Sept. 16 (Bloomberg) -- Simon Property Group Inc., the largest mall owner in the U.S., said retailers may see pent-up demand this holiday season after paring inventory to cope with a plunge in consumer spending.

“It could be a little bit better than what the retailers are anticipating,” David Simon, chairman and chief executive officer of Indianapolis-based Simon Property, said yesterday in an interview in New York.

Sales at U.S. retailers surged in August by the most in three years, the Commerce Department said yesterday. The 2.7 percent increase exceeded economists’ estimates and followed a 0.2 percent drop in July. Purchases excluding automobiles climbed 1.1 percent, topping the highest forecast.

U.S. unemployment needs to decrease and job growth must return for demand to truly return, Simon said. Until that happens the consumer will remain “very stingy,” he said. U.S. unemployment rose to 9.7 percent in August, a 26-year high.

“It’s too early to declare victory,” Simon, 48, said. “The retailer has done a very good job by and large of responding to a dramatic reduction in demand.”

Some have been too conservative in their inventory reductions, he said. Last holiday season, stores were forced to mark down excess merchandise by as much as 80 percent and subsequently have ordered less for the coming months.

Gap Inc., J.C. Penney Co. and Limited Brands Inc. are among chains that have slashed inventory this year as shoppers limit spending to necessities and seek out bargains. The International Council of Shopping Centers reported a 2.2 percent decline in total holiday sales last year, the biggest drop since it started tracking the data 40 years ago.

Stock Gains

Shares of Simon Property have gained 44 percent this year as consumer sentiment improves. The stock rose $3.11, or 4.4 percent, to $73.36 at 4:05 p.m. in New York Stock Exchange composite trading.

Simon has been chairman of Simon Property for two years and CEO since 1995. He is the son of Melvin Simon and nephew of Herbert Simon, who formed the company in 1960 and took it public in 1993, the biggest initial public offering of a real estate investment trust at the time. Melvin Simon died today at 82 after a short illness, the company said in a statement.

The company owns or has stakes in 387 properties with 263 million square feet of space in North America, Europe and Asia. Simon said his best-performing malls per square foot include the Forum Shops at Caesars in Las Vegas and Roosevelt Field in Garden City, New York.

“We’ve heard this every recession: ‘The consumer’s never going to come back,’” Simon said. “I just don’t buy it.”

To contact the reporter on this story: Allison Abell Schwartz in New York at aabell@bloomberg.net.

Last Updated: September 16, 2009 16:08 EDT