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Can Simon Help Aéropostale Bounce Back To 500 Stores?

Can Simon Help Aéropostale Bounce Back To 500 Stores?

It was a rough 2016 for Aéropostale; the teen brand declared Chapter 11 bankruptcy before a consortium including Simon Property Group and General Growth Properties saved 229 of its 800+ stores. But the retailer may have a much better outlook going into 2017.

In an investor call, David Simon, CEO and Chairman of Simon Property Group, revealed that the mall operator may keep open as many as 500 stores, more than twice the number originally reported.

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“We were thinking we could justify our investment at a much lower store base,” Simon said in the call. “The fact of the matter is we found out there's a lot more store profitability out there than we thought.”

For a brand that has garnered poor results from both a revenue and an inventory standpoint leading up to the bankruptcy, these goals represent an arduous task. Simon even admitted during the investor call that the modern pressure to close stores in recent years is a stark reality the company continually must wade through. He noted that the top 10 tenants the operator went public with in 1993 no longer exist in 2016.

Nevertheless, the mall operator is confident that its present portfolio will enable the brand to thrive, with Simon revealing that the company saw store closings within its malls that were attributable to bankruptcies  decreasing in 2016.

A key factor in Simon Property’s confidence in Aéropostale appears to be the price point at which the company purchased the brand. While the consortium’s total purchase amounted to $243 million, liquidators Hilco Merchant Resources and Gordon Brothers Retail Partners supplied the majority of that — $188 million — by buying out inventory. Simon’s share of the Aéropostale investment came to only $33 million, relatively little considering the real estate company holds $65 billion in stock market value.

This investment total shows that Simon's risk in spending more money to attempt a revamp to the brand is relatively low, with potential profits providing an upside. Additionally, the purchase would at least guarantee that specific Aéropostale locations would stick around within Simon malls, which is vastly important in a segment where full occupancy is critical.

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