Retailers continue to open stores despite recession fears

Major mall owners in the US say retailers are still moving forward with plans to open new stores despite growing recession fears and decades-high inflation that is squeezing shoppers’ budgets.

Simon Property Group, the country’s largest mall owner, said the business pipeline planned to open on its properties remains solid. The company reported an occupancy rate in its U.S. shopping malls and outlets of 93.9% as of June 30, up from 91.8% a year earlier.

“Even with what’s going on around the world, we haven’t really seen anyone come back without deals,” Simon Property CEO David Simon said in an earnings conference call on Monday.

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

Fueling the openings is a mix of factors, including retailers pushing for limited space and popular online brands looking to expand by opening concrete locations. Some retailers are watching real estate in markets outside of big cities as they follow the people they uprooted to find larger spaces during the Covid pandemic. And companies, including Macy’s, which have closed stores in recent years, are now testing different formats, often with smaller footprints.

So far this year, retailers in the United States have announced 4,432 store openings, compared to 1,954 closures, according to data from Coresight Research, for a net of 2,478 openings.

Before the pandemic, the industry saw thousands of store closures net each year as consumers increasingly shifted their spending online. In 2019 Coresight recorded 9,832 closings, compared to 4,689 openings. Last year, the retail sector achieved a net addition of 68 stores.

“Retailers will not give up on store growth,” said Naveen Jaggi, president of the retail advisory team at JLL, a commercial real estate services firm. “They will continue to grow because this is one of the ways they can send a message to the market: ‘We are safe and healthy.'”

Optimism from retail property owners comes amid warning signs from across the industry. In recent weeks, retailers including Walmart, Target, Best Buy, Gap, and Adidas have narrowed their prospects for sales or profit as consumers crushed by rising gas and grocery bills have curbed spending on other items. At the same time, however, luxury retailers including handbag maker Birkin Hermes and Louis Vuitton parent company LVMH say profits are strong and sales are growing as higher-income consumers continue to indulge in fashion and expensive accessories.

At his malls, Simon Property also said he noticed a split in behavior. Consumers who shop at value-oriented retailers are more likely to retire, Simon said, as are younger shoppers who don’t make as much. Among those seeing a drop in sales are teen and fast fashion retailers of the company Aeropostale and Forever 21, as well as its department store chain JC Penney, he said.

But he said companies like men’s clothing retailer Brooks Brothers, which also owns Simon Property, continue to increase sales.

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

Macerich, which operates shopping malls including Tysons Corner Center in Virginia and Scottsdale Fashion Square in Arizona, noted that unease in the retail sector has slowed dramatically after a wave of closures triggered by the pandemic in 2020.

“Clearly, there are economic uncertainties due to inflation, rising interest rates and the war in Ukraine,” Macerich CEO Thomas O’Hern said in a conference call Thursday. “However, we continue to expect gains in employment, net operating income and cash flow from operations for the remainder of this year and into the next year.”

Macerich said its second-quarter leasing business reflected retailer demand at levels not seen since 2015. The company also said it recently surveyed around 30 of its largest domestic tenants and found that around 90% didn’t. changed their plans to open new locations this year and then.

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

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

Conor Flynn, CEO of the Kimco mall owner, said he had “a cautious optimism” about the state of business given the pressure on consumers. Some retailers are taking advantage of tough times to grab the empty windows they’ll want in the years to come, he said in a conference call 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 this has put more pressure on companies to compete for the best available space.

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

Plans for new openings come even as visits to malls and malls appear to be slowing down this summer due to inflationary pressures, although analysts and executives say those who visit are more likely to buy something.

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

According to Placer.ai, a retail analytics company, visits to US indoor shopping malls in June increased 1.5% from the previous year, marking the smallest increase this year. Visits to outlet centers decreased by 6.7%. The distance it takes many consumers to reach outlet centers has led to a drop in visits as gas prices remain inflated, Placer.ai said.

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