Bellevue Square, a long-standing shopping destination in Bellevue, Washington, has always been seen as a sophisticated counterpart to downtown Seattle. Owned by Kemper Freeman, Jr., a developer known for his conservative stance, the mall has been a central point for expansion, surrounded by new hotels, dining establishments, and retail spaces.
For many years, J.C. Penney was a major tenant at Bellevue Square. However, after 54 years, the department store decided not to renew its lease on the expansive 200,000-square-foot, three-story location as part of a nationwide downsizing effort in 2015 and 2016. This departure opened up a significant retail space within the mall.
Interestingly, Whole Foods Market had been considering Bellevue Square as a potential location. However, their initial interest was not in establishing a conventional, full-service Whole Foods Market. Instead, they were exploring their “365 by Whole Foods Market” concept, which focused on providing convenience and more affordable prices. In September 2016, Whole Foods Market moved into a 34,000-square-foot section of the recently vacated J.C. Penney space, introducing the 365 brand to Bellevue Square.
Just a few weeks later, in a completely separate development, Amazon, headquartered in Seattle, announced its acquisition of Whole Foods Market for $13.7 billion. This acquisition brought significant changes to the landscape of Whole Foods Market and its strategic direction.
Fast forward to October 2017, a little over a year after the 365 store opened. Whole Foods Market, now under Amazon’s ownership, made the decision to close the 365 store at Bellevue Square. While five other 365 stores remained operational and plans for 16 more were still in development, the Bellevue location was shut down.
Management cited common challenges as reasons for the closure, including decreased foot traffic in retail malls and the inherent difficulties of operating a grocery store within a mall environment. Employees were offered positions within other Whole Foods Market locations, inventory was relocated, signage was removed, and the store windows were covered.
However, as Starbucks’ experience with Teavana stores in malls demonstrates, exiting a mall location isn’t always straightforward. Leases, particularly for retail spaces in established malls like Bellevue Square, typically extend for ten years, significantly longer than the brief period the 365 store operated. In a similar situation involving Starbucks and Simon Property Group in Ohio, Starbucks faced legal pushback when attempting to close Teavana stores prematurely.
Similarly, Kemper Freeman’s legal team contended in King County Superior Court that Whole Foods Market was legally bound to keep its Bellevue Square store open based on the existing lease agreement. According to a report in the Puget Sound Business Journal, Judge Mary E. Roberts of King County Superior Court ruled on Thursday, granting Whole Foods 14 days to reopen the store and to act “in good faith” with Bellevue Square to honor its “operating covenant,” which required continuous operation for a decade.
Whole Foods Market had argued that reopening the store would be impractical and financially unsound. They stated that the store had been unprofitable from its inception, and resuming operations would incur “millions of dollars” in further losses. They also argued that the substantial annual visitor count of 22 million shoppers to Bellevue Square would continue to generate revenue for the mall, regardless of whether the 365 grocery store was present.
Nevertheless, contract law generally favors landlords in lease disputes. The question then became: could Amazon, Whole Foods Market’s new parent company, find a way to resolve this legal obligation and navigate the court’s decision regarding the Whole Foods Bellevue location?
