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Stock Strategist Industry Reports

The Mall's Not Dead

High-quality shopping centers will remain critical to retail strategies.

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Retailers ultimately want to be in the distribution channels where their customers shop and where they have the best chance of financial success. Despite the effect of e-commerce on a changing retail landscape, we think physical brick-and-mortar stores will continue to have a relevant and critical role in increasingly omnichannel retail strategies. To this point, successful malls tend to be premier retail centers located in markets catering to demographically attractive customer segments that in turn drive top tenant demand and increase customer traffic and tenant sales productivity, creating competitive advantages worthy of economic moats. The natural cyclicality of retail and tenant bankruptcies are not new to the mall industry, and we think only the best-quality properties that are able to deliver the value proposition of a compelling in-store experience to both consumers and retailers will ultimately prosper. We believe real estate investment trusts  Simon Property Group (SPG) and  Taubman Centers (TCO) are well positioned to prosper in a transitioning retail environment.

Although bigger is not necessarily better, Simon, the largest REIT by market capitalization, has been able to effectively amass and refine a portfolio of high-quality, geographically diversified, productive properties. By actively reinvesting in its malls, repositioning its portfolio (including spinning off less productive assets in 2014 and expanding internationally and into its successful premium outlet business), and maintaining its fortress balance sheet, Simon is the standard bearer of the mall industry, in our view.

Edward Mui does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.