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Feature
 Shop units stung by mall’s ‘better brands’ plan
 Substantial changes are being made to the composition of retail mall Palác Flóra’s portfolio of shops and services—but some of the retail tenants claim the alterations have only been made possible by unreasonable rent demands that have forced some units to cease doing business.
2008051213There were mixed feelings as the four-floor Palác Flóra celebrated its fifth anniversary in April. The milestone not only meant a chance to celebrate successes for the shopping center management. It also meant the end of the five-year contracts held by most of the unit tenants and thus an opportunity to push up rents for managers of the 130-shop complex in Prague 3–Vinohrady.
Šárka Bušková, marketing director at Palác Flóra, a project of real estate developer AFI Europe Czech Republic, a unit of Africa Israel Investments, acknowledged that not all the tenants are to receive contract extensions. However, she said that a plan to increase the shopping center’s allure with new brands is the major reason for this. “The reason is the constantly developing market. Our aim is to bring to Palác Flóra labels that the customers require and will appreciate, and at the same time to enlarge the [mall’s] selection,” Bušková said.
Bušková conceded that the new tenancy contracts require rent increases of a minimum 20 percent, but declined to give specific prices per square meter of floor space. “But rent hasn’t been the primary issue. We simply wanted to replace the shops we addressed with other brands,” she stated.
Not so, says exiting tenant
Zdenìk Rinth, director and founder of Kara Trutnov, a producer and seller of leather and fur clothes, disagreed. He said that rent certainly was the main concern and a reason his company decided to close its shop. “The contract just expired, and we considered a rent increase exceeding some 30 percent as unconventionally too high. Therefore we decided to leave,” Rinth said, adding that the shopping center had actually been interested in extending the Kara Trutnov contract rather than formulating a deal with a new tenant, as it did not have an immediate replacement for the shop. Therefore, both sides eventually decided to prolong the contract for one more month, Rinth claimed.
Nevertheless, he said that, generally speaking, Palác Flóra had behaved in a standard way and that the negotiations had been conducted correctly. Communicating the level of the rent would therefore be unfair, Rinth added, while also noting that high rents had also killed off any interest his company might have had in opening its shop in Palác Pardubice, another AFI Europe Czech Republic shopping center set to open in the third quarter of this year in Pardubice, East Bohemia.
According to Rinth, Kara Trutnov had done quite well in Palác Flóra, but had experienced better sales in two other malls, Nový Smíchov in Prague 5 and Centrum Praha Jih-Chodov in Prague 11. Unit tenants typically receive five-year contracts although 10-year deals are not unheard of, Rinth said.
Rough going
Another former tenant of Palác Flóra indicated that the end-of-contract discussions had been rather rough. “We were simply banished,” she said. “They were exerting pressure on us to leave the center even prior to the expiration of the contract,” she added, confiding that her unit’s “extremely high” monthly rent had stood at €70 (Kè 1,760) per square meter. Other tenants, to whom the center was more welcoming, only paid a monthly €55 per sqm, she claimed. “I know of about 10 other tenants who were treated in a very arrogant way by the shopping center, but they can do nothing about it,” she said. She also observed that Palác Flóra attendance rate had slightly decreased since the opening of the upscale Palladium retail and business complex on námìstí Republiky in Prague 1 at the end of October 2007.
Bušková disputed this, saying the Palladium opening did not impact on the mall’s number of customers.
Declining to comment on the alleged pressure exerted on some tenants—she said she could not do so as she personally did not take part in such negotiations—she did add that during the current transition under way at Palác Flóra, which required the temporary closure of 20 units, customer attendance dropped off by 10 percent. She also said that under normal circumstances the mall’s monthly average attendance was 20,000 visitors, but refused to give the maximum and minimum figures experienced.
Marek Odrobina, a lawyer with the law office Odrobina & Co, who represents one of the tenants who has left the center, said that any shopping center has the right to change contractual conditions after the expiration of the contractual period and that whether or not a contract should be extended is simply a matter of mutual agreement between the shopping center operator and the tenant.
Although Rinth was disappointed by the rent increase requested by Palác Flóra, he said that since the late 1990s, relationships between shopping center operators and tenants had much improved. “Especially at the beginning, the shopping centers were trying to implement contractual conditions copied from contracts from Britain and Germany without realizing that there are some things you can’t apply to the Czech environment, such as insurance of the unit at the level of Kè 100 million for damage caused by a third party,” he said.
MaxMara coup for Flóra
One luxury brand coup that Palác Flóra is expected to soon claim as a result of its changes will be a first. Milanese fashion group House of Max Mara is to take a unit at the mall to pilot its initial Weekend by MaxMara store, according to marketing and PR manager Hana Pokorná at MaxPraga, a company that serves as the exclusive representative for Max Mara and Max Mara group brands such as Marina Rinaldi, Marella and Coccinelle. “MaxMara is a luxury brand, and therefore it is not likely that it would open its [top-scale] shops in shopping centers. But Weekend by MaxMara is still seen as a luxury shop, even though the prices will be lower and the clothes will be more casual,” Pokorná said, adding that managers from MaxMara’s operations in the U.S. will attend the store opening.
The only other shop that MaxMara has in a shopping center is Marella in Nový Smíchov, Pokorná said. With the Weekend by MaxMara opening, MaxMara is trying to access a broader range of customers, she added.
Other openings penciled in for Palác Flóra include those of international clothing and accessories label Gant Boys Girls Baby; fashion brands Jackpot and Cottonfield, both labels of IC Companys; and fashion watch retailer Swatch Group.
Tenants leaving the center include hairdresser Paul Franco and fashion retailers Guess and Clockhouse, a division of C&A.
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