For a while there, the narrative at malls was a move away from apparel retailers—and not a slow, eventual evolution but a rapid, immediate retreat. But things are changing. Even as property owners continue to diversify their portfolios, they’re finding renewed sales with their apparel tenants, which sparked a positive vibe in the latest round of third quarter earnings calls.
Robert Taubman, chairman, CEO and president of Taubman Centers, summed up the quarter by saying, “Sales are up. Rents are up. Tenant health is improving. And NOI [net operating income] is improving.”
In fact, the company, which owns and manages 26 malls and outlets in the U.S. and Asia, reported apparel sales increased by 8.5 percent, marking the third consecutive quarter of positive growth. Taubman listed Forever 21, Uniqlo, Urban Outfitters, Zara and American Eagle among its top performers, adding the recovery in the apparel space is both “exciting” and “way overdue.”
Sandeep Mathrani, global head of retail real estate for Brookfield, reported “tremendous tenant demand” as well as an overall positive environment lead by increases in sales.
Mathrani said across the 125 properties his company owns and manages sales were up 5 percent in the quarter. And while he said that number matches the national average, there’s more to the story since that includes e-commerce sales. “Our numbers obviously don’t include the e-commerce sales, which clearly means that the A assets are performing much better because as a whole, we’re performing with the same growth rates as you would have for e-commerce plus bricks-and-mortar,” he said.
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Sales has been “a bright spot” at CBL Properties, too, according to president and CEO Stephen Lebovitz. Despite a year that saw two of the real estate investment trust’s tenants file for bankruptcy—with almost 30 stores closed between Sears and Bon-Ton—Lebovitz said things are moving in the right direction.
“There has been recovery with a lot of the legacy retailers. And that’s one of the reasons for that optimism, and we started to see the sales bumps and [improvement] this year, and that definitely creates a more favorable backdrop,” he said, listing L Brands, Foot Locker, Signet, American Eagle and Ascena among the retail groups that are starting to turn things around.
Doug Healey, EVP of leasing at Macerich, said the doom and gloom mood that had permeated every interaction with retailers over the last two years or so has given way to a very different tone—one that’s positive and productive.
“The conversations [then] revolved around traffic being down in the malls then online shopping killing the mall business, but fast forward 18 months, 24 months, and we’re still having these same conversations, but these conversations are much different,” he said.
Now when his team talks to tenants, the topics revolve around product, service, experience and marketing. It’s a welcome change and one that Healey said signals why some companies are winning today while others are still floundering.
“The successful retailers, the ones that are performing today, took the last couple of years to really reinvent themselves to figure out their revised shopping patterns and to figure out the new customer, which is the Millennial and the Gen Z,” he said.
While there are still store closures, the pace has slowed considerably.
In 2017, Macerich saw 92 non-anchor stores close. Year to date, there have been only 16. “This is the slowest closure pace we’ve seen since 2012,” Tom O’Hern, senior executive vice president, CFO and treasurer, said.
The story is much the same for Taubman Centers. “The narrative has certainly shifted,” the chief executive said. “Digitally native retail tenants are migrating to brick and mortar real estate and raising capital to do so and are forming a new tenant pool. Luxury retailers are doing exceptionally well.”
Though lease cancelations have been high—totaling $16.4 million compared to $6 to $7 million in a typical year—Taubman said the upshot will be positive. “I will say a lot of the lease cancel activity that we have seen, we think ultimately will strengthen our centers,” he said.
Taubman’s comments echo the sentiment many of his peers have expressed, especially when it comes to the Sears closures.
While sad, the Sears saga has dragged on for so long that the commercial real estate community seems more than ready to turn the page, start fresh and find new opportunities.
And many of them have said they’re having no problem doing just that.
Macerich, which has 21 Sears locations in its portfolio, characterizes the closings in that chain as “a great opportunity for us to improve our high quality portfolio both in terms of tenant quality, sales productivity, traffic and densification.”
CBL, which operates 114 properties, including malls, open air centers and outlets, is looking to a diversified tenant mix, including fashion, restaurants, entertainment and fitness centers, to help it transform its properties into suburban town centers.
As Brookfield transitions its properties to mixed use, Mathrani said the benefits are apparent. “We’re seeing the impact to the retailers. We’re seeing sales uplift where we are putting in the condominiums or the residential,” he said.
Going forward, the company plans to roll out this model portfolio-wide.
“We do think within that 100-or-so core portfolio of assets on a longer-term base, introducing other uses and effectively turning them into mini-cities is really how to future-proof all of these assets,” said CEO Brian Kingston.