Taubman Goes Luxe With Mall In Orlando

<CS:BOLD>NEW YORK -- Shopping in Orlando, America's biggest playland, will take a serious turn to luxury on Oct. 18. That's when Taubman Centers' 1.2 million-square-foot Mall of Millenia debuts, thrusting Gucci bags and Tiffany diamonds into a market...

NEW YORK — Shopping in Orlando, America’s biggest playland, will take a serious turn to luxury on Oct. 18. That’s when Taubman Centers’ 1.2 million-square-foot Mall of Millenia debuts, thrusting Gucci bags and Tiffany diamonds into a market saturated by Pooh bears and Mickey Mouse Ts.

However, Robert Taubman says Orlando is hungry for high-end products, that the area has been rebounding since Sept. 11, and carving a luxury niche in Disney World territory, in the midst of a severe luxury downturn and tourism decline, is no fairy tale.

“Nine-eleven so impacted tourist markets and Orlando was really hard hit, but that market has begun to come back pretty strongly,” said Taubman, the chairman, chief executive officer and president of Taubman Centers Inc., during an interview. “Cartier within a couple of weeks after 9/11 signed a lease. St. John was soon after, and Gucci signed on. We have continued to sign leases really unabated. The market is the number-one tourist market in the world. There is no venue for better quality goods in Orlando — no luxury goods destination,” aside from Saks Fifth Avenue in Orlando’s Florida Mall, where Nordstrom will open in spring 2003. “There’s off-price, but no current season.”

Asked if he’s going to meet his goal of being 70 percent occupied and 80 percent leased in time for the Millenia opening, Taubman stated, “Absolutely.” Then he rifled off several of the other luxury tenants that have signed on — Burberry, Lancel, Lladro, Chanel, Louis Vuitton and La Ferla. As previously announced, the mall will be anchored by Neiman Marcus, Bloomingdale’s and Macy’s. A list of 90 tenants will be announced Thursday by Taubman and his partner on the project, The Forbes Company.

“Many are public companies that need to grow their businesses,” Taubman said. “They want to move forward with new locations and that’s what we are experiencing.”

The luxury brands entering Orlando are also in several of Taubman’s 31 other properties, notably Cherry Creek in Denver and the Mall at Short Hills, N. J., which is ranked as Taubman’s best property, reportedly posting $800 in sales per square foot. “Short Hills is one of the greatest properties in the U.S. Orlando could get there too,” Taubman said. “We think the Mall of Millenia will absolutely fit right into our portfolio. Every center takes time to mature. Our view is that with so much of the existing population, we should start out very strong, but it will be several years before it reaches its capacity. There will be promotions with hotels, but the concierges, taxi cabs, bus companies and tour operators have to get to know us. Until you are situated there for a period of years, you don’t have the full opportunity of a behavior pattern established.”

More so than any other national developer, Taubman is gambling on a luxury recovery. The company’s projects in the years 2001 and 2002 represent a total investment of $800 million and involve the opening of five malls representing 6.5 million square feet of retail space. The malls include last year’s launch of The Shops at Willow Bend in Plano, Tex., and International Plaza in Tampa — both with significant upscale retailing. Also, Taubman’s Dolphin outlet center in Miami and The Mall at Wellington Green, Palm Beach County, opened last year. The company continues to devote proportionally more space to high-end and designer tenants than any other national developer, though the Taubman tenant mix ranges from upper moderate to designer. “Strong luxury goods statements need to have 75,000 to 100,000 square feet,” Taubman said. The Mall of Millenia will devote over 100,000 square feet to specialty luxury retailers, similar to the floor plan at The Mall at Short Hills. Taubman’s basic, two-level centers are less than three blocks long and are merchandised with a goal of getting 80 percent of the customers passing by 80 percent of the stores on each visit, he said.

While Taubman’s luxury buildup has been impressive — there’s never been any bigger period of development in the firm’s 52-year history — the timing seems unfortunate, coinciding with the luxury downturn and general recession. Most retailers are preoccupied with cost-cutting and monthly comp-store gains, and limiting expansion. “Through these windows of opportunity, you do the best you can to ignore economic cycles. In a 10-year period, economic cycles are going up and down,” he said. “You hope you have a strong economy, and have the wind at your back.

“There is no question that retailers have become more selective,” he continued. “They really want to go to only those locations where they have confidence they will do the volume and get a good return on investment and know they will make money. They don’t want to take risks. They want to have confidence in turning the inventory faster.” If they enter a location with confidence, he added, better retailers are willing to pay “a modestly more expensive” rent. Taubman generally charges a 14 percent margin, which is a few percentage points above the competition’s.

The buildup also comes at a time of personal sorrow for Taubman. He became chairman last December when his father, A. Alfred Taubman, resigned following his conviction of price fixing charges at his Sotheby’s auction house. However, the shift hardly affected operations since the younger Taubman has been running the Bloomfield Hills, Mich.-based development company anyway. He would only say, “My father is available for advice and counsel as always and still has a significant investment in the company obviously. He continues to have a great interest in the company.”

Taubman prefers to talk about his firm’s growth and overall industry growth he estimates at five to 10 major centers annually for the foreseeable future. Retail square footage, he said, is increasing roughly 1 percent annually, close to the population growth of 0.9 percent.

