Accounting for online merchandise returns in reporting physical store sales remains an issue for landlords and tenants, said Simon CEO David Simon on a first-quarter earnings call.
“There is a significant number of retailers who are underreporting their sales numbers because they’re deducting returns of online sales that were not previously reported as store sales,” he said. “This is not allowed under our leases.”
The executive said the firm’s reported retail sales per square foot was $641 in the first quarter, a year-on-year increase of 4.2 percent. “We believe this metric is understated,” he said. “We’ve found that we’re getting dinged by the Internet return.”
Same-property net operating income increased by 2.3 percent for the quarter. Average base minimum rent was at $53.54 in the first quarter, up by 3.3 percent a year ago.
The landlord is looking at changing future lease agreements to ensure fairness in how the percentage rents are calculated. In many cases, Simon leases limit the total returns a tenant is allowed to net against the reported sales, he said.
But every lease is different. “There’s not a standard response yet, but it needs to be addressed in the future leases,” he said. There is more business being done online, but this also means more returns, he said. “It’s not an adversarial scenario, but it just needs to be appropriately addressed," said Simon. "And we’re in the midst of trying to figure out what’s the right approach.”
By Brannon Boswell