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PropertyShe Podcast
Scott Malkin
Susan Freeman
I’m Susan Freeman, welcome back to our Propertyshe Podcast brought to you by Mishcon de Reya in association with the London Real Estate Forum where I get to interview some of the key influencers in the world of real estate and the built environment. Today I am really delighted to welcome Scott Malkin. Scott is the Founder and Chairman of Value Retail, the owner of the Bicester Village Shopping Collection which has eleven luxury shopping outlets in Europe and China including our very own Bicester Village. The business is a real bright spot defying the general doom and gloom around retail at the moment. Last year alone they generate retail sales of 2.9 billion Euros across more than 1,000 outlet stores. And Scott isn’t your usual real estate entrepreneur. He was raised in Connecticut, has three Degrees from Harvard; Harvard College, Harvard Law School and Harvard Business School and having sold his first retail store concept in Beverly Hills at the age of 31, he came to London and started Value Retail. Earlier this year Scott was the first winner of the prestigious Urban Land Institute European Leadership Award. So now we get a chance to find out about the entrepreneur behind the immensely successful Bicester Village Luxury Shopping Concept.
Scott, welcome. You were born and educated in the United States and I think it is probably not an exaggeration to say that you come from a real estate dynasty? I believe that your father owned the Empire State Building. Was it actually a foregone conclusion that after I think, three Degrees from Harvard, you would go into real estate?
Scott Malkin
So I am from Connecticut and have been for 30 years a Connecticut Yankee in Queen Elizabeth’s Court. My enjoyment of real estate comes from having been, as is quite normal in the US, assigned to summer employment where I was the most junior person on a leasing team for an office building in New York City and in the doldrums of August when all the adults were having their holidays, some fella walked in and assumed I was a lot older and more experienced than I was and leased a relatively large space from me in a building that had lots of smaller space users. First of all it was fun but secondly the sense of having freedom was - and getting something to happen – was exhilarating. It was a lot like scoring a goal in sport which you can’t find that often in the commercial world so that got me interested in property which remains still today not a wholly institutional or big company environment. It is still possible to invent interesting things and do things that add value in a way that the investment market will, and the banking market will accept and so that was the beginning of the adventure.
Susan Freeman
And you succeeded in bringing retail and tourism together in your centres. I think you have just rebranded as Bicester Village Shopping Collection and I think you’ve got 11 outlet centres in Europe and China. It is a bright light in the general sort of gloom of retail at the moment so Bicester Village I think generates the highest sales per square foot of any purpose-built retail location which is quite something.
Scott Malkin
In the world.
Susan Freeman
In the whole… in the…
Scott Malkin
Not just the UK.
Susan Freeman
…in the world and it’s interesting you know, we are looking at the problems with the High Street, problems for the retailers generally so really I suppose the big question is, how do you achieve what you are achieving where elsewhere everybody’s you know, signing the death warrant for retail?
Scott Malkin
Well retail is far from dead, it’s in a constant pattern of reinvention. There are moments where step changes occur, we are at one of them. The war is over and Amazon won, Alibaba won and anyone who wasn’t responding to those realities is looking backwards rather than forwards. Historically we would say that shopping centres were all about retail experience but they were really about retail distribution and what’s happening very simplistically is that shopping centres will move relentlessly towards a logistic service competing in very practical sense with true logistics where houses run by people like Amazon and the brands as they distribute increasingly online or with a focus on logistics will in turn become more and more commoditised and so that that allusive quality of brand equity will be diminished and the… it turns out that the way to a crucial and probably the central way to define and protect brand equity is through physical retail. What we do call flagship retail. So the more efficiently brands deliver in what are called assistamatised automatised forum, the more important flagship retail is to counter balance that loss of identity because no matter how nice the packaging is and how fast the package arrives and frictionless the purchase is online, it is still just an item that’s measured analytically and valued as a piece of data. Flagship retail counter balances that, flagship retail in London today would be four things; it would be Heathrow Terminal 5, where luxury brands, the most exclusive luxury brands are fighting with one another for the best spots and that’s not the way brands, particularly luxury brands saw the world 10 years ago or even 5 years ago. Secondly the great shopping emporia particularly Harrods and Selfridges in London, the great shopping streets where brands define themselves and present a flagship presence so call that Bond Street and Regent Street and Bicester Village and Bicester Village and its sister locations exists because… they exist because those surplus genuine authentic surplus merchandise cannot be sold online without destroying the brand equity and then the jump is to make those locations not just efficient distributors of complimentary channels of distribution for that surplus merchandise but actually pursue a higher calling which is something built on experiential retail but defined by our mission which is full price customer acquisition. So Bicester Village, two thirds of the customers go there from outside of the EU, they do not have an EU passport and whether they come from Chengdu or Deli or Dubai, for them to go into a shop at Bicester Village and not be captured in CRM terms in customer relationship management terms in digital terms, by that brand is a huge missed opportunity. So that the brands and we as Value Retail have to work hand in hand so that when that woman goes back to Dubai she is not an outlet shopper and when she arrives at Bicester Village she is probably spending £10,000 on that visit, she and her family so… and it is possibly once in her life that she is going. Maybe next year she will go to one of our villages in Western Europe on the Continent, so we are selling memories, we are capturing full price customers and those are the powerful initiatives and then the actual transactional nature of selling merchandise follows in the slipstream of those two things and great experiences are all about memories. Gifts are about memories, moments of acquisition are about memories. It is the human piece that cannot be and will not be delivered online.
