Threshold Resistance Read online

  We wanted our customer to have much the same experience Cullen describes so beautifully in Townscape (which is still available in a paperback version published by Architectural Press under the title The Concise Townscape). Again, the objective was to give every retailer a good chance of attracting the shopper into the store, to make every location a 100 percent location.

  The message didn’t always sink in. Years ago, I was reading a newspaper article in which one of our mall managers was asked to point out the “best location” in his center. I suppose that’s a fair question for an innocent, uninitiated reporter to ask. The answer, however, was unforgivable. Our manager pointed out a location on the mall’s second level near a particular department store. Now, for a particular tenant, perhaps there is a best location in one of our centers, and we work hard to determine that spot based on a whole host of variables. But to suggest that such a thing exists for a generic tenant is just short of sacrilegious! Creating 100 percent locations for all tenants is what we’re all about. Counting to ten, I asked our head of operations to have a chat with the mall manager in question. I don’t think he made that mistake again—at least not at one of our properties.

  The key to creating 100 percent locations is moving customers effectively through our space. With inexpensive suburban land costs, it would have been cheaper (in construction expense) to spread out all the tenants on one level between potent department store anchors. But we took da Vinci’s warnings to heart, and stacked the stores on two levels, creating mall corridors between the anchor department stores of around 1,000 feet, a comfortable stroll of three city blocks. We punched holes in the upper flo or, allowing customers to see the stores on both levels and encouraging shopping on both sides of the corridor—retail “undulation” that would be impossible along a busy urban street. We also installed clear handrails on the upper level to preserve unobstructed sight lines, and placed vertical transportation systems (escalators and elevators) on the ends of the mall corridors to create a balanced flow of customers past every store. To test the effectiveness of these measures, at Southridge, a center we opened near Milwaukee in 1970, we gave incentives to a candy store and a hosiery store—two impulse operations—to open one store on the upper level at one end and an identical store at the lower level on the other end. We tracked each operation’s sales and found that the stores ran within 4 to 5 percent of each other per month. That showed we could equalize traffic through external and internal control.

  Next: parking. We surrounded the mall with convenient, close-in parking fields, free of charge. Understanding that people, like water, flow downhill much easier than uphill, we built more upper level parking (about 15 percent more than the lower-level parking areas) to assure a better balance of shopper traffic. And to reinforce that balance, we convinced the department store operator on one end of the center to reverse its traditional merchandising layout, offering the customary first-floor departments—cosmetics, jewelry, handbags—on the second level. The department store on the opposite end of the mall would merchandise in the usual manner.

  Even regular visitors to Taubman malls may not notice that there are upper and lower parking lots. We graded the land to create these changes in elevation in such a way that the customer rarely thinks twice about this important balancing act. But the difference in overall mall tenant sales is dramatic. Every space along the mall corridors becomes a 100 percent location.

  To allow easy access to any parking area (our centers have no front door or back door), we designed a ring road circling the entire property. Feeding cars safely onto the ring road off major thoroughfares are what we call magazine roads—because they function much like the magazine of a gun, “loading” a number of cars for release onto the ring road. Every turn off a magazine road onto the ring road is a free right-hand turn, which allows traffic to move unimpeded.

  Inside, we created an environment in which very little would stand between the customer and the merchandise. Every surface was important. For example, we determined that the flooring—the only surface the customer ever comes in contact with—was to be durable but attractive terrazzo tile patterned with regular grout joints to allow economical repair and give women with thin-soled shoes more confidence and comfort as they walked the mall. This was a dramatic improvement over a typical city’s cracked sidewalks, gutters, and gratings. And to assure easy access for baby strollers and wheelchairs, our centers were built essentially barrier free.

