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Shopping Centers Today -> May 2007
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Retail real estate is not just a job. If it were, few would know this is ICSC’s 50th anniversary AND fewer would be celebrating it. Sure, the business provides us a comfortable living, and makes a lot of us wealthy. But as the following pages illustrate, this industry does much, much more than that. It improves the lives of individuals, brings prosperity to communities, supports national economies and plays an increasingly important role in international commerce. Retail development creates beautiful gathering places and great architecture. Retailers and mixed-use developers are playing increasingly central roles in the effort to protect the environment through buildings that make more-efficient use of space and energy. This industry provides hope through employment, education and sponsorship, and has brought comfort and relief to the victims of disaster. And then, as Louis Straus Jr. points out, there’s the social side. Straus, who turns 90 this month, has forged numerous friendships through his 50-year career in real estate — he figures that 8,000 people have attended his now-famous convention brunches since he started them some 34 years ago. A few have even found love through ICSC, some even marrying during Spring Convention; as Paul Kastner put it, all his friends were going to be in Vegas anyway. Just a job? Some job.
BECAUSE IT BREEDS PROSPERITY
ICSC members who indulge in the guilty pleasure of thumbing through Forbes magazine’s March 2007 “World’s Richest People Issue,” which lists 946 Forbes billionaires whose combined net worth is a healthy
$3.5 trillion, will be encouraged to see their profession well represented.
As in prior Forbes tallies of wealth, several shopping center pioneers are on the list. And in an encouraging note for the industry as a whole, most also are even more well off than a year ago. “It has been a busy year in the fortune-hunting business,” Forbes noted. “Strong equity markets combined with rising real estate values and commodity prices pushed up fortunes from Mumbai to Madrid.”
In an era of surging REIT stocks, shopping center magnates and those who work with them have more reason than usual to toast their fortunes. According to Robert O. Bach, national director of research for Chicago-based Grubb & Ellis, the average price per square foot for a U.S. open-air center rose from $110 in fourth-quarter 2001 to $166 in fourth-quarter 2006. The median price per acre for commercial land rose from $81,825 to $170,940 during the same five-year period. “Having lived through other expansions and recessions, I would be fairly confident in asserting that these are records,” Bach said.
The same phenomenon that helped produce many of Forbes’ shopping center billionaires — the ongoing influx of equity and debt capital that is part and parcel of the securitization of real estate — also is a key driver of those rising values, Bach notes. But legendary founders with controlling shares aren’t the only ones who benefit from this capital-rich environment, notes Roberta Rea, president of San Diego-based Roberta Rea + Co., an executive search firm that specializes in the shopping center industry. “It has created more jobs for people to benefit from, and the people at the top who are involved in the developments also get better salaries and larger bonuses,” she said. “There are also quite a few candidates in public companies who receive stock options or grants going in. This is at many levels, not just the highest levels.”
Going public 10 or 15 years ago was a sensible move for the industry’s founders concerned about protecting their estates. “When it comes to the federal estate tax, once you get over the available exemptions, which are about $3.5 million, the rates start at 55 percent,” said one shopping center attorney, who requested anonymity. “The liquidity thing is a big deal in estate planning. Timing of the sale can be everything, and if there is a forced sale because of death taxes, that can really cost the family a lot of money.”
A profitable shopping center industry, of course, ultimately depends on robust retail. So it is good news that leaders of international retail chains are among this year’s richest Forbes billionaires. The top 20 include Ikea’s Ingvar Kamprad ($33 billion), LVMH’s Bernard Arnault ($26 billion) and Aldi’s Karl and Theo Albrecht ($20 billion and $17.5 billion, respectively). And did we mention the Waltons?
BECAUSE WE GIVE BACK
In the shopping center world, largesse seems to extend beyond the act of writing a check to charity. In fact, some of the same innovative minds that keep retail organizations thriving are also busy creating programs of giving that can profoundly affect the communities where they do business.
An informal survey of the industry reveals an array of national and regional charitable endeavors, from “random acts of kindness” to youth programs and multimillion-dollar university donations.
One novel program encourages the giving spirit in youth. Developers Diversified Realty Corp. developed the Kids with Heart awards and rolled the program out last year in some 20 communities. The award recognizes youths 18 or younger who have demonstrated care and compassion in some way. Among the winners is an adopted 13-year-old Denver resident from Peru who created a nonprofit organization to serve Peruvian orphans and who helped raise enough money to build a library in one village. Another 13-year-old, who has juvenile arthritis, helped raise over $10,000 for the Arthritis Foundation and even was keynote speaker at the 2006 Kansas City Corporate Challenge Dinner.
“Too much of what we focus on about young people and teens is the negative,” said Dawn Marie Lecklikner, vice president of property management for specialty centers at Developers Diversified. “This program was designed to recognize the good they do, and it was a perfect match for our communities. We celebrate this as the best in goodwill.” Developers Diversified donates $500 checks to charity in the name of each market’s grand-prize winner, who also gets to pick the charity. Award finalists get $100 shopping sprees at the firm’s properties. Developers Diversified initiated the program by issuing calls for nominees and drew considerable media coverage, Lecklikner says.
Simon Property Group continues to champion children’s charities. Its heralded Simon Youth Foundation, founded in 1998 as an alternative school for at-risk youth trying to complete their high school diplomas, is still going strong. Schools operate through “resource centers” located mostly in Simon malls in collaboration with local school districts. “It’s a huge community service program that involves Simon employees at all different levels,” said Barbara Richardson, SYF’s deputy director. “This isn’t a GED program — students have to earn their credits.” SYF has 20 resource centers across 11 states. These boast an 88 percent graduation rate and have helped over 3,500 students earn diplomas. The foundation has also awarded over $3.5 million in college scholarships.
CBL & Associates Properties supports Victory Junction Gang Camp, in Randleman, N.C. The Tennessee-based REIT solicits donations for the camp, which serves chronically and terminally ill children and was founded by NASCAR racer Kyle Petty and his wife, Pattie, at its shopping centers. CBL is also recruiting camp volunteers to assist with arts and crafts, boating, fishing, horseback riding and the like, says Barb Faucette, the firm’s vice president of mall marketing.
Some charity initiatives are tied to mall functions. Simon is selling Pink Ribbon gift cards nationwide in denominations ranging from $20 to $500 and donating $1 to the Susan G. Komen Breast Cancer Foundation for each card sold, with a guaranteed minimum donation of $250,000 per year through 2008, says Billie Scott, a Simon spokeswoman.
General Growth Properties sponsors a one-night shopping experience called Festival of Giving during the Christmas season in about 80 of its malls across 38 states. For the price of a $5 or $10 ticket purchased from one of several local charities, shoppers are treated to an evening of private shopping and entertainment. The charities, which vary considerably but often include various humane societies, the Make-A-Wish Foundation and the YMCA, get to keep 100 percent of the proceeds. Nearly 2,500 charities participated last year, and they raised close to $2 million. General Growth also promotes Habitat for Humanity, encouraging employees and shoppers alike to participate in home-building and fund-raising for the organization.
At headquarters General Growth has raised $1 million for United Way in each of the past two years through employee appeals, bake sales and the tongue-in-cheek GGP Olympics, whose events include an executive tricycle race featuring CEO John L. Bucksbaum, SCSM. Staffers are also very active in mentoring, through Big Brothers Big Sisters of America. The programs help young people plan for the future, organize school work and even prepare for job interviews. Women at General Growth have mentored some 50 girls thus far, says Bucksbaum. “It’s really something special and a real source of pride knowing we have so many people who are willing to give to those who have far less than they do,” he said.
The Macerich Co. and its Westcor subsidiary are steadfast supporters of the Jewell McFarland Lewis Fresh Start Women’s Resource Center, in Phoenix. In February Debbie Simons, community relations manager at Westcor, served as co-chairwoman of a fashion gala that featured Westcor Luxury Collection Stores attire. The event raised $1 million for the organization.
Macerich runs a Town Center Volunteer Program, now in its third year, which allows employees to tutor children, repair homes, visit the sick and the elderly and provide cleanup services and meals for the needy. The firm supports these efforts through the Louise Marquez Grant Program, which awarded $80,000 last year to nonprofits for special events.
The firm’s Random Acts of Kindness program encourages similar volunteerism among employees. Here a volunteer could be called upon to chaperone a field trip for school kids, to hand out treats at a dog park or to distribute Popsicles around town on a hot day, says Rebecca Stenholm, Macerich’s senior manager of public relations.
Several retail center owners say charitable programs that stem from business interests not only offer a way to give back to the community, they also put a human face on a corporation. “These programs make sense from a lot of standpoints,” said Malachy Kavanagh, staff vice president of communications and external relations at ICSC. “They engage their customers and they engage the community.” One drawback: Some companies, particularly the larger ones, can easily get inundated with charitable requests year-round, says Kavanagh. “You also can open yourself up to criticism,” he said, “like, ‘Why did you turn me down?’ ”
Retailers were well represented in the 2006 listing of the 60 largest American charitable contributions, as compiled by the Chronicle of Philanthropy. Gary Comer, founder of the Lands’ End catalog operation, placed 27th on the list, for his $67 million donation to the University of Chicago for the creation of the Comer Center for Children and Specialty Care. He made the donation shortly before his death from cancer last year. John and Jacque Weberg, whose furniture business grew into a small retail empire in the Midwest, pledged $50 million to Oak Brook, Ill.-based Opportunity International to promote entrepreneurial growth in Africa, placing them at No. 43 on the list, in a tie with Simon co-founder Melvin Simon and his wife, Bren.
The Simons’ donation of $50 million to the Indiana University Cancer Center will assist the 15-year-old patient-care and educational center, now renamed the Melvin and Bren Simon Cancer Center, with its expansive research efforts.
Simon is not the only center owner recognized on a college campus. Longtime collegiate benefactor A. Alfred Taubman, founder of Taubman Centers, has his name on buildings at several universities. Fittingly, one is the Alfred Taubman College of Architecture and Urban Planning at the University of Michigan, a school whose mission statement mirrors a growing sentiment among retailers: that the “condition of humanity is intimately connected to the environment in which we live.”
