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Nov
22

Retail King Stays on Top

November 22, 2021

Source, Philadelphia Business Journal

Two weeks ago, Santa was back at the King of Prussia Mall and so were shoppers.

After patiently waiting in appointment-only lines to enter luxury stores such as Louis Vuitton, Hermes and Gucci, many shoppers emerged weighed down by not one but multiple bags. While some took breaks on chairs and couches or dined on a Shack Burger at Shake Shack or a Margherita pizza at North Italia, others milled about looking for bargains and a place to spend the day. The iconic retail center’s parking lots and garages were full.

“The King of Prussia Mall is well aligned for what we’re seeing nationwide,” said Ethan Chernofsky, vice president at Placer.ai, a data firm that monitors foot traffic at retail centers and individual stores using anonymous location data from mobile devices.

The data show foot traffic ebbed and flowed this year with Covid-19 vaccinations and the delta variant and came back strong for back-to-school and now holiday shopping. The first four months of the year saw sharp declines of 14.3%, 25.9%, 19.7% and 9.6% in monthly visits to the mall compared with 2019 figures. By May, foot traffic was up, exceeding 2019 levels by 7.2% and, after dipping again in June, leveled off, essentially returning to 2019 levels, according to Placer data.

“They are back to where they were,” Chernofksy said.

Shoppers have returned to the 2.8-million-square-foot King of Prussia Mall in force, maintaining its status as one of the most successful retail centers in the country with annual sales in excess of $1.1 billion, according to owner Simon Property Group (NYSE: SPG).

“Traffic has returned but sales have far exceeded 2019,” said Bob Hart, general manager at King of Prussia Mall. Hart declined to say where sales were these days.

During a third-quarter call with analysts, David Simon, CEO of Simon Property Group, said he was pleased with the company’s overall results, calling them “impressive,” and noted how sales have rebounded at its properties. Cash flow at the company increased by $3 billion and is in line with pre-pandemic levels.

Not mentioned during the call was that Simon has decided to walk away from some of its poorer performing malls, with the Montgomery Mall in North Wales among them. It was sold in a foreclosure sale for $55 million.

After enforcing tight international travel restrictions since the onset of the pandemic, the United States began allowing vaccinated foreign travelers to enter the country as of Nov. 8.

At the end of 2020, the mall was 92.4% occupied by tenants, according to Simon’s annual report filed with the U.S. Securities and Exchange Commission. Hart said the current occupancy is at pre-Covid numbers but declined to be specific. This year the mall added 40 new retailers and restaurants totaling 100,000 square feet.

More new tenants are expected next year including backfilling space vacated by Williams Sonoma. Additional luxury retailers also want to be at the mall and several leases are under negotiations.

“A lot of these luxury deals take some time to get done,” Hart said. “They like to be with other luxury tenants. Success breeds success and they want to be part of it.”

While Simon owns most of King of Prussia Mall, there are sections the company doesn’t control such as the Lord & Taylor space, which is owned and being marketed by Hudson’s Bay Co. as a coworking conversion.

Simon also doesn’t own the space where the former Sears was located. Sears remains the owner and subleased the space out to Dick’s Sporting Goods, Yard House, Outback and Primark, which has shrunk. Simon also doesn’t own the section where Cheesecake Factory and Morton’s is located.

The mall has evolved over the years with the most recent improvement a $150 million, 155,000-square-foot expansion that was completed in 2018 and connected the Plaza with the Court and additional parking. Several out parcels were also developed into restaurants including True Foods and Eddie V’s.

Before the pandemic, Simon was working on the next major development for the mall. Those plans involved redeveloping the vacant JCPenney and its surrounding parking into a mixed-use development that had apartments, a hotel, office space and an outdoor courtyard.

“Covid threw a wrench in the mall’s redevelopment plans,” Hart said. “We still want to do something and the Simon development team is working on some really exciting plans.”

Hart didn’t have the timing of that project and nothing formal has been presented before Upper Merion. Though the mall is one of the township’s biggest generators of tax revenues, providing hefty sums for the school district, how its next phase of development will be received may prove tricky. Some anti-development sentiment has seeped into the community as more projects across the township have come to fruition.

King of Prussia is poised to continue to see a robust holiday shopping season in which the momentum is likely to be carried into the new year barring anything unforeseen.

“The mother of all pent-up demand is coming with the holiday season,” Chernofsky said. “Last year we didn’t have a retail and holiday season. If last year we were facing the perfect storm of challenges, this year a lot of positive trends come together. All of a sudden there is a real reason to spend and make it up. Malls provide something unique in the winter. It’s a place to spend the day.”

A shortage of labor and supply chain issues are two wild cards this year and that will affect malls as well as e-commerce. To counter those challenges, retailers have started the holiday shopping season early, trying to extend it, and malls are working to keep shoppers’ attention with more entertainment and dining options.

“I think there is a unique opportunity this year for brick and mortar to re-establish some of the value that makes it special and potentially a turning point for retail,” Chernofsky said. “One of the narratives around retail pre-pandemic was defined as a retail apocalypse. What we have learned in the last six to nine months is people really like brick-and-mortar retail. Just that there were overextended brands that couldn’t evolve and shut down doesn’t mean retail is doomed. It’s a place to touch and feel and try on, get a sense of a brand. A place to do discovery. People like to touch and feel a product and leave the store with a product.”

That’s why more digital-first retailers such as Allbirds, Warby Parker, Boll & Branch, Casper and Bonobos have expanded to have a brick-and-mortar presence.

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