  Above, ceilings were designed of sculptured white plaster, mimicking the effect of billowy clouds—comforting but not interesting enough to draw shoppers’ eyes away from the all-important store-fronts and the merchandise. Skylights were installed to spill pools of light into the space, encouraging movement. Any perceived change in daylight by the customer tends to discourage longer stays in the mall, so we installed artificial lighting units in the skylight wells to maintain the same interior lighting levels through dusk into the evening hours.

  We concentrated on every human sense. There is a very distinctive sound to shopping: heels clicking, people in conversation, shopping bags in motion. Music is not necessary to set the mood. In fact, it can be negative to the experience. Scents are important, too. Hair salons and restaurants must be isolated from better dress stores and jewelry counters. To enliven the space we also incorporated court areas, punctuated by museum-quality art, into our designs at the interior entrances to department stores and in the center of the mall. James Rouse might call all this manipulation. Indeed it was. That was and is my job as a developer of retail space.

  As we planned our properties, we had another important advantage over cities and towns: We could control the merchandising of the center. That’s impossible when multiple landlords own the buildings in a downtown’s retail district. Like a department store, we considered the most effective adjacencies for the stores. What combination of merchants made the most sense? What men’s shoe store would do best adjacent to Brooks Brothers? And, years later, would shoppers appreciate a Williams-Sonoma store across from Pottery Barn?

  Sounds pretty basic. But to this day, competitive mall developers lease space as if they’re slicing salami. Whenever there is a vacancy, they rush to fill it with the next available tenant, oblivious to the merchandising issues and opportunities. And whenever a lease comes up for renewal, they sign the retailer up for as long as possible, no matter how tired the store. This inattention to detail penalizes the merchants, the customers, and the landlord. And in today’s world of public real estate companies, it penalizes the investors.

  After all, adding a tenant to a shopping center is like mixing a new element into a chemical formula. The addition changes the experience for the shopper and the merchants. That’s one of the reasons the Taubman Company negotiates the shortest leases in the industry, averaging just five to seven years. Lease renewals always mandate store renovation, and if a retail concept has lost its appeal, we want the store out of the center—extracted from our chemical formula. In its place, we add a fresh, new concept to please shoppers and strengthen every store’s opportunity.

  Most observers believe that the roof on an enclosed mall is there primarily to shut out the weather. Not true in our centers. The enclosed space allows the stores to open their front doors to the customer year-round, night and day, rain or shine. Remember Milton Petrie’s deep throat store design? Contrast that and all its barriers with the openness and attractiveness of a well-designed mall store like The Limited or Pottery Barn. You are almost in the store as you pass, and the merchandise calls out to you in a way it never could on the street.

  When these opportunities are placed right in front of the customer (and with the assistance of knowledgeable salespeople), impulse buying increases dramatically. You run to the store for a dress shirt and end up buying two ties and a new belt. Everything other than the shirt is an impulse buy. So are the new Norah Jones CDs you pick up and the box of Godiva chocolates.

  The multiplex movie theater concept was created in sh
opping centers to turn what was a calculated scheduling decision into more of an impulse decision. With staggered start times, cinemas can attract viewers who never intended to go to the movies when they headed to the mall. We first started putting theaters in our centers in California. The discussion of what to see shifts from the kitchen table at home to the cineplex lobby. If you’ve ever spontaneously found yourself in front of a movie screen holding a bag of popcorn and a large Coke, you’ve just made several impulse decisions. Nicely done.

  This set of principles didn’t emerge fully formed from my head when I started building enclosed malls in the early 1960s. But over the course of the decade, as our organization developed the experience and capabilities to develop several huge projects at once, these ideas became an integral part of our planning process. In 1970, for example, we had 7 million square feet of retail space under construction, and another 10 million in the planning stages. I was always thrilled when I found we could incorporate lessons learned from our malls in California into the design of malls we built near Milwaukee or in Grand Rapids or in the Chicago suburbs, in the late 1960s and early 1970s.