Also a part of Taubman’s philanthropic legacy at the University of Michigan are the A. Alfred Taubman Health Care Center, the university’s primary outpatient facility; and the Taubman Medical Library. Taubman also contributes to Brown University (the Taubman Center for Public Policy) and Harvard University (the Taubman Center for State and Local Government). Lawrence Technological University, in Southfield, Mich., where Taubman studied architecture (in addition to a stint at the University of Michigan), unveiled the A. Alfred Taubman Student Services Center in April of last year.
The bigger retailers often have their own pet charities, such as Target’s partnership with the Tiger Woods Foundation, called Start Something. This program focuses on character development for youngsters 8 to 17 by encouraging them in volunteer activities and career exploration. Nearly 4 million youngsters have participated since the program’s inception in 2000. Target also supports Target House, a home-away-from-home for the families of children undergoing treatment at St. Jude Children’s Research Hospital, in Memphis, Tenn.; and Target Volunteers, which donates in excess of 300,000 hours annually to 7,000 community-based projects.
Wal-Mart Stores stands out as the largest U.S. charitable corporate contributor. Wal-Mart gave over $245 million last year, 90 percent of which went to local causes, according to the company.
Sometimes ICSC takes the lead in galvanizing industry giving, as it did in early 2005, when it donated $1 million toward relief efforts for the victims of the Indian Ocean tsunami, while raising tens of thousands more in member donations. In September of the same year, ICSC’s Educational Foundation accepted and matched cash contributions to the American Red Cross for Hurricane Katrina relief while helping thousands of shopping centers establish donation centers to aid the victims and support recovery efforts. The association also gave $1 million to the Red Cross following the 2001 terrorist attacks.
On Oct. 14, the day before the opening of this year’s ICSC Fall Conference, in New Orleans, the organization is pulling together mall and marketing managers and others to join with AmeriCorps, Rebuilding Together and the Louisiana Department of Culture, Recreation and Tourism to help the city with ongoing rebuilding and cleanup efforts. The program will be called Team Passion, after the “passion” theme of the Fall Conference.
The retail industry as a whole takes seriously its role as good corporate citizen, says Bucksbaum. “The fact that we have this connection to millions of consumers,” he said, “allows us to touch a huge portion of the population, and retailers and owners alike feel an ongoing responsibility to help take care of that population.”
BECAUSE LANDLORD-TENANT RELATIONS ARE NEVER BORING
Two heavyweights squared off for five rounds on March 14 in New York City, though neither combatant in this slugfest ever threw a jab, uppercut or left hook. Instead, they waged a war of words over lease options, signage, tenant allowances, sublease clauses and the like. Weighed against the spectacle of fisticuffs between, say, Mike Tyson and Lennox Lewis, such an event might not sound like a major draw. But in fact, this mock lease negotiation at ICSC’s Next Generation program attracted an unusually large crowd of nearly 500 enthusiastic spectators.
The fighters’ records could be one explanation for the big crowd. Veteran broker Robert K. Futterman, CEO of New York City-based Robert K. Futterman & Associates, pretended to negotiate on behalf of a coveted department store tenant seeking to move into a 140,000-square-foot space in Times Square. Sandeep Mathrani, executive vice president of retail at New York City-based Vornado Realty Trust, played the hard-nosed landlord.
The fun atmosphere created by the boxing-inspired format also helps explain the turnout. The event was billed as the “ICSC Heavyweight Championship of the World,” and Futterman and Mathrani raced to win concessions from each other before the clang of an actual boxing bell brought each round to a close. A three-judge panel of their peers scored the bout and offered commentary.
In the end, however, many probably attended the event out of a simple craving for any insights that could give them a negotiating edge. Like professional poker players, real estate deal makers tend to be keenly interested in strategy, says Samuel D. Polese, one of the judges and an executive vice president of Thor Equities, New York City. “The strategizing that goes on is paramount to the success of any negotiation,” he said. “The real estate business is no different than playing poker. Ultimately, you’re looking at all of the variables and playing the percentages.”
The matchup highlighted the leverage that the owners of top-dollar Manhattan properties now enjoy, Polese says. “It was an interesting reflection of just how difficult it is to do a deal in this city, how loath the landlords are right now to being flexible, because the demand is so great.” That makes for some tense negotiations, but for Futterman, being able to emerge unscathed from a tough deal is just part of the job. “Negotiations can get down and dirty, but at the end of the day, everybody just dusts themselves off, shakes hands and moves on,” he said. “Nothing is personal.”
Smart deal makers also recognize that the hard-charging approach has its limits. In the case of a department store signing a 15-year lease, for example, both landlord and tenant will need to work together over the long term. That same tenant may also want to move into multiple locations within the landlord’s portfolio. “In general, having a relationship involved changes both sides’ strategies,” said G. Richard Shell, a negotiation expert at the University of Pennsylvania’s Wharton School and the author of Bargaining for Advantage. “You can’t take a slash-and-burn approach.”
Fortunately, today’s complex real estate deals are rife with what Shell calls “linkages” — bargaining points that can actually make it easier for both parties to do the deal. “You might be able to offer them a break on this property in return for a better deal on another property,” he said. “It is like a jigsaw puzzle.”
Such rational pursuit of mutual self-interest, however, is just one piece of that puzzle, says New York City broker Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman. “Retail leasing is an emotional business,” she said. “Time is what kills deals. The longer a lease is out, the more likely it is to fall apart, even over nothing. … Sales are down, and so the retailer is annoyed. He doesn’t want to talk about the deal that day. He says, ‘It’s raining. No one goes in the store. Why am I taking a 100th store?’ ”
And no amount of hard work will guarantee that a deal gets done, says Patrick Breslin, president of global retail at New York City-based GVA Williams and another of the judges. “I once worked on a big, really significant deal for a year,” he said. “It came down to a 5 o’clock conference call on the Wednesday before Thanksgiving. We were on the phone for an hour and 45 minutes, and the conclusion after that was that our monster deal was dead. I went home and didn’t eat anything on Thanksgiving.”
No crushing defeats for Mathrani or Futterman, though. The judges scored their bout a tie.
BECAUSE WE CREATE RETAIL MASTERPIECES ...
Some centers are remade at least once a decade, but the elegant, largely unchanged Bal Harbour (Fla.) Shops looks as new now as it always has. “What I planned to put in here is what’s in here today,” Stanley Whitman, its founder, told SCT back in 2000, when he celebrated his mall’s 35th anniversary. He could even quip that he does not need to change Bal Harbour Shops, because he got it right the first time.
But when Whitman opened the Miami-area mall in 1965, everyone said he had gotten everything wrong. And to be sure, Whitman, a real estate developer who had never built a shopping center in his life, broke just about every rule. He started out by firing his architect, the legendary Victor Gruen, who designed America’s first fully enclosed, air-conditioned mall: Southdale, in Edina, Minn. As for air conditioning, Whitman ordered his tenants to leave their doors open and let in those ocean breezes and the scents from the center’s ubiquitous trees and plantings.
“Mistake” No. 2 was to have no anchors — though credit for this error really goes to Saks Fifth Avenue and Neiman Marcus, both of which decided that this was neither the mall nor the market for them. (They are there today.) Whitman was unruffled. He filled his mall with other luxury tenants, at a time when the rest of the industry was chasing the country’s prospering middle class. He charged a luxury rent too: While the national average for total rent, common-area maintenance fees included, was $1.53 per square foot, Whitman got $5 per square foot.
To offend convention further, Whitman decided to charge for parking. In the ensuing uproar some tenants threatened to leave, and some shoppers actually did — a few even nearly ran over the feet of the attendants attempting to take their money.
The result of all these mistakes? Unmitigated success since the day the center opened. Few world capitals boast the center’s complement of luxury retailers: Besides Neiman Marcus and Saks Fifth Avenue, longtime mainstays include Cartier and Tiffany. Joining these over the past few years were Chloé, Emilio Pucci, Graff, Harry Winston, Jimmy Choo, Loro Piana, Marc Jacobs, Oscar de la Renta, Thomas Pink and Tory Burch. The 500,000-square-foot center posted $418.5 million in sales last year.
“It is the most unique center of its kind in the United States,” said Herbert Leeds, president of Leeds Business Counseling, a Miami-based consultant to developers and retailers, when the center reached its 35th year in business. “He had the vision and the sheer guts, despite all the other things going on, to stick with it.”
And Whitman has stuck with his high standards too. Some tenants have failed to achieve the sales expected of Bal Harbour’s specialty stores — in excess of $1,900 per square foot, if you please. When they do not perform, tenants are on five-year leases. And not surprisingly, there are plenty lining up to take their place.
“The demand for our space is ridiculous, and it gets more and more ridiculous,” said Matthew Whitman Lazenby, general partner and director of leasing of the center, and Stanley Whitman’s grandson. But this does not mean that replacing tenants is simple. “Our customers are more demanding than most, and figuring out what they want is challenging.”
Bal Harbour was the first luxury center in the area. And though there are some other open-air centers around these days, the Whitman family is fully at ease, and the center is fully leased. “We’ve been going up against competitors for years,” Whitman Lazenby said.
“And we’ve pretty much buried them all,” interjected Randy Whitman, Stanley Whitman’s son, general partner and director of leasing.
The center enjoys the advantage of a location near the most exclusive areas of Miami, including Star Island. And nature’s air conditioning is yet another trump card. “In this climate, if you’re not properly located to take advantage of the ocean breezes, it just gets stinky hot,” said Randy Whitman.
For all these advantages, though, Bal Harbour never takes its customers for granted. “They’re a family, and they treat people like family,” said Robert F. Klecinsky, a senior commercial associate specializing in luxury retailers at NAI Merin Hunter Codman, a West Palm Beach, Fla.-based brokerage. (The firm has no business connections with Bal Harbour.) “In an era when everything looks the same, they still have unique stores. They’ve still kept Bal Harbour interesting.”
And all without fundamentally changing the center’s look. “The history of the enclosed mall is that it is renovated every 10 years,” Stanley Whitman said. “We’ve never been subject to that. Our architecture is very European.”
