Retailers still opening stores despite recession fears

Retailers still opening stores despite recession fears

The biggest shopping mall owners in the United States say retailers are still forging ahead with plans to open new stores in spite of growing recession fears and decades-high inflation that’s squeezing shoppers’ budgets.

Simon Property Group, the country’s largest mall owner, said the pipeline of businesses slated to open up at its properties remains strong. The company reported an occupancy rate at its U.S. malls and outlet centers of 93.9% as of June 30, up from 91.8% a year earlier.

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

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

Fueling the openings are a mix of factors, including retailers pushing to snap up limited space and popular online brands looking to expand by opening up brick-and-mortar locations. Some retailers are eyeing real estate in markets outside of major cities as they follow people who uprooted to find bigger spaces during the pandemic. And companies including Macy’s that shuttered stores in recent years are now testing different formats, often with smaller footprints.

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

Before the pandemic, the industry was seeing net closures of thousands of stores every year as consumers increasingly moved their spending online. In 2019, Coresight tracked 9,832 closures, compared with 4,689 openings. Last year, the retail industry eked out a net addition of 68 stores.

“Retailers are not going to pull back on store growth,” said Naveen Jaggi, president of the retail advisory team at JLL, a commercial real estate services firm. “They’re going to continue to grow because that’s one of the ways that 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, Target, Best Buy, Gap and Adidas slashed their sales or profit outlooks as consumers squeezed by higher gas and grocery bills reign in spending on other items. At the same time, though, luxury retailers including Birkin bag maker Hermes and Louis Vuitton parent LVMH say profits are strong and sales are growing as higher-income consumers continue to splurge on pricey 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 be pulling back, Simon said, as are younger shoppers who don’t earn as much money. Among those seeing softening sales are the company’s teen and fast-fashion retailers Aeropostale and Forever 21, as well as its J.C. Penney department store chain, he said.

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

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

Macerich, which operates malls including Tysons Corner Center in Virginia and Scottsdale Fashion Square in Arizona, noted that distress in the retail industry has slowed dramatically after a pandemic-spurred wave of 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 on a conference call last Thursday. “However, we continue to expect gains in occupancy, net operating income and cash flow from operations through the remainder of this year and into next year.”

Macerich said its leasing activity in the second quarter reflected retailer demand at levels not seen since 2015. The company also said it recently polled around 30 of its biggest national tenants and found that roughly 90% have not changed their plans to open new locations this year and next.

Also fueling store openings are retailers that started online and are now looking to expand with physical locations, said Douglas Healey, senior executive vice president of leasing at Macerich. Those include athletic apparel brands Fabletics, Alo Yoga and Vuori, shoe maker Allbirds and the furniture chain Interior Define, he said.

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

Conor Flynn, CEO of shopping center owner Kimco, said he has “cautious optimism” about the state of business, given the pressures on consumers. Some retailers are taking advantage of tough times to snag vacant storefronts they will want in years to come, he said on a conference call last Thursday.

Construction of new retail space has also hit the brakes 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 spaces.

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

The plans for new openings come even as visits to malls and shopping centers appears to be slowing this summer amid inflationary pressures, though analysts and executives say those who do visit are more likely to buy something.

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

Visits to indoor U.S. malls in June rose 1.5% compared with the prior year, marking the smallest gain so far this year, according to Placer.ai, a retail analytics firm. Visits to outlet centers dropped 6.7%. The distance that it takes many consumers to drive to outlet centers has resulted in a falloff in visits as gas prices remain inflated, Placer.ai said.

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