Simon Property Group Banks On Retail

A number of major retailers in the US filed for Chapter 11 bankruptcy protection during the pandemic, including Sears and J.C. Penney.

The economic crisis caused by Covid-19 may be sending retailers to the exits, but Simon Property Group, the largest shopping mall operator in the US, is going the opposite direction. The commercial real estate giant—with shopping centers across North America, Europe and Asia—has been buying up struggling department stores that can play a key role in the company’s survival.

Malls have been on the decline for years as e-commerce has rapidly grown, and US department stores have been hanging on by a thread that has all but snapped during the pandemic. A number of major retailers in the US filed for Chapter 11 bankruptcy protection during the pandemic, including Sears and J.C. Penney.

As of May, Simon malls had 11 Sears and 63 J.C. Penney stores. Searching for ways to stem the bleeding from the collapse of these two department stores is necessary for Simon’s own survival, too. In addition, the company has some other ideas: It has its eye on buying J.C. Penney out of bankruptcy, and has also reportedly been talking with about converting vacant Sears and J.C. Penney stores into distribution hubs.

This isn’t the first time Simon has invested in failing retailers and come out on top. Beginning in 2016, Simon turned the bankrupt apparel retailer Aéropostale into a profitable business that earned $80 million by 2020, from a loss of $100 million three years prior. Reporting solid profitability and positive cash flow from operations in its Q2 2020 financial results, the mall operator is planning to rescue Brooks Brothers and Lucky Brand Dungarees out of Chapter 11 and purchased Forever 21 earlier this year. Simon believes buying failing retail stores now is a strategic move that will lead to growth once the economy picks up again. Additional capital injections from Smead Capital Management will enable Simon to consider additional acquisitions.

Simon may be in the front of a trend for US shopping malls, which are looking to attract Amazon as they search for new business models that incorporate retail and logistics. As Simon expands further into retailing, the model will no doubt be tested and closely watched.