Sizzle/Fizzle

Sizzle Or Fizzle As Mall Landlord Eyes Investing In Tenants?

mall interior

Simon to the rescue?

To save the malls, and the retailers in the malls, look to the mall owner.

Maybe.

News came this past week that the largest mall owner based in the United States may look to keep select retailers from going out of business — which of course would have the byproduct of leaving less space unclaimed, and unrented in, well, malls.

We liken it to, in a way, a sale/leaseback. But might there be unintended consequences?

As CNBC reported earlier in the week, Simon Property Group CEO David Simon said his real estate firm could “buy into” companies that he said have brands and volume, and told analysts on the Simon earnings call that “we are certainly as good as the private-equity guys when it comes to retail investment. And so, I wouldn’t rule it out.” He said the firm would eye distressed opportunities.

There is some precedent here, where Simon and General Growth, another mall real estate company, helped bring Aeropostale out of bankruptcy — and they had some skin in the game, as the duo owned properties featuring more than 230 Aeropostale locations.

This time around, the wave may be bigger, so investments seem a way to stave off shutterings. Consider the fact that more than 7,100 stores across a variety of retailers have been slated for closure this year. Simon has shareholder stakes in Allied Esports, which operates gaming locations, and the street appears to run both ways, as, for example, Forever 21 has been in talks with landlords, including Simon, to take stakes in the firm — and as noted by CNBC is among Simon’s biggest tenants.

Simon has the financial firepower to take stake, and has pointed to $6.8 billion in liquidity on its balance sheet.

But then again, might this be a case of sinking money into  a firm to make sure it can give you back some money in rent while it tries to work out its brand positioning? Perhaps amid the transition from brick-and-mortar to digital (or omnichannel) efforts, buying time is guaranteeing that a tenant remains a tenant. If there is a cascade of store closings beyond even what is seen to date, malls will see higher vacancy rates, and Simon would see a double hit of lost rental revenues and investment losses — a decided fizzle. For Simon, past success does not guarantee future returns, and the challenges to physical retail in a mall setting remain real and immediate. To be fair, occupancy is strong at Simon, at more than 94 percent, which means it has room to take selective stakes in tenants in a story that may play out long term, less a sizzle than the avoidance of a fizzle.

Sizzle

Streaming music and Spotify: Music to Spotify’s ears as the Sweden-based company ended its second quarter with 108 million paying subscribers, and 232 million monthly active users. The latter metric was up 31 percent year on year. The latest figures dwarf Apple’s music service, which had 60 million subscribers.

Cross-border transactions: The consumer continues to spend, notably so on a global stage, as Mastercard’s latest quarter shows. The company said that cross-border volume growth was up 16 percent, and tourism spend (even among Chinese tourists) remains healthy even as U.S. consumer spending is expected to moderate.

India (brick-and-mortar) commerce: To get a sizzle, via the Amazon Effect? Reports came this week that Amazon is mulling taking a 26 percent stake in Reliance Retail, India’s biggest brick-and-mortar retailer. The possible linkup comes, of course, after Walmart pushed into the country with its Flipkart acquisition.

Fizzle

Fraud: Reading, writing, arithmetic and … breaches. Pearson, the education software maker, is notified by the FBI about a data breach that exposes names, email addresses and other details on more than 13,0000 individual accounts. Beyond that, Capital One’s massive data breach may be just an iceberg tip. Krebs On Security is reporting that the alleged Capital One hacker, Paige Thompson, may have also targeted and stolen data from other corporations. Thompson allegedly posted on online about various databases she found through hacking into Amazon cloud locations that were not secured.

Cryptos: Just weeks after a congressional hearing that raised concerns particularly focused on data and privacy, the Senate Banking Committee heard from cryptocurrency industry analysts and participants that new regulations are needed. Some witnesses before the panel took issue with the conventional wisdom that digital coins will lead to financial inclusion — because the unbanked and underbanked transact mainly in cash.

SCA: More evidence that the rollout of more stringent eCommerce authentications will be bumpy: The Emerging Payments Association surveyed issuers, and found that the payments ecosystem is unprepared for the September deadline on strong customer authentication (SCA), and as many as 30 percent of transactions may be declined over the near term.

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