Simon Says Holidays Will Be Tariff Testing Ground for Luxury Retail

It’s a challenging operating and macro environment for retailers. And perhaps no one knows that better than the real estate firm Simon, which owns and invests primarily in shopping, dining, entertainment and mixed-use destinations.

“There is inability for retailers to eat the tariffs entirely, so they’re going to have to pass it along or renegotiate better vendor deals,” said David Simon, chairman, CEO and president of Simon Property Group, said during the Q&A of his firm’s third quarter 2025 earnings call Monday (Nov. 3).

“I continue to believe tariffs will have an impact. We have not seen all of it. … Some of that will be passed on to the supplier, some will be eaten by the retailer, and some will be passed along to the consumer,” Simon added. “Let’s see what happens over the holidays.”

Still, for Simon, the uncertainty of tariffs and consumer price sensitivity was overshadowed, at least temporarily, by its core metrics. The company reported that its funds from operations, a favored REIT metric, rose to $1.228 billion, versus $1.067 billion a year ago, fueled by a combination of rising occupancy, higher rent per square foot and strong tenant sales.

Simon’s occupancy among U.S. malls and premium outlets rose to 96.4%, up from 96.2% a year prior; while base minimum rent per square foot rose 2.5% to $59.14, compared with $57.71 in the prior year. And for the trailing 12 months, Simon reported retailer sales per square foot stood at $742.

“Healthy demand was seen across all our platforms and is reflected in our results.  Occupancy gains continued, retailer sales accelerated, and cash flow increased,” CEO Simon said.

Read more: Tariff Tally: Global Losses Eclipse $35 Billion Going Into Q3 Earnings

New Economics of Foot Traffic

Over the last decade, retail real estate has been painted as the canary in the coal mine for physical-world commerce: vulnerable to eCommerce, experiential substitution and seismic shifts in consumer behavior. But destination malls and premium outlets — especially those able to innovate or lean into mixed-use and entertainment — are showing glimmers of resilience.

Simon, by virtue of its scale and positioning in “destination” retail formats, is crystallizing its role as a kind of barometer for physical retail real estate.

From a strategic perspective, Simon’s reaffirmation of its dividend, declaring a quarterly common-stock dividend of $2.20 for Q4 2025, a 4.8% increase from the prior year, signals confidence in the cash flow underpinning the business. But that cash flow could be put to the test during traditionally peak shopping seasons during the upcoming months as tariffs continue to bite retailers.

PYMNTS Intelligence found that 1 in 3 U.S. consumers said a retailer explicitly cited tariffs as the reason for higher prices, while another nearly 25% heard vague references to “increased costs.”

The PYMNTS Intelligence report “The Enterprise Reset: Navigating Tariffs, Supply Chain Shifts and Cost Pressures” found that companies have cut costs, diversified foreign suppliers, localized sourcing and reengineered operations to boost their resilience and stay competitive. The 2025 Certainty Project found that the most common response (65%) is to negotiate with suppliers.

Read more: Merchants and Marketplaces Must Speak the Language of Agents to Compete

Positioning for a Future of AI Agents

If Simon has learned anything from the firm’s 70-year history, it’s that retail real estate cannot survive on legacy economics alone. The company is exploring integrations with emerging technologies. Not to replace physical retail, but to power it in new ways.

Asked about the threat of agentic artificial intelligence (AI) commerce during the analyst Q&A, Simon expressed his belief that the impact would be primarily for “eCommerce shoppers. … I believe this will all shake out in the next three to five years.”

Still, the potential advent of AI-powered shopping agents may have clear implications for Simon and other large property owners. If brands rely more on automation to drive sales, the role of physical spaces shifts yet again: less about inventory turnover, more about brand immersion. Premium outlets and mixed-use centers might become crucial real-world endpoints for fulfilling higher-touch service experiences that AI may struggle to mimic.

Data from PYMNTS Intelligence shows that AI shopping adoption is already gaining ground among younger and middle-aged consumers. About one-third of all respondents (32%) said they have used or would use generative AI for shopping.

Bridge millennials — older millennials straddling Gen X — lead the way, with 38% reporting AI use for shopping. Zillennials are close behind at 36%, followed by millennials at 35% Gen X is next, at 33%, while Gen Z comes in at 31%. Baby boomers show some traction as well, with 28% using gen AI for shopping. Overall, 32% of people surveyed said they used gen AI for shopping.