  A September 1971 Business Week cover story focused on the burgeoning shopping center industry. Guess who appeared on the cover? Here’s how they described me:

  His expensive, patent leather shoes are scuffed, and his impeccably tailored pinstripe is flecked with fresh plaster. But A. Alfred Taubman, the dapper chairman and chief executive of Taubman Co., is completely oblivious to it all. He is lost somewhere up there in the soaring scaffolds, where workers are busily putting the final touches to Woodfield.

  Dapper? That’s about the nicest thing any reporter has ever said about me. But I can’t believe my shoes were scuffed. The article goes on to capture the passion I felt for my centers then and still do now:

  “Just look at this!” the bouncy, 47-year-old developer marvels to a visitor. “Fantastic! Imagine all the logistics and planning that have to go into something like this. Boy,” he sighs, “you gotta be a little nuts.”

  I’ve been called much worse. But you get the idea. Planning is everything. Screw that up, and a retail development will never realize its fullest potential. Get it right and everybody wins.

  While we spoke many times after our discussion at that industry conference in the early 1960s, I never struck up a close personal relationship with James Rouse. Judging from the design of his later enclosed centers, however, I think he did come over a bit to my way of thinking. And our retail properties flourished, as retailers embraced our properties as launching pads for exciting new concepts and unprecedented growth.

  For the Taubman Company, too, horizons never looked brighter.

  SIX

  Buying the Ranch

  Selecting the correct sites and designing and merchandising the malls properly were certainly instrumental to our early success. But without the proper financial architecture, none of these projects would have succeeded. I wasn’t a numbers person by training, and I was never the type of developer who felt that it was crucial to pinch pennies at every stage of the operation. Again, it was design that mattered most. If the financing and leases were structured in the right way, and the incentives of the landlord and the tenant were properly aligned, I knew we’d do fine financially in the long run.

  Here, too, we made some innovations. I was fortunate to work with responsive lenders. TIAA, the big insurance company, financed many of my early projects. When we were about to close on a $20 million mortgage on the Sunvalley mall, they called the day before closing and said they couldn’t close until the following day because their check-writing machines handled only seven digits. So they went out and bought a new one.

  When we started building, the process was as follows: a developer would design a center, sign up some early leases, and get a mortgage commitment. The mortgage commitment stipulated that if the developer met targets for opening dates and the number of AAA-rated tenants, then the lender would lend a certain amount against the property. Then the developer would get a bank to lend against that commitment so the center could be built. This process seemed to have it backward, since it encouraged developers to sign up tenants early in the process. To me, the best tenants are the ones you get toward the end of the leasing process, when you have something real to show them. Ultimately, I went to Chase and convinced them that they should give me a commitment to build, and that I’d start leasing once the space was built.

  We took great care in selecting retailers, starting with the anchors. The long-term agreements entered into between department store companies and retail developers determine to a large extent the value of the shopping center. These complex contracts are called “covenants of operation” and “reciprocal easement agreements.” That’s legal terminology for mutually establishing hours of operation, shared costs, and most important of all, the quality and character of the department store that will do business at the property for a set term. In other words, if Saks Fifth Avenue agrees to be part of the shopping center for twenty years, the company assures the developer that a Saks store or another of the same quality and character will anchor the mall—and help draw customers—for two decades to come.

  Against that promise (and the promises of the other anchor stores in the project), the developer can lease the mall tenant space at attractive rents. Specialty stores want a shot at the Saks customer and are willing to pay for that opportunity. Here, again, we innovated. Most developers charged fixed rent that was based on their costs of land, construction, and operation. But I didn’t see myself as a landlord renting spaces to tenants. I saw myself as a retailer with an ongoing business. So in our centers, we structured our leases based on the gross volume of retailers. They would pay a fixed rent plus a percentage of sales above a certain level. That had the effect of aligning our interests. If I could figure out how to bring more people to the centers, and design the centers in such a way as to increase impulse purchases, we’d both win. That’s one of the reasons we became so good at promoting our centers: we saw that as part of our job. In 1974, we brought the Chicago Symphony Orchestra to Woodfield, and it drew an audience of 30,000. The music lovers came for the brass and the woodwinds, but a lot of them stayed to shop.

