Threshold Resistance Page 3
By the end of the 1950s, we had certainly come a long way. The Taubman Company had evolved from a two-person upstart builder backed by $5,000 in debt to a developer with a substantial track record in Michigan and a healthy book of business. But our dreams were much bigger. And as it had to so many previous generations of adventurers, California beckoned us to go west.
THREE
The Golden West
Postwar America was booming. New housing developments were springing up everywhere. Highway systems were being constructed across the nation, and Detroit’s factories were churning out automobiles around the clock for growing families. After nearly two decades of depression and war, an unprecedented national prosperity was creating the largest and most prosperous middle class any society had ever known, and a new phenomenon—television—was fueling a national desire for more and better consumer goods.
By this time, we could see that developing large-scale retail properties was a numbers game, a question of population (and population growth), income, distances, and roads. We had experienced and profited from this growth in Michigan, but we could see that other parts of the country were growing more rapidly, like California. I began to think about building there. But I faced a huge amount of threshold resistance. The logical place to expand for a company like ours would have been an adjacent area, such as northern Indiana or Chicago. We didn’t have much in the way of experience, contacts, or reputation in California, but it seemed like a natural move for me. We were facing some resistance to further expansion in the Detroit area. Hudson’s, the dominant department store chain in the region, didn’t have any interest in working with me, and California was growing by leaps and bounds.
In 1959, I went to San Francisco to find a leasing company and met with old Mr. Coldwell at Coldwell Banker, who practically kicked me out of his office, saying, “I hope you bought a round-trip ticket out, because we don’t need any shopping centers.” I walked down Sutter Street and hired the Milton Meyer Company—a brokerage firm with a young leasing agent named Sheldon Gordon (who would become my lifelong friend and partner), and began to look for a large plot of land.
I found it in San Francisco’s East Bay area, where we set out to do something revolutionary: build malls about twice the size as comparable ones and enclose them.
I can remember as if it were yesterday the first meeting I had in 1963 with James O. York, who was working on the Macy’s account for a prominent market research firm. Jim had concluded from his analysis of population growth, highway patterns, and existing competition in the East Bay area that our proposed project—Sunvalley, to be built in the town of Concord—would be a great success. But he felt the center should be around 300,000 square feet total. He also recommended that the project’s Macy’s store be only 60,000 square feet.
I, on the other hand, was planning a center of 1.25 million square feet, including Sears, JCPenney, and a Macy’s of more than 200,000 square feet. In other words, Jim and I were only about 900,000 square feet apart!
At the time, construction was already well under way at our first West Coast project, a much smaller mall thirty miles to the southwest, in Hayward, California. Southland, the first enclosed mall in northern California, opened in 1964, anchored by Sears, JCPenney and Emporium Capwell.
To understand the level of resistance to my plans, you have to consider the conventional industry wisdom at the time. Major department stores, in order to preserve the dominance of their flagship locations (in this case, the 600,000-square-foot Macy’s store in downtown San Francisco), severely limited the size and merchandise selection offered in branch suburban locations. This strategy vastly underestimated the pace of population growth in suburban communities surrounding central cities and, ironically, threatened the very market dominance it was devised to protect.
Before I get back to my discussion with Jim, a bit of history will be helpful.
Many people to this day blame the suburban mall, at least in part, for the demise of America’s downtowns. I have found throughout my adult life at cocktail and dinner parties that it is politically correct to be prodowntown and antisuburb. Inner cities are alive with culture and sophistication; suburban communities are vacuous and homogenized. West Side Story vs. Leave It to Beaver. The “21” Club vs. McDonald’s. In fact, a popular myth holds that regional malls began to spring up in cornfields across America shortly after World War II, creating suburbia—an evil, all-powerful magnet that drew people, housing, and commercial development away from our nation’s vulnerable inner cities.
That’s a distorted view of history. First of all, we need to recognize that settlers from the beginning of our nation’s history established unique patterns of urban development far different from the Old World cities from which they fled. An urban study in the 1890s, a time when commuter railroads had already kickstarted the growth of suburbs, found that the population density of American cities averaged twenty-two people per acre, compared to 157 for cities in Germany.
America’s affinity for a suburban lifestyle is certainly not a new aspiration. In fact, archaeologists discovered the following inscription on a clay tablet dating back to 539 BC:
Our property seems to me the most beautiful in the world. It is so close to Babylon that we enjoy all the advantages of the city, and yet when we come home we are away from all the noise and dust.
Nevertheless, we tend to focus on the 1940s and 1950s as the dawn of America’s suburbs. Of course, by the 1920s, immigration, advances in mechanized farming, as well as the flow of returning servicemen from World War I, had created an unsustainable wave of urban population growth. Because our cities could not accommodate these numbers, growth migrated to the city’s fringe. In response, retailers followed to conveniently serve customers in these new communities.
