pain. So it’s better if we both believe in each other’s futures, to negotiate an outcome rather than waste money litigating.
Outside of lockouts did in as you’re going through this reopening process did you get people send you lease terminations?
Oh, sure. Yeah. And we said, No, we’re not in default.
Not in default. Okay. Did you end up? So two more questions that I know you’re dying to ask me a couple. I know. So I’m gonna I’m gonna let you flip the script. You’re allowed. You’re allowed to we talked with for those out there. We did talk beforehand. Did you end up all the terminations and lockouts? Did you end up solving the mall? Not the lawsuits, the terminations and lockouts?
Yeah, we’re not locked out of any locations today. So,
your debt load going into the pandemic, you pull down your line, right? Mm hmm. You guys pull down your line for cash. But, but, and I know that’s public, but going in your debt load was compared to the assets was, you know, I don’t know the, you know, the ratio, but it was low. Right. You had very little long term debt. Right. Right. Did you have any covenant issues where if you were in default of a lease, you’re in default of some you have crossed defaulted somewhere?
Um, we didn’t experience that, but I think some loan agreements could provide that right. experience? Yeah. Okay, you think about it, um, you know, these are solved. You know, we couldn’t solve all of the negotiations at once. It just takes time, but we are solving them as we go. So the number of disputes that narrows by week by day, you know, it goes down significantly as we’re able to do it. We just couldn’t do it all at once.
I think it’s an interesting story that just, you know, you mentioned to me, normally we talk about one store, and you’re like, listen, I just went through this grind to reopen 1300. I think that’s the more interesting story. And I thought it was interesting that you reopened 1300 stores and learning about some of the things that you were thinking about as you were reopening? I know, I know, you were curious. So I’ll let you flip the script. If you got any questions for me, shoot, we wanted to talk about some of the the landlord tenant kind of thought process through this.
Yeah, I mean, so you think as a landlord that the tenant is not absolved for paying rent, during a period of time that they were not allowed to legally open?
Think that the lease is pretty clear, in what constitutes rent payment and what doesn’t constitute rent payments. So I would say the following, I think, I think the totality of the circumstances, matter. And so, you know, I had a discussion with a tenant who was talking about that they might be closed for 3060 90 days, and they might not be able to ring the register. And I said, Wait a second, I did your deal three years ago. Rent was ex, landlord work, and TI was why it’s a five year payback. I’m looking at, you know, 1600 days of being in the red, you’re talking about 90. So if you want to move from legal the business, I think we need to look at the totality of circumstances here. Because that was a business decision we made. But under the pretenses that if we thought that you weren’t going to pay the rent, we wouldn’t make that business decision. Just like if you if you thought you might be closed, you might make a different business decision. And so I think the totality of the circumstances matter. And all the implications from from that. That happened because of, you know, the COVID event matter. And so I appreciate the business solution. I think transparency matters. And I think there were, you know, where, where you struggled to get to transparency, because people were just trying to, you know, use this for something else. I think, you know, those are tough conversations. And they may end up in you getting locked out, or me having to shoot somebody or whatever it might be. I think that when we looked at it, we were like, got it. We want to be a partner. Understood. But here are, I need you to actually look at the totality of the circumstances, where we struggled through COVID was the groups who are like, I need you to focus Chris, on the last 90 days and put me in a black box here. And there’s no consideration for the time before for the future, we need to focus on this, wait a second, we need to look at the totality of the circumstances. And you can’t just put me in a black box to focus on the 90 days, if we can look at the focus on the totality of the circumstances, I think we could get to a business solution. That makes sense for all. And if groups were if groups were talking about like, we don’t have the manpower or the resources or neither to die, but we were figuring it out, we have to look at this on a you know, bespoke basis and look at the totality of the circumstances, and not just say, you know, I needed to for my rent so I can get to tomorrow. There’s no, I need to get to tomorrow, too. And like I said, we need to look at those Italia circumstances. So I think we were able to, you know, look at the lease in totality and create solutions. There might have been things that tenants didn’t want to open up and we ended up getting them to open up but there were things that we didn’t want to open up that we opened up like the rent payment of April May In June, and so, I think that, you know, if you were able to look at the totality of circumstances, then I think it’s you can find a business solution. If you weren’t then that you probably end up in court. And I think that’s the punch line. I mean, you know, what do you say, Greg? To my line that on a on a, okay, you couldn’t read the register for 90 days? I haven’t run the register for 1500. Yeah.
