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LIKE FATHER, LIKE SON

Frank Lowy and his son Peter tell secret of Westfield’s brand of success

Castlecourt Shopping Centre in Belfast, Northern Ireland, is one of nine centers being managed and developed by Westfield Holdings as part of a joint venture with U.K. developer MEPC.

Globalization is nothing new for Frank Lowy, co-founder and chairman of Westfield Holdings: His life and his business reflect worldwide experience.

Born in Czechoslovakia in 1930, Lowy and much of his immediate family survived the Holocaust. Immigrating to Palestine at age 15, he fought in Israel’s War of Independence. In 1952, he emigrated once again, joining family members in Sydney. A job at a sandwich shop soon became a partnership with John Saunders, another European immigrant, building a small chain of delicatessens. Naming their company Westfield (in honor of the western direction of their growth and the fields on which they built), they developed their first open-air center, Westfield Place, in Blacktown, Sydney, in 1959. The firm first went public in 1960.

Lowy and Saunders, who is now deceased, spent much of the decade bringing U.S.-style malls to Australia. In the mid-1960s, they pioneered the branding of shopping centers, calling all of their developments Westfield Shoppingtowns.

In the mid-1970s, Westfield jumped continents to acquire centers in the United States. The American company, which also engages in airport retail development, went public in the United States in 1996. In recent years, Westfield has continued its international expansion, acquiring projects in New Zealand and the United Kingdom.

Today, Westfield Holdings is a $21 billion company with 30 malls in Australia, 39 centers and six airport retail plazas in the United States, 11 malls in New Zealand and seven in the United Kingdom. All three of Lowy’s sons have been active in the company.

Other investments, including Asian real estate, coal mining and television, didn’t fared as well. In February, Westfield Holdings announced that it would buy back the outstanding U.S. shares of Westfield America, and that it was postponing its Internet Shoppingtown virtual mall initiative.

Frank Lowy, joined by his son Peter, managing director of Westfield America, spoke with SCT Editor-At-Large Debra Hazel in March about the growth and globalization of their business.

What did you bring from your retail career to your developments?
Frank Lowy: Being a retailer in my first business has given me the knowledge and experience of what the customer wants. Usually there is no relationship between the developer and the customer. … That’s what drives our business. Of course, we evaluate the development procedures and yields and returns on capital, but basically, we are driven by the need of the consumer and the retailer.

Peter Lowy: That also leads into the branding.

FL: When Australians go to shop, they don’t say they’re going to the mall, they say they’re going to Westfield. In Australia, 70% of the population lives within 30 minutes’ driving time of a Westfield center, so it became a brand name.

You started branding in the mid-1960s when no one else was doing it. Why?
FL: We branded the first center in 1966; that was the first time we were able to attract a major retailer. We looked at that bare name of the building, and we kind of knew it from there that we wanted to call it Westfield. I don’t know that we scientifically figured it all out; I think it was an instinct that we followed. I wanted to build the name of the center up. I never expected, of course, to have such a big portfolio later on. But it did establish, for the first time, our name on the mall.

Did retail development in Australia follow the U.S. model?
FL: To a certain extent, yes, and to a certain extent, no. Australia developed two ways: one, like the United States, in a Los Angeles sprawl. But at the same time, some parts of Australia, like Sydney, had a little bit of development in existing areas. A network of suburban railways in Sydney, for instance, would go up around the railway stations and the expansion of the population concentrated on these hubs.

Why acquire your first centers outside Australia in the United States instead of somewhere closer to home?
FL: The role model for the shopping mall is the United States. At that time, in Europe and in places like New Zealand, they didn’t have the concept of the mall. We would have had to change the culture of the retail in those countries.

