Simon Property Group’s 80% purchase of Taubman Properties helps them secure the lions share of … [+]
Simon Property Group, Taubman Properties, Sanford Stein
I’ve been writing about the evolution (or devolution) of shopping malls and centers, for over two decades, going back to a Metropolis Magazine interview in May of 1999, entitled “The Mall Doctor” (not me). And as much as things have changed over the course of those 20-plus years, some things have stayed the same.
Recent news out of Indianapolis, Indiana, home of Simon Properties Group, suggest an increased clarity in the prognosis for mall and center’s sustainability, and it supports the notion that “only the strong survive.” Simon’s 80% purchase of Taubman’s mall portfolio, and their decision to joint venture with Brookfield Property Partners LP and Authentic Brands Group LLC to purchase Forever 21, suggest they remain on that path to survival.
Buy What’s Worth Having
Despite attempts in the past (including a thwarted hostile takeover in 2003) by Simon to acquire the smaller but exceptional Taubman assets, the time was right for both parties. While Simon’s 233 properties generate on average $693 per square foot, and 95.1% occupancy, the Taubman “premium” portfolio of 21 U.S. malls and 3 international properties are averaging $972 per square foot and are 94% occupied.
Whether the coming together was out of necessity or not, as some analysts have indicated, the $3.6 billion deal strengthens Simon’s hold on the upper end of the mall spectrum, which I believe is the only sustainable place to be. The only other major player in this rarified area is Macerich, with north of 50 properties, generating $748 per square foot, as of March 2019 (though some analysts see Macerich, with a $9.3 billion valuation, as a prime target as well).
Simon’s $54 per square foot average rent is nothing to sneeze at either. And importantly it has been extremely successful at repopulating the stores that go dark, due to the never-ending bankruptcies occurring across the specialty retail sector. Simon recently told Wall Street that it has successfully re-rented over 60% of the vacancies connected with the numerous 2019 bankruptcies. Impressive indeed.
Anchors Away
And while the steady drumbeat of dropping specialty retailers is part of the “New Retail” reality, the deafening thud of anchors dropping makes them pale by comparison. Simon has been both creative and highly invested (pun intended) in dealing with this drama. Through the third quarter of 2019, Simon had redevelopment and expansion projects going in over 30 properties in the U.S., Europe and Asia, totaling some $1.8 billion.
As reported in a just released IBM-The Next Brick article, entitled Retailing 2020-2030, Simon properties has partnered with Lifetime Fitness in at least 20 malls in the country to expedite some version of the 143,000-square-foot, $43 million prototype that launched in Edina, Minnesota’s Southdale Mall in December 2019. The combination co-working, fitness, spa, and soccer facility was built on the former site of a J.C. Penney. This represents just one of the many alternate uses which will take the place of our dying department store anchors.
Becoming the Retailer
It may seem counter intuitive, even foolish for mall owners to attempt to turn around a failed retailer, but challenging times call for creative measures, and Simon has demonstrated a unique ability to work both sides of the lease-line. The news of Simon Property Group Inc., Brookfield Property Partners LP and Authentic Brands Group LLC offering $81 million for the bankrupt Forever 21 seemed desperate at best. The defunct retailer owed Simon & Brookfield a combined $13.4 million in unpaid rent, and the retailer’s 98 stores represented over 1.5 million square feet, for Simon alone. So the motivation was clear. However, the precedent had already been set.
David Simon recently reminded investors that their $25 million purchase of Aeropostale in 2016 had yielded $13 million in distributions and has expected earnings of $80 million. This represents a turnaround from negative $100 million. According to a report by Bloomberg the new owners will attempt to keep most of chains 448 U.S. stores open, as they attempt to right the ship. And, it’s likely that most of their 25,000 employees will be able to keep their jobs, which is a significant accomplish in and of itself.
Not a Cake Walk
While Simon remains in arguably the best position to survive long term as a premium mall owner, doing so will take constant investment and reinvention. Besides the obvious shift away from pure stocking retail, there will be a greater focus on entertainment, restaurant, fitness, and non-stocking, display only retail environments, or DOREs. But besides those departures from the malls of the past, I would expect Simon and others to contemplating new ways to bring much needed traffic to their malls. Here are some thoughts:
Retail as a Service Offerings
Simon will need to continue to cater to direct-to-consumer, digital-first brands—as they have since starting The Edit at Roosevelt Field in 2017. This initiative was one of the first Retail as a Service (RaaS) initiatives, which created a pop-up venue for emerging brands. Another new player on the RaaS scene is ShopFulfill, which will open their first Anchor Shops concept in downtown Philadelphia in the second quarter of 2020.
Makers Markets and Craft Guilds
Simon ought to consider providing space to leverage a new and growing interest in “makers markets” and Craft Guilds such as Brooklyn’s “The Makers Guild.” The new 25,000-square-foot space includes nine artisan shops, where products are being made and sold.
The New Re-Tailors
Sustainability is top-of-mind to both Gens Y and Z. Combine this fertile turf with a desire for personalization, and I could envision a new, “Re-Tailor” movement.
Imagine throngs bringing much loved wardrobe pieces into a venue teaming with fashionistas, stylists and sewing machines. The objective? To have a piece or pieces redesigned and remanufactured into new and highly personal garments. Product cost is nil. Fees for redesign and recreation become an income stream for next-gen entrepreneurs and stylists. It’s a social media dream in the making and delivers on the “Market of One” personalization, promise of two decades ago.
Meet the Influencer
The influencer marketing industry is growing at a faster rate than direct-to-consumer marketing and is expected to be worth up to $15 billion by 2022. Some extremely well-paid influencers have progressed from collaborations to collections to ultimately launch their own influencer-to-consumer brands. How better to bring actual people together than to have a face to face with their favorite influencers? Just such a concept, called ShareSpace, will debut in March at Rosedale Mall in the Twin Cities.
Remember, Glossier started out as a blog called The Gloss. The brand now has a $1.2 billion valuation.