Not that the Whitmans are averse to change. On the contrary, Stanley Whitman, now 88 and a new great-grandfather, is busy planning an expansion of the center. He wants to add a luxury six-screen cinema and a ballroom to seat 700. The ballroom would be home to special events, including fund-raisers that the center sponsors for local charities. He also is looking at buying property to build an adjacent Park Hyatt Hotel, an acquisition that would turn the Shops into a mixed-use complex. At the moment, though, the family is waiting for zoning approval for all of this.
Some developers have entreated the Whitmans to share some of the magic and go into partnership with them. No dice, Stanley Whitman says. “I never aspired to running a large development company,” Stanley Whitman said. As for those other requests, they have finally stopped. “People have finally gotten around to understanding we’re not interested in selling.”
BECAUSE WE SHARE IDEAS
Imagine Ford getting together with Chrysler and describing some recent performance-enhancing discovery about, say, the tuning of turbo chargers. Or picture General Motors sharing tips about marketing, or Ford issuing warnings about a possible SUV glut. Ain’t gonna happen. Yet, the members of the shopping center industry have been doing what amounts to those very sorts of things over the past 50 years. ICSC was founded on the principle of information sharing, and this has remained at the core of its mission ever since. That handful of shopping center entrepreneurs who met for the first time in Chicago in 1957 often found themselves feeling their way in the dark, as is the fate of all pioneers. “Nobody really knew an awful lot about shopping centers when we formed ICSC in 1957,” recalls Norman M. Kranzdorf, a former chairman of Kramont and now senior vice president of retail services at Urdang Capital Management, who was at those first meetings. What should lease forms look like? What concessions should tenants be granted? How should anchor tenants be handled? How much parking does a shopping center need? They helped each other out, and we’re all better off for it.
Today ICSC members around the world include not just developers, but also retailers, lawyers and a host of other professionals making a living in the shopping center industry. And all these people know a whole lot more now than did those seven men who gathered in Chicago in March 1957. Yet they all, even the most seasoned, remain pioneers in a sense, as they tackle emerging markets like those in Asia and Latin America, or adapt to the ever-changing challenges of established markets in Europe and North America.
All of this helps explain why ICSC’s membership has grown to about 65,000 today across some 100 countries. And it explains why, every single day, somewhere in the world, there is an ICSC meeting going on. Today ICSC offers not just meetings, but books, education programs, up-to-the-minute news reports and a range of other services. Few, if any, industries are as generous with information. Perhaps if they were, U.S. mall parking lots wouldn’t be packed with quite so many non-U.S. cars.
BECAUSE WE ELEVATE THE FOOD COURT TO AN ART FORM
BECAUSE WE’RE REVIVING THE INNER CITIES
Some might say that there are few things sadder than a city that has lost its soul. Numerous cities were hurt by flights to the suburbs on the part of city dwellers that began 50 years ago, others by a loss of jobs, and still others by misguided planning. All of this has left many urban areas with empty storefronts and even emptier streets. Fortunately, inner cities are coming back strong, and they have retail development to thank for it.
In many cities once-moribund downtowns are exciting places again. This rebirth began with James Rouse’s vision for Baltimore’s Inner Harbor and eventually grew to include innovative mixed-use projects made possible through public-private partnerships and new methods of financing.
Look at Cordish Co.’s Power & Light District, which is building $850 million worth of retail, housing, offices and entertainment in a formerly derelict part of downtown Kansas City, Mo. The project is part of a $2 billion effort that will eventually bring a performing arts center and a sports arena — along with more life than the district has seen in decades.
“This is already happening. It’s not just being planned,” said John Stainback, whose Stainback Public/Private Real Estate of Houston firm steers public-private partnerships through the complexity of mixed-use development. “We’re working on about six downtowns right now, trying to get them from project visions to construction.”
The inner-city renaissance is evident outside the United States, too. In Birmingham, England, the Bull Ring commercial district has been home to shops since the Middle Ages, but had fallen on hard times by the 1990s. In 2000 a failing 1960s-era shopping center on the site was demolished to make room for Bullring, a stunning combination of retailing and modern architecture that gets credit for helping remake the image of once-grimy Birmingham.
On a smaller scale, Apsys France transformed the little-used market area of downtown Angers, in France’s Anjou region, into a glass-walled center called Fleur D’Eau that brought new life to the area and won a 2006 award from ICSC for best small European center.
For any downtown to thrive, it needs a critical mix of attractions, and, says Blake Cordish, vice president of Baltimore-based Cordish, “retail acts as the glue.”
BECAUSE REITS ARE GOING GLOBAL
Like other investment vehicles born in the U.S.A., the REIT has gone globe-trotting. Long considered the domain of U.S. public markets, which introduced the REIT in 1960, more than 20 countries now have REITs or REIT-like structures and several more are crafting legislation to accommodate them. Already, the global REIT market stands at around $750 billion in market capitalization, a figure that’s expected to hit $1 trillion over the next few years.
Early this year, the U.K. and Germany passed laws paving the way for REITs. Both trail France’s recent entry into the REIT game, as well as Bulgaria’S, which introduced Eastern Europe’s first REIT in 2005. However, all those countries will have to play catch-up to Belgium, which is home to 11 REITs.
Some global real estate experts say the European REIT market alone could grow to $400 billion by 2010, about the size of the U.S. REIT market today ($425 billion).
The REIT is catching on internationally as a favored means of public real estate ownership because it offers diversification, dividends, liquidity, performance and that all-important transparency, says Michael Grupe, executive vice president for research and investor outreach at the National Association of Real Estate Investment Trusts (NAREIT).
However, only a handful of global REITs currently specialize in retail, a trend that REIT experts feel will change as shopping centers continue to spring up in underdeveloped retail markets around the world. Hong Kong’s Link REIT, which owns 180 retail properties plus former government-owned properties and parking lots, made its debut in late 2005 as the territory’s first REIT, followed soon after by the more diversified GZI REIT and Prosperity REIT, all of which quickly became massively oversubscribed.
The REIT is old hat in Australia, where shopping center owner-operator Westfield Group stands as the biggest company in the world in a REIT structure, which it has operated under since 1979. “Besides making local markets efficient, REITs have also helped lead to a global-investment market,” said Peter Lowy, co-managing director of Sydney-based Westfield.
In a little more than three years, global investors have gone from owning 13 percent of Westfield to the current 30 percent figure, Lowy said. “In another year or two, that will be closer to 40 to 50 percent global. … [W]e are dealing with investors in every corner of the globe.” Lowy says other countries are looking at REITs “because they allow smaller shareholders and institutions alike to efficiently invest in real estate that is liquid, plus, they’re a great wealth-creation vehicle.”
Meanwhile, India and China are considering REIT structures. Turkey already has eight REITs, while Israel and Pakistan each have one. Further REIT expansion in the Middle East is very likely, particularly in the United Arab Emirates, which in 2006 passed REIT-favorable legislation, Grupe says. “Some of the largest commercial and residential projects — and opportunities — are in the Middle East.”
Simultaneously, U.S. REITS are turning to international expansion to help drive growth, including Simon Property Group, which has ventures in Japan and South Korea and a partnership with Ivanhoe Cambridge Inc., giving it a stake in properties in France, Italy, Portugal, Poland, Spain and Turkey. Taubman Centers continues to move forward with plans to build up to 10 million square feet of retail centers near Seoul, South Korea’s capital. While REIT rules vary slightly from country to country, all new global REITs require shareholder distribution, provide dividends and deduct every dollar they distribute from their tax liability, just like U.S. REITs, says Grupe.
The REIT vehicle is now running on its own momentum, he adds. “I think the economic forces of the world will continue to move larger and larger shares of commercial property ownership into publicly available equity through a REIT, whether that REIT is in the U.S. or in a similar form in another country.”
Because LAS VEGAS NEVER GETS OLD
In years past there was a
punishment for those who waited till the last minute to book a hotel for Spring Convention: the famously gaudy Stardust Hotel.
This legend (of sorts), which opened in 1958, was razed on March 13 to make way for a new resort. For all its dowdiness, though, the Stardust had a history that was more or less worthy of respect. It was the first mass-market casino, boasting 1,032 rooms, and it paved the way for the modern casino resorts of today with its cheap rates and food. Perhaps not surprisingly, it was also mixed up in the mob at one time. The 1995 movie Casino was inspired by Frank “Lefty” Rosenthal, the mobster who owned the hotel in the mid-1970s. Boyd Gaming Corp. purchased the Stardust in 1985 when the owners lost their gambling license. Since then it was kept going mainly by what the owners call “nostalgic” tourists — and, of course, procrastinating ICSC members — but the young crowd stayed away. Its replacement will be a $4.4 billion mega-resort called Echelon, with Boyd as developer and a scheduled opening date in late 2010. The complex will boast 5,000 hotel rooms, a concert venue, a shopping center and over 1 million square feet of meeting space. With all that the site has to offer, those rooms could get booked up pretty fast. So be warned, procrastinators: There’s always room at Circus Circus.
BECAUSE WE SPEAK OUT
Washington just got a whole lot closer, for ICSC members, at least. ICSC’s Legislative Action Center, a new addition to the organization’s Web site, allows members to instantly send letters to their federal legislators, check on the voting records of federal and local politicians, and view ICSC’s position on a host of national and state issues and bills.
“This is really lifting us up out of the dark ages,” said Betsy Laird, staff vice president at ICSC’s Global Public Policy office. “We’ve had to use a third party in the past for all communication, and this simplifies the process. It’s easier to access and we can push the message out to the members.”
Located in the Global Public Policy section of the site, members can now log in and see Action Alerts about issues important to the industry. Clicking on the Alert and Take Action buttons leads right to a form letter supporting the retail real estate’s position that can be e-mailed to a senator or a House member.
In the Key Votes section of the site, users can input their ZIP codes and see how their local legislators voted on particular issues. Before going to talk to their local representative, users can also view a politician’s voting history. ICSC members can also have up-to-the-minute information e-mailed to them by signing up for the MegaVote feature. This allows users to receive news about past and upcoming votes in specific state legislatures. A directory is also available on the site providing the names, contact information and biographies for all federal legislators. And the Capitol Hill Basics section gives important information to those planning a personal visit to the Capitol, including how to address members of the House or the Senate and background information on the legislative process.