Also, the way we established in Australia was modeled on the American malls. In the late 1950s and early 1960s, my partner and I traveled extensively and learned the business, absorbed what was going on, and we brought that to Australia. The only thing we had to do was adapt it to Australian conditions. Don’t forget that Australia at that time was a relatively small market, and expansion opportunities were limited. We wanted to extend our business. The United States, although it was far, had all the other components: We understood the business, we knew the conditions, we spoke the language. And it was a relatively simple matter to do except for the distance.

And I thought we had brought something else with us: As I said, the developers in America at the time, and probably even now, don’t have the retail flair, consumer flair that we had.

I think we have had bigger yields per square foot in the centers that we owned. At that time, of course, most stores were 10,000-, 15,000-square-foot stores, but there was not enough business for those stores. So we reduced the size of the stores. And we expanded the retail coverage in those centers: We introduced kiosks, which were not there before, and customer services. So we brought many innovations, which now everybody does.

… In many parts of the country, we built rooftop parking. … So we brought with us certain knowledge to Australia, we adapted it for Australia, and some of what we adapted to Australia came back to the United States. … There is now an interchange and a free flow of knowledge between Australia and the United States. It now flows to New Zealand and on to the United Kingdom.

We’re going to make some big changes in the culture of shopping malls in the United Kingdom. I don’t want to say it’s wrong, but in [most cases], it’s yield-driven, and the landlord/tenant relationship is [based] not so much [on] retail growth, but rental growth. That’s the financial culture in the United Kingdom. We’re going to make some changes there also.

Westfield Shoppingtown Miranda, near Sydney.

You expanded in the United States through huge splashes: the General Growth/CenterMark deal, the TrizecHahn deal.
FL: You couldn’t buy malls in the 1970s, 1980s: I remember [sending my elder son] David to the United States in the mid-1970s. He went to every major city, looked for malls, spoke to real estate agents, but they were not for sale; you could not buy them. … The market has totally changed in the last 15 years in the United States.

Are you still looking to acquire in the United States? And what about Australia?
FL: There is no change to our wish [to expand]. We can generate sufficient capital in Australia for our expansion into America. We developed a huge expansion program into the United States regardless of our listing on the New York Stock Exchange.

We are not in a big expansion mode in Australia — there are not many people in Australia, and it’s not growing that fast. I think over time that our business expansion will be more out of Australia than in Australia. That’s part of the reason why we’re moving so aggressively outside the country.

In 1998, you acquired projects in New Zealand. Why then?
FL: There was an opportunity there. In one acquisition, we have become the major shopping center owner/developer, and there is room for development, because there hasn’t been much concentrated development in New Zealand. And I think in four or five years, it will be the same as Australia. And now [there is] the U.K.

Are you going to continue to look in Great Britain or go to Continental Europe?
FL: We have seven locations in the United Kingdom. Each one of those needs major redevelopment. That will probably take three to five years. We certainly will be expanding our business there, but I think right now we probably have sufficient [properties] to keep us busy: to learn, and make certain changes to these centers and some of the customs that have been built in the U.K., such as [bringing in] shorter leases. They have very long leases for the institutional owners. These long leases for specialty stores are not in their interests or in the owner’s interests. So we have many of these issues to deal with. When we are comfortable with what we’ve done with those, I think we’ll move further on, though [other countries] are not easy to break in because there is not a big mall business there. It will be a little while, but we’re not in a big hurry.

Do you intend to pursue more airport retailing in the United States and internationally?
FL: I think we’ll do it wherever it’s possible, wherever it’s sensible. It’s kind of a niche market, but there is still room to expand. What we’re doing is profitable, and we have good prospects. The question will be can we build a sizeable enough business to maintain it?

Why go into it to begin with?
PL: [CenterMark was] bidding for National in Washington, and Dulles. They kept going with that, and we saw it was an extension of our business. We encouraged the executives, who are still with us, by the way, through that process. Now we’ve expanded the business from that.

FL: Not everything happens by planning. Actually, life is less planning; coincidence governs your life a lot more than planning.

