Dive Brief:

  • Brookfield Property Partners took Gap Inc. to court in Texas over $2 million in unpaid rent over three months, and for what the mall developer says is a refusal to open stores at its properties in Texas, Bloomberg reported on Thursday. A Brookfield spokesperson confirmed the litigation in an email to Retail Dive, but declined to comment on its specifics.

  • "Nevertheless, it should be clear from the filings that The Gap Inc. has taken inappropriate positions at a time when we should be working together," the spokesperson said. "Brookfield has worked hard to reopen its shopping centers safely and consistent with guidance from local authorities, which is important for the many businesses and jobs that depend on commercial activity at our properties. The filing is a matter of contract law for which Brookfield intends to hold Gap accountable."

  • Brookfield's move follows Simon Property Group's lawsuit earlier this month over more than $65.9 million in unpaid rent and other charges. Gap Inc. didn't immediately respond to Retail Dive's requests for comment and more information on the Brookfield lawsuit.

Dive Insight:

The courts are just one arena in the ongoing tussle between landlords and retailers over how much rent to pay on stores that were dormant for weeks as the pandemic forced them to close.

Regarding Simon's earlier lawsuit, a Gap Inc. spokesperson told Retail Dive in an email that the company is pleased with its negotiations with landlords to reach "mutually agreeable solutions and fair rent terms, just as our hundreds of industry and government partners have sat with us in good faith to shape the post COVID business landscape."

As of June 5, Gap had reopened 1,600 stores or 55% of its fleet, according to CFO Katrina O'Connell, speaking to analysts regarding the apparel retailer's first quarter results. With stores shuttered during much of the period, the company saw revenues plummet 43% and net loss near a billion dollars.

In the end, the most likely resolution will be partial payments on what's owed, according to real estate experts. Gap Inc. executives told analysts that they are working with landlords to rewrite leases. In many cases where that fails, stores are likely to close permanently, they also said.

That may sound like a shot across the bow, but Gap Inc. appears to need its brick-and-mortar locations. The retailer saw some of the worst sales declines in the apparel segment during the closure period, and one of the weakest e-commerce showings. Some of that can be explained by unusually muted demand, especially for work apparel as employees worked from home, and other pandemic-related factors. But the issue also comes down to lackluster merchandise, a problem for Gap Inc.'s legacy brands in the best of times, according to GlobalData Retail Managing Director Neil Saunders.

"As soon as stores are closed, Gap drops off the radar and consumers have neither the will nor inclination to shop the brand online," Saunders said in emailed comments about its first quarter results. 

Moreover, Gap probably needs to shrink its footprint further. Last year, the company said it would close 230 stores at its namesake banner alone, and move some to off-mall locations. But Morgan Stanley analysts, following the company's first quarter report, said its long-term prospects are buoyed by the prospect of Gap Inc. executives' "reiterated commitment to fleet and corporate downsizing."

The company also learned from its ultimately abandoned effort to spin off its Old Navy discount brand, according to Morgan Stanley. "The separation work and COVID-19 may be the catalysts [Gap] needed to downsize its business," they said.