Shopping For Shopping Malls (So Meta)


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What's going on?

A major deal is firing up the “bricks and mortar” retail sector: mall developer Westfield Corp. has agreed to sell itself to Europe’s largest shopping center operator Unibail-Rodamco for $24.7bn. The combined entity will be a $72bn global property heavyweight.

What does this mean?

Westfield is an Australian company with 35 malls globally, including prime sites like the $1.4bn New York World Trade Center mall and locations in London’s East and West. Unibail operates over 70 malls across major European cities. Combining the two firms will increase the geographical footprint to over 100 sites on both sides of the Atlantic, and it’s expected to reduce costs in the combined group by $120m annually.

Why should I care?

For markets: Unibail is paying a juicy premium for Westfield.

The warm reception to Unibail’s offer from Westfield’s shareholders may be due to Unibail offering an 18% premium for Westfield – among other things, this may indicate the desirability of their flagship properties. Unibail plans to rebrand their top malls under the Westfield banner, showing the intangible value of the Westfield brand in attracting higher-end consumers – something (arguably) worth paying a premium for.

The bigger picture: Internet retail is changing the shopping mall model.

The deal helps the business to better weather the potential disruption from online rivals offering everything at the click of a button. Traditional department stores are struggling (see Sears) and closing branches, leaving malls without anchor stores (malls typically use a large chain store as a key tenant to draw in shoppers). Unibail’s move looks shrewd: upscale urban malls can offer greater convenience to shoppers than waiting at home for deliveries as well as experiential services like indoor ice skating and restaurants. As Amazon’s foray into physical bookstores shows, bricks and mortar isn’t dead, but it is adapting.

Originally posted as part of the Finimize daily email.

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