Because politicians are not the only important players in the legislative process, the Web site also makes it easier for members to contact key people in the news media, offering searchable directories by name and organization. A map in the Find My Media section will bring up a complete list of publications for that chosen location, also searchable by ZIP code. And clicking on the publication brings up its top staff and their e-mail addresses.
These additions to ICSC’s Web site will help members open doors to the corridors of power, staff say. For many years, ICSC has enabled members to meet their legislators through its annual Strategic Leadership Summit. But now, with these and other services provided by the Global Public Policy office, the organization is making it even easier for members to stay in touch with their political representatives year-round.
“People think there is a big mystery surrounding dealings with elected officials. We want to try to demystify that,” Laird said. “The development of a robust grassroots program is essential.”
BECAUSE WE LEARN TO EXERCISE PATIENCE
Diligence in the face of uncertainty has always been important retail in development, but as the red tape becomes thicker to cut, patience is becoming less a virtue than a necessity. Tighter zoning laws, louder community objections, and increased selectivity on the part of tenants has created headaches the likes of which this industry has never seen, insiders say. “It’s why developers drink,” said Jim Fielder, vice president of the Birmingham, Mich.-based development firm Robert B. Aikens & Associates. “I’ve been in this business for 30 years and with each passing year it only gets more difficult to get things built.”
Fielder is currently involved in overseeing the development of the Village at Orchard Hills, a 400,000-square-foot lifestyle center to be built in Grand Rapids, Mich. The initial development agreement was signed in June 2004, says Fielder. A zoning ordinance was drawn up in October 2004, and was approved by the city council in March 2005, Fielder says. Before the ink on the approval had a chance to dry, however, the City Council called for a referendum, Fielder says, after a rival developer collected the signatures of 15 percent of the people who voted in the last election. “He thought he could stop us,” said Fielder. “And even though he ultimately didn’t, it still cost a lot of people a lot of time and money to fight it.”
Ultimately, the developer waited through two referendums until he was given final approval by the city in November 2006 to begin the building process. Fielder estimates the Village will be open for business in November 2008. “The sad thing is, four years is on the early side for getting a project completed,” said Fielder. “You’re usually looking at six to 10 years.”
This time frame is consistent across the U.S., says John Maggiore, director of retail development for the Archon Group, in Irving, Texas. “It used to be that you could expect this kind of delay in Southern California, but now it makes no difference where you are,” said Maggiore. “Communities have gotten smart. You can’t scare them into building a center by saying, ‘Hurry up and let us build this or we’re going to leave.’ They don’t care. The easiest thing to do is build; the hardest thing is pulling that permit.”
Maggiore says the biggest change in the development sector is dealing with increased community involvement. “Never underestimate the power of the municipal agency,” said Maggiore. “Their first perception is to resist until their concerns can be voiced, even if it’s a project that really is good for them. Twenty years ago you’d have to go through one city council meeting. Now it’s normal to have to go through a dozen different venues to get a project approved.”
BECAUSE WE ALWAYS BOUNCE BACK
Anyone who has been around retail real estate for a while knows that it’s not always a bucket of cheer. There are times when consumers get the blues and property owners feel the effects, just as there are periods when big tenants — department stores come to mind — go through a change of life and leave landlords with empty stores.
And then there are the recessions, those periods of two or more quarters in which the economy shrinks instead of growing. That happened in 2001, just as it did in 1988, 1982, 1979 and 1973, going all the way back to the Panic of 1819.
But the graybeards among us know something else about retail real estate: It always manages to come back from recessions, sometimes in spectacular fashion.
Take the 2001 recession, induced by the collapse of the dot-coms, the Sept. 11 attacks and the accounting scandals that rocked U.S. corporations. It was a mild setback that lasted just three quarters, but it did not feel benign at the time. Technology stocks took a terrible beating, and the country lost 2.7 million jobs between 2001 and 2003.
Yet retail real estate suffered only a sniffle. It was the only sector of commercial real estate that was able to absorb vacant space and to raise rents in 2002, a year in which brokerage Marcus & Millichap reported that the retail property segment’s total return was 14 percent, compared with 3 percent for office properties. Even the S&P 500 index was down 0.2 percent that year.
It has been a nitro-fueled joyride ever since. Shopping center vacancies are small and shrinking, leading their owners to expand properties at a frenzied pace as they try to squeeze in promising new retailers. And there are no signs of a slowdown, despite some bumpiness in the overall economy.
“When we don’t have dramatically more stores than we need, it is absolutely true that retail real estate bounces back from a recession,” noted Ron M. Donohue, executive vice president and director of research at Hoyt Advisory Services, a North Palm Beach, Fla., real estate consulting firm. “It bounces back from reductions in consumer spending, and it bounces back from bankruptcies of individual tenants.”
Often it does not fall terribly far in the first place. The start of a recession brings no immediate impact to retail landlords, because leases are usually long and most tenants continue to pay their rent even if business is suffering.
Beyond that, the sector is blessed by the fact that people have to eat and buy socks. Stores that sell food and other staples do not generally close. “Individual properties can have problems, but one of the truisms of the world is that consumers spend money,” said Donohue.
So when the next recession rears its head, players in the retail real estate sector might be well advised to see it for what it almost certainly will be: a time to slow down, catch a breath and make new plans. After all, they will need their energy when the market roars back.
BECAUSE WE CREATE BEAUTIFUL PLACES
BECAUSE DEAL MAKING BRINGS US TOGETHER
Not all marriages are made in heaven, but a few have been made through ICSC.
Marriage was the last thing on her mind when Laurie Filicky attended her first ICSC Fall Conference in 1984. But fate had other plans, which is how she became Laurie Wolfe — eventually.
“I was so excited to be there,” said Wolfe, SCMD, who was then a new marketing employee with Forest City Enterprises. Susan Valentine, then at Forest City, now senior vice president of consumer marketing for The Macerich Co., introduced her to Robert Wolfe, SCMD, who was then a senior vice president of Cherry Hill, N.J.-based Cherry Hill Photo, a company he now owns.
“I thought she was adorable,” recalls Robert Wolfe. For all his admiration though, love took a backseat to career for a few years. They stayed in touch, but didn’t get very serious. Laurie Wolfe’s career path took her from shopping centers in her native Ohio to West Virginia. It was only in August 1999 that she finally came to Philadelphia — Robert’s territory — to be corporate marketing director for the Kevin F. Donohoe Co. And even then, she had some misgivings. “I was worried to move to the city where he was,” Laurie admitted, suspecting that closing the distance would add to the relationship’s intensity.
But the move worked out professionally and personally. Laurie became close to Robert’s sons, Eric and David, married him in 1989, and founded an online gift retailer, Signature Premium Ideas, in 1996.
The resolution of her dilemma offers a good lesson for others, the couple says. “It’s better to move for a position, and then hope the relationship works out,” Robert Wolfe says. However, such advice appears not to have been uppermost in Laurie Wolfe’s mind when she ran into Robert Wolfe’s former college classmate, Paul Kastner, at an ICSC Spring Convention dessert part in 1994. Kastner, the then-corporate marketing director at The O’Connor Group, was with a friend, Sheri Inkeles, then a leasing executive with Corporate Property Investors. Laurie Wolfe turned to Kastner and said, “Boy, is she terrific,” Kastner recalled. “And I took a whole new look.”
This couple was less hesitant to mix up their business and personal lives. Paul and Sheri Kastner married at the 1996 ICSC Spring Convention, by the pool at the Hard Rock Hotel and Casino, in Las Vegas. Which was actually very practical, given that so many of the guests were scheduled to be at the convention anyway.
Even the rabbi who presided over their wedding had the convention very much on his mind. “He said, ‘This is not just the joining of a man and a woman, it’s the joining of marketing and leasing,’ ” Paul Kastner said.
The ceremony was videotaped and excerpts were shown on ICSC-TV throughout the convention (not coincidentally, since Paul Kastner happened to be ICSC-TV’s anchor, a position he held for several years through the 1990s).
So, clearly, being in the same industry forges marriages. But does it preserve them? Sure, so long as you follow some rules, say the Kastners. Paul Kastner, who went on to head up marketing for New York City’s Grand Central Station, has since launched his own marketing consultancy, InterActionCom, and he and Sheri now work out of their New York City apartment, which they share with two dogs. This can lead to cramped quarters and cranky Kastners, of course.
“During business hours, we stay out of each other’s way,” Paul Kastner said. “Maybe we occasionally have lunch.”
But technology helps. “I have the real office,” Sheri Kastner says, while Paul Kastner cheerfully notes that “with computers, I can be anywhere.”
Travel — as in traveling alone — helps too, added Sheri Kastner, and it’s something she does quite frequently in her job. “I kind of like it, because it makes me miss him,” she said.
But both couples note that, while everyone needs their space to get their work done, it’s useful to have a knowledgeable spouse around at times, too, given their common retail backgrounds.
“We do talk about the industry,” Paul Kastner said. “If you have the commonality, it really does help.”
It sure does, Laurie Wolfe agrees. “You just meet good people in the industry.”
BECAUSE WE KEEP THE ECONOMY AFLOAT
It’s patriotic to shop. Just consider the huge part shopping centers play in moving the economy along. Shopping-center-related jobs — there are nearly 13 million of them in the United States alone — provide employment for nearly 10 percent of the country’s work force. Retail developers also provided employment for nearly 81,000 construction workers last year by spending $22.5 billion on new centers, expansions or refurbishments. And the $2.25 trillion that Americans spent in shopping centers last year provided a healthy $120.9 billion in state sales taxes across the country. So go do something for your country — go buy something at your local mall.
BECAUSE CHRISTMAS STARTS IN MAY
As shopping center Christmas festivities become increasingly vital in the competition for holiday customers, it seems it’s never too early for center managers to get into the yuletide spirit.
“Even though it’s May, we’re very busy right now,” said Glenn Tilley, president of Becker Group, a Baltimore company that designs, builds and installs seasonal displays for shopping centers. “Getting organized in the spring and summer months is vital to pulling off a successful experience for the holiday season.”
Tilley says it takes a minimum of about three months to build a Christmas set and roughly the same amount of time to design its layout. Some centers begin dreaming up next year’s decor on Dec. 26, he says.
