The COVID-19 pandemic hasn't exactly been kind to the retail industry. Many iconic retail brands are being left with no choice but to close locations, and in some cases, even file for bankruptcy.
However, mall real estate investment trust, or REIT, Simon Property Group (NYSE: SPG) sees opportunity here. Largely considered to be in a class by itself when it comes to the quality of its portfolio, Simon is now the owner of four famous apparel brands -- and counting.
4 famous retail brands Simon now owns
It may seem odd for a mall real estate owner to directly own some of the brands that occupy its properties, but over the past few years Simon has gone on quite the shopping spree. For example:
- Aeropostale: The first major investment in a retailer Simon made was in apparel retailer Aeropostale, along with fellow mall owner General Growth Properties (now a part of Brookfield Property Partners (NYSE: BPY) and Authentic Brands Group. The deal was finalized in September 2016 at a price tag of $243.3 million.
- Forever 21: Fast-forward a few years, and Simon, Brookfield, and Authentic Brands again decided to partner, this time to acquire one of Simon's biggest tenants, apparel retailer Forever 21. The group acquired Forever 21 out of bankruptcy in early 2020, before the COVID-19 pandemic swept across the world, for a price of $81 million.
- Brooks Brothers: The COVID-19 pandemic hit many retailers hard, and 200-year-old Brooks Brothers was among its worst victims. The iconic fashion brand agreed to be acquired by Simon and Authentic Brands in August for the sum of $325 million.
- Lucky Brand: At about the same time as the Brooks Brothers deal was announced, Simon and Authentic Brands announced that it had agreed to acquire denim maker Lucky Brand for $140.1 million.
This could be just the beginning for Simon
Simon has indicated that the acquisition of distressed retail brands is going to be a major part of its strategy going forward. And with $8.5 billion in available liquidity, it has pockets deep enough to pursue any opportunities that arise.
In fact, Simon, Brookfield, and Authentic Brands are reportedly in talks to acquire department store retailer J.C. Penney (OTC: JCPN.Q), which occupies a large amount of square footage in Simon's malls and could make for excellent redevelopment opportunities.
Why is Simon buying these distressed retailers?
The obvious benefit to Simon buying these retailers is that it doesn't have to deal with widespread vacancies at its malls. However, CEO David Simon has stressed that this doesn't play a role in the company's decisions. As Simon put it, "We're doing it because, for one reason only, we believe in the brand and we think it can make money."
Simon said that since the company is buying these businesses out of bankruptcy, it is getting their inventory at or below cost. He also made the bold claim that "any equity investments should be returned within a year after integration of operations."
Simon's vision is to create the malls of the future, with plenty of nonretail elements and attractions to keep foot traffic flowing through the door. And by acquiring these iconic retailers in their darkest hours, Simon could be the beneficiary of the status of top mall operator, both in the form of retail sales as well as through growing its rental income.