Global retail guru ponders the big questions

Global retail guru ponders the big questionsDriving the customer experience is the best strategy to achieve efficient retail asset returns, says the CEO of the United States’ largest publicly-traded real estate company, David Simon. And technology is the key to getting the most out of this strategy.Shopping centres are being transformed from “dumb boxes” to places enabled by technology, the CEO and Chairman of Simon Property Group told the audience at the European Public Real Estate Association (EPRA) Conference in Berlin last week.Simon, who has been named Institutional Investor’s ‘number one CEO’ in the real estate industry for five consecutive years, rose to prominence when he took Simon Property Group public in 1993. The nearly US$1 billion initial public offering was the largest real estate stock offering in history. As CEO since 1995 and Chairman since 2007, Simon has overseen more than US$25 billion in strategic acquisitions and assembled a portfolio of top-tier retail assets.Simon was adamant that technology is driving changes in consumer behaviour, and shopping centres must adapt to survive.”The average consumer used to spend an hour in a mall and go to six stores. Now they’ll still spend the hour but shop in just four stores,” Simon explained, arguing that this change has occurred as people do more online research at home before they step into a shopping mall.”Essentially every minute you spend in a US mall you spend a dollar. That’s the math.” The big question for Simon is how to extend each visitor’s stay?Dismissing the ideas that online is a threat to bricks-and-mortar retail, Simon revealed that “all of the big pure online retailers in the US are opening up retail stores. We’re going to see more of this,” he said.”We’ve had a few malls that have gone out of business. It’s not because of the internet. It’s because of demographics,” he explained.The S&P 100 company with total market capitalisation of US$91 billion is the largest shopping centre owner in the world. Simon Property Group owns or has interest in 228 retail centres, comprising nearly 18 million sqm, in North America, Europe and Asia. Tenants in the US portfolio alone generate retail sales in excess of US$60 billion a year.”When it comes to a property, I’m trying to drive the customer experience to get the most efficient return on equity I can.”Simon said the real challenge for the US economy is “how to generate income growth out of the middle class.”Emerging market troubles will curb US growth. No doubt.”Consumers are moving towards bigger, durable goods. If you buy a car or fix your kitchen, you’re going to cut back elsewhere. So US mall sales are ok, but they’re not great.”Simon believes consolidation remains a challenge in the real estate sector, “especially when there’s lots of capital in the system”. The 2 or so REITs in the US is “too many”.Simon also spoke if his admiration for Westfield founder Frank Lowy.”What they [Westfield] did in London was fantastic.”Frank’s the real deal. Guys like Frank – and my father – they’re the real entrepreneurs.”So how does he think the real estate asset class will fare in the future?”We’ll go in and out of favour, but over the long term we are going to fare better than most other asset classes.”The annual EPRA Conference brings together the leading figures in Europe’s listed property sector.