One theme of the last decade has been the rise of online retail, while many physical retailers have languished. Of course, these trends got worse during the coronavirus. It's estimated that 14% of retail spending was online, entering 2020. In the last quarter, 38% of spending was online which means that multiple years of growth got pulled forward into a couple of quarters.
E-commerce has many advantages in terms of lower costs, more variety, and convenience. Among the younger generations, it's the preferred way to shop. Its take over of the economy is becoming even more literal as Amazon
Dow Jones Reports
According to Dow Jones, Simon Property Group
Department stores are seen as anchors of malls, and they're typically given lower rents on a per-square-foot basis, because they attract so many people who then go on to shop or eat at the smaller stores. Thus, when department stores go bust, it hurts all the other stores in the mall and negatively affects its entire value.
In recent years, Simon Property Group and other mall operators have gone to extraordinary lengths. They've been experimenting by bringing in more restaurants to the mall and "entertainment centers". When another anchor of many malls, Forever21, went bankrupt, it actually bought the company and has continued operating many locations, as it reasonably concluded that it would be cheaper to do this than take the hit of an empty store with less, overall mall traffic.
Amazon
So, it's not entirely surprising that Simon Property is jointly bidding with Brookfield Partners for JC Penney's assets. Using these empty department stores as fulfillment centers would probably be less than ideal for Simon Property, as they wouldn't lead to any foot traffic. However, Amazon would be a less-risky tenant.
Talks are fluid and could go a number of ways. Amazon already has converted some abandoned malls into fulfillment centers, but this would be for mini-fulfillment centers. There have also been reports of Amazon looking into bidding for JC Penney's assets.
Stock Price Impact
Given the trends in the economy and potential negative effects of a commercial operation taking over part of the mall, it wouldn't be surprising to see Amazon slowly taking over the entire mall in a few years.
Its dominance is also reflected in its stock price which is up 2,500% over the last 10 years. In contrast, Simon Property Group's stock is up 20% over the last 10 years. It peaked in July 2016, and it's down 65% since then. Remarkably, Simon Property is probably the best retail REIT in terms of owning high-quality locations. Other retail REITs have fared even worse.
