The tough times that face America’s malls are starkly apparent around the most of the malls in the US. In Burnsville Center, at least 18 store fronts are empty. At Southdale, walls on the third floor are painted black to disguise the lack of tenants. Even the Mall of America is turning to smaller, local retailers to fill space that national chains once would have coveted. The shopping mall, a concept that Southdale pioneered six decades ago, faces an existential crisis as consumers grow increasingly accustomed to buying online and as young people, once the lifeblood of malls, socialize on Snapchat and Instagram.
The ratings firm Moody’s says there are more distressed retailers this year than at the height of the Great Recession. Those that are struggling are drowning in high levels of debt while also playing catch up in e-commerce. “There’s only so many holes in the dike you can plug,” “And, oh, by the way, Amazon and Walmart and Target and all of the heavyweights are trying to also take market share. So you find yourself under siege.”
The retail carnage has been vast. Thousands of stores from Sears and J.C. Penney to Payless Shoe Source and Wet Seal have closed nationwide. More than a dozen retailers have filed for bankruptcy, the latest the upscale jeans retailer True Religion. The massive disruption has happened so fast that malls are taping over the names of shuttered stores on their directories and putting up ads to fill suddenly empty storefronts. Managers are scrambling to find temporary fixes such as local mom-and-pop brands as they figure out what their next chapter will be in the age of Amazon. The vast majority of shoppers couldn’t care less whether their local mall belongs to Simon Property Group (SPG, -0.12%), General Growth Properties (GGP, -1.16%), or Westfield Group or any other major developer for that matter. But many of these real estate investment trusts (REITS) are trying to change that, betting that by creating a stronger brand identity, shoppers will come to associate their names with more enticing shopping environments, something potentially critical as many developers build more new outlet malls and redevelop existing shopping malls. Simon, the largest U.S. mall owner with 207 properties, is a case in point. Last year, it launched a pilot loyalty program at five of its malls and has been busy investing in technology to adapt to the changing behavior of today’s shoppers. On Tuesday Unibail The French Mall Owner Is Buying Westfield for $15.7 Billion. Deal would create world’s second-largest shopping-center operator by market capitalization. One of the world’s best-known mall operators just agreed to be bought by one of its least-known. Westfield Corp.—the Australian operator of glitzy shopping centers stretching up and down California and across the country to Florida and New York. Dozens of malls in the U.S. are changing hands as part of a mega real estate takeover.Westfield, the Australian firm that operates 33 malls across the United States, is being bought by Unibail-Rodamco, a European property investment firm based in France.A spokeswoman for Unibail-Rodamco said its cash and stock offer of $7.55 per share values Westfield’s equity at $15.8 billion. The offer is worth almost 18% more than Westfield’s closing share price on Monday, the companies said Tuesday.Now could be the time on the call where I could go into a lengthy philosophical discussion on the popular misconceptions about the mall business, created by the never-ending current public narrative.And I could counter that by pointing [out] that we have 434 department stores in our portfolio, and only one is vacant, and how in the recently announced department store closing, we have only one closure in our portfolio, or how we have added more than 275 sit-down or quick-service restaurants, more than 20 entertainment concepts and more than 80 big-box tenants across our portfolio over the last four, five years, or how we’ve added mixed-use components to our centers in the last several years, we have built 10 hotels and residents representing nearly 3,000 units.
Or how according to a recent survey a Generation Z members — a group that outsizes millennials — 70 percent of those surveyed visit the mall at least once a month and visit more than four stores during the visit, or how the consumers still like to shop in stores because they want to touch and feel the products before they make a final decision.
Or how online retail sales have grown to less than 10 percent of total retail sales, and that the retailers who occupy our centers represent approximately two-thirds of those total online sales, or how leading e-commerce retailers, like Warby Parker, Blue Nile, Untuckit, Shinola, among others, are opening physical stores because of the inherent advantage a physical location provides as well as being a natural extension to the digital world. Or how basket sizes are higher, return rates are lower in stores compared to online purchases, and margins are much higher in the store than they are in the Internet, or how emerging brands like GUIDEBOAT, NIC+ZOE, Peloton, to name a few, continue to see the mall as the launch pad to build their brand awareness as a result of the significant traffic they experience being at the mall, much like Apple or Microsoft did several years ago.Or how we are making all these changes and enhancements to our center, even though Congress has tilted the scale towards e-commerce by not implementing the Marketplace Fairness Act, which [means] not requiring the sales and use tax to be paid by consumers who buy products online, even though they are required to do so under existing laws.But I could do that, but I won’t, because we’ve talked about that all before, so I’d rather focus on what we do and how we do it, and that is we reinvest in our properties, making them the best centers in the respective markets. We grow our earnings, we generate excess cash flow, we pay higher dividends, and we achieve all of this while maintaining the industry’s strongest balance sheet. That’s our model and that’s what we do for the benefit of our shareholders, our communities, and our retailers. We continue to record solid key operating metrics and grow our cash flow.