At Simon Properties, Luxury, Brands Targeting Gen Z Shine

At mall giant Simon Property Group there’s “broad-based” sales growth, but its luxury and brands targeting Gen Z that are standing out.

That assessment came from Eli Simon, president, chief executive officer and chief operating officer of Simon, who took charge of the nation’s largest mall operator in March when his father, David Simon, passed away at 64.

Late Monday, Simon released its first-quarter earnings, marked by gains in net income, funds from real estate operations, occupancy and sales per square foot, which prompted 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 logged a “very healthy” 6.5 percent comparable sales gain the quarter.

“It’s really across categories,” Simon said. “Clearly, the upper end consumer is doing very well. If you look at the stock market, that should not be a surprise. And so you’re obviously seeing that in the luxury business with some of the brands, that frankly might have been a little bit softer in the past couple of years, now starting to rebound. You’re seeing in hard luxury, jewelry and watches really solid growth.”

While Simon did not cite any luxury brands, Hermès, Prada, Miu Miu, Chanel and Ralph Lauren are among those performing well.

“We’re also seeing [gains] in the juniors business, which hits that Gen Z customer. Both new juniors brands and legacy juniors brands are all really firing on all cylinders,” Simon said. “And I think that’s an example of competition being great because some of these legacy brands needed to innovate, and needed 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 new entrants in that space, is doing new things with new influencers. I had no idea who they were. But I think for the customer they’re targeting, it’s working. And so we are definitely seeing that across the portfolio,” he said.

Simon did not cite any competitors, but Aéropostale typically squares off with emerging, teen-centric brands like Edikted, Princess Polly and Urban Outfitters.

The CEO suggested his company will continue to boost its appeal to the Gen Z customer. “We have some things coming there,” he said. “The way I look at it is, you can see it in the sales. You can see it in these customers, or in these retailers that are targeting Gen Z. They are all growing. They want more space and their sales prove that they’re resonating with that customer.”

Two years ago, Simon began doubling down on the Gen Z customer by launching a “Meet Me @themall” multifaceted campaign blending ‘80s and ‘90s nostalgia with videos and ads depicting Gen Zers meeting up in the mall, taking selfies, applying cosmetics and trying on clothes as their Millennial or Gen X parents gleefully watch on. While there are no set definitions for each generation, members of Gen Z are in their tweens to mid-20s and were born roughly between 1997 and 2012.

Simon didn’t focus strictly on categories that did well last quarter. “The only thing I would say that is a touch softer is on the food and beverage side, which basically was flat from a comp perspective,” he said. “That’s probably not surprising seeing some of the earnings from the restaurant groups out there. But whether it’s a trading down effect, or maybe one less trip out, that’s the only place we’re seeing it, but the rest of it is broad-based growth.”

The CEO’s commentary also hit on capital investments including the $250 million being spent later this year at Green Hills shopping center in Nashville, International Plaza mall in Tampa, Fla., and Cherry Creek center in Denver. Simon said they’re “great assets performing great” where “tenant sales are strong and leasing is strong.”

“We have projects under construction at 29 centers with our share of net cost of $1.06 billion at a blended yield of 9 percent. Approximately 50 percent of the net cost is for mixed-use projects including approximately 1,200 units of multifamily residential 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, N.Y., and Austin, respectfully.

Simon also said there is “exciting redevelopment” of former anchor boxes underway at Brea Mall, in Brea, Calif., and The Fashion Mall at Keystone in Indianapolis, Ind., where “we’ll be adding more productive new retail, restaurants, entertainment and fitness uses.”

“We have an additional $1 billion of projects, so we’ll have the ability to start construction this year, including new developments, anchor redevelopments, international redevelopments and expansions. Beyond that, we have approximately $3 billion of projects in our pipeline that could start over the next several years — investments that will make our great centers even better,” he said. The projects are all being funded from internally generated cash flow.

“We have complete flexibility in our development pipeline,” Simon said. “We can be patient and adjust timing depending on construction costs or market conditions. We can also invest counter-cyclically, delivering product when others can’t. These accretive development and redevelopment activities deliver strong yields, enhance our portfolio and drive 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 last quarter, up 11.8 percent, while total sales volume increased 5.6 percent over the trailing 12 months and 8.8 percent in the quarter. “Our remerchandising efforts are clearly showing through in total sales volumes with strong growth across our portfolio and across categories such as luxury, jewelry, athleisure and juniors.

“Luxury brands — that pipeline is up,” Simon said, referring to opportunities to lease more space to the sector.

Additionally, “Restaurants are up and the local and regional business is up,” Simon said. “So we’re really seeing broad-based demand across all our centers, not just the top fortress centers, but really across the portfolio. I attribute that to the fact that we’re making our centers better. We’re making them more relevant and the customers, particularly the Gen Z customer, wants to come to our centers and you’re seeing that in traffic growth, and you’re seeing it in the retailers’ sales.”