Thursday, February 20, 2020

Malls: Getting Near The Edge?

In the past two weeks, three remarkable events took place in the mall industry. On February 5th, Macy’s announced that it will close 125 stores over the next three years which represent approximately one-fifth of its more than 600 stores. The initial round of 31 store closings is expected to take place early this year. Furthermore, a new location strategy was announced which will focus on smaller stores in off-mall environments, not exactly music to the ears of regional mall owners. 

The second and third major happenings occurred a week later and both involved Simon Property Group. Simon, along with Brookfield Property Partners and Authentic Brands Group, was announced as the stalking horse that has now made a successful $81 million bid for the once formidable, but now distressed, fast-fashion retailer Forever 21. In years past this might have been regarded as an opportunistic acquisition priced at pennies on the dollar. Today it more closely resembles a desperate attempt to hold mall vacancy in check and avoiding further occupancy fallout resulting from co-tenancy and kick-out clauses, or at least to avoid rent reduction demands from the affected remaining tenants. Simon is landlord to 98 Forever 21 stores, which typically average 40,000 square feet.

The last event was the announcement that Simon will purchase Taubman Centers, including 24 regional shopping centers. At a time when shoppers are walking away from malls, Simon will be acquiring a relatively upscale group of super-regional shopping centers that will complement Simon’s existing portfolio. Generally these malls are regarded as Class A quality, giving them more viability to survive the mall sector fallout that has accelerated in recent years. Taubman’s significant exposure to Forever 21 may have been just the clincher to get the deal done. This acquisition will give Simon full or partial ownership in approximately 254 properties worldwide.

If we take a closer look at what all this means to the mall sector in general, we can see that it means a lot. As Macy’s goes through the process of closing stores, more and more regional malls will be affected by the decline in foot traffic, which will inevitably result in more mall shop closings. Thus far, with a few exceptions, the bulk of these store closings will occur in secondary markets at Class B and C properties where Sears and JCPenney closings have already taken a toll and vacancy is high. But with another nearly 100 closings on the way, it is likely that some of the more prominent malls throughout the US will be impacted as well, including both Simon and Brookfield properties.

Regarding the Forever 21 acquisition, had Forever 21 ended up in bankruptcy, Simon and Brookfield would both have experienced large-format vacancies throughout their portfolios. In a move that paralleled their acquisition of Aeropostale in 2016, the mall owners also brought Authentic Brands in on the deal to run the business. As an expert on rebranding teetering retailers, Authentic Brands is viewed as a company that can revive the Forever 21 brand and present a new image among shoppers. However, apparel retailers are among those most impacted by current shopping trends, which leaves the long-term viability of Forever 21 and Aeropostale both in question.  While this adds plenty of risk to this Simon and Brookfield acquisition, the fact that these retail units will not go dark should at least give some protection to these owners.

Last on the list is the Taubman acquisition. This is a company that Simon first tried to acquire in 1992. It was an unwritten rule back then that family mall operators didn’t encroach on another’s territory, let alone make an attempt at a hostile acquisition; that offer was rejected, and so here we are today. While it may seem counterintuitive for anyone to want to acquire a regional mall portfolio, it does make sense in some respects. First, Taubman shopping centers generated mall shop productivity of $876 per square foot in 2019, the highest among mall sector REITs. Second, Simon has stated that the acquisition should be immediately accretive and with Taubman as the landlord to 21 Forever 21 locations, it should enhance the financial benefit somewhat. Simon, realizing that consolidation may be the only way to ensure survivability, may now shift its attention to Macerich, identified as another potential acquisition target with 31 Forever 21 leases under its belt, 

It can’t be ignored, however, that despite Simon’s best efforts, department store fallout may have much more to say about the eventual success or failure of these Simon acquisitions. Investors must be hoping Simon was right. 

Bob Sheehan
Vice President of Research


Team News: Mike Flood joined the Plymouth, MA office as Property Manager. Mike has prior property management experience most recently from Wilder Co...Rossy Pimentel and Stephanie Johnson joined the Burlington, MA office as Accounts Payable Data Entry Clerks…Zach Smith in the Burlington, MA office has been promoted to Property Manager... Danielle Ursino has been promoted to Assistant Property Manager in the Burlington, MA office....New Leasing Assignments: VP of Leasing will handle Dartmouth Towne Center and Towne Center West, located on Route 6 in North Dartmouth, MA.