Susan Freeman
Well, I have to declare an interest at this point because I am a very keen shopper and I really understand what you are saying about Bicester because we take a client group to Bicester Village in the run up to Christmas and we have done it for the last few years and we do the whole VIP package and we actually say Christmas starts with this trip because you have the snow machines and there really is a whole atmosphere and you do get the feeling of this merge between retail, you know luxury hospitality and it does, it does, it does work because it is actually quite, when you think about or certainly when I think about it, it actually juxtaposing luxury with discount cut price, it’s not an immediate you know, you wouldn’t put that together as an obvious but it somehow, it somehow, it somehow works.
Scott Malkin
So we define ourselves by saying we are retailers working for retailers. I am real estate guy, I am sticks and bricks property guy but the preponderance of our staff come from retail brands, they love product, they love the process of inventing and delivering product. They may not be pure retailers, those are more people with a merchant psyche and that’s a crucial piece of the mix as well but you mentioned hospitality, experience… it has to be a group of people that feel that the frustrations and inefficiencies of working collaboratively are counter balanced by the magic that results and when I go to one of our villages, I was Monday at La Roca Village north of Barcelona on the Costa Brava, Tuesday at Las Rozas Village to the north west of Madrid, the Bicester Village on Thursday – the beautiful thing is I can see that they are working, I can see that the core logic is correct but more importantly I can see a hundred things we could do better and I don’t feel that way when I am online and I don’t feel that way if I am in a traditional shopping centre. I see those as much more prescribed experiences or defined experiences so we, we do well but we can improve a lot and hopefully we will continue to do so because of the customer, what she knows is whatever is good enough this year will be better next year because otherwise she won’t come. The notion of constantly raising the bar is a highly disruptive premise but it is actually the way the world works, it is just working that sequence is accelerating, the task is more challenging than it’s been because with transparency of information, word of mouth is now transmitted virally, digitally and you can’t lump along and hope it is all going to turn out fine 10 years from now. Gotta to be living on your toes.
Susan Freeman
And is there anything that our people trying to revive High Streets, you know people trying to revive shopping centres can learn from this because obviously we are talking about you know, luxury, being able to you know spend money on the hospitality side of things but I mean are there, are there lessons there for the sort of lower end if you like of the retail chain?
Scott Malkin
When I talked about flagship shopping street, I didn’t mention Oxford Street.
Susan Freeman
I noticed.
Scott Malkin
20 years ago Oxford Street was a national institution and people migrated there from across the UK. Regent Street wasn’t particularly noticed so one can look at examples of of urban experience where results are working and try to draw lessons from them. Similarly the notion of business improvement districts in the US has been introduced to Britain but they haven’t been reproduced faithfully and they haven’t really been designed around results, they’ve been designed around I would call the embrace of the status quo and and then they are not really disrupters and then they are not really delivering value so again ideas have to be adapted and they have to be introduced correctly but equally if we are relying on the individuals who lead and control the big mainstream institutions both property owning and retail companies to tell us what the future looks like, the reality is they weren’t put into the jobs they’ve gotten – they are all very bright and very talented – but they are not there because they can see the future. They are there because they have been fantastic performers while conforming and then the rebels tend to have you know a relatively loose grip on reality so there is this gap in the middle that’s where the interesting experiments are occurring and where the interesting innovations will emerge and it is somehow the freedom to do things without asking for permission within boundaries that reflect, I would call it a combination of reality and responsibility and in our entire history we have, and as recently as our last Board meeting, we have been told by our shareholders who own non-voting shares that sounds dangerous we wouldn’t recommend it. And and that’s great, that's great err marker, a navigational marker because if it works intellectually but it feels uncomfortable emotionally we are probably in the right spot and the organisations that invest in us, those people are promoted because they can employ their intellect with great confidence but if they had a higher EQ they probably wouldn’t be such strong and successful investors. So our job again is to find that balance between IQ and EQ and so far every time we’ve listened to the feedback we’ve learned a lot. We’ve actually re-thought our vision and done it better than we would have done but we’ve gone ahead and that’s the key thing right, 90% of life is actually just showing up and you are not allowed to show up if you need permission.