“The whole country has more square footage per capita by far than any other country — 20 to 21 square feet per capita. But you have to ask how much of that is obsolete space. Seven or eight square feet per capita is obsolete,” meaning not very productive or just sitting there with a closed store. “So you are really looking at 13 to 15 square feet per capita, and that’s still the highest level in the world. Canada is second, at 11 to 12, and Europe is around 6 or 7.

“Generally, you can say there is too much retail space, but then you have to ask in what categories. Markets are generally saturated. There is a significant supply of space in the U.S., but that doesn’t mean there aren’t opportunities for selected building in markets. When there is a window of opportunity — the right piece of land, the right traffic system, environmental impact statement, department stores that are ready to go, the capital is in place and specialty stores are ready to go — you have to go with it.”

And because of all the complexities, “These 800,000-square-foot centers or larger centers, are so hard to do. It took us 20 years to get Orlando done,” from conception to completion.

Taubman continues to resist the temptation for the kind of big mergers that have swept the industry, most recently, Westfield America Trust, Simon Property Group and The Rouse Company teaming to acquire the assets of Rodamco for $5.3 billion. It’s not that Taubman has totally avoided acquisitions, having in 1994 purchased Biltmore Center in Arizona. With about 21.6 million square feet of space, Taubman is ranked as the nation’s 19th largest shopping center developer.

“Our basic strategy is to develop and build on our core portfolio. We feel very strongly if you have good and productive assets, tenants have a great deal of interest in making profits in those locations. We feel we are fully competitive with all our peers. Most other companies have become consolidators of one sort or another. There’s been enormous consolidation in our sector. Most people would say that over 50 percent of super regional malls are in public hands, controlled by Simon, Rouse, General Growth, Westfield, Macerich. But we have bought selectively, and would continue to be selectively interested in assets. But primarily, our external growth strategy is to develop. We have been able to achieve greater returns through development, than otherwise found in acquisitions. Our fundamental mission is to open one center a year.”

Taubman can afford a different business philosophy, having a productivity rate that leads the industry by a wide margin. During 2001, comparable center sales per square foot were $456, down 2.1 percent from $466 in 2000, reflecting Sept. 11 and the recession, though still roughly $60 ahead of the nation’s top developers. The higher productivity enables Taubman to get his higher rents.

Aside from charging more, “He’s very demanding of tenants from a design perspective,” said Michael Ratner, president of Richter + Ratner Contracting, which builds high-end stores around the world. “No one simply slaps a store in. You have to pay very strict attention to the inside and outside of the store. Taubman wants it to look right, to look distinctive. He creates the most distinctive set of shopping centers and that comes from the high-quality tenant mix, with a mean price point approximately 30 to 40 percent higher than Simon Properties tenants,” Ratner estimated.

“Taubman runs classy malls. They are great upscale malls,” said Michael Gould, chairman and ceo of Bloomingdale’s, which operates in Taubman’s Short Hills, The Falls in Florida and Beverly Center in Los Angeles. “I don’t think they compromise in their leasing.”

Asked how many locations are suitable for luxury brands, Taubman replied, “There are as many as two dozen regional malls and 20 to 25 street locations” suitable for the likes of Chanel, Gucci and St. John. “These companies could have 40 to 50 stores”.

Chanel had a somewhat different perspective on expansion potential. As Chanel president and chief operating officer Arie Kopelman, said: “Twenty to 25 maybe, not 40. That’s never going to happen, though it depends on price points and range of offerings. The name of the game is growing market share in the markets you are in. Expansion certainly for Chanel is very limited.”

Chanel operates 18 stores in the U.S. and will open a Rue Royale shop, selling Chanel shoes and accessories, in the Millenia and another on Madison Avenue, with an adjacent Chanel fine jewelry shop. A Rue Royale already operates in the Mall at Short Hills. “We may do more Rue Royale stores. A concept for selling shoes, bags and accessories is something different,” Kopelman said. But with full-line Chanel stores, “for the kind of volume you need to do to make money, there aren’t really a tremendous amount of markets. Unless a store can do $4 million or $5 million, it probably isn’t worth doing.”

A luxury brand must also consider whether its own store would cannibalize a wholesale account in the market, Kopelman added. He sees between 12 and 20 markets suitable for designer shops generally.

Demonstrating some flexibility, Taubman is considering international opportunities and formats other than luxury. He said he is exploring a couple of sites in Canada, including one in Montreal, which in a year could begin construction. That would be a value-oriented center. Taubman also broke ground last week on Stony Point Fashion Park in Richmond, Va., a 690,000-square-foot open-air center that will house 90 stores and four restaurants. It’s seen opening in September 2003. A mall in Oyster Bay, New York, where Neiman’s wants in, is stalled by politics.

But perhaps the most significant mall development, as Taubman sees it, has nothing to do with lifestyle centers or retail/residential villages. It has to do with people returning to malls post-Sept. 11.

“If you look at the traffic, generally it’s back at our centers. That’s based on anecdotal and hard data,” he said. “The bigger shopping centers are the ones that are drawing customers. They are coming from longer distances. They want to stay longer because they find more services, more convenience in shopping, more comparative shopping. It’s an enclosed safe environment with easy parking. All these things represent value. The average stay time in a typical mall is one hour, 10 minutes. The average stay time at a Taubman mall is at least double that.

“The question is whether people are buying at the same rates.”