Incidences of retailer errors when reporting sales to landlords have skyrocketed during the pandemic. Louisiana-based financial management consulting firm The Lamy Group says that recent auditing during the pandemic has found that two out of three retailers have underreported sales to landlords.
Online sales are the biggest culprit in misrepresentations. Many retailers don’t include online transactions, even when the sale is serviced and fulfilled by a brick-and-mortar location. This includes both goods that are ordered online and picked up in-store or orders that are placed online and delivered directly to the customer. Although these are online orders, if the physical store is involved in the transaction, the sales must be reported to the landlord in accordance with the lease agreement, according to the Lamy Group.
Retailers have also mistakenly failed to report online purchases made in the store by customers. For example, when a particular style or size of an item is out of stock, the store will place an online order on behalf of the customer to either be picked up in the store or delivered to the customer’s home. Because these purchases are made in the store, the sale should be reported to the landlord; however, six in 10 retailers failed to correctly report these transactions.
Some landlords also made mistakes regarding returned items. Typically, when a customer purchases an item in the store and later returns it to the same store, the retailer will deduct the return from their total sales figures, essentially nullifying the transaction. However, if a purchase was made online and then returned to a physical store, retailers cannot deduct the returned items because they did not handle—or report—the original sale.
Tracking returned sales has been particularly challenging during the pandemic when the rate of returns nearly doubled. “Deducting returns from sales reports has been a challenge for landlords for years. This has become even more of an issue in the past year as so many discretionary items were purchased on the internet,” Kenneth S. Lamy, CEO and founder of the Lamy Group said in a statement about the audits.
The decline in retail sales during the pandemic triggered a record number of audits at the request of landlords. The Lamy Group completed hundreds of audits on behalf of landlords in 2020.
Overall, retail sales—including online sales—outperformed expectations in 2020. An end-of-the-year report from Colliers found that retail sales grew 2.2% for the year. In-store retail sales declined by 3.4%, but held up better than expected considering widespread store closures and social distancing regulations. This year, retail sales are poised for growth yet again. The annual forecast from National Retail Federation expects retail sales to grow 6.5% to 8.2%, a potential total of $4.33 trillion is sales volume.