Pulling off a memorable display can be costly. “Different centers have different expectations,” said Tilley. “Our goal is to create the best possible holiday experience that falls under a center’s budget.”
Those budgets are getting exorbitant, sources say. Constructing an impressive seasonal experience can range anywhere from $150,000 to $1 million, Tilley says. Center officials gladly fork over the cash to get any kind of edge for the holiday season, Tilley says.
“The holiday experience at a shopping center is very memorable and meaningful for customers,” said Tilley. “You get families in there who absolutely make the center court a destination, and they come back year after year. Landlords and managers want to do whatever they can to drive traffic, and an awesome display gets a lot of attention.”
Becker Group knows something about generating attention, of course. For the past two years, it has overseen the massive holiday decorations at 17 centers in the Taubman Centers portfolio. Last year the company created an interactive snow globe attraction for these centers. “We had four to five snow globes along a 22-foot walkway that people could walk into,” said Tilley. “We wanted people to be able to feel what it would be like to literally stand inside a snow globe. We thought it would be a powerful way to get them into the Christmas spirit.”
It was good that the company started developing the concept early, because the project took over a year to create. “First we had the creative process, then the approval process, then the installation process,” said Tilley. “People would be surprised to know the amount of time and strategic effort invested into the experience. Not only is it pretty, but it’s crucial to marketing shopping during the holiday season, which we all know is the busiest time of year.”
Becker Group has also overseen the garden at the Simon Property Group-owned Fashion Valley Mall, in Mission Valley, Calif., the seasonal foliage at the Forum Shops at Caesars in Las Vegas and the dazzling holiday light display at the Gaylord Opryland Resort, in Nashville, Tenn., among other displays. Tilley says that each of these took months, in some cases years, to execute.
“Thinking Christmas in the off-season goes against natural instinct,” said Tilley. “But it’s the best way to be ready for when the holiday rush hits.”
BECAUSE YOU CAN’T KEEP A GOOD BRAND DOWN
Through everything — economic turbulence, shifting demographics and consumer trends, or revolutions in transport, marketing and merchandising — some famed old American retail names retain incredible staying power. Indeed, these old brands can show new life under savvy managers able to change with the times.
Arguably the best recent example of such reinvigoration is JCPenney. With roots going back to the early 1900s, JCPenney achieved phenomenal middle-market success by the mid-20th century. In its heyday, the company ran department stores in every state and was widely known for its catalog business. It had its own bank, drugstore chain and other operations from coast to coast.
By 2000, however, JCPenney appeared to be in trouble. It was, according to more than a few observers, the next big corporate bankruptcy waiting to happen. Wal-Mart and Target were stealing market share from below, and luxury brands luring away customers from above.
Fast-forward to the present. The company’s store, catalog and Internet sales and profits are healthy and growing. Not only has JCPenney saved its venerable name from the ash heap of retail history, it is inspiring customers in the here and now to come in and shop.
How did it do so? CEO Allen Questrom took all the standard steps, such as rationalizing Penney’s old-fashioned merchandising techniques and closing unprofitable stores. But the change was even more fundamental: The company rediscovered its calling as a middle-market retailer and has thus far made it stick.
“A lot of retailers thought the middle market was shrinking and so abandoned it,” said Patricia Pao, CEO of Pao Principle, a New York City-based retail consultant firm. “But JCPenney didn’t think so, and they’ve put all their efforts into serving the neglected middle market.”
Penney polished its customer service, began offering exclusive (though not expensive) designer brands and devised ahead-of-the-curve ways for its platforms to support each other, such as Internet kiosks inside the stores. These strategies are paying off.
But JCPenney is not alone. The upper-market Lord & Taylor revived itself too. One could argue that Lord & Taylor is the venerable name among American department stores, going back as it does to the 1820s as the very first major store on New York City’s Fifth Ave.
Somewhere along the way, however, Lord & Taylor lost that carriage-trade feeling. The brand may not have been in a steep decline, since it was still considered desirable in 1986 when May Department Stores Co. bought it. But it had definitely become a middle-of-the-road store without any special distinction.
In 2003 Lord & Taylor returned to its roots — and boosted its sales — with a restructuring that included not just closure of poorly performing stores, but also re-creation of an upscale shopping experience in the surviving ones. The strategy worked so well that when Federated Department Stores acquired May, it deemed Lord & Taylor too close a competitor to its own Bloomingdale’s brand. Last year Federated sold Lord & Taylor to private investors for $1.2 billion. These buyers acquired not merely a going concern, but also the power of a retail brand that Americans have known for over a century.
BECAUSE BOOMERS KEEP BUYING
Smart shopping centers are bracing for yet another evolutionary phase as the retail industry tries to harness the power of the baby boomers, who have been turning 60 for the past few years. “They are embracing and reshaping this milestone as they have every other event through which they’ve passed,” wrote Lori Bitter, a partner at ad firm J. Walter Thompson’s Mature Market Group, in the foreword to the book After Sixty: Marketing to Baby Boomers Reaching Their Big Transition Years. “The very nature and definition of retirement is changing. The ‘look’ of 60 is being re-envisioned. The expectation of a 60-year-old body is being reshaped.” To stay ahead of this wily consumer group, Bitter says, retailers and their landlords will need to figure out how boomers will continue to work into their golden years, what they value, where they are spending, how they will care for their aged parents, how they are integrating new media into their activities and what they will want and need to get through their later years.
BECAUSE ONE OF THESE PEOPLE COULD BE A FUTURE ICSC CHAIRMAN
BECAUSE WE WEATHER STORMS
There were no silver linings visible in the ominous clouds that hung over Beaumont-Port Arthur on Sept. 24, 2005, the day Hurricane Rita blasted the southeast Texas region and its chief shopping hub, Central Mall, with winds in excess of 120 mph. When the skies finally cleared, the only color area residents and retailers could see was the red ink that their property losses, cleanup costs and downtime would produce.
Flash forward to this year. The metro area is back on its feet, the mall’s newly reconstituted stores are a hit, sales are exceeding pre-storm levels and the Port Arthur center has even added a new anchor tenant — all despite a regional population loss in the tens of thousands.
“What happened was very unfortunate, but we turned it into an opportunity to basically have a brand new mall,” says Central Mall’s general manager Robert Harkins of Jones Lang LaSalle (JLL), which manages the facility for Atlanta owner Gregory Greenfield. “That’s the silver lining.”
Rita made landfall about 15 miles southeast of the mall, causing profound damage. The mall roof collapsed in seven places, several exterior walls were compromised, skylights were ripped out and low-level flooding ruined drywall and practically all flooring. Greenfield, who was in Vancouver when Rita hit, recalls the helplessness of watching the storm’s path on TV. “I realized it was going to go right through the mall’s front door,” says Greenfield. “It was pretty devastating.” The mall incurred approximately $25 million in damage.
But in what Greenfield calls a “precision operation,” JLL quickly secured the property, enlisted contractors and established a Web site to enable employees, managers and tenants to locate and communicate with one another in the frantic days following the storm. Meanwhile, mall anchors Sears and Target were able to partially reopen to sell building materials while mall managers operated out of trailers and subsisted mainly on snack food for several days.
A month later, the mall started organizing a Holiday Fest that it would hold in a giant tent in its parking lot to help tenants and other area merchants who were rebuilding to recoup sales. “We even had a Santa,” says Jodie James, who manages the mall’s marketing and specialty-leasing efforts for JLL. “People were starting to come back to the city and this gave them a place to Christmas-shop. We even got some temporary leases out of it.”
JCPenney, Dillard’s and other stores did major remodels. Bed Bath & Beyond signed on as a new anchor and Merle Norman, Man Alive and Kay Jewelers were among a half dozen other tenants who have since come aboard. Occupancy rates have crept back into the high 80 percent region — still below pre-storm rates of 90 percent-plus. “Some local and regional tenants couldn’t come back for personal or housing reasons unrelated to the mall,” Greenfield explains.
Unlike hurricane-ravaged New Orleans and the casino districts of south Mississippi, the Port Arthur economy wasn’t reliant on tourism, so it rebounded faster, especially since its chief employer, the petrochemical industry, was able to reopen area plants relatively quickly, the owner says.
In 2006, Central Mall sales were up 8.3 percent compared to non-hurricane 2004, with holiday sales rising about 5 percent under the same measure, says Harkins. An estimated 85 percent of the pre-storm population of 385,000 has returned to the region.
“We saw how Central Mall is a central part of the area’s identity,” Greenfield said. “The tenants and community really rallied around its renaissance. All the anchors have reinvested and in many cases, are better positioned. We’re back, stronger than ever.”
BECAUSE WE SUPPORT CULTURE
BECAUSE WE’RE NOT GOING ANYWHERE
BECAUSE WE KNOW HOW TO MANAGE
The three rules of real estate may be location, location and location, but when it comes to retail real estate, management, management and management are more likely to be the three keys to success. More than with any other property type, observers say, running a profitable shopping center is more art than science.
“Ignoring the science of retail property management is a recipe for failure. But you can’t rely entirely on statistics and financial statements to run your business. That’s where the art comes in,” said Scott Mumphrey, head of mall management for Indianapolis-based Simon Property Group.
Retail property managers have a lot on their plates. They must come up with a leasing strategy, determine and maintain the desired tenant mix, attract appropriate retailers, take care of current tenants, work to increase customer traffic, and handle ongoing repairs and maintenance. The ultimate goal is to increase tenant sales volume and maximize the value of their property.
A property manager’s masterpiece is never finished, according to Ken Gillett, a vice president of property management for Santa Monica, Calif.-based Macerich. A shopping center should always be regarded as a work in progress. “You can’t ever rest on your laurels. You could have a center that is 100 percent leased and you’re never done,” Gillett said.
Rosalind Schurgin, executive vice president of Festival Cos., said property managers must constantly work at maintaining vitality in their centers. Festival, a Los Angeles-based retail and commercial real estate firm, develops and manages regional, power, neighborhood and lifestyle centers nationwide. “It’s the synergy of putting the right retailers together and keeping a center attractive and desirable to consumers that makes it successful,” Schurgin said. The trick is trying to hit a moving target. “Consumers are fickle, tastes change and behavior changes, so property managers must be proactive, not reactive, to stay ahead of the curve.”
