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Are Simon Property's Efforts Enough to Battle Retail Blues?

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Retail REITs are not in the pink of health, as mall traffic continues to be plagued with challenges thanks to the shift in shopping patterns, with e-retail taking precedence. Demand for retail real estate space has shrunk as changing shopping patterns are compelling retailers to reconsider their footprint, and eventually opt for store closures or file bankruptcies.

This environment has also resulted in tenants demanding substantial lease concessions, which, however, mall landlords find unjustified. As such, retail REITs like Simon Property Group Inc. SPG, Kimco Realty Corp. KIM, Macerich Company MAC and Taubman Centers, Inc. , and others have felt the heat.

However, not all are equally likely to fall behind. In fact, among those, reputed retail REIT — Simon Property Group — has been making concerted efforts focused on overhauling its properties and increasingly adopting omni-channel strategies. These will help the company counter retail blues and make its shopping malls more alluring.

Simon Property is also extending its successful tie-ups with retailers. Recently, the company announced the opening of seven additional stores of UNTUCKit at Simon Malls this year. The first set of stores already debuted at Simon Property in 2018.

Further, to lure shoppers, and boost both online and retail-store business of participating retailers, the company has launched an online outlet shopping platform. The fifth platform is called Shop Premium Outlets. It will help the “highly engaged” Premium Outlets customer base shop round-the-clock for preferred fashion, luxury and lifestyle brands, and avail up to 65% off every day.

The deepening of relationship with existing tenant, and launch of online retail platform, weaved with an omni-channel strategy, will likely be accretive to Simon Property’s long-term growth. In fact, the company is investing billions and actively restructuring its portfolio, aiming at premium acquisitions and transformative redevelopments. The transformational plans included addition of hotels, restaurants, residences and luxury stores. Furthermore, the company is undertaking strategic measures to help online retailers fortify their physical presence, besides taking steps to support omni-channel strategy.

However, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers might continue to affect the retail real estate landscape in the days ahead.

Moreover, though Simon Property is putting in every effort to enhance the value of its assets, implementation of such measures requires a decent upfront cost. This would, therefore, limit any robust growth in its near-term profit margins.

Shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to in the past month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Simon Property has gained 5.1%, while the industry has rallied 4.7%. Also, the stock has seen the Zacks Consensus Estimate for 2019 funds from operations per share being revised marginally upward in a month’s time.

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