But as a general rule, the major department store companies—Dayton’s in Minneapolis, Hudson’s in Detroit, Wanamaker’s in Philadelphia, Lazarus in Columbus, Marshall Field’s in Chicago—stayed put in their protected downtown locations. For the first half of the twentieth century, established downtown department stores exercised significant control of land use and the political process. Politicians marched in store-sponsored holiday parades, and wings of hospitals were built with generous corporate contributions from retailers. These stores were among the largest employers and most visible local businesses. In 1953, Hudson’s flagship store in downtown Detroit employed 12,000 people and maintained a delivery force of 500 drivers operating 300 trucks!
Because of this extraordinary influence and their ability to control the distribution of name brands, department stores were able to forestall competition from new retailers in their markets. America’s cities were essentially one-store towns. Before landmark free-trade rulings in the 1960s and 1970s, if you wanted to purchase a Hathaway dress shirt in Detroit, you had to go to Hudson’s—and only Hudson’s. They, like powerful department stores in other cities, absolutely controlled distribution of the most popular apparel brands.
For decades, dominant department stores made it difficult if not impossible for upstart merchants such as Sears, Montgomery Ward, and other variety and specialty stores to secure competitive downtown locations.
Contrary to dinner party myth, retail follows residential growth. People shop where they live, not necessarily where they work. As a result, upstart stores found locations called “hot spots” two, four, or six miles from downtown. These street-front properties were serviced primarily by foot traffic, buses, streetcars, and increasingly, automobiles. The irony? If department stores had not excluded competitors like Sears and JCPenney from downtown locations, fewer new retail developments would have been built to splinter the markets and challenge the flagships’ dominance.
The automobile and the mobility it provided to America’s growing middle class changed everything for the downtown department store. By 1930, 23 million cars were registered in America. And after World War II, federal programs offering affordable financing for new home-buyers and histori
c expenditures on highway construction accelerated the exodus of formerly captive customers. By the 1960s, major downtown department stores had no choice but to join the outcast family of chain stores in major new suburban centers like Southland and Sunvalley.
Of course, the department stores themselves played a significant part in the migration of retail to the suburbs. Some people credit Northland Mall, which opened in the Detroit suburb of Southfield in 1954, with being one of our nation’s first regional shopping malls. What made the 1954 opening of Northland so pivotal to development patterns in southeast Michigan was the size of the Hudson’s department store that anchored it. Now, it’s understandable that Hudson’s, the region’s dominant retailer, would make the decision to build its second store beyond the city limits. All major department store operators were beginning to build branch stores in the suburbs by this time. What was unusual, however, was Hudson’s decision to build such large stores—a 600,000-square-foot store at Northland and, in 1957, a 400,000-square-foot store at Eastland in Harper Woods. These were not branch stores, which typically were between 150,000 and 200,000 square feet. And they gave shoppers another reason to make purchases closer to where they lived instead of downtown.
I certainly wasn’t alone in building large projects in different states. This period of explosive growth saw the formation of several shopping center companies that grew to be national firms, and there was plenty of room for all of us. On the West Coast, Ernest W. Hahn started his business in 1947 as a general contractor specializing in carpentry. Ernie handled the carpentry for me at Eastridge, which opened in San Jose in 1971. His first center, La Cumbre Plaza in Santa Barbara, opened in 1967. For a few years in the late 1990s, Taubman Centers owned the property along with the Paseo Nuevo center in downtown Santa Barbara. Hahn was one of the first mall developers to form a public company—the Hahn Company—which was ultimately acquired by Canadian real estate giant Trizec in 1980.
For whatever reason, the Midwest bred several mall pioneers. Matthew and Martin Bucksbaum, brothers originally from Iowa, formed what is today the very successful General Growth Properties in 1954 after trying his hand at managing a supermarket business. I made an offer to buy the Bucksbaums’ portfolio in the late 1960s. They turned me down. And while the discussions were entirely friendly, I think I hurt their feelings. I didn’t mean to, and to this day I deeply respect the family and their business.
Melvin Simon, along with his brothers, Herbert and Fred, started in the construction business in 1960 in Indianapolis. The Simons were from New York, but Mel’s job as a leasing agent for Albert J. Frankel Co., a strip center developer based in Indianapolis, brought the family west. Edward J. DeBartolo of Youngstown, Ohio, formed his construction company in 1948 and soon branched out into retail development close to home and later in Florida. The DeBartolo Company was acquired by Simon in 1996.
Philip M. Klutznick, also a product of the Midwest, was born in Kansas City, in 1907. His father, Morris, was a cobbler. Philip and his family lived above the store—literally. A lawyer by training, Philip became a champion of public housing and was named commissioner of the Federal Public Housing Authority by Franklin Roosevelt in 1944. The opportunity to plan the model city of Park Forest, a suburb of Chicago, brought Philip to the Windy City after the war, where several Klutznick retail projects were developed in the 1950s. These centers were not enclosed. On a windy winter day in suburban Chicago, shopping at a Klutznick mall can be a physical challenge equal to reaching the North Pole. Later, Water Tower Place would be his crowning achievement. Again, he lived over the store (in this case Marshall Field, Lord & Taylor, and dozens of smaller shops), occupying one of the building’s luxury residential units on the upper floors.