The job is complicated by its two-fold nature, according to Michele Babcock, executive vice president of operations for Costa Mesa, Calif.-based Donahue Schriber, which operates 83 shopping centers in the western U.S. and specializes in neighborhood, community and power centers. “Retail property managers must not only meet the needs of their tenants, but also the needs of their tenants’ customers,” Babcock said. “They have to understand both sides of the fence.”
Gillett said good managers are always focusing on financial performance, but that needs to be balanced with a focus on the total mall experience. That experience, he said, includes parking, landscaping, security, common areas, amenities and, of course, the selection of merchants.
Mumphrey says that while financials are extremely important for measuring past performance, the numbers don’t reveal much about the future. “If you’re strictly watching the information you’re getting on sales reports and cash-flow statements, you’re probably trailing the trends that are affecting your business the most,” he said. “Good property managers have an intimate feel for their market. They can sense subtle changes that require changes in merchandising and operations.”
Successful property managers are also always looking out on the horizon and making plans for their property to become more valuable years down the road.
John Crossman, managing director of Crossman & Co., an Orlando, Fla.-based commercial real estate firm, said property managers must manage their assets as if they planned to own them forever. “You get into trouble if you manage properties with a short-sighted view, because that’s when you get sloppy,” he said.
And sloppy will get you nowhere in an industry that depends on repeat business. “This is a partnership. The better the retailer does, the better the shopping center is going to do,” Schurgin said.
That’s where the art of cultivating relationships becomes a big factor. Babcock said property managers need to be flexible, open-minded, and collaborative. They must be skilled in the art of communicating and problem-solving.
“In retail, you’re often dealing with a diverse group of tenants. You have some corporate people, but also lots of mom-and-pop entrepreneurs. And all of them come from different backgrounds and cultures. You can’t have a one-size-fits-all mentality in responding to tenants,” Crossman said. And a manager’s future success depends on skillfully handling current tenants. “If you don’t treat tenants well, you might get one deal done, but you won’t get two. You’re not going to be able to ramp up.”
Managing those relationships involves having good judgment about people and situations. “Property managers need to know when to push hard and when to give a tenant some grace,” Crossman said. “You may have a tenant who is paying the rent, but they’re very disruptive, and you may want to get rid of them. Or you may have a great tenant who is having slow sales for some reason and they’re not able to pay the rent, but you might want to give them concessions because they’re bringing additional value to the property.”
The art of retail property management has become more difficult over the years as the industry has become more competitive. “Property managers today can’t simply be good operators. We can’t just run a clean, secure, climate-controlled development. We have to be a place where the retail is the most up-to-date it can be and where the building itself is up-to-date,” Mumphrey said.
According to Gillett, growth is more challenging than it was a decade or two ago, and companies must generate more growth internally. “Companies can’t rely on acquisitions for growth, certainly not at the rate that they were able to before. They have to focus on enhancing the value of their current assets. And that’s not easy in a fiercely competitive market.” And so, property managers need to keep blending art and science to take their properties to the next level.
BECAUSE SALES PER SQUARE FOOT KEEP CLIMBING
Inflating gas prices and a deflating housing bubble
haven’t kept U.S. consumers from shopping at retail centers. Retail REITs posted some of their highest sales per square foot figures ever in 2006 despite concerns about the economy and the war in Iraq. Simon Property Group’s comparable store sales grew 5.8 percent year-over-year to $476 per square foot. Taubman Centers’ malls achieved record average tenant sales per square foot of $539, up 6.1 percent from $508 per square foot in 2005. Meanwhile, General Growth Properties reported that sales per square foot for its fourth- quarter 2006 were $453 versus, $437 in the fourth quarter of 2005.
BECAUSE WE GET TO PLAY WITH TOYS
BECAUSE WE CAN SQUEEZE A MILLION SQUARE FEET OF RETAIL ONTO JUST 17 ACRES
Architecture firm GreenbergFarrow recently completed the master plan for developer Related Cos.’ $500 million Gateway Center, at the Bronx Terminal Market, in New York City. To fit Target plus Bed Bath & Beyond, Best Buy and Home Depot onto the site, the development team had to take densification to the extreme, creating room for 1 million square feet of retail space on a site that would normally yield no more than 160,000. The complex includes three buildings, with two retailers sandwiching a parking structure. This staggered vertical scheme allows each parking level to belong to a particular retail floor, with individualized parking in front of the store. The design separates retail buildings from the parking structure with two internal streets, says Navid Maqami, principal of architecture at GreenbergFarrow. “This project refines existing models for retail development,” Maqami said, “by ‘taming’ the familiar suburban big box for convenient patronage by urban shoppers.” The project is scheduled for completion in 2009.
BECAUSE WE ENCOURAGE GOOD HEALTH
Free health screenings are a staple promotion for shopping centers worldwide. They bring in coveted older shoppers and create a sense of loyalty toward the retail center as a hub of the community. During a 10-day event in September, Emmen Center in Emmen, Netherlands, gave free health checks, including blood pressure and lung capacity screenings, to about 1,500 people. To add an element of fun to the proceeding, participants were told the “biological age” of their bodies in relation to their actual age. The traffic uptick was so great, the center decided to do health checks on the first Friday of the month, with each month dedicated to a specific health issue, such as skin cancer.
BECAUSE INVESTORS LOVE RETAIL TOO
For years now investment capital has been pouring into U.S. real estate from every kind of investor here at home and from plenty of others around the world. Investors like all U.S. property types, but their buying habits fluctuate — office, industrial, hotel and multifamily have all swung in and out of favor.
Retail, though, is a constant. Even during the downturn of 2001-2002, investors wanted retail, because shoppers kept shopping. Even as cap rates dwindled to historic lows over the past few years, investors scoured the country for retail. And as things started picking up again, investors poured more billions than ever into retail properties, in 2005 and 2006.
A prime ingredient in the retail-buying frenzy has been cheap capital. It is not quite as cheap as it was a few years ago, but by historic standards, it still is. Institutional investors in particular, which, after all, enjoy the least expensive cost of capital, have been able to pay increasing premiums for properties because, on a leveraged basis, they are still getting the returns they want.
But is all of this irrational exuberance? Very recent history — the past few quarters — suggests otherwise. In about the middle of last year, the pace of retail investment sales slowed somewhat. A lot of deals were still getting done, so it was not a crash. Rather, it was merely the market going from a hyperactive frenzy to merely a very active frenzy — from white-hot to only red-hot. Call it rational exuberance.
“Finally, in mid-2006 the risk premium came back into the equation,” said Bernard J. Haddigan, senior vice president and managing director of the national retail group of investment brokerage Marcus & Millichap. “A bit of sobriety came back to the market at that point, partly due to the fact that 10-year Treasuries went up. So 2006 was behind 2005 in sales volume by about 20 percent.” Retail property quality does matter to investors — meaning credit and asset quality, and location, Haddigan says. “Buyers are more careful now in terms of underwriting and are willing to pay a little less than a year ago,” he said. “There’s still an abundance of capital in the market looking for properties to buy, but it’s a little more selective.”
The high end of the market, however, is still white-hot. Places with high barriers to entry for new retail, such as in-fill locations in Chicago, New York City, Washington and other top-tier cities; or with extraordinary population and demographic growth, such as Las Vegas, Orlando, Fla., or Phoenix, have no shortage of eager buyers looking to make a deal for that plum lifestyle center or grocery-anchored community center.
The outlook for this love affair between investors and retail property looks good as well, especially if the cost of new construction stays at historically high levels. Haddigan estimates that retail investment sales this year will top last year’s by single digits. “Investors are still out there looking,” he said, “because they still see enduring strength in retail.”
BECAUSE LANCE ARMSTRONG WILL SPEAK AT SPRING CONVENTION, IN LAS VEGAS, SUNDAY, MAY 20
BECAUSE WE NETWORK
The mall world is a small world when it comes to personal relationships. Professionals in the shopping center industry frequently cross paths in their careers and often end up working together at different points along the way.
For the most part, that can be a good thing, for both individuals and companies. The relatively small size of the industry, combined with a great deal of consolidation over the past few decades, resulted in a tight network of people who know each other very well.
Making this network even tighter is the fact that people often stay in the industry for the duration of their careers. According to Ken Gillett, vice president of property management for southern California at The Macerich Co., they stick to it because it’s fun. “People who work in this business really like it,” Gillett said. “I think we enjoy what we’re doing, because it’s all about relationships. And it’s important to have fun at work when you put in the kind of long hours we do.”
Gillett oversees operations for 12 regional malls and open-air centers for Macerich. He met his current boss, Charles Waldron, Macerich’s senior vice president of property management, through an ICSC committee that they both served on. About a year ago, Waldron hired Gillett from The Mills Corp., where Gillett was a vice president and regional manager. Before that, Gillett spent 16 years with Trizec Retail & Entertainment Group. “Through serving on the ICSC committee, I got to know Charles very well, and I got to know the Macerich company culture very well,” Gillett said. “As a result, it was a natural transition for me to join Charles’ team.”
Now that Gillett is at Macerich, he is working with many property managers who once worked at Trizec with him. “There are many benefits to working with old friends,” Gillett said. “Because of the familiarity and trust, communications are more efficient and expectations are crystal clear. Productivity is enhanced because you work harder for people you like.”
Of course, there are drawbacks to working with so many of the same people over the years. “When you find yourself across the table from old colleagues, sometimes they know you so well that they know your weaknesses when it comes to negotiating,” said Emerick Corsi, executive vice president of commercial development at Cleveland-based Forest City Enterprises. But the camaraderie, the personable nature of the business and the long-term relationships that many cultivate over the years are more help than hindrance, he says. “I’ve been doing deals with the heads of real estate at major retailers like Target, Wal-Martand Federated for years,” Corsi says. “We all grew up in the business together. So it’s very easy for me to pick up the phone and get things done with them.”
Mike Jaffe, president of The Jaffe Cos., can attest to the ease of making deals with former colleagues. Jaffe has been developing shopping centers in Illinois and Texas for 25 years. His Northbrook, Ill.-based firm is co-developing The Arboretum of South Barrington, in suburban Chicago, a 650,000-square-foot, open-air lifestyle center scheduled to open next summer.
