Will Tiff With Tiffany Ignite New Store Wars?

A legal dispute between tony New York jeweler Tiffany & Co. and South Coast Plaza has cast a floodlight on the intensifying competition between Orange County’s high-end shopping centers that may cause them to tighten lease restrictions to keep prized tenants, retail experts said Friday.

Tiffany filed a $1-million lawsuit against the glitzy Costa Mesa megamall this week, claiming that South Coast used an “illegal and unenforceable” noncompetition clause in its lease to prevent Tiffany from opening a store in the Mission Viejo mall.

That center, which will reopen next month as The Shops at Mission Viejo, has undergone a massive renovation that added two upscale new anchors, Nordstrom and Saks Fifth Avenue.

Retail experts said other stores also would like to open new locations in Orange County but must battle powerful malls to succeed. The bigger the mall, the more power it has to restrict its tenants’ expansion.

“The mall wars are so competitive that premier malls like South Coast Plaza, in order to retain their position, do it at the expense of surrounding malls,” said Ian H. Brown, senior marketing consultant for the Grubb & Ellis retail properties division. “That’s what it takes to make yours different, to keep it different.”

At the same time, retailers--especially publicly owned companies that are under pressure to continually boost profits--have grown increasingly wary about allowing so-called radius restrictions into their leases, experts said.

Department stores such as Nordstrom and Saks generally do not have such clauses in their leases and police their own expansion to avoid opening new stores that will steal sales from existing ones. Saks and Nordstrom also have stores at South Coast Plaza.

“South Coast Plaza gave us absolutely no problem with our decision to go into Mission Viejo,” Nordstrom spokeswoman Leslie Harris said Friday. She declined to comment on the specifics of either store’s lease.

The tug-of-war for hot specialty stores such as Tiffany is likely to intensify now that the refurbished Mission Viejo mall has repositioned itself to lure the big spenders in south Orange County.

“There’s a ton of business and money in South County,” Brown said. “There probably won’t be any more regional malls built, certainly within Orange County areas. And there probably won’t be any more anchor tenants coming down the line. So malls that are out there better be the best they can be. They have to be to survive.”

Neither South Coast Plaza nor its attorneys could be reached for comment Friday. Tiffany’s attorney declined to comment.

An Irvine attorney who specializes in commercial leases--and isn’t involved in the Tiffany case--said tenants can’t easily break free of such lease clauses unless they can show that the restrictions are illegal or “unconscionable,” which usually implies that one party is considerably stronger than the other.

“Tiffany is big and their landlord is big,” said Fred Timothy Winters, a partner at Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone. “I think it’s going to be difficult for Tiffany to prevail on a claim that the clause is unconscionable. I think that’s a stretch.

“Generally speaking, those kinds of restrictions between equal bargaining partners in commercial retail property leases are going to be enforceable.”

Irvine Spectrum Center, the big retail and entertainment center that will begin building its third phase next spring, has talked to many retailers with stores at South Coast Plaza. Many have radius clauses that prevent them from opening at the Spectrum Center, said Jeff Dodd, vice president of leasing for the Irvine Co., which owns that center and Fashion Island Newport Beach.

“Every time we ask the question, they say we have a restriction in our lease,” he said. “We’ve spoken to just about every retailer we can who is of a quality we would want to be [at the Spectrum Center]. I don’t think we’ve left too many stones unturned.”

South Coast Plaza has “been very successful in negotiating those things, it appears to me,” said Dodd. “There’s nothing really mysterious or underhanded about it. It’s just the life of a regional shopping center. . . . We try to radius them out, just like they try to radius us out.”

If Tiffany’s challenge goes to trial, it will help test the viability of such contractual stipulations. “I’m sure it’s going to set a precedent to see if radius [clauses] are enforceable,” said Linda Crowley, owner of Urban Street Advisors, an Irvine retail consultant.