Various aspects of U.S. policy are buffeting retailers at Simon Property Group centers, but a rash of store closures and retail bankruptcies isn’t fazing the mall company.
That’s because distressed retailers like Francesca’s and Saks can eventually be replaced with healthier tenants that pay more, CEO David Simon told analysts Monday. Francesca’s is in the process of shuttering all 450 or so locations across the U.S., many of them in malls. Saks Global is a couple of weeks into a bankruptcy that has already entailed store closures and rent disputes affecting Simon’s properties.
“It's our view that we can replace [a closed store] with more productive retailers at higher rents,” he said, citing recently announced Saks Off 5th closures. “The productivity and the rents are just so cheap that there's a tremendous amount of upside.”
Simon was less upbeat about the financial toll from tariffs, which he said continue to impact retailers, other than giants like Costco, Amazon or Walmart, because they are working to shield their customers from price hikes.
“The rest of us are feeling the pinch,” he said, adding that tariffs are set to “take a couple of hundred million dollars of EBITDA away from Catalyst.”
Simon Property Group owns a stake in Catalyst Brands, the operating company of several mall retailers including J.C. Penney, Aéropostale, Brooks Brothers, Eddie Bauer, Lucky Brand and Nautica. A Supreme Court ruling to overturn the levies “could be a small victory for our clients,” he also said; the high court has yet to weigh in.
Tariffs are undermining what has otherwise been a bounce back from the pandemic years, with “sales, tenant demand, traffic ... all moving in the right direction,” according to Simon.
There are isolated areas of weakness, though, he said. Simon centers along the northern U.S. border have lost some momentum because “Canadians are really pissed off” and there’s been “a little bit of sales disruption in certain markets where there were a lot of ICE [border control] activity,” Simon said.
“Again, tariffs are a headwind, but there's a lot of positive aspects of what's going on,” he said.
