If the weight is heavy on the shoulders of Apple (NASDAQ:AAPL) ahead of this month's smartwatch rollout, it might be because the consumer tech giant is carrying the entire mall.
One of last week's biggest winners was J.C. Penney (NYSE:JCP), soaring nearly 20% after Piper Jaffray analyst Neely Tamminga boosted her outlook on the struggling department store chain. Tamminga juiced up her price target and comps forecast on J.C. Penney, and a big part of the refreshed thesis is that the Apple Watch will bring shoppers back to the mall.
There's certainly no denying that a mall is better off with an Apple Store than without one. Tenants benefit from the healthy foot traffic that Apple generates, and since it rarely conflicts with what they're trying to sell it naturally results in an incremental pop in business. Someone coming in to buy an iPhone 6 Plus may decide to shop for clothes at neighboring apparel retailers instead of smoking out online deals. A person dropping off a MacBook at an Apple Genius Bar may stop by the food court to grab something to eat.
The Apple Watch has the potential to be a real mall magnet in the coming weeks, and we're not just talking about the crowds that will slam the store on April 24 when it finally becomes available. This is Apple's first foray into wearable computing, and we're no longer talking about choosing between three iPhone shells. There's a wide variety of bands and colors available, and Apple is booking "try-on appointments" starting this Friday just as it begins accepting pre-orders. In other words, this may be the first Apple product that results in not one but two visits to the local mall this month. That makes the Apple Watch debut a pretty major event for malls lucky enough to house an Apple Store.
But let's not get all giddy about the prospects without framing the event in its proper perspective.
No matter what you may have heard, the malls haven't become ghost town bastions of rolling tumbleweed and fading memories. Merchants are holding up reasonably well, judging by mall giant Simon Property Group (NYSE:SPG). The leading mall operator saw its occupancy rate improve from 96.1% at the end of 2013 to 97.1% at the end of last year. If you think that Simon had to discount its rates to fill up boarded locations, you're wrong. The minimum base rent at its properties soared 11% last year, and it's not as if the stores are smarting. Total sales per square foot improved 6.4% at Simon's properties in 2014.
The real fear here is the future. Consumers have known that stuff can be bought for less online for some time. A pure e-tailer working out of a fulfillment center isn't going to have the same staffing and mall rent overhead of a traditional storefront. The barriers that e-commerce has faced are access and the inability to provide instant gratification outside of digital goods, but that's changing, of course. Online retailers are finding ways to speed up fulfillment, and the mobile revolution makes comparison shopping as easy as whipping out a smartphone. In that sense the Apple Watch could be more of a threat than an opportunity to mall chains as it makes online connectivity more seamless. Today's run at mobile computing gadgetry is tomorrow's run away from the mall.
However, the real reason why the Apple Watch isn't likely to create a material uptick in mall traffic is that supply and demand will likely be initially limited.
Piper Jaffray tech analyst Gene Muenster -- a longtime bull on Apple -- is modeling just a million Apple Watch devices being sold during its debut weekend, and 2.3 million for the entire quarter. Those aren't bad numbers when pitted against earlier rollouts of rival smarwatches, but it's no match for Apple's other lines.
Apple sold 74.5 million iPhones during the holiday quarter alone. Even the iPad -- Apple's tablet, which has been suffering year-over-year declines in sales in recent periods -- managed to clear 21.4 million units during the holiday quarter. Will 2.3 million high-tech wristwatches really make a material difference? You also know that these babies can be ordered online, delivered directly to your home, right? The fashion and fitting elements may make this a more popular in-store item than Apple's other products, but it still may not move the needle enough to save J.C. Penney and other mall haunts. Even if the Apple Watch is a bigger hit than expected, it won't be enough to spark mall sales. If anything, the disposable income going to the actual purchase could be money that won't be spent elsewhere in the mall. Apple's coattails may not be long enough to take the rest of the mall with it this time.