Casual wear retailer Abercrombie & Fitch is suing Simon Property Group Inc., along with 68 of its malls throughout the US, to reclaim rents they paid during the COVID shutdown. The lawsuit, filed in Franklin County, Ohio, alleges that SPG, “wrongfully extracted rent payments from Abercrombie properties.”

Abercrombie claims it made April, May, June, and some July rent payments "under protest," and partially out of fear that SPG would seize their stores’ inventory. They also allege that SPG prohibited them from accessing their stores over that period, preventing Abercrombie from fulfilling online orders. 

The eventual outcome of this case and ones like it will prove crucial to the state of retail in the coming months. With industry experts like Jan Kniffen predicting that half of American malls will close within the next two years, clashes between distressed retailers and their landlords are set to become the new normal. 

This case could set a precedent just as the retail apocalypse kicks into overdrive. REITs and retailers are gearing up for big legal fights over the scraps - rents, inventory, and prior commitments.  

Retailers are leaving, and they won't be back

Abercrombie vs. SPG is only the latest in a surge of disputes between retailers and property owners. For instance, SPG launched a $66 million lawsuit against Gap in June for skipping their rent payments over the same period. 

Thinknums’s data shows that at the same time Gap was missing payments, it was pulling hundreds of its stores from SPG-owned malls. In late 2019, around 375 Gap stores had been ‘churned’ out of SPG malls. As of today, the count has skyrocketed to 641. Gap’s mass exodus is likely part of the reason SPG brought the suit in the first place, rather than try to negotiate. 

Abercrombie’s lawsuit represents a pushback from retailers, and it will be interesting to see which side - retailer or landlord - comes out on top. 

While these lawsuits carry on, SPG is losing the ability to throw its weight around. Mall closures and empty units were already endemic before COVID, as e-commerce reduced foot traffic across the country. Abercrombie’s CFO referenced the shifting power dynamic in January when he told Bloomberg, “We’re willing to walk away from any mall at this point.” 

Thinknum’s data confirms that willingness. By November 2019, Abercrombie had pulled out of about 87 SPG malls. Months later, that number now sits at 157. 

Before COVID, this was already the industry trend: pare down store count and walk away from pricey leases in order to focus on online sales. Brick-and-mortar seemed ever-more like a wasted investment. This perception is now worsened by the aggressive way SPG and other REITs are pursuing rents during the crisis. As America’s malls become more desperate, more retailers might decide it’s not worth putting up with this kind of treatment. 

More to the point: if the Ohio court takes the retailer’s side in this case, we could see many more examples of COVID-struck retailers trying to claw back rents, then walking away from landlords. Things are ugly in the malls. They’ll get uglier.