Retailers keep opening stores despite recession fears

Owners of America’s largest malls say retailers are pressing ahead with plans to open new stores despite growing recession fears and decades-high inflation that is straining shoppers’ budgets.

Simon Property Group, the nation’s largest mall owner, said the pipeline of businesses scheduled to open on its properties remains strong. The company reported an occupancy rate at its US malls and outlets of 93.9% as of June 30, up from 91.8% a year earlier.

“Even with what’s going on in the world, we haven’t really seen anyone back out of deals,” Simon Property Chief Executive David Simon said in an earnings conference call on Monday.

“We’re seeing a huge uptick in Las Vegas, Florida is on fire… California is finding its legs,” he added.

The push for openings is a mix of factors, including retailers pushing to take advantage of limited space and popular online brands looking to expand by opening brick-and-mortar locations. Some retailers are seeking real estate in markets outside of major cities as they follow people who have uprooted themselves to find bigger spaces during the pandemic. And companies included macy’s that stores closed in recent years are now trying out different formats, often with smaller footprints.

So far this year, retailers in the US have announced 4,432 store openings, compared to 1,954 closings, according to data from Coresight Research, resulting in a net of 2,478 openings.

Before the pandemic, the industry saw thousands of store closings each year as consumers increasingly moved their spending online. In 2019, Coresight recorded 9,832 closures, compared to 4,689 openings. Last year, the retail industry achieved a net addition of 68 stores.

“Retailers are not going to back down from store growth,” said Naveen Jaggi, president of the retail advisory team at JLL, a commercial real estate services firm. “They’re going to keep growing because that’s one of the ways they can send a message to the market that ‘we’re healthy and safe.'”

The optimism from retail real estate owners comes amid warning signs from across the industry. In recent weeks, retailers, including walmart, Goal, Best Buy, Gap and Adidas slashed their sales or profit outlook as consumers pressured by higher gas and grocery bills dominate spending on other items. At the same time, however, luxury retailers including bagmaker Birkin Hermes and Louis Vuitton parent LVMH say profits are strong and sales are growing as higher-income consumers continue to splurge on expensive fashion and accessories.

At its malls, Simon Property also said it’s noticing a split in behavior. Consumers who shop at value-oriented retailers are more likely to back off, Simon said, as are younger shoppers who don’t make as much money. Among those seeing declining sales are the company’s teen and fast fashion retailers Aeropostale and Forever 21, as well as its department store chain JC Penney, he said.

But he said businesses like men’s suit retailer Brooks Brothers, which Simon Property also owns, continue to increase sales.

“The higher-income consumer is still spending money,” Simon said.

Macericwhich operates malls such as Tysons Corner Center in Virginia and Scottsdale Fashion Square in Arizona, noted that distress in the retail industry has slowed dramatically after a wave of pandemic-driven closures in 2020.

“Clearly, there are economic uncertainties due to inflation, rising interest rates and the war in Ukraine,” Macerich CEO Thomas O’Hern said in a conference call last Thursday. “However, we continue to expect occupancy gains, net operating income and cash flow from operations for the remainder of this year and next.”

Macerich said its leasing activity in the second quarter reflected retail demand at levels not seen since 2015. The company also said it recently surveyed about 30 of its top national tenants and found that about 90% have not changed their plans. to open new locations this year. and then.

Also driving store openings are retailers that started online and are now looking to expand with brick-and-mortar locations, said Douglas Healey, senior executive vice president of leasing for Macerich. They include sportswear brands Fabletics, Alo Yoga and shoemaker Vuori. all the birds and furniture chain Interior Define, he said.

Macerich said he signed 274 leases in the quarter ending June, up 27% from a year earlier and 42% higher than pre-Covid 2019 levels.

Conor Flynn, CEO of the mall owner KimcoHe said he is “cautiously optimistic” about the state of business, given the pressures on consumers. Some retailers are taking advantage of the tough times to snag empty storefronts they’ll want for years to come, he said in a conference call last Thursday.

Construction of new commercial space has also slowed for the most part during the pandemic, according to David Jamieson, Kimco’s chief operating officer. He said that has put more pressure on businesses to compete for the best available space.

The availability of commercial space in all types of properties, including malls in the US, hit a 10-year low in the second quarter, according to CBRE, a real estate services and investment firm.

Plans for new openings come even as mall visits appear to be slowing this summer amid inflationary pressures, though analysts and executives say those who visit are more likely to buy something.

Simon said it reported record sales of $746 per square foot at its malls and outlets combined in the second quarter.

Visits to US indoor malls in June were up 1.5% from a year earlier, marking the smallest increase so far this year, according to Placer.ai, a retail analytics firm. . Visits to outlet centers fell by 6.7%. The distance it takes many consumers to drive to outlet centers has resulted in a drop in visits as gas prices remain inflated, Placer.ai said.

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