Fighting The Last War

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In 1934, Edward P. Warner, writing about the implementation of the National Recovery Act (N.R.A.), expressed the following: “There is a saying that is rather common among the critics of the military profession that ‘soldiers are always preparing to fight the last war.’ Business must not incur the rebuke that it is devoting itself to preparing to sell goods under the conditions of the last economic cycle.”

The language is a little “1934” stiff, but the message remains relevant. We shouldn’t be structuring deals for the future as if the future will be unchanged from the past. That’s not to say we should fashion every deal tabula rasa (as if on a blank slate). Of course, much of what has worked in the past remains valid today. But, “much” falls short of “everything.” The trick is knowing what to save and what to discard. Until a genuine “crystal ball” is invented, we’ll need to divine the future unaided by a magical device. Instead, what we all need to do is to pay attention to early trends, some of which have been in front of our eyes for years, even decades. [Read more…]

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Is “Display” A Verb Or A Noun; More About Exclusives

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If exclusive use rights are so important to some tenants and if landlords almost always resist granting such rights, why is it that, when agreement (compromise) is reached, the parties keep making the same mistakes? We’ve written before about the generality of “exclusives” and also about some specific approaches. For the benefit of new readers and to remind others, Ruminations holds that the presence or absence of an exclusive use right (and the scope of that right) is purely a function of bargaining power. Basically, how much does each party want the lease? That having been said, here are more of our thoughts.

To the extent that an exclusive use right is justifiable, tenants should be entitled to protection for their primary business, not for items of tertiary importance. A pizzeria sells pizza. If a pizzeria couldn’t sell pizza, then it isn’t one. Selling pizza is its “primary” use. So, to the extent that the presence of a second pizzeria at a particular property would seriously cannibalize sales at the first one, it is entirely appropriate for a landlord to be barred from allowing that second one. But, a tenant that holds itself out to be a pizzeria shouldn’t be entitled to keep others (such as a health food store) from selling frozen pizzas or to keep others from selling “Italian-style” sandwiches. If a pizzeria can’t co-exist with a sandwich shop, then it is a sandwich shop, not a pizzeria. Of course, defining a tenant’s primary business may not be as easy as looking at the tenant’s name, but we all get the idea (provided we are willing to step out of our uniforms – landlord or tenant – and look at the entire picture). [Read more…]

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A Tenant’s Exclusive Use Right Can Hurt It

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Some weeks we Ruminate more than others though we freely admit it may be hard to tell the difference. So, here’s more than a clue. This is a big Ruminating week.

We’ve spent a lot of our hours, far too many, negotiating exclusive use provisions. Perhaps we should have written “arguing” about exclusive use provisions. Lately, we’ve been thinking about “why” and wondering how healthy an activity this topic of negotiation really is. One conclusion is that in many cases (granted, not all cases) a tenants’ demand for exclusive use rights is at the level of an idée fixe or a priori right.

[Britannica.com defines “idée fixe” (French: “fixed idea”) as a recurring theme or character trait that serves as the structural foundation of a work. The term was later used in psychology to refer to an irrational obsession that so dominates an individual’s thoughts as to determine his or her actions. The same dictionary defines a “priori” knowledge as knowledge that is independent of all particular experiences, as opposed to a posteriori knowledge, which derives from experience.] [Read more…]

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Luddites Unite – Artificial Intelligence Will Replace Us

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We’ve been thinking about artificial intelligence applications and how they might change, even transform, the way we do our business. Then, we heard an interesting story on public radio. It was about a Southern California manufacturer of sex dolls who was introducing models incorporating artificial intelligence. For reasons quite obvious, the story didn’t get very deep into the details, but we learned that these new models were designed to figure out what their owners wanted and to respond appropriately.

We thought this application to be quite amazing in that here was a business way ahead of our own. Artificial intelligence is being used to read medical images with better results than even experienced radiologists achieve. It is being used to screen job applicants, much, much faster than humans doing so and with more satisfactory outcomes. Artificial intelligence is at the heart of visual recognition, allowing machines to replace people in manufacturing operations. It is used to write newspaper articles, such as those reporting sporting events. The list could go on and on. But, what it won’t include is negotiating agreements such as leases. That is, not yet.