At one point you were looking at Asia. Is that still possible?
FL: We’ve been there in a small investment and found it very, very tough for many, many reasons. One is the culture. Second is the lack of retailers that you would have in Australia or America or England. The infrastructure is not there in many cases. And the customer needs are quite different. So I think it will be quite a while, if ever, before shopping malls in Asia are spread like in the Western part of the world. We encountered many difficulties through this experience of ours, and felt our efforts ought to be directed toward the Western world, where we don’t have these impediments.

The Asian real estate owners take a lot bigger risks than we Western developers would do: They build a big mall without tenants, and then hope to rent it. Also, in many cases, the zoning laws are very loose. It’s not a stable market. I don’t think you’ll see very many malls being built in Asia for the time being.

You recently postponed an Internet venture to create a virtual mall in Australia. What happened?
FL: We were ready to roll in Australia. We had the technology, we had the tenants, we had the infrastructure. We were a few months away. But we came to the conclusion after a very painful exercise that the retailers will not be making money for quite some time. Just imagine that you build a real mall, and your retailers can’t make money. So we extricated ourselves and are waiting for the time when the atmosphere and the environment are such that consumers will pay for the extra service.

Why buy the outstanding U.S. shares of Westfield America?
FL: The real estate securities market in the United States has not become popular. There is no major capital inflow into that sector. Well, our lifeblood is expansion and development. We went to the United States to test the possible capital inflow that was indicated was coming. It was coming, but then it stopped for many reasons. … We can create [more shareholder value] from Australia. We can raise equity more competitively, and the Australian market will support us in that endeavor. We waited and waited. We tried many things, but in the end you have to move forward. We did it reluctantly; we found it very difficult at the time to get on the American market. We worked very hard, and we paid the price. But when you see that things are not moving ahead, you can’t stand still. So we will do the expansion in the United States from the equity of Australia.

Did you ever expect your company to get this big?
FL: Not in my wildest dreams did I imagine it would grow to the extent it has. And it will grow a lot bigger than what it is now.

Would you be what you are today if you hadn’t gone through the War?
FL: I’m sure if I had not gone through that, I would be different, because experiences in life have an effect on you. There are people who say that my difficulties as a young boy and a young man have given me the extra drive that I have. But I must tell you, there are a lot of people who drive hard who haven’t gone through the Holocaust. I’m sure it influenced me greatly, and if I hadn’t been through the Holocaust, where I would have been is hard to say. But you don’t have to have gone through the Holocaust to be hard-driven.

What are your biggest achievements, and your biggest mistakes?
FL: My biggest achievement is that I have a wonderful family. And we’re working together harmoniously and in the same direction. And we are a very strong company and at the same time, a very strong business unit. I think that’s my biggest achievement.

My mistakes: I ventured out of our core business and went into television, which was not very successful; it was a failure. I didn’t quite understand telecommunications, I didn’t understand how to run it, didn’t have expert management. And when we realized it, we exited in a proper way. I think you could also say that that’s an achievement, that when you see [some]thing is not working, that we are able to make the hard decisions. … You have to be flexible in your approach to business to move and change course when conditions dictate it. Don’t be afraid; don’t be shy to make hard decisions.

What are the biggest challenges you continue to face?
FL: To keep the track record the way it’s been for the past 40 years continues to be a challenge. For 40 years, this company has been seeing profit year in and year out. Of course, it’s given shareholders tremendous value, and it’s made the Lowy family quite prosperous. The biggest challenge is to be that focused in the future and be as successful as in the past.

What is the biggest challenge you see for the industry itself?
FL: The shopping center in the last 40 years has changed dramatically. You have to know how to move with it. I think the shopping center is changing again. We thought the bigger change would be the Internet but, obviously, that didn’t happen. But we’ve got to make shopping a pleasurable, comfortable and competitive experience. And you’ve got to be able to move in the direction the consumer wants you to move in, and to be ahead of it.

 

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