Bucksbaum Retail Properties' John Bucksbaum discusses what makes successful retail centers, today and in the future
Overview
Good design, cost efficiency, and reinvestment are keys to a successful shopping center
Good retail tenants are good merchants at heart
Retail centers must become "Places to Be" and not just "Places to Buy"
Executive Summary
In the past, many regional malls were successful due to good, conservative, cost-efficient design and intrinsic demand for retail space in the malls themselves. Subsequently, in order to keep up with competition and a proliferation of other shopping options, malls tried to distinguish themselves by becoming more extravagant — thus increasing risk for the developer and others involved with the mall project. Today, continual reinvestment in retail properties — to make sure the tenant mix matches consumer demand and that the design yields an exciting, vibrant center that promotes retail sales and leasing the property — is the key to success.
Great shopping centers in the future will combine good retail design, great tenants, and entertainment. Good design, Bucksbaum says, will include spaces — such as green spaces, gardens, and community use areas — that are not just retail locations. Mallgoers desire these spaces, and mall owners will need to incorporate them even though they do not have a revenue stream directly associated with them. Beyond that, savvy mall owners understand the demographics, needs, and desires of the residents within their geographical areas and select great retail tenants to match. Those great retail tenants are, at their hearts, great merchants, Bucksbaum says.
Future shopping centers also will continue to emphasize entertainment, Bucksbaum says. Unlike apparel, restaurants and blockbuster-style entertainment options cannot be replicated online, create a sense of excitement, and give consumers reasons to go the mall.
In the future, these "fun" and "vibrant" high-quality malls will attract all the leading retailers and will be the dominant centers for retail, Bucksbaum says, and C-quality malls will go out of business. The "A+" shopping centers of the future will be successful because they are "places to be," not just places to buy.
Transcript
Zell/Lurie: We are here with John Bucksbaum, the CEO of Bucksbaum Retail Properties. John, thanks for joining us.
Bucksbaum: Thank you Todd.
Zell/Lurie: John, you and your family have been central figures in the development of the retail real estate industry. What makes a successful shopping center? And how is a great center today different from what would have been a great center in the past?
Bucksbaum: I believe all developers want a successful center. In the case of regional malls, a great many were, and continue to be successful. I believe it primarily is a result of good design, good retailers and the explosion of suburban living. There was demand for the project — we weren't over-built. There was an efficiency in building, keeping control of the costs and the ability to lease the project. Today, one would say, "Well, isn't that what everybody should set out to do when doing a development?" And my answer to that question would be yes. But over the years projects have become more extravagant which raises the risk level.
Whereas most of these projects, developed throughout the 60s, 70s, and even 80s, were successful, today, with increasing competition and people having many more options where and how they can shop, if the owner doesn't continue to reinvest into the property, that property is no longer going to meet the standards that people expect, or be the kind of place that the consumer wants to go. And so, the big difference — a great many of the very successful centers today, they were built conservatively when they were originally constructed, but because of the evolution of the property and the reinvestment that has been done, the re-merchandising, and the owners being willing to invest the capital, keep it filled with the type of retail that the consumer demands, and again, while much more challenging today than it was 30 years ago, it is every bit as rewarding if you do it right. But it does require much more reinvestment. I can't over-emphasize the importance of that versus what was initially unnecessary by the early developers.
Zell/Lurie: What makes a great retail tenant these days? And how has that changed over time?
Bucksbaum: I've always felt that a great retailer starts with one person... and that's the merchant. The merchant is typically the founder of the retail chain. Even if it was a chain that had, over the years, changed in terms of its management team. Just because it has been many decades, there is usually always a great merchant at the helm.
If you see retailer that decide the company should be run by financial people it is usually not as good. Almost always, I have found that that is a recipe that does not bring success. And one could ask, "If the merchant is still with the retailer what does it matter if the CEO has got a financial background or a merchant's background? Just like if the merchant is the CEO, if the retailer has a successful, Chief Financial Officer, why shouldn't it all work the same?" And while I don't know exactly the reason for that, I think history and the evidence shows you that a retailer should be headed by a great merchant — certainly supported by a very strong financial team, because oftentimes creativity and financial success don't always work together. It needs to be balanced. I do think the simple answer to the question is: You'll always find a great merchant when you see a great retailer.
Zell/Lurie: So, from the retail property owner's perspective, when you're thinking about a good tenant for your center, what makes a good tenant for the center beyond them just being a good merchant?
Bucksbaum: You have to look at your market, understand the demographics, the people who live in your trade area, and don't try to bring in certain uses that might be too luxury oriented for a particular demographic, or vice versa.
But more importantly, for me, I am much more entertainment-oriented in my merchandise mix and thinking., I've always been a big believer in movie theaters, restaurants, experiences that go beyond just soft goods. I love the soft goods apparel market, but it's a tough business. It's probably even harder today, just because of all of the outside challenges that are placed upon it and alternatives that people have. And while you have alternatives to going to the movies — we all can watch movies at home, I think we all do — there is also something to be said about watching a blockbuster, if you will, on the big screen, being part of a larger audience. Eating has always been something that people enjoy. These sorts of activities can't necessarily be replicated online. To me I think I feel safer with them. But by no means is it a guarantee that a restaurant is going to meet with success. And in fact, it's probably riskier with putting restaurants into a project, because if they open slow that usually means they'll close quickly, whereas a retailer can miss a season and they have a chance to get it back if they're a chain. Chains can usually absorb a bad period. There are certainly arguments that can be made both ways.
I do think the retailers who are creating a sense of excitement both in the design of their location, the vibrancy once you're within the door, albeit a restaurant, and the excitement that they're creating with what they're serving and other people having fun there — all of that builds upon itself and so a combination of these sorts of things, I believe this is what's best now. If you have an A+ mall, all of the great retailers are going to want to be there, and they're going to do very, very well. So, if I'm a mall owner and I have a really good property, I'm going to attract all the good apparel uses to the center. For my types of projects that are a little bit different than "A" regional malls, I'm relying more on the hard good entertainment side of things more so than on the soft goods.
Zell/Lurie: So what do you think a great shopping center will look like in the future, five, ten, 20 years down the road?
Bucksbaum: The first thing I think of what great centers will incorporate in the future are places or spaces that may not necessarily be stores. Again, going back to the project in Cincinnati, it's a combination of an indoor property and an outdoor property. And the outdoor portion has streets running through it, so it very much has the feel of a downtown. We have two very large green spaces, basically small parks, within the property. And we have a non-denominational chapel, a community center, and a beautiful garden that is outside of the chapel. These spaces can be used as a reception for events or an area just for people to sit and reflect and meditate.
These kinds of spaces traditionally have not been incorporated in too many properties and I believe that the customers will embrace it. They will appreciate it. I believe the more green space that can be added to these properties will be popular. It's a hard thing to do when retrofitting existing properties. It is easier for us to do, since we're building from the ground-up. But at the same time, it's expensive space. You can't quantify it. There's no rent that's coming back from it, per se. But, yet, I believe it is a very important element. I think we'll continue to see the entertainment side of things grow in the properties. As I said, the A-quality malls will be the dominant places for luxury retail, soft good apparel, that sort of thing. The productivity in those malls is so high, that's where all the leading retailers of the world want to be located. I think you'll see fewer and fewer of what I would describe as C- quality and below malls. Many of the properties will no longer be in business that exist today. There is no real reason for these properties to exist and the customer is going to feel there's a reason to go there. There will still be utilitarian places that are available to customers, but I think the ones that are really successful, people are going to want to go there because it's a place to be, be seen, and not just to take care of buying shirt, shoes and slacks.
(Not an exact transcription of video.)