Shopping Mall and Discount

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Discount and Hawkins Exercise: Confidential Instructions for Tenant Instructions

You represent a major retail chain engaged in a difficult negotiation with the developer of a proposed new shopping center. Although you have worked out most of the key provisions of a longterm lease, your company and the developer are currently at impasse over the clause that would govern the allowable use, assignment, and subletting of the premises.

Your assignment is to make one last effort to break this impasse. If the developer insists on its proposed terms, you will kill the deal and seek another shopping center in this region for your store. Before you abandon this project, however, you should try to craft a solution that would meet your interests but which you can also persuade the other side to accept.

General Background

Do

No

The Merrimack Works, once a thriving glass factory on the banks of the Merrimack River in the town of Northport, Massachusetts, is the site of a new shopping mall planned by Hawkins Development (“Hawkins”). Hawkins is a small but reputable development company founded in the early 1980s. Since then it has developed a number of successful office, commercial, and mixed-use projects, though the Merrimack Works Mall would be Hawkins’s largest venture to date. Hawkins recently approached Discount Marketplace (“Discount”), a leading national retailer of discount soft goods—clothing, shoes, accessories, housewares, gifts, etc.—as a possible anchor tenant for the mall. Well-known operations like Discount (which has more than 200 stores nationwide) draw customers to a mall and thus encourage smaller satellite tenants to locate there, as well. Developers typically need signed leases from one or more anchor tenants in order to get lenders to provide project financing. The Merrimack Works site is a good location, near the expressway that links Northport to metropolitan Boston. The local economy is reasonably strong though there is some concern that continuing cutbacks in federal defense spending may be felt by some industrial employers. The mall itself would consist of approximately 350,000 square feet—84,000 of which would be in the new Discount store. In this particular design, there would be only one major anchor, with the rest of the space occupied by much smaller retail stores. As plans for the mall crystallized, Discount’s General Counsel and Hawkins’s senior vice president began negotiating a long-term lease for Discount in the Merrimack Works project. As a ____________________________________________________________

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Professor Michael Wheeler developed this case from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1997 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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9-898-131
REV: JULY 3, 2002

898-131

Discount and Hawkins Exercise: Confidential Instructions for Tenant

basis for the negotiation, Discount presented its standard form lease to Hawkins. For the most part, the developer was able to live with the tenant’s proposal with relatively modest revisions. After each significant stage of the negotiation, Hawkins has reported the lease provisions agreed upon to its permanent lender, which has not raised any serious objections so far. Because of its strong bargaining position, Discount was able to win very favorable rental...
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