The Commerce Department said retail sales rose 0.3% in January. Excluding automobiles, gasoline, building materials, and food services, sales were flat Sales of building materials rose 2.1%, the largest gain since last August. Sales at clothing stores dropped 3.1%, the most since March 2009. Sales at restaurants and bars increased 1.2%.. See sales reports on Page 4...Simon Property Group has entered into an agreement to acquire Taubman Centers in a deal valued at $3.6 billion. The Taubman family is selling 1/3 of its ownership interest but will retain a 20% stake in Taubman Realty Group. Taubman owns, manages, or leases 26 malls in the US and Asia. The company will be managed by its existing team, in partnership with Simon.


Mars Retail Group is opening 3 new M&M’s stores, including a 24,000 s/f flagship at Mall of America...Whole Foods Market opened new stores in Richmond, VA and Delray Beach, FL...uBreakiFix increased its store count to 478 across North America...Gordmans plans to open stores in 13 small towns in NY this month. Stage, the company that owns Gordmans, is converting more than 500 US Bealls, Goody’s, Palais Royal, Peebles, and Stage stores to Gordmans…Krispy Kreme will open 6 locations in NYC this year, including its flagship in Times Square. Krispy Kreme has nearly 1,400 shops in 33 countries...Seafood restaurant Captain D’s opened 15 new locations and signed 8 franchise development agreements. Captain D’s has more than 530 restaurants in 22 states…Pet Supplies Plus will open 7 new locations throughout the Rochester and Buffalo, NY area by May 2020…Five Below plans to add about 180 stores this year to its roster of 900...Walmart opened its second Walmart Health Center next to a remodeled Walmart Supercenter in Calhoun, GA…The Children’s Place is relaunching Gymboree this month. The brand will be available in shop-in-shop locations in more than 200 Children’s Place stores in the US and Canada...Amazon will open 10 Amazon 4-star stores in 2020, including one at the American Dream mega-center in East Rutherford, NJ. Amazon debuted the concept in 2018. To date, it has opened 9 locations...Dick’s Sporting Goods will open a store in Texas and one in AL this month. The Alabama location will also include a Golf Galaxy.  Following the openings, Dick’s will have 727 Dick’s stores and 95 Golf Galaxys in 47 states...Sephora will open 100 stores in 2020, more than doubling its store growth in 2019. Sephora has more than 2,500 locations... After opening 51 new units in 2019, Burlington Stores will open 31 new locations in 20 states in 2020…The Fresh Grocer will reopen 4 former Nicholas Markets stores under The Fresh Grocer name this month, giving Fresh Grocer 12 stores in NJ and PA...Noodles & Company plans to develop 22 new units between 2021 and 2032. Noodles & Company has more than 450 restaurants... Mavis Tire Supply Co. is buying 112 NTB Tire & Service Centers in the Philadelphia, Boston, Atlanta and Chicago markets from TBC Corp. The deal will leave TBC with 615 locations under the Tire Kingdom and NTB banners. Before this acquisition, Mavis had 698 stores... With 2 CA locations opening this year, menswear brand Rodd & Gunn is on target to have 10 US stores by year’s end...BBQ Holdings, parent company of the Famous Dave’s barbecue chain, has agreed to buy Granite City Food & Brewery, the bankrupt operator of Granite City brewpubs and Cadillac Ranch, and will operate the acquired 29 restaurants under their current brands... At Home Group Inc. opened 6 stores this month, growing its footprint to 218 stores in 39 states…Lidl opened 2 new stores in NJ


Pier 1 Imports filed for Chapter 11 bankruptcy protection as it pursues the sale of the business. It plans to complete the previously announced closing of up to 450 stores...The Ratner Cos., parent company of Hair Cuttery, Bubbles and Salon Cielo, plans to trim its 844-store portfolio by 10%. Closings began this month…The Krystal Company filed for Chapter 11 bankruptcy protection in Georgia. Krystal has 318 restaurants…Lucky’s Market is planning to shutter as many as 32 of its 39 stores in 10 states...Fairway Market filed for Chapter 11 and entered an agreement with Village Super Market Inc. to sell its 5 Manhattan stores. Fairway will also begin a court-supervised sale of its 9 remaining stores...Gap closed 40 stores globally last month, including 29 US locations, part of a previously announced plan to shutter 230 stores over of 2 years...Bar Louie has filed for Chapter 11 bankruptcy protection after closing 38 of its 134 locations…Bakers Square and Village Inn filed for bankruptcy protection and closed 33 locations. The company now operates 97 restaurants...Saks Fifth Avenue closed its 16,000 s/f men’s store at Brookfield Place in Manhattan...Procter & Gamble will close a majority of the company’s 83 Art of Shaving stores in the next year. 70 of the stores are in the US…16 US Hallmark stores in 12 states are closing...Stein Mart has agreed to be taken private by a unit of Kingswood Capital Management LP. Stein Mart operates 283 stores in 30 states…Forever 21 has reached an agreement to sell its assets to a group of buyers that includes Simon Property Group Inc., Brookfield Property Partners and Authentic Brands Group for $81 million. Forever 21 filed for Chapter 11 bankruptcy protection in September, with a plan to close up to 178 US stores. The company had a total of 815 stores at the time...Grocery chain Earth Fare is beginning liquidation sales as it prepares to close its stores and corporate office. Earth Fare operates approximately 50 stores in 10 states...Macy’s  plans to shut 125 stores over the next 3 years, with plans to exit weaker malls, and focus on smaller-format stores in strip centers. Macy’s has shuttered more than 100 stores since 2015...Marathon Petroleum Corp. will close 450 Speedway-operated Dunkin’ units this year. Dunkin’ will open 200 - 250 new US units in 2020...SD Holdings, which operates 73 Sonic Drive-Ins in the South, has filed for Chapter 11 protection. Sonic Corp. plans to acquire the restaurants...L Brands Inc. agreed to sell a 55% stake in Victoria’s Secret to private equity firm Sycamore Partners in a deal worth $1.1 billion.The brand, which will include Pink, will become a private company. L Brands will retain a 45% minority stake, while Bath & Body Works will be a standalone public company.