I don’t disagree with you. And that’s why I said earlier that I listened to I wanted to learn what issues the landlords are facing too. So we understood them. And we did some things to like we made concessions that helped our landlord partners. And we weren’t only looking at the totality of the circumstances at the time, we’re negotiating. But we were also looking at what is our lease look like after its expiration. And maybe we can stay longer in certain locations in exchange for a little bit of help now, maybe we could refresh, stale co tenancy clause that is so antiquated, that it doesn’t give the landlord any flexibility to change the center. Like, so we were reasonable. We, we received and we gave, so it was a two way street. And the outcome worked for both of us. So I’ve, I completely agree,
it was actually we did some good cleanup, the amount of tenants both on one of the things that we did, that’s a friction point for everyone, for many of the nationals who weren’t already on it, we just weren’t set up. You know, we set up ACH payment as a as a part of this. And what uh, you know, we’ve, we’ve got hundreds of tenants now on Ach, good for the landlord good for the tenant. You know, they don’t have to send paper checks and spend the labor to do that. And, and we took the opportunity this to get that all set up with everyone since the lines of communication were open.
Yeah, there’s, I mean, this pandemic, this is just one little component of what we learned, you know, we’ve totally changed everything about the way we work, including working remotely a lot more, and dropping bureaucracy and ruthlessly prioritizing on what’s most important. So it it bubbled down from every you know, it touched every year, the business and real estate just happened to be a big chunk of it. But it’s, we’re operating differently in many, many ways. And that is a great example of one of them. Why don’t we do that before?
Yeah, yeah. The the last part show retail wisdom. Are you ready? I’m ready. All right, three questions. Question one, what is your best piece of commercial real estate advice?
My best piece of advice, kind of echoes of what we’ve been discussing is that the relationship between the landlord and tenant is symbiotic. And there’ll be ups and downs and we’re in it together. So we’ve got to get through it together.
Awesome advice. Second question. What extinct retailer Do you wish would come back from the dead?
I’ve heard lots of discussions around this. But uh, I’m kind of I’m going very old school with not a particular retailer. But I think in times of COVID It’d be really cool to have a drive through a theater. I love it. I love it. I wouldn’t be cool.
I haven’t seen a really great movie in a while. You
know, I’m I’m all caught up on Netflix. But yeah, drive in theater I met.
I know, I know. Ah, last question, because you mentioned before we started that you knew you were connected to the wrestling world long ago and that was inspiring. So I am looking on Dick’s Sporting Goods website at the cliff keen adult signature wrestling headgear. What does? Cliff keen head gear retail for on Dick’s Sporting Goods website?
I think it’s 2999
You’re close. 3999 But thank you for playing. Thank you. Now. Let me ask you. Did your brothers wear headgear? Oh, of course. They did. Yeah.
Alright. My nephew has a remnants of what cauliflower year.
I do not have it because my dad was really strict about headgear. If you saw me not wearing a headgear my dad was freaking out. But all my friends no one wanted to wear headgear because it’s so annoying. They’d rather get cauliflower ear.
Yeah, they my brothers always did. Got it. Yeah. Well, that was fun.
That was awesome. Thanks so much, man. You’re welcome. Thank you for listening to retail read Hold. If you want to share a story about a retail real estate deal that you were a part of on our show, please reach out to us at retail retold at DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode