At mall giant Simon Property Group there was “broad-based” sales growth, but luxury products and brands targeting Gen Z stood out.
The assessment comes from Eli Simon, Simon’s president, chief executive officer and chief operating officer, who took over America’s largest mall operator in March when his father, David Simon, died at age 64.
Late Monday, Simon released its first-quarter earnings, marked by increases in net income, funds from real estate operations, occupancy and sales per square foot, prompting the Indianapolis-based company to raise its outlook for the year and its dividend.
The CEO told analysts on a conference call that retailers at the company’s properties posted a “very healthy” sales increase of 6.5 percent in the quarter.
“It really crosses categories,” Simon said. “Obviously, the high-end consumer is in very good shape. If you look at the stock market, that shouldn’t be surprising. So you’re clearly seeing that in the luxury business with some of the brands, frankly maybe a little weaker in the last few years, are now starting to recover. You’re seeing very solid growth in the luxury business, jewelry and watches.”
Although Simon didn’t mention any luxury brands, Hermès, Prada, Miu Miu, Chanel and Ralph Lauren were among the brands that performed well.
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“We saw it too [gains] in the junior business, which is attacking the Gen Z customer. Both the new junior brands and the old junior brands are all really working hard,” Simon said. “And I think that’s a great example of competition because some of these older brands need to innovate, and need to be able to compete with these new brands.”
Simon said he recently visited the Plano, Texas offices of Catalyst, the retail holding company formed through a partnership with Simon, Authentic Brands Group and Shein, bringing together the Aéropostale, Nautica, Lucky Brand, Brooks Brothers and JCPenney brands.
“Aero, which is now competing with some of the newcomers in the space, is doing new things with new influencers. I don’t know who they are. But I think for the customers they’re targeting, it’s working. So, we’re definitely seeing that across the portfolio,” he said.
Simon didn’t name its competitors, but Aéropostale typically competes with new youth-focused brands such as Edikted, Princess Polly and Urban Outfitters.
The CEO suggested his company will continue to increase its appeal to Gen Z customers. “There are a number of things we’re going to do there,” he said. “I think you can see it in sales. You can see it in these customers, or in retailers targeting Gen Z. They’re all growing. They want more space and their sales prove that they’re resonating with those customers.”
Two years ago, Simon began doubling down on Gen Z subscribers by launching a multifaceted “Meet Me @themall” campaign that mixed 80s and 90s nostalgia with videos and ads depicting Gen Zers meeting at the mall, taking selfies, doing makeup and trying on clothes that their Millennial or Gen While there is no exact definition for each generation, members of Gen Z range in age from their teens to their mid-20s and were born between 1997 and 2012.
Simon doesn’t just focus on the categories that performed well in the last quarter. “The only thing I think is a touch softer is on the food and beverage side, which is basically flat from a corporate standpoint,” he said. “It’s perhaps not surprising to see some revenue from restaurant groups out there. But whether it’s the effect of a decline in trade, or maybe one less outbound trip, that’s the only thing we’re seeing, but the rest is broad-based growth.”
The CEO’s comments also touched on capital investments including $250 million being spent later this year on the Green Hills shopping center in Nashville, the International Plaza mall in Tampa, Florida, and the Cherry Creek center in Denver. Simon said the assets are “well-performing assets” with “strong tenant sales and strong leasing.”
“We have projects under construction in 29 centers with our net cost share of $1.06 billion with a blended yield of 9 percent. Approximately 50 percent of the net cost is for mixed-use projects including approximately 1,200 multifamily residential units at Brea Mall, Briarwood Mall, and Northgate and more than 400 hotel keys at Northshore Mall, Roosevelt Field, and The Domain,” located in Peabody, Mass., Garden City, NY, and Austin, respectfully.
Simon also said there is “exciting redevelopment” of the former anchor boxes underway at Brea Mall, in Brea, Calif., and The Fashion Mall at Keystone in Indianapolis, Ind., where “we will add new, more productive retail, restaurant, entertainment and fitness uses.”
“We have $1 billion worth of additional projects, so we will have the ability to start construction this year, including new development, anchor redevelopment, redevelopment and international expansion. Additionally, we have about $3 billion of projects that we are planning and could start in the next few years – investments that will make our great centers even better,” he said. All projects are funded from internal cash flow.
“We have complete flexibility in our development path,” said Simon. “We can be patient and adjust timing depending on construction costs or market conditions. We can also invest counter-cyclically, delivering product when other companies cannot. This accretive development and redevelopment activity delivers strong results, enhances our portfolio, and drives long-term growth in cash flow, FFO and dividends per share.”
He said that Simon’s Malls and Premium Outlets sales rose to $819 per square foot in the last quarter, up 11.8 percent, while total sales volume increased 5.6 percent over the last 12 months and 8.8 percent in the quarter. “Our remerchandising efforts are evident in total sales volume with strong growth across our portfolio and across categories such as luxury, jewellery, sports and juniors.
“Luxury brands – that number is gone,” Simon said, pointing to opportunities to lease more space in this sector.
Additionally, “Restaurants are increasing and local and regional businesses are increasing,” Simon said. “So we’re really seeing broad-based demand across our centers, not just in the top fortress centers, but across the portfolio. I attribute this to the fact that we’re making our centers better. We’re making them more relevant and customers, particularly Gen Z customers, want to come to our centers and you see it in traffic growth, and you see it in retailer sales.”
King of Prussia Mall in Pennsylvania is one of Simon’s “A” malls.
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