Macy’s is taking a fight to block Amazon from advertising on the billboard located on the top of its “world famous” outpost on 34th Street in New York City to court. In the complaint that it filed on September 24, Macy’s is asking a New York state court to enjoin Rockaway KB Company, LLC (“Rockaway”), the landlord of its Herald Square location, from entering into a deal to advertise on the billboard, arguing that this would not only violate a longstanding restrictive covenant that bars Macy’s competitors from advertising on the sweeping billboard that wraps around the side of the building housing the Macy’s store, but it also would cause damage to Macy’s “customer good will, image, reputation and brand” in a sum that would be “impossible to calculate.”
According to the complaint, Macy’s alleges that it a restrictive covenant has been in place since 1963 that explicitly prohibits the use of the 2,200 square foot billboard – which, “to the naked eye, is on Macy’s department store and in its own right iconic,” Macy’s argues – by any Macy’s competitor. The relevant terms of the 1963 amendment to Macy’s pre-existing agreement with Rockaway’s predecessor in interest, which provides the restriction on advertising that is permitted on the billboard, states, “The advertising or anything else on said signs and structures or replacements thereof, shall be limited forever, without limitation as to time and use by any person, firm or corporation, except Macy[‘s] or any designee, licensee or sublessee of Macy[‘s] to advertising which shall not advertise or refer directly or indirectly to any establishment selling at retail or directly to any consumer.” (Emphasis courtesy of Macy’s.)
(As an interesting side note, Macy’s states that the restrictive covenant also prohibits “advertising on the billboard ‘in an indecorous manner or nature, such as for example, without limiting the intention of such meaning, any person or person scantily clothed, advertising or language of an offensive nature.'” However, as Macy’s asserts, that portion of the covenant “is not relevant to” the case.)
Things began to go south, the department store claims, when an agreement that included its exclusive right to advertise on the billboard – where Macy’s own branding appeared for 60 years – expired on August 31, 2021. In anticipation of the expiration of the agreement, Macy’s claims that in May, it attempted to negotiate a new agreement with Rockaway, only to learn that the landlord was already “in discussions a very ‘prominent online retailer’” concerning the advertising on the billboard. “There was little doubt,” per Macy’s, that Rockaway was referring to Amazon, and that the landlord had no intention of abiding by the terms of the restrictive covenant, which Macy’s argues “runs with the land forever,” and thus, remains valid and in force despite the expiration of the parties’ advertising agreement.
While Macy’s states that it abandoned the billboard on August 31, 2020, it claims that any advertising of a competitor, particularly Amazon, that appears in its place will be a clear “breach of the restrictive covenant” by Rockaway, and will give rise to “immeasurable” damage, bolstered by the fact that “the billboard is located in the heart of Manhattan,” and is “viewed annually by the millions of tourists, residents and of New York City.”
Against this background, Macy’s is seeking a declaratory judgment from the court declaring that the restrictive covenant is “in effect, valid and enforceable” and is also requesting a preliminary and permanent injunction against Rockaway enjoining it, and any successor in interest, “from permitting advertising that ‘refer[s] directly or indirectly to any establishment selling at retail or directly to customer’ on the billboard in violation of the restrictive covenant.”
In arguing for a finding that the covenant is valid, Macy’s asserts that it is both “clear and unambiguous,” and not unreasonably broad. In terms of the latter, Macy’s alleges that the restriction “reasonably limits the types of advertising that can be advertised on the Billboard and by whom (i.e., advertising which shall not advertise or refer directly or indirectly to any establishment selling at retail or directly to any consumer),” and thus, does not prohibit Rockaway from entering into “an agreement with any entity or individual that is not a direct competitor of Macy’s to advertise on the billboard.” And still yet, “for the same reason that the restrictive covenant is reasonable,” namely that Rockaway “can still contract to advertise on the billboard,” Macy’s counsel asserts that “it cannot be said that the restriction is offensive to public policy.”
THE BROAD VIEW: This is a fight about more than a big billboard. Sure, the billboard is at the heart of the case, but the legal squabble comes as “the attack by online merchants on traditional brick and mortar stores like Macys is real and has been well documented,” Macy’s argues in a corresponding motion. As Macy’s “online business grows every year,” the storied department store claims contends that “now more than ever, Amazon and other online retailers are direct competitors of Macy’s.”
Amazon might in the retail space has, of course not gone unnoticed or unfelt fellow retailers and regulators, alike, particularly as it continues to amass market share in the apparel segment. Wells Fargo analysts revealed this spring that Amazon had surpassed Walmart as the top apparel retailer in the U.S., “thanks in large part to the pandemic-fueled e-commerce boom.” In a research note in mid-March, Wells Fargo estimated that Amazon’s apparel and footwear sales in the U.S. grew by approximately 15 percent in 2020 to more than $41 billion, thereby, making it the holder of an 11 percent to 12 percent share of the U.S. apparel market and an even greater 34 percent to 35 percent share of all apparel sold online.
“To put this in perspective, Amazon sold almost 7 times as much apparel/footwear as Macy’s,” which is the second largest player online, according to Wells Fargo’s analysts. Macy’s generated $7.71 billion in online sales in 2020, and expects to reach $10 billion in online sales by 2023.
With such sweeping e-commerce success by Amazon in mind, and in light of its expansion efforts in the brick-and-mortar space, including reported aims to open department stores, the fight for billboard space – and critically-located physical space, more generally – is a seemingly even greater threat to Macy’s given its strategy. As Fortune’s Phil Wahba stated in an article early this year, “Stores act as billboards and marketing tools for Macy’s and remind shoppers it exists,” noting that its “remaining stores” – and presumably, its prominent advertising on those stores – “will remain key to supporting its e-commerce, sustaining customer awareness, and offering them something more exciting than online shopping.”
The case is Macy’s Retail Holdings LLC, et. al., v. Rockaway KB Company,655669-2021 (NY. Sup.).