  In thinking about promotion, retailers and developers are well-advised to take cues from other industries. I learned a great deal from my buddy Warner LeRoy, son of the legendary MGM movie director-producer Mervyn LeRoy (his impressive credits included such major pictures as The Wizard of Oz). Warner came into the public eye in the late 1960s when he opened the hotter-than-hot Manhattan nightspot Maxwell’s Plum (where Donald Trump met his first wife, Ivana). His next triumph was Tavern on the Green, which captured his personal flare for theater and quality. Toward the end of his life, he acquired the aging Russian Tea Room, into which he poured his heart and soul. Warner knew how to create a buzz and sustain public interest. And the stories he told about growing up on the sound stages of early Hollywood could hold your undivided attention for hours.

  As counterintuitive as it may seem, we always tried to open with empty stores. Our centers were planned initially to open with at least 15 percent vacancy through the end of their first full year of operation. That gave us an opportunity to see what types of stores had the greatest appeal in the market and figure out what we were missing before we fully committed our space. Remember, a center is like a big store. We wanted to see which goods moved and which didn’t. To me, anytime a center opens 100 percent leased, it’s a real estate failure. I always saw myself as being in business with our tenants, not as being in an adversarial relationship with them. Indeed, over the years, I formed close personal and business relationships with many of my tenants. One was Les Wexner, founder of The Limited and a true retailing genius. In the mid-1970s, I took Les on a helicopter ride to see our Detroit-area centers, Fairlane Town Center, Lakeside, and Twelve Oaks. Each had a Limited store.

  Wexner was a natural merchant. At that time, his stores, in my opinion, were not de
signed to maximize the opportunity of an enclosed regional mall location. His merchandise was right on target, but the stores essentially turned their back on the mall and the customer. They looked like warehouses, with racks hung on strips on the wall. “Les,” I said, “your stores are a blight on my shopping centers.” I told him that he had to redesign the stores or we would not have The Limited in our centers. Fortunately, he agreed with my analysis. Our company’s store planning and design department lent a hand, and today, all divisions of The Limited and its spin-off brands, which certainly no longer need our help, are among the most successful stores in any mall: open, inviting, and full of energy. And Les Wexner has become one of my dearest friends—and a great patron of fine architecture.

  In two decades working as a builder and developer, I had been fortunate to form many long-lasting personal and professional relationships. Doing business with the same people over time builds trust and can lead to terrific opportunities. Over the years, I joined corporate boards, invested in other businesses, and continually built a network of contacts and colleagues.

  Not all of these opportunities were attractive. In the 1970s, I was invited to Iran by the shah and his wife to consider development of a U.S.-style shopping center on the main highway from Tehran to the airport. I passed on the offer when I learned that essentially the entire ruling family and its chief advisers and ministers lived in and conducted business out of Geneva, Switzerland. I’m glad I followed my instincts. The threshold resistance was way too high.

  Some long-standing contacts, however, allowed me to apply my theories of threshold resistance to real estate investing in a more hospitable climate. The opportunity came about in large part because of relationships I had formed working in California. In the late 1950s, I had first met Jimmy Peters. At the time, Jimmy and his brothers Leone and Tony were running the prospering New York real estate brokerage firm of Cushman & Wakefield. Jimmy introduced me to Charles Allen Jr., a very successful New York banker and a great businessman. Charles and his brother, Herb, were my partners in our earliest West Coast shopping centers. To return the favor, I introduced Jimmy to Warren Sconing, head of real estate for Sears. They hit it off, and Cushman ended up handling the Sears Tower. I also brought Jimmy to Detroit to make a deal with Detroit Bank and Trust (now Comerica) on their headquarters building on Fort Street. These were Cushman & Wakefield’s first major assignments outside New York.