Taubman: “We are in a Moment of Transition”

“We are in a moment of transition,” declared William Taubman, COO at Taubman Centers, during a recent presentation to the real estate community. Interviewed by Michael Graziano, co-head of global real estate investment banking at Goldman, Sachs & Co., Taubman talked about the future of the industry at the event, which was sponsored by the Georgetown McDonough School of Business.

“Sales are mediocre now but they're up one month and down the next,” he asserts. “Retail is ever growing; what makes a store great today are the seeds of destruction tomorrow. For example, look at Abercrombie and Fitch. It was so identified with a generation but eventually a new generation comes in. Retail reflects everything going on in society.”

To that end, Taubman adds, “Retailers are struggling. Some are doing well, like Apple, but it's tough. It's a combination of fast fashion that has impacted the margins, customers being in a hard goods mode because they're worried about interest rates going up and when you walk through the mall, not much there is exciting today.”

And of course, technology is creating an evolution of the industry, he notes. “It allows customers to compare pricing. But stores sell items on the web three times more if it's on the bricks and mortar store's selling floor. That's why Warby Parker and Bonobos are opening stores, because you can create an emotional connection and a long standing relationship with the in-person customer.”

Changes also are afoot in what's thought to be the ideal tenant mix of a mall, he states. “You can have a successful project without a department store today. They're like the network television anchors: back then, they had a 90% market share, just like Macy's and other such stores. Now they maybe have 20% but they're still the vehicle with which to reach the masses. Today, malls attract multiple types of customers for multiple types of merchandise.”

All in all, the shopping mall continues to flourish, but not without technology playing a role in its future. “The mall is not going to die, it's alive and vibrant. However, the Internet is evolving the business. Customers are going online so , for example, a woman may not go to five stores because the little black dress she likes is only at there place. Shoppers may make fewer trips to the mall today because of the Internet but they's spending more time in each store because they're more informed. Its changing the nature of the shopping experience.”

Going forward, forecasts Taubman, “we will have an app that will tell the customer where she parked and that can send messages tied to the stores of interest to a particular customer, with incentives to stay in the mall and shop. For example, a customer might get a message like, “Here's a sweater that matches those jeans you bought and we'll give it to you for 20% off for the next two hours. We want to know what a customer spends to improve and customize the shopping experience.”

So what types of properties are of interest to Taubman? “We think high-end centers will have the highest NOI growth over the next 20 years. Some marginal centers are going to go away.”

As for mixed-use developments, he said, “Retail goes where the customer is so if customers are moving to the cities, retail will follow.”