“Luxury Brands Have Changed The Way We Look At Real Estate”
Luxury consumers are changing the way real estate developers look at shopping malls. Today, malls are more than a place to shop: they are destinations for living, working and having fun. David Simon, Chairman, CEO and President of the Simon Property Group, the world’s biggest Real Estate Investment Trust and the largest shopping mall operator in the US, speaks about keeping pace with the changing luxury retail market.
How Has Simon Property Group’s Strategy Evolved To Align With The Current Trends In Luxury Retail?
Luxury retail trends are making us focus more and more on hospitality – providing as much as possible the kinds of services and experiences you’d expect to find at a five-star hotel. This is because the consumer is looking for new experiences – he or she has to have a reason to venture out of the home. So the shopping mall has to become a destination – a place to play, work, and live in addition to being a place to shop – with a variety of services beyond retail to appeal to the high-end customer. And of course, this means giving the luxury Houses ample room to showcase their iconic brands, creating an environment that attracts affluent, discerning shoppers.
This Must Mean Major Transformation At Some Of Your Properties Where Legacy Retailers Are Themselves Rationalizing Their Retail Portfolios.
Yes. Luxury brands have made us change the way we look at real estate: as we said, malls have become more than just places to shop. They must be an attractive, sophisticated environment for the luxury retail consumer, and the rationalization of retail portfolios provides us with the opportunity to do this by converting existing retail into mixed-use spaces for hotels, restaurants, co-working, entertainment, etc. For example, in the King of Prussia mall outside of Philadelphia (Pennsylvania), we reclaimed a former department store space to create more of an elevated town-center atmosphere, with amenities such as improved food and beverage providers, designated parking, home delivery service, and many mixed uses including an outdoor park where families will gather. In Fashion Valley mall in San Diego (California) we are reimaging the entire facility with the goal of making it a 21st century gathering place. In Phipps Plaza in the Buckhead district of Atlanta, we are building a 150-room Nobu Hotel and restaurant, a 300,000 sq. ft. Class A office tower, a 90,000 sq. ft. office facility and a 30,000 sq. ft. food hall in a setting where shoppers enjoy an open inside-outside environment rather than just an enclosed mall. So the idea is to make the shopping mall destination a kind of town center for the luxury consumer.
What Does This Shift In Luxury Retail And Real Estate Mean For The Relationship Between Luxury Brands And Mall Operators?
Fifteen years ago, department store “anchors” were the most important component in building a shopping mall. Today, the luxury brands have taken that place. They no longer rely on department stores to present their products; they want a format they can control and they want to partner with the mall owners to optimize their space. This has resulted in a dramatic modification for malls catering to the high-end customers. Luxury brands know how to treat their customers. We learn from this and it inspires us step up our game, providing better amenities such as refined dining options, valet parking, delivery and concierge services. Additionally, we partner with best-in-class fashion platforms such as Vogue and Harper’s Bazaar to create unique programming and personalized shopping experiences that appeal to our VIP shoppers in leading luxury markets such as New York, Houston, LA, San Francisco and Las Vegas. Brands can also benefit from other stores in a luxury retail destination, they and we feed off each other – and this reinforces our malls as the place to be. We admire luxury brands and what they bring to our environment.
Going Forward What Do You See In The Future For Luxury Retail And Malls?
The narrative on malls is not very encouraging but the reality is very different. There may indeed be pressure on the older, traditional malls – but modern, dynamic destinations in strong catchment areas report increased traffic and sales. The Galleria in Houston (Texas), for example, did $1.4-Billion in sales last year. It is thriving. There again we recaptured and reimagined coveted real estate, adding new-to-market brands and renowned, full-service restaurants such as Nobu and Fig & Olive. High-end retail is no longer solely focused on New York and Beverly Hills; now it’s diversified to markets like Atlanta, Miami, Houston – thriving cities, with quality consumers. This is not going to change because of e-commerce. Every retailer has an online shop today, and yes, online retailing does put pressure on us to deliver the best product we can, or we can face a slowdown in growth. But online won’t replace the immersive and alluring physical presence you can establish in a mall. It’s challenging for even the strongest brands to showcase the quality of their offering on a mobile device or a computer screen. You need the physical world. And if we build great environments with the world’s best brands, quality amenities and a range of compelling reasons to visit… we’ll maintain our competitive edge over e-commerce when it comes to the luxury shopper who recognizes the value of high-touch experiences. In short, malls aren’t going away anytime soon. We’re here to stay.