The character of these companies and the quality of the projects they developed were clearly influenced by the vocational roots of their founders—carpenters, builders, attorneys, engineers, leasing agents, supermarket managers—and the relationships they formed with major department store chains. The Simons hitched their star to Montgomery Ward, an uninspired retailer, to say the least. DeBartolo forged a great relationship with Sears, Klutznick with Marshall Field, and, again, Hahn with Broadway Stores. I was fortunate enough to earn the trust and respect of multiple national and regional department store chains, including Macy’s, Sears, Marshall Field, Lord & Taylor, J. L. Hudson, Allied Stores, Saks Fifth Avenue, and promising upstarts like Kohl’s and JCPenney. In fact, I built Penney’s first full-line store at Southland.
Which brings me back to James O. York and our Macy’s discussion.
Jim was open-minded enough to hear me out.
Together, we considered the potential draw of a much larger project and a much larger store, in which Macy’s would be able to present its apparel lines and soft goods in depth, fulfilling the promise of its respected brand. We drove around in the market. Jim eventually agreed with my assessment that recently built and soon-to-be-built highways were changing everything. Old shopping patterns were meaningless. Trade areas of 50,000 to 60,000 people were expanding overnight to 250,000. Without the freeways, our trade area would have encompassed a five-mile circle, in which shoppers would travel twenty minutes to the center. With the freeway, the circle expanded to ten miles, which meant three times as many people. The freeways around Sunvalley had the capacity to deliver in twenty minutes or less more than a quarter million people living within ten to fifteen miles of the center. (As we got more sophisticated, comprehensive drive-time studies and license plate surveys were conducted by our market research department to establish the size of our primary trade areas with scientific precision.)
Even though Concord and the communities surrounding it were for the most part commuter towns, the market’s young families were not going to cross bridges to shop in downtown San Francisco with any regularity. And every day, more and more companies were shifting jobs out from San Francisco.
Offering two hundred shops and three or more department stores would create the critical mass to establish Sunvalley as the dominant shopping destination for this growing market. I was planning the equivalent mall shop space of two department stores (approximately 400,000 square feet), offering the same categories of goods along with around 50,000 square feet of food and services. The specialty shops would compete head-to-head with the department stores. Customers would respond to the convenience of a one-stop comparison shopping opportunity, and the area would not be splintered by multiple smaller, poorly planned retail properties. At least that was my theory.
Thank goodness Jim was convinced. And in the end, a compelling opportunity overcame entrenched threshold resistance to a new way of thinking. Jim made his positive recommendation to Macy’s corporate decision makers, and Sunvalley—with a beautiful 200,000-square-foot Macy’s exceeding all sales expectations—debuted in 1967 as “the world’s largest air-conditioned shopping center.”
Although he didn’t say anything at the time, I think as we cut the ribbon at Sunvalley’s grand opening Jim must have been thinking: “This better work, kid. It’s my ass if it doesn’t.” Soon after, Macy’s hired Jim and made him the head of its real estate department, where he enjoyed a very successful career as one of the industry’s most respected executives.
The greater Bay Area turned out to be very fertile ground for the Taubman Company. In rapid succession, we built three centers there in the 1960s. The third, Eastridge, was built near San Jose, which between 1960 and 1967 saw its population soar by nearly 50 percent, making it the second-fastest-growing large metropolitan area in the country. Built on the former Hillview Golf Course, Eastridge was a 1.5-million-square-foot center with 150 stores, anchored by a large Sears, JCPenney, and May.
We took the lessons we were learning in California and applied them closer to home. In effect, we realized that by building large centers, we were essentially creating new commercial downtowns under a single roof. In 1968, we opened the Woodland Mall in Grand Rapids, Michigan. In its first full year in operation, the sevent
y-store mall captured 25 percent of total general merchandise sales in the Grand Rapids market.
Reimagining the size of the prospective customer base, the scale of malls, and the footprints they could occupy was an important first step in building successful, lasting retail operations. It took a lot of self-confidence and a willingness to peer deep into the future to envision the viability of our projects. To a large degree, the centers we built in the 1960s and early 1970s were bets on the construction of new highways and subdivisions. Using rental cars and gas station maps, I got very good at explaining the impact of future highways on retail locations. One adventure I remember all too well took place in the suburbs of Chicago when we were planning the development of the Woodfield mall in Schaumburg, Illinois. We were planning to spend $90 million to build a 2 million-square-foot mall in a community whose population numbered about 18,000, which required a huge leap of faith by all parties involved.
Taking a break from an industry conference in Chicago, I convinced a car full of bankers from the Chase Manhattan Bank (they had already lent us the money to buy the land) to join me for a quick drive out to the site, about twenty miles northwest of the Loop. Construction was just getting under way on the extension of Interstate 90 west of O’Hare Airport, and Woodfield was to be built on farmland right off a future exit.