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Mall owners pay tenants to “improve” spaces then don’t audit how the money’s spent. WSJ (McCracken, Lattman, Hudson, “Retailer’s Collapse Hits Mall Owners,” 14 July ’08):

For mall owners, large anchor spaces, which were once occupied almost exclusively by department stores, are especially important. Their role is to draw lots of shoppers into malls, enabling owners to rent their smaller spaces to specialty stores. When anchor spaces go dark, clauses in the leases of smaller tenants often permit them to pay lower rents.

That dynamic played a critical role in the surprising rise of Steve & Barry’s, which opened its first store in Philadelphia in 1985 to peddle discount University of Pennsylvania apparel, then spread to several other university towns. [...]

Steve & Barry’s was “primarily going into previous department-store locations, and in today’s market, there are not a lot of department stores left to fill those voids,” says Ross Glickman, chief executive of Chicago-based Urban Retail Properties LLC, which has Steve & Barry’s stores in three of its shopping centers.

Mall owners have always viewed anchor stores as loss leaders—owners offer favorable deals to big stores in exchange for bringing traffic to the malls. Financial inducements often come in the form of tenant-improvement allowances, which are upfront payments that retailers use to outfit the interiors of their stores. Landlords seldom monitor how the money is spent.

The mall owners welcomed Steve & Barry’s with open wallets. One former Steve & Barry’s executive recalls company co-founder Barry Prevor jumping up on his credenza with joy at company headquarters after negotiating the first multimillion-dollar payment in 2003.

We need a new name for “broken windows” that’s specific to malls.