Crosspoint Associates has acquired Amherst Shopping Center, a Big Y Supermarket and CVS-anchored retail center in Amherst, MA. The 81,702 s/f center is 97% leased...Nick Varano, owner of Strega Italian restaurants, has signed a deal with Irish investment firm Danu Partners, the company that acquired Smith & Wollensky in 2016, to buy the restaurant chain. The new operators will explore expansion beyond Boston. The sale encompasses Strega Waterfront; Strega Prime in Woburn; Strip by Strega; and 5 Caffé Strega locations. Danu has announced a new US-based LLC, PPX Hospitality Group, to oversee the Strega Group as well as Smith & Wollensky…JLL Income Property Trust acquired Milford Crossing, a new 160,000 s/f grocery-anchored shopping center in Milford, MA. The property is anchored by Stop & Shop…Staples launched 6 reimagined stores in Greater Boston including Government Center and Needham. Called Staples Connect, the concept includes coworking, podcasting and community event spaces for professionals, teachers, and students. Staples will review the concept prior to rolling it out to the remaining 1,094 US stores... A public pension fund advised by TA Realty LLC recently sold Garden City Center in Greater Providence, RI to WS Development and CrossHarbor Capital Partners. Totaling 530,629 s/f, Garden City Center is anchored by Whole Foods…City Works Eatery & Pour House will open in the Arsenal Yards development in Watertown, MA in March, their 10th US location...New Hampshire’s first Dave & Buster’s will open its 137th location at the Mall of New Hampshire in March.


Express Inc. plans to close a total of 100 stores by 2022, including 9 that closed in 2019. Another 31 stores will close by the end of January, and an additional 35 by the end of January 2021. Currently, Express operates 600 stores…Sunrise Records is acquiring For Your Entertainment (FYE) in a deal valued at $10 million that  includes more than 200 locations, with plans to open 20 additional US locations by the end of this year..72-year-old menswear store Miltons The Store for Men will open their 3rd MA store at Burlington Mall this fall. Miltons also operates at South Shore Plaza in Braintree, MA and in Chestnut Hill. The Miltons store at Burlington Mall will open in the lower level Primark wing. The Burlington Mall also recently announced that Shake Shack will open on the lower Primark wing... The Taunton (MA) Galleria’s main entrance has been locked; 6 tenants have received license-at-will termination notices. and have until the end of this month to vacate the premises.


Notes: figures gathered from individual company websites, press releases, and Federal filings.  Not all companies report all figures; results not reported will be marked “n/r”. Quarterly results will be updated when available; quarterly figures are shown in italics. Figures from companies not calculated to one decimal point automatically received an ending digit of 0. 


The Commerce Department said on Friday retail sales excluding automobiles, gasoline, building materials and food services were unchanged last month. Overall retail sales, however, rose 0.3% in January.

Source: U.S. Department of Commerce -


Treasury Yield Sources:;


 The Conference Board Consumer Confidence Index® increased in January, following a moderate increase in December. The Index now stands at 131.6 (1985=100), up from 128.2 (an upward revision) in December.

Source: The Conference Board -


Manufacturing contracted in December, as the PMI® registered 47.2 percent, a decrease of 0.9 percentage point from the November reading of 48.1 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Source: Institute for Supply Management - Manufacturing Report on Business -