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Authors: A. Alfred Taubman
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a large extent the value of the shopping center. These complex contracts are called âcovenants of operationâ and âreciprocal easement agreements.â Thatâs 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 mallâand help draw customersâfor 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 didnât 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 ourinterests. 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, weâd both win. Thatâs 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 Maxwellâs 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 didnât. To me, anytime a center opens 100 percent leased, itâs 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 manyof 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 designed 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
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 didnât 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 ourinterests. 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, weâd both win. Thatâs 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 Maxwellâs 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 didnât. To me, anytime a center opens 100 percent leased, itâs 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 manyof 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 designed 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
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