Call it the revenge of the malls.
Mall operators Simon Property Group and General Growth Properties swooped in late Tuesday night with a $243 million offer to save Aerospostale, the ailing 800-store retail chain that filed for bankruptcy in May and seemed destined for liquidation. The pair is teaming up with licensing firm Authentic Brands Group and liquidators Gordon Brothers and Hilco Merchant Resources to keep 229 Aeropostale stores open.
It was a telling move for the mall operators, which aren't typically in the business of running the retailers in its corridors.
Mall owners are contending with a steady drumbeat of downsizing and bankruptcies, which have led to the highest number of U.S. store closures so far this year since 2010.
Real estate vacancy rates remain relatively low, and many top-tier malls are thriving. But store closure plans, such as Macy's recent decision to shutter 12 percent of its fleet, have become the norm. Traffic trends continue to plunge, and nearly all mall-based retailers are in some kind of turnaround mode.
Now, mall operators look to be fighting back.
Terms of the deal structure proposed by Simon and General Growth for Aeropostale are murky, but from the outset it looks like a smart strategy for the landlords.
Aeropostale represents a tiny part of any given mall operator's portfolio, less than 1 percent of annual rents. It's possible Simon and General Growth are taking the lead on behalf of other Aeropostale landlords.
By keeping 229 stores open, they limit the chances of an immediate, mass exodus by Aeropostale from top-performing malls in which the teen retail chain is actually making money.
Plus, the mall operators take control of lease negotiations for the 600 or so Aeropostale stores slated for closure. That gives landlords a better chance at replacing the struggling stores with higher-quality tenants paying pricier rents, on a more expedited time frame than if the liquidation unfolded in bankruptcy court. Aeropostale leases all its store properties, most of which have a term of 10 years, and landlords will want to squeeze more money from the vacated spaces, according to Bloomberg Intelligence analyst Noel Hebert.
Simon and General Growth's deal proposal also says a lot about the future of retail.
The mall landlords are essentially making the case that Aeropostale is better off with only a fourth of its brick-and-mortar locations, ideally in the best-performing malls where traffic trends haven't been pummeled. The company can then pursue growth through online sales, as well as licensing pacts and wholesale contracts in the U.S. and abroad -- much as Authentic Brands is trying to do with Juicy Couture.
Other brands such as Abercrombie & Fitch and American Eagle, which have struggled to remain relevant as younger shoppers' tastes change, should take note: If they move fast enough, then they could follow the same path without being dragged through bankruptcy court first.
Of course, there's a good chance that, in the long term, not even this latest move will save Aeropostale from its deathbed. Rather, it buys time for mall landlords to better manage Aeropostale's demise by gently putting it down.
Either way, it's about time mall owners took control of their own destinies -- even if that means going into the retail business.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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