Landmark Links October 27th – Strings Attached 


Lead Story…. When Amazon purchased Whole Foods, many including yours truly assumed that the eCommerce behemoth would be able to do as it liked with existing Whole Foods stores, making a relatively clean transition into the brick and mortar retail space.  However, Amazon is finding it quite a bit more difficult to innovate in this new environment largely governed by pre-existing binding legal agreements than in the freewheeling world of online commerce.

When an anchor tenant signs a lease at a retail center, it’s common practice that its  attorney’s will insert language that governs certain things that the landlord can and can’t do.  These provisions include exclusive rights to sell certain goods and services, disallowing certain uses and outright bans of competitors.  These clauses typically make sense from the prospective of both parties. The landlord benefits from having a strong anchor that draws foot traffic which allows them to lease to other smaller tenants that aren’t primary draws on their own.  As such, it’s in their best interest to put the anchor tenant in the best possible position to succeed.  The anchor tenant doesn’t want a competitor coming in next door, nor do they want certain uses that could lead to lower foot traffic or offend potential customers.  For an extreme example, an anchor that caters to families wouldn’t want a strip club becoming a tenant in the same center.

One of Amazon’s primary objectives in buying Whole Foods was to gain the ability to sell certain Amazon items in Whole Foods’ 473 stores.  Amazon also planned on installing lockers in Whole Foods stores for customers to pick up items that they purchased online.  The problem, as Amazon is now finding out is that each of those stores is subject to a lease agreement, and that agreement likely puts restrictions on certain activities that may conflict with Amazon initiatives.  Jeffrey Dastin of Reuters wrote an article earlier this week that detailed just how much of an issue this could become (emphasis mine):

A Reuters examination of real estate agreements and interviews with 20 retail landlords, lawyers and brokers show that the strings attached to operating in malls like City Center present an emerging and little-scrutinized challenge to Amazon’s quest to re-shape Whole Foods.

Across the United States, large retailers including Target, Bed Bath & Beyond Inc and Best Buy Co Inc have legal rights in many lease agreements that allow them to limit what Amazon can do with nearby Whole Foods stores, and where it can open new ones.

Documents reviewed by Reuters show bans on Amazon lockers and delivery operations near a Target store in Illinois and also in Florida, where a new Whole Foods is set to open. Lockers for retrieving online orders are a way for Amazon to spur sales through the grocery chain.

In Manhattan and other locations, the leases of Whole Foods’ big box neighbors bar it from selling a range of goods that Amazon has in its massive online inventory, from electronics to toys and linens.

Even Whole Foods stores that do not share space with major rivals can face constraints imposed by local governments. A city council resolution in White Plains, New York, restricted the hours when Whole Foods can use a loading dock prior to the grocer locating in the mall.

According to Reuters, Target has been particularly aggressive in their lease negotiations, leading to outright prohibitions on lockers and online fulfillment in the same centers where they are an anchor.  However they are far from the only anchor tenant that does this and I think that it’s fair to say that traditional brick and mortar retailers are going to use every advantage that they have to avoid getting steamrolled by the Amazon juggernaut.

My main takeaway is that overlooking this was a major legal/DD screw up.  How did the restrictive lease provisions get by the Amazon legal and due diligence team during the Whole Foods acquisition?  These lease provisions represent a massive road block to so much of Amazon’s Whole Foods strategy and yet they are only coming to light now based on a Reuters investigative report.  Also of note is that this is not a short term problem.  Anchor tenant leases typically run 10-20 years with renewal options so the tenants in question likely aren’t going anywhere for years to come.  Amazon is apparently trying to negotiate with Target and others to revise agreements but Reuters sources seemed to indicate that the talks had gone nowhere.  Sure, Amazon’s latest filings show that they are planning on opening +/- 80 new Whole Foods stores but those will also be subject to existing leases or city ordinances as mentioned in the quote above.  Seems like an awfully large due diligence blunder.  I can’t imagine that Jeff Bezos is pleased.


Uplifting Story of the Day: Americans are retiring later, dying sooner and are sicker in between.  Otherwise, everything is wonderful, thanks for asking!

Moment of Truth: The bond market has finally broken through key levels.  With rates rising, is this finally the long-awaited moment in the sun for bears? But See: Beware of extreme bond market predictions. 


Rare Event: General Growth Properties is doing the unthinkable – building a new mall in Connecticut in 2017.

Lifeline: In regions with growing logistics industries, eCommerce can be positive for job growth, not negative.  See Also: Foreign investors love US industrial and logistics assets.


The Definition of Insanity: Is trying the same thing over and over again and getting the same result.  California could expand rent control dramatically under a proposed 2018 initiative, despite the fact that it almost never works as intended.  Yet another example of California continuing to do the same things that don’t work to solve the housing affordability crisis rather than doing the one thing that would: building more houses.

Paved Paradise: Entry level and middle class workers in supply constrained and expensive mountain west resort towns have taken to living in motor homes in parking lots. (h/t Mac O’Donnel) I’ve said this before and will reiterate – it’s impossible for an economy to function properly long-term if lower paid service employees can’t afford housing in reasonably close proximity.


Rhymes With Critical Loners: A surge in disaster contracts from hurricanes has put FEMA under pressure to bypass the usual competitive bidding process, resulting in stories like this:

On Sept. 5, Gibbco LLC got a $74 million award to build mobile homes for Hurricane Harvey victims. Gibbco’s only public presence is a GoDaddy website, which lists neither a phone number, an email address, nor information about who runs the company. According to a contract database run by the U.S. Department of the Treasury, Gibbco has five employees and annual revenue of $200,000; the address listed as its headquarters belongs to a house in a residential neighborhood in Longwood, Fla.

A phone call to a number associated with the company was answered by a man who refused to provide his name or answer questions, saying only, “We don’t give information away unless it’s approved by the government.” He referred questions to FEMA, which declined to answer them.

See Also: A two-person company based in Montana that was awarded a lucrative contract to restore power to hurricane-ravaged Puerto Rico, sparking both intrigue and controversy, is now feuding on Twitter with the mayor of San Juan.

FAIL: Snap dramatically overestimated demand for it’s goofy Spectacles and is now stuck with hundreds of thousands that no one wants.

Full Access: Amazon Key is a new service that allows couriers to unlock your front door in order to make drop offs by using a combination of Amazon’s new Cloud Cam and a compatible smart lock.  Digital security has been incredibly successful in protecting online information and I’m 100% certain that it will be just as effective in protecting our homes as well.

Chart of the Day

An increase in output does not always mean an increase in employment.

Source: Medium


I Hear She’s Single: A woman burned down her ex boyfriend’s house and stabbed a police officer all over a dispute about a teddy bear because, Florida.

Honest Mistake: A man was awarded $37,500 by a judge after cops mistook glazed doughnut crumbs for meth which resulted in a jail time because, Florida.

Gotta Hear Both Sides: A wasted Australian tourist doesn’t remember attacking an elderly bike rider participating in the annual Key West Zombie Bike Ride because (once again), Florida.

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