Simon Property Group, the owner of more than 200 malls across the U.S., didn’t have the best year in 2020, losing 17% of its revenue or close to $1 billion. But one area that was surprisingly fruitful was its ongoing joint venture with Authentic Brands Group to acquire bankrupt retail brands throughout 2020, resulting in a boost in e-commerce revenue.
According to CEO David Simon on the company’s annual earnings call on Monday, Forever 21, Brooks Brothers, Lucky Brand Jeans and JC Penney, the four retail acquisitions Simon made in collaboration with ABG in 2020, drove big sales in their first year under new management. Together, they required $330 million in investment capital from both Simon and ABG, and brought in $260 million in brick-and-mortar revenue. More significantly, they brought in $3.5 billion in digital sales, equating to a huge ROI for Simon even after evenly splitting the proceeds with ABG.
Forever 21 alone, which was acquired in February 2020, pre-pandemic, generated $75 million in EBITDA within the year. Simon’s total investment in the company was $67 million.
The relative success of those brands compared to how much Simon invested is valuable, since the company lost so much on brick-and-mortar in 2020. The company agreed to providing tenants with more than $300 million in rent deferrals. And even after signing 1,400 new leases over the year, it lost more than $1 billion in lease income due to tenants vacating. Overall, revenue fell from $5.7 billion to $4.6 billion. Simon said his company and other landlords had a rough year because of their lack of power in the face of rent freezes.
“The four brands we bought have a lot of opportunities for repositioning, but you can look at the revenue they’ve brought in already and conclude that it’s been a pretty good ROI,” Simon said. He adding that the brands ‘ retail footprints are all in the process of being revamped. “When you buy a brand in bankruptcy, you have a lot of chances to deal with leases and other contracts that are wildly expensive, [and] that we can now change.”
Simon’s retailers’ digital sales helped offset the major losses the company incurred elsewhere, but Simon resisted the idea that retail brands should focus entirely on e-commerce or abandon their physical stores.
“I don’t think [retailers] will make up their losses in e-commerce,” Simon said. “The best and most successful retailers are the ones that really figure out how to do both [physical retail and e-commerce] well. And those are the ones we want to do business with. We want to be in that category.”
ABG CEO Jamie Salter echoed the sentiment in November. He told Glossy in November that the four retail acquisitions would all be focused on growing both their brick-and-mortar and e-commerce businesses.
“The consumer likes an omnichannel experience,” Salter said. “Your e-commerce tends to grow substantially with brick-and-mortar supporting it.”
Simon said the company has no further acquisitions planned for 2021 and will instead focus on growing its current portfolio and bringing back occupancy, which currently sits at just over 90%. But until occupancy comes back — and even beyond that point — there’s no reason for Simon to stop leaning into e-commerce when it’s providing such a large cushion for the company, according to Scott Stuart, CEO of Turnaround Management Association.
“No question has a right answer right now, but should a brick-and-mortar company keep pursuing online if it’s been consistently profitable and valuable? Absolutely,” Stuart said. “In the short term, the likelihood of people not venturing into the actual store is going to be the norm for some time to come. Online has been providing the revenue to keep a sustainable business until that comes back.”