Jaffe said it took about 20 minutes to come to an agreement with Richard Golden, the head of real estate at shoe retailer DSW, on a store for The Arboretum. The two had worked together twice before. When Golden was at his previous employer, Gap, he and Jaffe cobbled together deals for various Gap concepts at Jaffe’s Huebner Oaks Center, a lifestyle center he developed in San Antonio in 1997, and at Geneva Commons, a lifestyle center he developed in Geneva, Ill., in 2001.
“The success of everyone in this industry depends on being able to rely on others to deliver,” Jaffe said. “Once you’ve had an experience with someone that worked out well, the next time you get the chance to work with that person, you seize the opportunity.”
BECAUSE RETAIL IS THE HEART OF EVERY MIXED-USE PROPERTY
Retail might only occupy a fraction of a mixed-use project’s square footage, but it nearly always has a starring role. Without successful stores, experts say, a mixed-use project will never take off.
“Retail gives a mixed-use project its personality,” said Lee Wagman, CEO of The Martin Group, a Santa Monica, Calif.-based firm that develops and manages all types of real estate, including mixed-use properties. “It defines the audience and communicates that much more clearly than the other uses can — because of the images associated with well-known retail names.”
Although the mixed-use development is a hot trend in urban and suburban markets, it is not a new one. The concept goes back as far as the history of urban settlement, notes Yaromir Steiner, CEO of Steiner + Associates, a company that has built mixed-use projects in Columbus, Ohio, Kansas City, Mo., and other cities. But the U.S. stopped building them in the Great Depression. Then came the post World War II creation and expansion of suburbia, where residential and commercial buildings were put in separate zones, and never the twain would meet. Consequently, it wasn’t until recently, as space became scarcer in the suburbs and cities began getting popular again, that mixed-use development came back into vogue in both locales.
It’s a wonder, though, that mixed-use projects ever went out of fashion. They create a sense of community and enhance the quality of life for shoppers, residents and office workers alike. Pedestrian-friendly exterior spaces include wide sidewalks, benches and streetlamps, and retail storefronts encourage window-shopping. Rising gas prices and lengthening commutes have conspired to make mixed-use development even more popular.
Residents love them, because they are freed from their cars. Retailers love them because they have customers living above the shop. And developers love them because they can tap a site to its full potential, and spread the risk. But especially loved is the retail. “Retail is the most important component in mixed-use projects because it’s the face of the project,” says Andrew LaGrega, SCSM, SCMD, a principal of The Wilder Cos. “It’s the first thing the public sees, and it sets the overall tone.”
LaGrega is responsible for leasing and marketing at the Boston, Mass.-based Wilder Cos., a retail real estate firm that is developing a 350,000-square-foot mixed-use project in Orlando, Fla., called The Rialto. The development includes about 100,000 square feet of shops and restaurants, some 50,000 square feet of office space and 200 residential condo units. Its completion is expected sometime this year.
The mix of retail, office and residential space varies from project to project, LaGrega says, because each market is different. “We do an exhaustive job of determining where the holes are in a retail market and how fast that market is expected to grow.” In addition to serving the shopping needs of an area, LaGrega said retail also creates a sense of community. “It becomes the focal point, a meeting place. It’s really a new version of the old town center.”
The Pinehills, a mixed-use development in Plymouth, Mass., is designed around that concept. Its retail component, called the “Village Green,” is styled like an old-fashioned town center in the heart of a residential community. The shops and services include a dry cleaner, post office, café, wineshop, florist, bank, insurance agent, lawyer, mortgage broker, financial planner and three types of doctors. A grocery store is in the works. “The concept was to build a place that would maintain its rural character and yet also have a center that was convenient and created social interaction,” said Tony Green, managing partner of The Pinehills.
The first homeowner moved in at the end of June 2001, and 1,000 homes have since been sold. Eventually there will be nearly 3,000 homes. The retail component will grow as the surrounding community does. Office and retail space totals 100,000 square feet currently, and the total zoning capacity for mixed-use commercial property is 1 million square feet. The project is located 45 minutes from Boston and eight miles from Cape Cod. “There’s no retail in either direction of the Village Green for about six miles, so there was already a void to fill in the area,” Green said. “There’s a market of customers, both in and around our development, who were driving a long distance to get what they need.”
But while retail is a boon to those living in a mixed-use complex, it has to serve a wider market, says Brian Jones, president of Forest City West, part of Cleveland, Ohio-based Forest City Enterprises, which develops and manages commercial and residential real estate properties throughout the U.S. “There has to be a market need beyond the mixed-use building to support the retail,” he said.
“That’s what makes these projects energetic, because they’re pulling in people from the surrounding area. That’s why projects near subway stations and other transportation systems do so well.”
The idea for University Town Center, a mixed-use development in Hyattsville, Md., was based on that very notion. The project is one mile from the University of Maryland at College Park, a 25-minute drive to downtown Washington, and, importantly, steps away from a Metro rail station.
University Town Center, which broke ground in April 2006, has more than 200,000 square feet of retail space that includes shops, restaurants, cafés, a 14-screen movie theater and a 56,000-square-foot Safeway grocery store in the works.
The residential component includes a 910-bedroom student housing building that was completed last August for students from the University of Maryland, Catholic University, Howard University and other area colleges. Condos and lofts are under construction — one 112-unit building is scheduled for completion this August and a 22-unit building is to be ready in October.
The Metro is a primary driver of traffic to the project. Catholic University is three stops away. Howard is a 10-minute subway ride. The other universities in the area are fairly close to Metro stations, so the project is attracting students from Georgetown, American University, George Washington University and several other smaller colleges in the area, said Tim Taylor, vice president of leasing for Prince George’s Metro Center, which is developing University Town Center.
University Town Center has supplemented the subway transportation with a shuttle bus that runs to and from the University of Maryland campus from 7 a.m. to 3 a.m. Any of the 50,000 students there can ride it for free.
Retailers who work well in mixed-use projects tend to be service- or lifestyle-oriented, said Marianne Lowenthal, executive vice president of Combined Properties, a Beverly Hills, Calif.-based firm that owns and operates a 5 million-square-foot portfolio of shopping centers and mixed-use projects in the Washington and Los Angeles metropolitan areas. “They have to be the kind of stores people would like to live above and around, like grocery stores, coffee shops, bookstores, and clothing stores,” she said.
Less desirable are big-box stores, which become major destinations and have enormous parking demands.
“I have seen mixed-use projects with big-box stores. It’s not impossible, but they tend to work less well,” said The Martin Group’s Wagman. “You can lessen their dominance by wrapping other elements around them. But in general, big boxes are less willing to make the concessions that mixed-use requires because they can simply locate somewhere nearby instead.”
Entertainment-related retail is often a key part of the retail component. Restaurants and theaters help attract customers from surrounding areas, especially during the evening hours. “When you have restaurants and bowling alleys and movie theaters, it creates activity all the time and maximizes the value of the assets,” said LaGrega. It also makes better use of parking. Spots that are used during the day by office workers become available in the evening for patrons of entertainment establishments. But entertainment retailers create their own problems.
Developers have to make sure noise is contained to avoid disturbing residents. As a result, developers and retailers have to grapple with space constraints. “In major urban cities, retailers are used to operating with space limitations — and residents in those areas are used to the issues that come with living close to retail. But that’s not the case in many non-urban areas, and you need to address those problems,” Lowenthal said.
Retailers need to be flexible and willing to modify their formats to work in mixed-use, and they’re becoming more willing to do so. “They’re getting used to mixed-use,” Lowenthal said, “because they’re appreciating higher sales volumes that come with locating there.”
BECAUSE WE MAKE LIFE EASIER IN THE THIRD WORLD
BECAUSE NOBODY GIVES GIFT CERTIFICATES ANYMORE
Retailers finally found a way to extend the holiday shopping season and draw in customers during low-traffic months: gift cards. U.S. consumers spent about
$80 billion on the cards in 2006, according to research firm Tower Group. A survey by Marketing Workshop found that only 30 percent of recipients use a gift card within a month of receiving it. Meanwhile, about 19 percent of the people who received a gift card in 2005 never used it, according to Consumer Reports magazine.
BECAUSE BIG DEALS HAPPEN
The M&A scene just gets more and more dramatic among retail landlords. Last month, France’s largest REIT, Unibail Holding SA, offered to acquire shopping center owner Rodamco Europe NV in a $15 billion deal that will create the world’s second-largest real estate company.
The deal will “create the leading pan-European commercial property company,” with a combined portfolio worth $28.21 billion. The combined value in terms of annual rental income would be $1.2 billion, the two said in a press release. Only shopping center landlord Westfield Group, with a portfolio valued at $32 billion, is larger.
Rodamco Europe, based in Rotterdam, is the largest retail real estate owner and manager in Europe, with a portfolio worth more than $13.6 billion. It has 73 shopping centers, which account for about 94 percent of its portfolio. These are located in Belgium and the Netherlands, as well as Central Europe, France, Spain and Scandinavia.
Unibail, based in Paris, has a portfolio valued at $14.1 billion, consisting of shopping centers, offices and convention centers. The company is offering stock worth $162.20 per share for Rodamco, which is about 15 percent more than Rodamco’s April 5 closing price, Bloomberg reports.
“It's a perfectly reasonable deal as far as shareholders are concerned,” Patrick Sumner, head of real estate stocks at Henderson Global Investors in London, told Bloomberg. Henderson owns shares of both Unibail and Rodamco.
Unibail’s Chairman and CEO Guillaume Poitrinal will be chairman of the management board and CEO of the new combined company, whose operational headquarters will be in the Netherlands, while the registered office will be in Paris, the press release said.
Robert F. W. van Oordt, Rodamco’s chairman, will become chairman of the supervisory board of the new entity. Rodamco’s CEO, Maarten Hulshoff, has elected to leave the company. “This merger is a stimulating next phase for Rodamco and its stakeholders,” he said in the news release. “I feel my task of bringing Rodamco into this next phase is now fulfilled.”
