As one of the largest shopping center REITs in the country, Simon Property Group naturally has a mutual interest in seeing its tenants succeed and nowhere was that support more needed than in the throes of Covid-19 and its negative impact on physical retail in its aftermath. For some retailers, Covid was the death knell, but others just needed some help to get back on their feet. Enter Simon. Back in August 2020, Simon and Authentic Brands Group formed an entity called the Sparc Group LLC (Simon Properties Authentic Retail Concepts), which many observers believe was aimed at helping retailers weather the storm. Some of the marquee brands included well-known mall stalwarts like Aeropostale, Forever 21, Brooks Brothers, and Lucky Brands.
At the time, Forbes columnist Greg Maloney wrote that “I don’t think that mall or shopping center landlords want to be in the retail business, but that under special circumstances the situation may dictate that they need to be.” We’ve seen this ebb and flow across multiple industries, especially when ravaged by Covid and needing to take immediate proactive action. For instance, in the entertainment business some studios decided to go all-in on streaming, only to realize later that the proceeds from a missed theatrical window were sorely missed. In other cases, parking lots were redesigned to maximize efficiencies for curbside pickups or buy online pick up in store, but that has largely normalized too. The last few years have also been an opportunity for companies and brands to re-evaluate how they are operating their businesses and make some changes for increased efficiency and profitability.
Taking a look at non-indoor and non-multistory mall locations, we see that it was not purely a store traffic story driving improvements, but likely a combination of operational turnarounds, branding refreshes, and new strategies. In 2021, David Simon remarked that the Sparc “outperformed their budgets on sales, gross margins and EBITDA.”
Retail is nothing if not creative, and Forever 21 and Shein’s tie-in reflects the old adage “if you can’t beat ‘em, join ‘em.” These erstwhile rivals jumped onto the omnichannel bandwagon together last August to help each other reach more customers. Both are brands that are popular with Gen Z and offer affordable and trendy fashion. Pop-ups are a great way to test the waters prior to a formal partnership, and when Forever 21 and Shein experimented with a pop-up at The Shops at Willow Bend in Plano, TX, the results were a resounding success. Per Placer data, the pop-up had thousands of customers lining up, weekly visits growing by 33%, and a significantly expanded True Trade Area.
However, sometimes companies make a strategic decision to return to concentrating on their core business. In the case of Simon, that is being in real estate. Earlier this week, Simon President and CEO David Simon announced, “We sold our remaining interest in Authentic Brands Group during the first quarter for gross proceeds of close to $1.2 billion and recorded a pre-tax and after-tax gain of $415 million and $311 million, respectively. The sale in the first quarter combined with the sale in the fourth quarter yielded gross proceeds of $1.45 billion. We generated substantial value from the ABG investment and a 7x multiple on our net invested capital during our short ownership period.”
Global Data retail analyst Neil Saunders opined that “Simon’s core property business is solid so it doesn't rely on retail as an add-on” and that “The company has generated a fantastic return on its investment, and probably felt that the time was right to sell its remaining stake as it received a good price for it.”
Next up, we’ll see if Simon decides to impart some of its expertise on the Express turnaround. Per David Simon, “on Express, we were approached by the IP owner. I think it's not overly complicated in the sense that they saw what we had done historically both with ABG and SPARC and offered us to participate with no capital but also add our expertise and our knowledge in -- what we've done in the past with SPARC. And because we have always valued Express as a retailer and as a client, we jumped at the opportunity.”
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