Retail real estate guru Steve Morris advises reading the fine print
Steve Morris was quickly recognized as a lease negotiations wizard early in his career, and he’s spent four decades configuring the largest retail companies to run smoothly and profitably.
The leases a retailer signs with a shopping center or mall seem like a fairly straightforward legal document. Right?
Not so for Steve Morris, who saw all sorts of inconsistencies, issues, negligence and opportunities for savings in the fine print and the practices of landlords. While he was senior vice president of the L Brands real estate and store planning division, Morris dug into thousands of leases, found issues, and he and his team of lease detectives saved the iconic local retail giant $150 million. In the process, they became pioneers who changed the way shopping center leases are drawn up.
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In 2002, Morris started his own company, Asset Strategies Group (ASG), that began by specializing in the lease-detective work he was nationally known for. That work has changed with the times and technology, and ASG now offers retailers a wide range of services.
“I always wanted to run a business, ever since I was a kid,” Morris says. “I’m not sure why, maybe I was good at Monopoly.”
Morris earned an MBA in finance at the Harvard Business School and then went to work in retail, including stints at Dayton Hudson, Tonka Toys and Ames Department Stores. “My skillset was I could be thrown into these restructuring situations and build a team and do the financial and organizational engineering,” he says. “I’ve always had a lot of success doing that.”
Then he was recruited by L Brands. “They recruited me for CFO of real estate and my comment was, ‘That’s not a real job, is it?’ ” Morris says.
Paul Hiers worked at L Brands and was a little nervous about his new boss. “They told me they’d hired some guy from Harvard, and I was thinking, great, another one who doesn’t know what they’re talking about,” he says. “But my first and immediate impression of Steve was that he was the smartest person I had ever worked for.”
He did have one concern about Morris: “He’s too nice.”
Real estate management was a new and increasingly important division for large retail chains, and Morris reports that the 6,000 L Brands leases totaled $1.5 billion back then. The Gap and Foot Locker had already begun looking into their leases, and L Brands saw an opportunity to save money. “I think the talent of Les [Wexner, founder and longtime CEO of L Brands] is hiring good people and empowering them to go do things. I was given an unlimited budget and told to fix real estate.”
Fix it he did, as he and his team began auditing thousands of the leases. “There can be a lot of creativity on the landlord’s side,” Morris explains. “For example, there could be a clause that you had to pay 75 cents per square foot to the mall’s marketing fund, but only if everyone else did.”
It turned out a lot of L Brands stores were paying the 75 cents, while many of the retailers in the centers were not. Seventy-five cents times hundreds of square feet in thousands of stores can add up quickly. “Trash seems simple,” Morris continues. “Whatever it costs, you charge back, but that turned out not to be the case.”
Morris also recommended something a bit radical for L Brands: Closing stores.
“They’d never closed a store before,” he says. “But it was simple math. Line up the 6,000 stores by profit, and the bottom 10 percent have to go. They’re losing money.”
Morris left L Brands in 2001 and soon after started ASG, bringing in Hiers as a founding partner. The initial business model was to do the lease-auditing work they specialized in, and they quickly signed up several clients, including the Gap and Foot Locker.
“There was a lot of low-hanging fruit if you audited landlords, and that business model was pretty self-evident,” Morris says. “We each threw in maybe $10,000 and we got it back pretty quickly and made money that first year,” Hiers says.
Morris, Hiers and their ASG team were so successful they pretty much destroyed their business model, as landlords adapted their leases to avoid givebacks. “They were incurring such heavy settlements, they changed their leases and there was no longer anything to audit,” Morris says.
Morris and Hiers had a productive working relationship that enabled ASG to adapt and thrive. “Steve is this amazing strategic thinker, and we’d hash out these ideas and then it would fall on me to figure out how to make it work,” Hiers says, who retired a few years ago. “That’s why we were a good team.”
ASG has worked with 150 retail clients in recent years in four primary areas: predictive analytics and strategy; deal negotiations; store design and construction; and lease administration and rent accounting. The company manages 5,000 leases for 25 retail clients.
“Steve and his team are straightforward people who want to do good work and get the job done,” says Denny Gerdeman, who founded Chute Gerdeman, a retail design firm, with his wife, Elle Chute, in 1989. “Here’s who we are and what we can do and how it will help you.”
The couple sold their company to FCB Chicago, a marketing firm, for an undisclosed sum in 2017. When Gerdeman learned FCB Chicago planned to sell the design firm, he contacted Morris, and ASG bought Chute Gerdeman in September for an undisclosed amount.
“This addressed a gap in our offerings to retailers,” Morris says. “What we were missing was upfront, prototype design that they did so well.”
Morris also founded and is the chairman of CBUS Retail, a group of retail professionals who meet regularly to share information, best practices, and promote retail in the region.
The next step
Morris, 72, is having too much fun to retire anytime soon. ASG has 58 employees and projects revenue will be $7 million in 2020.
“I love retail,” he says. “It’s a huge industry and there have always been winners and losers and new players and, if we knew which of these new players to invest in, we’d be rich. The key, here in Columbus, is to make sure we capture the new ones, that they locate here and that we continue to be a retail headquarters.”
Steve Wartenberg is a freelance writer.
Co-founder and CEO, Asset Strategies Group
In position since: 2002
Previous: Senior vice president, chief administrative officer and CFO, real estate and store planning, L Brands (1996–2001); president, international, MicroProse (1994-96); vice president, Ames Department Stores (1990–93); vice president, Sega, Tonka Toys (1987-89); director, Dayton Hudson (1977–87)
Education: Antioch College (1970); Harvard Business School (1976)
Resides: New Albany
Family: Wife Nancy, son Adam, daughter Stacy, grandson Alex