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Will mall owner’s $5 billion revitalize retailers weakened by COVID-19?
It’s not exactly a Marshall Plan for retail businesses hurt by COVID-19, but Brookfield Asset Management has announced the launch of a program to provide retailers with funds they need to recapitalize their businesses.
The $5 billion Retail Revitalization Program, funded by the mall owner and institutional partners, will seek out non-controlling investments in retail businesses. It will focus on companies that have been in business for at least two years and that were generating $250 million or more in sales prior to the novel coronavirus outbreak.
Brookfield’s effort will be led by Ron Bloom, managing partner and vice chairman of the company’s private equity group. Mr. Bloom is described by Brookfield as “a principal architect of the restructuring and rejuvenation of the automobile industry on behalf of the U.S. government during the 2008 financial crisis.”
Mr. Bloom said the new program will provide a hand for medium-sized companies looking to get “back on their feet,” adding, “We believe this is a critical component to getting the economy moving again, and we would like to partner with companies and entrepreneurs that can draw on our capital and expertise to stabilize and grow their business.”
This is not the first time that Brookfield has sought to help a retailer in need. The asset management company joined with Simon Property Group and the licensing firm Authentic Brands Group to acquire the bankrupt Forever 21 chain for $81 million back in February. In 2016, Simon and General Growth Properties (later acquired by Brookfield) were part of a $243 million bid to acquire Aeropostale and its 229 stores.
Discussion Questions
DISCUSSION QUESTIONS: How effective do you think Brookfield’s $5 billion Retail Revitalization Program will prove to be in helping struggling retailers? Which retailers hurt by store closures as a result of stay-at-home orders would be good investments for Brookfield?
Poll
BrainTrust
David Weinand
Chief Customer Officer, Incisiv
Suresh Chaganti
Consulting Partner, TCS
Brookfield’s $5 billion program will definitely be a help to many struggling retailers but, unfortunately, the $250 million annual sales requirement will leave many small retailers out. That is not good news. Also we need to remember that all of these loans have to be paid back. So retailers that were struggling before the pandemic will now have things even worse. The damage from the COVID-19 long-term is still unknown, but we are already seeing retailers like Lord & Taylor calling it quits and Neiman Marcus filing for bankruptcy. I predict that this is just the beginning. The big companies like Macy’s and Kohl’s will survive because they have access to vast amounts of cash, but I see many of the small and independent retailers not coming back and for some that do, within a short period, not surviving. Is there an alternative? No, what’s done is done and now we have to pick up the pieces and rebuild our country, including the retail industry.
This looks like a great program. Beyond the funding, if Brookfield can assemble a group of executives with expertise across multiple retail functions to help where needed, this could be a home run. The first brand that comes to mind is Victoria’s Secret. They need a rebranding but they are well known and heavily mall based so I see them as a good target.
This is a perfect example of being able to help your own cause and actually doing it. Of course not everyone can do this type of thing. Those with some deep cash reserves are in a good position to invest in their own future. After all, they can’t collect rent from retailers that have gone out of business, or have declared bankruptcy with rents owed.
Like a good private equity investor, Brookfield is looking for deals that make sense – Strong revenue pre-COVID-19 that can rebound with recapitalization. They should expect pretty good deals available, given how dire the retail situation is. Obviously it is a private venture so it is more like a typical business deal, unlike a government bailout.
For retailers, given the $250 million qualifier, they are already backed by institutional investors. So it is a matter of choice and access to the capital.
This program sounds like it has the potential to be a big help to many mall-based retailers. However, I do caution that for retailers who were already heavily debt-laden pre-pandemic this may only result in adding more fuel to their debt fire and make it that much harder to get out. There is a fine line between those two scenarios. On the plus side, I am pleased to see mall owners taking a better position than just “pay my rent” and trying to work with retailers to jointly survive the crisis. Partnering in some way is going to be the only successful way out of this financial mess for both mall owners and retailers.
The small stores which make up most malls have no chance at that money. $250 million a year is not a small retailer, so they will have to figure out how to handle the new way of doing business, and it will be very difficult to survive as malls no longer draw the crowds they did before.
This money will be a lifeline for many of Brookfield’s tenants and it will give Brookfield a stake in their future. However, this investment is really just the first of two investments that are desperately needed. Next, Brookfield must consider investments that will re-invent their mall experiences to become more relevant to today’s consumers…
Yes Dave — remember our discussion about malls marketing themselves as a “safe zone” with guaranteed cleanliness? Definitely a short term play!
This is a significant and timely investment by the Brookfield group, as mall-based retail operations have faced severe disruption and will continue to face challenges in a post-COVID-19 world. What’s clear is that only through collaboration, investments and a true partnership will the mall owners and retailers survive and thrive in whatever the new normal brings.
As the mall experience is re-imagined, and as this collaboration matures, the Brookfield team could offer capabilities, assets, infrastructure, and customer experience technology innovations as a service for their retail tenants. Although their non-ownership stake will be limited, the larger and far more financially secure and scalable Brookfield could not only be the lifeline that retailers desperately need, but also a true long term relationship partner that will be there for the good and challenging times ahead.
Obviously, the program was created to benefit Brookfield in the short and long terms. With traditional “anchor” tenants like J.C. Penney and Macy’s in potential trouble moving forward, and more business moving online, mall operators are going to have to rely on (relatively) smaller retailers for survival. Also, taking an ownership position in various retail companies helps lock them into longer term leases they might not otherwise sign. And, finally, some of these businesses are going to leave malls to other free-standing locations, giving Brookfield the opportunity to buy larger shares or maximize their investment by selling off their positions.
When trying to save someone from drowning, the first advice is always to make sure you don’t get dragged down too. Certainly the spirit is there and though in normal times I’ve cautioned against a potential conflict-of-interest in helping selected tenants, this of course isn’t normal times. I’m sure Brookfield isn’t unaware of these issues and that’s reflected in the criteria. And I’ve no idea if $5B is enough.
I wish everyone well.
As for volunteering names, I’d love for them (or anyone) to reach out to Lord & Taylor, which is rumored to be preparing to liquidate. Of course the chain’s problems are long standing and likely remove it from the “good investment” category. Sadly, my idea is likely heart over brain.
$250 million in sales is a pretty stiff hurdle for small and medium businesses unless they are part of a chain. So the surviving malls will have anchor stores and a few local versions of large chains. Consumers can order online from all those stores. What’s attractive about the mall?
Brookfield is a great company and this will help the chains. This will not help the small retailers given the $250 million annual sales requirement. A second/different version of the proposal for small businesses in their properties might have been good –although costlier to run perhaps? I do give them credit for trying and doing.
Crave Retail has an interesting new touchless experience for clothing retailers. In the new COVID world we live in, it will be important for retailers to provide customers assurance that their stores are clean and safe, and that they can process the entirety of their transaction, from the time they enter the store through leaving, with an almost completely touchless experience. Companies offering this type of modern tech will likely become more in-demand.