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INDIANAPOLIS-Just as the demise of the regional shopping mall was greatly exaggerated, threats posed by “lifestyle centers” may not be as severe as some think, according to Richard Sokolov, president and COO of Simon Property Group Inc., the largest retail REIT in the United States.

Speaking at a Banc of America Securities retail conference recently, Sokolov said Internet retailers have not made brick-and-mortar retailers obsolete. Indeed, he says on-line shopping accounts for just 1.2% of the market and many traditional retailers are in less dire straits than they appeared to be a few years ago.

There’s no doubt department stores have been declining in their market share, says Sokolov, but department stores like JCPenney, considered a poor bet just two years ago, have not met the same fate as bankrupt Montgomery Ward. Indeed, JC Penney last year had $1.2 billion in cash flow, said Sokolov.

“The question is not (whether) these stores are going to exist,” Sokolov said. “The question is how (are) these stores are going to grow.”

The trend in retailing now is to look for locations catering to the moderate- to upper-income consumers, “because (retailers) don’t want to go head-to-head against Wal-Mart,” says Sokolov. He says Simon’s growth strategy is to lead the way for those retailers, “We want to migrate our portfolio to the high-quality assets,” says Sokolov, whose company is embroiled in a bitter takeover attempt of Bloomfield Hills, MI-based Taubman Centers Inc.

Sokolov said Simon spends about $100 million a year renovating its centers, an investment that he says generates returns. “We want to make sure our malls are poised to withstand the challenges of the market,” he said.

As for lifestyle centers, Sokolov counts 27 across the US, and predicts the number will grow to 75 in five years. “Our tenants will tell you it’s not fun going into a lifestyle center,” he says. “The lifestyle phenomenon is not unlike the entertainment centers we saw three years ago; it’s not going to be a broad-based phenomenon.”

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