People sit at tables at the Stanford Shopping Center, a Simon Property Group property in Palo Alto, Calif., . Simon Property Group, the nation's largest shopping mall owner, made a $10 billion hostile bid Tuesday to acquire ailing rival General Growth PropertiesSimon Properties General Growth, Palo Alto, USA

David Simon has a vested interest in the continuation of physical retail, but he knows the game is changing.

“It’s survival of the fittest for retail and, the fact is, if you don’t invest in your product in today’s world, you don’t have a future,” the longtime chairman and chief executive officer of mall operator Simon Property Group told a room of analysts at a Barclay’s conference.

Simon humbly boasted that his company, started by his father Melvin Simon, has reinvested about $1 billion in its properties each year since 2010, but said a large portion of the retail industry has not taken the same approach.

“Unfortunately, it’s for a couple of reasons,” Simon said. “One is that retailers got over-leveraged, then we had the private equity guys come into the business. Then there was this chase to do online sales, there was a chance to spend billions on technology and at this point, I haven’t seen [a return on that investment].”

That in turn led to a reduction in stores, Simon said, along with a reduction in inventory and a reduction in service at those left standing.

“It’s a self-fulfilling prophecy. If you have a bad-looking store, you don’t have anybody to help you and you don’t have any inventory, you won’t have anyone shopping there. It’s not overly complicated.”

As so many retailers are in the midst of closing stores, finding financial partners and trying to placate shoppers’ demand for immediacy, Simon hopes that once on the other side of things, these companies will be more thoughtful about where and why they spend money, especially when it comes to tech.

“I’ve been a ceo for a long time, I’m one of the longest-running ceo’s in the S&P 500,” Simon said. “So I’ve seen when the tech guys come to invest in a project, [retailers are] like, ‘OK, go ahead, you get the money.’ But when the real estate guys come [to us] and they’re like, ‘We want to invest in this box,’ we come in and we’re like, ‘What’re the numbers? Where are you at with the lease ups?’ We beat the crap out of the them. The reality is that the level of scrutiny for tech investment needs to be at the same level.”

Whether or not retailers would agree with that assessment is another matter, and Simon admitted that the value of e-commerce in retail is dependent on individual definitions. But he held fast to the notion that it’s an expensive gamble with “very opaque” returns.

“I’d argue it’s not [really profitable] given the returns and shipping costs and so on and [retailers] are starting to recognize that it’s about how to drive traffic to stores, because that’s how you get the add-on sales.”

This amount of criticism for retailers wasn’t lost on Simon, who noted that they are integral to the property business but said they’ve “never been shy about telling us what we’re doing wrong” and told an anecdote of Millard “Mickey” Drexler blaming a Simon mall property for a J. Crew store smelling like popcorn.

“It’s important for us to express our feelings, which we’ve never really done before, so we’ll see how it goes. It’s hard to say right now.”

Feelings aside, Simon’s malls are making a clear move away from apparel retail. The company has added 260 restaurants over the last couple of years and Simon said when J.C. Penney tried to negotiate a lease at the King of Prussia Mall in Pennsylvania, he declined.

Another luxury mall in New Jersey, where a Saks Fifth Avenue closed in 2014, is nearing the end of a complete overhaul focused outside of apparel shopping. The two-level property will have a range of high-end retail, but also an “ultraluxe” dine-in AMC theater, eight restaurants and a spa.

“We probably, as an industry, have too many department stores in our shopping centers,” Simon said. “One of the great things we think we’ll have to do to evolve our centers is reclaiming the department stores as they rationalize their fleets.”  

“If there’s any criticism to be made on our industry, it’s that we’ve been way too apparel focused,” Simon added.

For More, See:

Tommy Hilfiger, David Jaffe Advise on Navigating Industry Change

Intermix Cofounder Launches New Retail Concepts

Saving the Mall

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