Retailers still opening stores despite fears of recession

The largest mall owners in the United States say retailers are still pushing ahead with plans to open new stores despite growing recession fears and decades-high inflation that is squeezing shoppers’ budgets.

Simon Property Group, the nation’s largest mall owner, said the pipeline of businesses expected to open at its properties remains strong. The company announced an occupancy rate in its shopping centers and outlet centers in the United States of 93.9% as of June 30, against 91.8% a year earlier.

“Even with what’s going on in the world, we haven’t really seen anyone walk away from deals,” Simon Property chief executive David Simon said on an earnings conference call on Monday.

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

Openings are fueled by a mix of factors, including retailers pushing to grab limited space and popular online brands looking to expand by opening physical locations. Some retailers are eyeing property in markets outside major cities as they track people who have uprooted themselves to find bigger spaces during the Covid pandemic. And companies like Macy’s that 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 closings, according to data from Coresight Research, giving a total of 2,478 openings.

Prior to the pandemic, the industry was experiencing net closures of thousands of stores each year as consumers increasingly shifted their spending online. In 2019, Coresight tracked 9,832 closes, compared to 4,689 open. Last year, the retail sector achieved a net addition of 68 stores.

“Retailers aren’t going to hold back store growth,” said Naveen Jaggi, president of the retail advisory team at JLL, a commercial real estate services firm. “They’re going to keep growing because that’s one of the ways they can send a message to the market, ‘We’re healthy and safe’.”

Along with the optimism of commercial property owners comes warning signs from across the sector. In recent weeks, retailers such as Walmart, Target, Best Buy, Gap and Adidas have reduced their outlook for sales or profits as consumers squeezed by higher gas and grocery bills limit their spending on d other items. At the same time, however, luxury retailers including bag maker Birkin Hermes and Louis Vuitton’s parent company LVMH say profits are strong and sales are rising as high-income consumers continue to make splurges on expensive fashion and accessories.

At its malls, Simon Property also said it was noticing a difference in behaviour. Consumers who shop at value-oriented retailers are more likely to opt out, Simon said, as are younger shoppers who don’t make as much money. Among those seeing a slowdown in sales are the company’s teenage and fast fashion retailers Aeropostale and Forever 21, as well as its department store chain JC Penney, he said.

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

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

Macerich, who operates malls such as Tysons Corner Center in Virginia and Scottsdale Fashion Square in Arizona, noted that distress in the retail sector has slowed significantly after a wave of pandemic-induced closures in 2020.

“Obviously 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 occupancy, NOI and operating cash flow gains over the remainder of this year and into next year.”

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

Retailers who started online and are now looking to expand with physical locations are also fueling store openings, said Douglas Healey, senior executive vice president of leasing at Macerich. These include sportswear brands Fabletics, Alo Yoga and Vuori, shoemaker Allbirds and furniture chain Interior Define, he said.

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

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

Construction of new retail space has also held back most of the time during the pandemic, according to David Jamieson, Kimco’s chief operating officer. He said this has put more pressure on businesses to compete for the best available spaces.

The availability of retail space across all property types, 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 this summer amid 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 combined malls and outlets in the second quarter.

Visits to U.S. indoor malls in June rose 1.5% from a year earlier, marking the smallest gain so far this year, according to Placer.ai, a retail analytics firm by retail. Footfall at outlet centers fell by 6.7%. The distance many consumers take to reach malls has led to fewer visits as gasoline prices remain inflated, Placer.ai said.