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Losers Aside, Malls Benefit From ‘Retail Darwinism’

As the saying goes, bad news travels fast. That’s one reason why store closures have been clogging the news. But mall and shopping center owners contend a steady demand for retail space demands a different narrative.

Speaking during the company’s Q3 earnings call, Ken Bernstein, president and CEO Acadia Realty Trust, said it’s the tale of the haves and have-nots—and the latter group is “overstaying their welcome and grabbing a disproportionate amount of the headlines.”

Despite these underperforming retailers and the very real need for commercial real estate firms to start redeveloping store space into more productive uses, Bernstein is optimistic about the direction things are heading.

“What we’re hearing so far from many of our retailers is that we’re thankfully passed the concern of perpetually declining sales in store profitability and we’re now heading back to the age-old battle of supply and demand,” he said.

Acadia reported “significantly more robust” sales growth from a wide range of retailers, including off-price giant T.J. Maxx, fashion chain Aritzia and digital native Allbirds.

Sales are up at Simon Properties as well—at least for some tenants.

“The activity has increased from 2017 to 2018. I think there’s clearly—for the retailers that are investing in their product, there’s increased sales,” Chairman and CEO David Simon said, while addressing analysts.

Along with this improved performance, retailers that may have danced around the idea of opening stores are now committing, according to  Richard Sokolov, president and COO, Simon Property.

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“Our tempo of leasing is accelerating in that we now have more tenants coming in saying, all right, let me look at 5, 10, 15 openings for 2019. That is an acceleration from what we had this time last year,” Sokolov said.

What’s also up is the number of Untuckits and Warby Parkers of the world either popping up or setting down permanent roots. Digital natives, it seems, have done a 180 when it comes to their store strategies.

“They’ve gone from a point of view of a couple years ago where they said we never need to have a store, to recognizing how important stores are,” Bernstein said. “But it’s only going to be one component of how they’re going to drive growth, and what these retailers have recognized is that their cost per acquisition of a customer is significantly reduced when they have a certain number of stores.”

Today, Simon Property is working with about 25 brands that got their start on the web.

“The best way I can say is the store experience and the store requirement is back, and that it shouldn’t be under-appreciated,” Simon said. “They all want stores. Period. End of story.”

Conor Flynn, CEO of Kimco Realty, said leasing activity has been boosted by a new breed of retail concepts along with those traditional chains that have adapted their businesses to suit the new consumer. Ultimately, he said, the changes in the retail landscape are “a form of retail Darwinism.”

“The changes occurring in the shopping center landscape are for the better,” Flynn said. “Why for the better? Because the survivors and newcomers are better capitalized and better prepared to adapt to consumers’ changing tastes and needs.”