BECAUSE DONN CARR LOVES IT
If Donn Carr were to volunteer a phrase that describes his life, he might say “rollin’ on.” Maybe the way in which he came into the world was a sign. Carr was born in the back seat of an old Nash Rambler by the side of a dusty road in Tulsa, Okla., in 1948. “My dad was driving someplace, and my mom was riding in the passenger seat, when unbeknownst to them I decided I was ready to be born,” said Carr.
Ever since, one winding road has led to another and then another for Carr, the manager of Simon Property Group’s Avenues Mall, in Jacksonville, Fla. “My dad was in the Air Force, so his career took us all over the world,” said Carr, who lists Hong Kong, Japan and Singapore as family domiciles when he was growing up.
In 1964 the Carrs moved back to the U.S. permanently, while Carr was in high school. The following year, as a member of a rock ’n’ roll group called the Cobras, Carr toured the East Coast with the likes of the Beach Boys, the Dave Clark Five and the Righteous Brothers. He graduated in 1966 and then enrolled at North Carolina State University to study business. Not long after this, though, he was drafted into the Navy and served in Vietnam. “I made a left turn at the war, and basically spent three or four years in the Mekong delta,” said Carr. “When my service time was up, I had no idea what to do with myself.”
Carr returned home and settled in San Diego, where he took a job selling pots and pans door-to-door. “I was shocked by how much I enjoyed going from home to home and just how good I was,” Carr said. “A lot of people think selling stuff is the worst job imaginable, but I really loved it. That’s what kind of tipped me off to the fact that I should start looking for a career in retail.”
He went to work for a store called Chest King, in Scottsdale, Ariz., and then in Worcester, Mass., before joining a Dillard’s in Dallas in the mid-1970s. In 1984 he started working for a two-store startup, a safari and travel clothing company that has since become a household name.
“Getting in on the ground floor with Banana Republic was an incredible experience,” said Carr. “When you’re involved with projects like that, you really get a sense of what it takes to be successful in this business.” Carr eventually became a regional manager and stayed with the company for the next four years. His path swerved unexpectedly again in 1988. “They were downsizing, so we were told our services were no longer needed,” said Carr.
On a flight from Memphis, Tenn., Carr sat next to a woman who was a retail marketing associate at DeBartolo Realty Corp. “It was just a stroke of luck that we got to chatting,” said Carr. “I told her about my employment history, and she said she would mention my name to her people and see if anything came up. I wasn’t really expecting a whole lot to come from it, but I was optimistic.”
DeBartolo happened to be looking for someone to manage the Red Bird Mall, in Dallas. The company was having trouble keeping managers at the center, which was located in a tough, crime-ridden neighborhood, so the executives decided to go beyond merely hiring a manager away from some other mall.
Carr interviewed with Rudolph E. Milian, SCSM, SCMD, a DeBartolo regional manager at the time, and today senior staff vice president and director of professional development services at ICSC. “As soon as he walked into the room it was clear he had a zest and a passion for retail,” said Milian. “He’d been basically running a department store, so I had a hunch he’d bring a fresh perspective to running a mall because of his ability to really know where retailers were coming from.”
Carr concedes that he was unsure he had the job in the bag. “It was the longest interview of my life,” he said. “Milian had me in there all day just to make sure I was the kind of guy he wanted to hire, I suppose.”
Carr did get the position. “My first day on the job, I showed up and noticed they were using revolving nameplates in the manager’s office,” said Carr. “I tossed mine in the garbage and pulled out my own permanent one. I knew that to make it work I had to be in it for the long haul. I didn’t view it as just some stepping-stone.”
Within months, Milian says, Carr turned that center around; he fixed the specialty leasing program, introduced pushcarts and worked with security to boost shopper confidence in the safety of the center. “The job he did there really earned him a great name in this business,” said Milian. “Sometimes it’s just evident when people really love what they do. Don was tireless.”
Carr remained at Red Bird Mall for eight years. But when DeBartolo merged with Simon in 1996, Carr was sent to Jacksonville to manage the six-year-old Avenues, which was struggling to attract high-end tenants at the time. “Jacksonville was a market no one knew anything about,” said Carr. “We knew the area had high-end demographics, but all the affluent people in north Florida were going to Atlanta and even New York to do their shopping. [Simon] wanted me to totally re-tenant it and bring it from a ‘C’ to an ‘A-plus’ center.”
First Carr made cosmetic changes to the housekeeping staff. “We decided to put everyone in white shirts, black suspenders and bow ties and give them name tags with their first names and where they are from,” said Carr. “When you dress people up, they begin to carry themselves differently. All of a sudden, maids were carrying mall directories on their carts and pointing people in the right direction, and members of our custodial team were opening doors for customers. It made a huge difference.”
Under Carr’s leadership, and with what he calls an “aggressive leasing team,” the Avenues brought in big customer draws like Coach, Pottery Barn and William’s Sonoma.
Carr’s love for retail has inspired him to share his knowledge with others. He teaches classes in retail management for ICSC in the U.S. and abroad. In April he went to Mexico, to Monterrey and Guadalajara, to discuss retail development in Panama and Columbia.
“He is absolutely in the top echelon of teachers we have,” said Gregg A. McCort, SCMD, ICSC’s director of education. “Last year at a course in Michigan, he was unable to teach, and students came up and asked for him. That’s highly unusual and a testament to his enthusiasm for this business and his popularity among students.”
Carr says his enthusiasm comes easily.
“A mall manager is everything you see, touch, hear and experience when you are in a mall,” said Carr. “I can’t imagine anything more exciting for someone who is passionate about retail.”
BECAUSE E-COMMERCE NEEDS US
In the beginning, there was fear.
And the fear was that this newfangled thing called the Internet was going to destroy the world of brick-and-mortar retail.
No one would want any longer to hop in the car and drive to the store. They would just go online and buy whatever they wanted. All they had to do was point and click. And they could do it naked. It was the end of the world. Tumbleweeds would blow through the desolate promenades of once-glorious malls.
Hard to believe, but it was less than 10 years ago that Time magazine declared on its cover that you should “kiss your mall good-bye” because online shopping was faster and cheaper and better. Even by the hyperbolic standards of the day, that was big talk. And it was wrong. What John T. Riordan, then president of ICSC, noted in his response to Time’s sensationalism still holds true today: “Shopping has always been a sensory experience,” he wrote. “People like to touch what they buy. The shopping center industry thrives and will survive because it provides the best consumer interaction with goods and services.”
So much for the apocalypse. Far from turning malls into ghost towns, the Internet has changed the way most retailers do business. No longer is it a question of one or the other — virtual or real. Current trends show that bricks and clicks are getting along just fine. “Store-based retailers have been finding all kinds of ways to leverage the Internet,” said Mary Brett Whitfield, a vice president with TNS-Retail Forward who specializes in online retailing.
Whitfield cites JCPenney as one retailer that was able to leverage its experience in catalog sales and adapt quickly to online selling. “They’ve been able to transfer a lot of their catalog customers to the Internet,” she said. “The newer store prototypes have e-commerce centers where you can go online and set up a gift registry or order online. They were one of the retailers that initiated the practice of ordering online and picking up at the store. They were able to do that because of their catalog heritage.”
In an ironic twist, therefore, it was the more traditional retailers who had the experience with the “old media” of print catalogs who were able to adapt most easily to the opportunities on the Internet.
“Some of those who didn’t have that catalog heritage during their first experiments didn’t know how to sell merchandise in a virtual environment,” Whitfield said. “Catalog retailers know how to describe the merchandise in a way that you’re not used to doing when you just sell in the store. If you’re selling it in the store, you never actually have to talk about this kind of waistband or whatever.”
Today, the Internet is a basic part of most retail business strategies, although overall dollar volume remains modest in comparison to spending in stores. According to the U.S. Commerce Department, online retailing was just 2.8 percent of overall sales revenue in 2005. The major difference has come about with shoppers using the Internet as a supplement to their selection process and decision making.
A recent survey by Performics, a division of the DoubleClick digital advertising technology company, showed that during the most recent holiday shopping period, a majority of adults researched merchandise online before making a purchase. And the research had a measurable effect on their decision making, with the shopper becoming more brand-sensitive after conducting the online research. The survey showed that 58 percent of adults planned to conduct research online during the last holiday season, and 43 percent said they would make a purchase based on that research.
Another study of the 2006 holiday season by comScore, a research firm based in Reston, Va., showed that spending was up 26 percent over the previous year to $23.1 billion. The largest trend they saw was in the growth of the online business of such traditional brick-and-mortar retailers as Best Buy and Wal-Mart, each showing more than 50 percent growth over the previous year.
This multichannel shopper is now the norm, as consumers use various channels to make purchases and purchasing decisions. It is no longer an either-or proposition. And the permutations of the relationship are still evolving. Some shoppers research online and buy in a store, while others identify a product in the store, then look for the best price online.
Consumer electronics is a good example. According to NPD Group, the consumer research firm, people in 2006 preferred buying high-tech products in stores rather than online. Sales at stores increased 4.6 percent to $85.8 billion, but the growth on the e-commerce side barely moved up 0.5 percent to $25.2 billio over the previous year. “For now, consumers continue to prefer the retail experience when they purchase technology,” said NPD analyst Stephen Baker, when the firm recently released its report.
But that doesn’t mean the Internet played no role in that purchase, according to Whitfield. “Among the retailers who have been able to significantly leverage the online presence are the consumer electronics players,” she said. “It’s certainly a sales channel, but for someone like a Circuit City or Best Buy, I consider it to be a contribution channel. It’s contributing to sales in a much more meaningful way than it actually may be with actual sales online.”
As more shoppers are making decisions via the Internet, retailers are trying new ways to keep browsers on their sites and to offer functionality that complements the in-store experience.
“As the products get more complicated, and as we get more involved in all the features, we’re doing more research purchases — ‘what do I want,’ ‘what do I need,’ ‘how do I get the best price,’ ” Whitfield said. “So ultimately, their [retailers’] goal is to keep you on their site and [let you] find all you need there.”
Perhaps Target.com is the best example of a sticky site that inspires hits way beyond those of a mere online catalog and has become a lifestyle destination in itself. Target’s site contains microsites that offer exclusive online-only merchandise, as well as community-building functions such as “Bookmarked,” a section intended to cultivate a regular audience of book club members.
“You’re seeing retailers l