It has been a prolonged period of retail carnage: Storied names declaring bankruptcy, mass-market brands closing thousands of stores, tens of thousands of shop employees furloughed or laid off, garment workers in dire straits. More ominous still are the predictions that we will never shop the same way again.
For Jamie Salter and David Simon, however, it has been a time of great opportunity.
Salter is the founder and chief executive of the Authentic Brands Group, a company known for buying the intellectual property of famous brands at discount prices and then striking licensing deals with other companies that want to stick those well-known names on their products. Simon is the chief executive of the Simon Property Group, the largest mall operator in the U.S. with more than 100 properties including Twin Cities Premium Outlets in Eagan, Albertville Premium Outlets in Albertville, Southdale Center in Edina and Miller Hill Mall in Duluth.
Together, they are reshaping the American retail landscape.
Last week, they closed a deal to buy the bankrupt Brooks Brothers, the 202-year-old American fashion brand and retailer, for $325 million. Last month, they acquired Lucky Brand denim, and in February, they bought Forever 21.
Together, the acquisitions will bring the global revenue generated by the company’s brands — a sprawling mix that includes Sports Illustrated and rights tied to Marilyn Monroe’s likeness — to $15 billion annually. And Salter is hunting for more.
“Look, if the world ends, which I don’t think it’s going to, then there’s no doubt about it, I’m not so smart,” Salter, a 57-year-old Toronto native, said in a phone interview. “But I don’t believe the world’s going to end.”
“Last year, we said within five years, we want to be at $20 billion,” he added, referring to the overall revenue generated from brands owned or jointly owned by Authentic Brands. “Another two to three deals could get us there.”
Many of the acquisitions are being made through a joint venture with Simon called SPARC, for Simon Properties Authentic Retail Concepts. Its roots go back to 2016, but it was created in its present form in January as a vehicle that turned out to be almost perfectly positioned to take advantage of the current state of the industry.
By teaming up, Simon, a press-averse Indianapolis real estate scion who declined to comment for this article, gets assurance that bankrupt chains and other tenants will remain in his shopping centers, while Salter gets a friendly landlord for his brands at a time when rent costs are crushing retailers, plus the chance to earn money by licensing the well-known names.
Together, they own and operate 1,500 stores through their deals, which sometimes include Brookfield Properties, another mall giant.
The purchase of Brooks Brothers, where layoff notices have already started going out, has put a spotlight on this arrangement — and invited new scrutiny. Supporters said SPARC is saving the businesses it’s buying. Critics said it’s simply exploiting their traumas for fast profits in ways that cheapen the brands’ legacies.
They said the SPARC strategy treats brands and stores less like hothouses of creativity that need careful tending, and more like chess pieces to be moved around for maximum, if momentary, gain.
That suspicion has been hard to shake for Salter. Authentic Brands’ purchase of the Sports Illustrated brand last year is viewed as a prime example of the company’s bottom-line approach to licensing. It sold the rights to operate the magazine and website to another company, which gutted the staff, while simultaneously putting the Sports Illustrated name on protein powder, CBD cream and swimsuits.
And Authentic Brands’ purchase of Barneys New York’s intellectual property last year was fiercely contested by a group of investors who waged a “Save Barneys” social media campaign to avert liquidations and the licensing of the name, painting Salter as a villain who sought to dismantle a cultural institution.
For years, Salter led a division of Hilco, a financial firm, as it snapped up the intellectual property of bankrupt retailers such as Sharper Image. While the retailer’s stores closed, Hilco was involved with deals that put Sharper Image’s name on products like garment steamers that were cheaper than wares at the original retailer and then sold in chains like Bed Bath & Beyond.
At Authentic Brands, Salter pulled off an early coup by acquiring the exclusive rights tied to Monroe, whose likeness drew the interest of everyone from Dolce & Gabbana to Walmart. His stable of 50 brands now includes Juicy Couture, Elvis Presley, Muhammad Ali and Frederick’s of Hollywood.
Four years ago, Salter said, “David came to me and said, ‘Why do you always close the stores when you buy the company?’ ” Salter replied that he was too nervous to operate the stores, worrying that the leases could become too expensive.
Simon proposed teaming up with Brookfield to buy Aéropostale, which led to the formation of a venture called Aero OpCo. Salter owned 20%, and Brookfield and Simon the rest.(In January, Salter bought out Brookfield’s interest and the venture was renamed SPARC. Brookfield, which is not part of SPARC, declined to comment.)
The mall operators wanted their tenants to stay — and ideally resume making money and, thus, paying rent. They were also interested in Salter’s marketing prowess and his brands, which they figured could turn into stores at their malls.
“At the beginning, Simon just wanted ‘get my rent,’ ” Salter said. “But we started turning profits very quickly, and it started to be about building a business.”
Each side benefits. Salter’s brands have “variable rent” contracts with Simon’s malls, meaning their rent goes up and down with their sales and, in a lucrative arrangement, most don’t have minimums. Simon also receives a percentage of royalties from sales associated with the brand names.
“COVID is a good lesson for all of us because thank God we had percentage rent,” Salter said. “We furloughed whatever number we had to furlough in Forever 21, and you’re only paying rent on a percentage of sales. It hurts a lot less.”
Still, some analysts said it isn’t good to see mall operators buying their own tenants out of bankruptcy at this pace.
But as long as large retailers or hedge funds are unwilling to buy bankrupt chains such as J.C. Penney, which could ultimately liquidate, “mall owners are the only viable acquirers,” wote analysts at Coresight Research, an advisory and research firm. The firm estimated that 20,000 to 25,000 U.S. retail stores would close this year, and at least 50% are mall-based.
“Acquiring retailers raises questions about mall owners’ long-term viability,” they wrote. “Mall owners cannot buy every anchor retailer in their malls, and often they will have to let stores fail instead of propping them up.”
Simon bristled on a recent earnings call at the notion that he was buying retailers for rent. “We believe in the brand and we think we can make money,” he said.
Still, rent is no small concern. Forever 21, a top tenant in the year before its bankruptcy, said the aggregate occupancy cost for its stores was $450 million annually.