Agreements such as leases are not zero-sum games. Though the parties exchange things of equal value, one needs to ask, “Value to whom?” Basically, when someone gets an item of value to them worth, say, $100, the other person may be giving up something worth only $60 to them. Someone may have two widgets and only need one. The duplicate widget isn’t very valuable to that person. A second person may need a widget and have two gizmos, but only need one. In each case, one widget or gizmo has a utility value of $100, but a duplicate one has a utility value of $60. Thus, if the parties trade widget for gizmo, each gives up $60 of value and gets $100 of value in return. That trade creates $200 of value out of $120 of value – a good deal for each trader. [Read more…]

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The Times They Are A Changin

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A major supermarket, once the largest retailer in the United States, closed in bankruptcy after 156 years in existence. People much smarter and knowledgeable that we are could better explain the cause of its demise and, in hindsight, could explain how they knew, years and years earlier, it would happen. Ruminations can only offer that the facts and circumstances changed, but the company (meaning its people in charge) did not. But, this blog isn’t about history other than to use it as a platform upon which to stand when engaging in another fool’s errand – forecasting the future.

The reason this now-gone supermarket comes to mind is “Uber.” We’ll get to that, but for now, please suffer along with us. [Read more…]

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Groceries And Other Definitions Revisited

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Groceries, sandwiches, ice cream, supermarkets, restaurants, department stores, variety stores – oh, the words we use, what do they mean? Today, we revisit one of our most-read blog postings because a federal appeals court revisited the underlying case (again). We’re “talking” about the Winn-Dixie case. Our “take” on that underlying case can be read by clicking: HERE. Ruminations urges readers to refresh their memories now by re-reading our earlier blog posting

Winn-Dixie, a supermarket chain, won a court decision in Florida where the lower court ruled that “groceries” included soup, aluminum foil, and similar items. As a result, it ruled that dozens of “dollar” type stores run by three retailers were in violation of a provision in the supermarket’s lease prohibiting others from selling groceries. Basically, the federal court that first heard the lawsuit looked at an earlier state court ruling, and (kind of properly) treated it as binding on itself, the federal court. [Read more…]

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Exclusive Use Clauses And Antitrust Concerns

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It’s been a thousand or more leases since Ruminations did any serious thinking about the intersection of exclusive use restrictions, radius clauses, and their respective lawfulness. This isn’t a current topic of discussion in leasing circles, though it certainly was 40 to 50 years ago. Yes, there is comfort in knowing that, with the passage of time, we aren’t seeing the “anti-trust” or “unfair methods of competition” armies marching into the shopping center arena. That is, possibly, until now.

Readers can research the law on their own. It isn’t worth wasting electrons on hyper-technical legal background. Suffice it to write that there is a Federal Trade Commission Act barring “unfair methods of competition in commerce … .” The lessening of competition is a danger also addressed in the Robinson-Patman Act, the Sherman Act, and the Clayton Antitrust Act. Further, some states have their own anti-competition or antitrust laws. [Read more…]

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Let There Be No More Blog Postings Similar In Concept To Ruminations; We Have An Exclusive

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Many businesspeople reach agreement as to a principle expecting that someone else will express it in words that can be understood, in a common way, by others. So, when it is agreed that a landlord will not allow any “diner similar in concept to the tenant’s diner,” what were the landlord and tenant agreeing-upon? We would think that the tenant didn’t want competition in the form of having another restaurant that drew on the same kind of customer base. Of course, every restaurant competes with every other one, but the marketplace distinguishes between Michelin 3-star establishments and burger joints. That’s a key point whenever an exclusive use restriction is on the bargaining table.

So, was the tenant thinking that some diners would be acceptable and others would not be acceptable? If so, how does one slice and dice the category: diners? [Read more…]

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