NEW YORK — The Westfield Group is one of the world’s largest and most successful retail developers. The Australian-based company owns 68 shopping centers in the United States and has interests in 60 more properties in Australia, New Zealand and the U.K. WWD spoke recently with Peter Lowy, Westfield’s group managing director, who runs the global operations of the company with his brother, Steven.
WWD: Which of your current developments best reflects what you see as the future of mall retail?
Peter Lowy: There are a couple of developments around the globe that point all in the same direction, but the U.S. is a little different. Here, two of our most progressive developments are the Westfield San Francisco Centre, a $450 million development in downtown San Francisco, and our $330 million reinvestment in Westfield Topanga in Los Angeles.
In San Francisco, we owned the existing San Francisco Centre and Forest City owned the development next door, with the old Emporium building. We’re linking the two properties together to make one large shopping center. We’ve been able to design the mall with Forest City to keep in line with the character of downtown San Francisco and preserve key elements of the Emporium building including restoration of its historic dome. The combined property is also located directly over the BART station, which is something that we deal with routinely in the U.K. and in Australia, but you don’t usually have such integrated retail and transportation facilities in the U.S. Among the many exciting new tenants joining the center, we’ve also just announced the addition of a gourmet supermarket, Bristol Farms.
At Westfield Topanga, we are undergoing a major expansion. We’re adding some 600,000 square feet of retail, including a new expanded Nordstrom — there’s a small Nordstrom there now — as well as a new Neiman Marcus and a new Target.
Westfield Topanga is the first time a mall developer has brought in both Neiman and Target, and it does represent a sea change in thinking of how retailers are paired together in the regional mall format. We’ve always believed this to be an issue in the mall industry — an industry that traditionally has resisted introducing and integrating the discount end of the marketplace. We’ve been arguing that the consumer is not that narrow-minded. Consumers shop in upmarket stores and they shop in very well run stores that give them value. Target has hit that sweet spot. The same customer that shops at Neiman Marcus and Nordstrom shops at Target. It’s taken a long time for the market to accept that, but this is now where the industry in the U.S. is going.
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WWD: What is the single biggest challenge facing mall developers today?
P.L.: The biggest challenge is making sure that the malls that you own are competitive and meet the consumers’ needs. The way you do that is by reinvesting capital in your malls all the time, by making sure that every seven to 10 years you expand and renovate to keep them relevant and keeping up with the consumer demands by bringing in the newest forms of retail possible. This isn’t a single challenge, but it’s the challenge for our industry.
WWD: How do you deal with the shrinking pool of department stores?
P.L.: The Federated and May merger was very good for our industry and opened up opportunities for us. We recently announced that we acquired 15 of the May Co. department stores from Federated where they were doubled up in our malls and in some cases where they were tripled up in our malls. Now we can do in excess of $2 billion of new reinvestment and redevelopment that will tear down these 30- to 40-year-old department store buildings, open up the mall and bring in new retail precincts and/or anchors like movie theaters or a Target or Costco.
Overall, I think the shrinking pool of department stores has widened the vision of the mall industry when it comes to evaluating what should be anchoring a mall, and now developers are finally breaking through the tunnel vision of upmarket or middle market department stores. As far as our anchors go, we’ve built the first two-level Wal-Mart specifically designed to integrate into a regional mall format, currently have seven Targets in our centers and are negotiating with Costco to bring them into our portfolio as well.
WWD: Are there still good mall properties to buy?
P.L.: It’s very difficult to buy today. The value of regional malls has gone up substantially over the last four or five years and capitalization rates have come down substantially. It’s very difficult to buy at a 5 to 5.5 percent cap rate and generate enough of a return to make the purchase worthwhile without major redevelopment. So you won’t be seeing a lot of transactions, especially from our point of view. We’re not buying in the U.S. or in Australia, unless there is major redevelopment potential, because there’s simply more value and higher returns in investing in properties we already own. We are doing some deals where we buy property adjacent to our existing malls. At Century City [California], for example, we bought two office buildings on the corners of the mall, which we plan to transform into 300,000 square feet of new shops, along with new parking and luxury condominiums.
WWD: Do you think the global trend of placing supermarkets or hypermarkets in malls will become as prevalent in the U.S. as it is elsewhere?
P.L.: It is really difficult to do in the States. I think we’ve done it well in Century City, and Related Cos. did it well in New York. But in the U.S., I don’t see the supermarket concept becoming a staple in malls. In the U.S., the consumer has been “trained” for two separate shopping trips: one for fashion and one for food. So the consumer here is very different from consumers in Europe or Australia. Because of that, I don’t believe the retailers are as open to it as they are in other countries. I don’t want to argue against myself because we’d be a major proponent of it in the States, but I think supermarkets in the malls would be a much harder sell here because the consumer is so used to shopping separately for food and for fashion. Personally, I don’t see a big difference going to Target in a power center versus going to a Target in a mall. I would be very happy to be wrong. As far as hypermarkets go, the only hypermarkets in the U.S. are the Super Wal-Marts, and I think it will be difficult to place a Super Wal-Mart into a mall. But things might be different in the next 10 years.
WWD: What region of the world has the most progressive, interesting mall retail, and how does the United States stack up against that?
P.L.: I couldn’t tell you who exactly has the most progressive retail in the world, but I would argue that the U.S. is now catching up to global trends. The U.S. is the only country where the mall industry is so focused on fashion and fashion department stores. Everywhere else has a much broader assortment of goods and services in the malls. But right now, the consolidation of the department stores in the U.S. is widening the industry’s range of vision and opening up new options and new horizons.
WWD: Whom do you believe are the most successful mall retailers?
P.L.: Abercrombie as a company has found a very good market niche, especially now with abercrombie kids, Hollister and Ruehl. Personally, I really like the Hollister stores. I think they are terrific. Stores like Lucky, J. Crew and Pacific Sunwear are doing great business, and you’re now starting to see more Talbots, Forth & Towne and Coldwater Creek stores. We’re just at the beginning of the aging of the Baby Boomer population, so there will likely be another 20 years of stores like that coming to malls. What’s interesting about a lot of the fashion retailers now is that it’s the first time in our 15 years of tracking the business that unisex retailers like The Gap and Abercrombie have as much or more square footage in our malls than women’s fashion retailers. In another trend, the Apple stores do very well — they’ve changed the whole nature of retail sales reporting. I think they pull in something akin to $5,000 per square foot. They’re interesting because they show how the mall is now being used to integrate and introduce technology to the consumer, whereas 10 years ago, it would have probably been argued that technology and malls were antithetical to each other.
If you look at the larger retailers, there’s been a change in the way the world looks at the books business. Operators like Borders and Barnes & Noble have really become replacements for the old public libraries. They are meeting places, seating places, community places and terrific retailing concepts. They do a very good job of evoking the ambience we are trying to evoke in our malls.
WWD: What will a mall look like in 10 years?
P.L.: It will look completely different from the mall today. And that is the underlying strength of the mall industry as an industry — that within the same four walls or the same plot of land, we can change the nature of the asset by spending capital and bringing in new retailers. We can change the nature of the mall that we own so that every seven to 10 years the mall is totally different than it was a decade ago. As a result of the department store consolidation over the last 15 or 20 years, there continues to be major changes in malls. I don’t know if it’s revolutionary, but it’s major.