Susan Freeman
It is interesting. I am going to come back to you on business improvement districts but I just wondered if you are seeing any experiments in the retail space at the moment or sort of anything you, any rebels doing anything that you think ah that’s interesting?
Scott Malkin
I guess the two answers that come quickly to mind – digitally native brands, digital native brands that are going into physical retail intrigues me when comparing them to physical brands going into digital distribution. So the journey in theory should be quite similar. They are both going to end up on the channel but in fact the way that the path unfolds is not the same and the clear winners to date have been the digital crew evolving towards physical and the great role model for this, the great exampler is Steve Jobs with the Apple Stores where he decided on his vision and then found retailers to implement it as opposed to he hired retailers to open stores for him and to give you a sense of how differently he was thinking at the time his err… speech, his words to his staff in the Apple Stores were these: Your job is not to sell more product or to explain Apple’s product or to do anything that would be considered normal in a store, your job – he said to these people – is to enrich the lives of others. Essentially to embrace human happiness. Now in fact they’ve been brilliant at selling but because they came at it differently it’s been powerful and they came at it differently because their point of origin was outside of the conventional expectations and that leads to the second piece I think that’s very interesting which is, the most… to me the most persuasive indication of the future is the present in the Seattle, Silicon Value, Carter today. The err…You have rule of law but you have rejection of the status quo and it’s the balance that produces very interesting outcomes so when they lurch across the Atlantic to Europe they don’t necessarily do such a good job at understanding how important the institutions that are defined by the status quo are in the cultures here and how they will respond to these challenges to the norm and when they crash across in the other direction to China as a dominant expanding economy they find themselves stymied by relative lawlessness so people who actually wear Apple gear, have Apple ID cards, get a pay cheque that says Apple on it but this is a true case – the stores weren’t owned by Apple, they were selling Apple grey market equipment and these people thought they worked for Apple and this is only a few years ago so you have the kind of random outcomes on the one hand and the obstruction on the other and Silicon Valley which is justifiably criticised in lots of ways actually to me is the heartbeat of the future and what they, what we sitting here in London think of as the future, we are completely wrong. We are looking at the past. Silicon Valley is already doing it and they are fixated on the next thing, AI, and we are still trying to come to grips with the by-products of a lot of their current initiatives. So I think it goes back to the two great disrupters over the last 15 years in the West have been technology and emerging markets as symbolised by China and from the point of view of retail brands who are doing well have had a plan for both. And if you look at brands that are dying and stumbling, they had a plan for neither and so they were taking short term gain, maybe they were very profitable in the current moment but they weren’t investing culturally or financially in the changes that were being… going to be imposed upon us and have been imposed upon us and we are sadly going to see more and more great retail names and great retail traditions vaporise. It’s not a question of if, it’s a question of when.
Susan Freeman
That’s a little bit depressing but I think you are absolutely right and I think…
Scott Malkin
Well, well it’s depressing if one is uncomfortable with change, it’s exhilarating if one accepts two things. That physical retail is here to stay and these digital native brands are going to physical retail because they cannot create brand identity and create relationships with consumers and acquire consumers without going to physical. So physical retail is here to stay and the quality of delivery, the quality of the experience is going to get massively better than it is today. Using technology as an enabler but not being defined by technology. So as a, as a, sophisticated consumer you are going to have a lot more fun.
Susan Freeman
Okay-
Scott Malkin
But as a person who is a bit jostled by the disappearance of the High Street, and we are both, all of us are both right – it’s not going to feel good.
Susan Freeman
It’s interesting because I think you have been saying for some years that these online brands at some point are going to have come offline if they want to get closer to their customers, they can’t do it all online, they are going to need some bricks and mortar and that, you know, that is, that is, that is happening which is good but just coming back to what you were saying about business improvement districts because I umm was err lucky enough to be involved er right at the beginning when we actually went over to New York, met Dan Biederman, went round the business improvement districts there with my er friend, Pat Brown, who was running Central London Partnership at the time and we were so enthused we came back and actually set up the Business Improvement District Movement if you like here and the problem was in New York obviously owners were included um er and when we set up over here, it was just for occupiers and that obviously creates immediate issues. That’s changing now in some of our bids are actually, are owner bids as well because I think one of the issues er with um you know, working on reviving um town centres and high streets is whereas you can curate because you own, you know you own your villages, where you have fragmented ownership um there's got to be some mechanism to bring people together and have a sort of joint vision so that people can work together to improve the area so…
Scott Malkin
You are absolute right and the, the reality is if we look at the ability to deal with change, particularly change driven by technology those were least able to respond are those who are most institutional. By definition those organisations are based on structure on productability, on reliability and on exerting their perspective and their values on others. So the core example of course is Government itself and that works until you get 2 million people marching to oppose a piece of… regulation. That works until you um get people simply refusing to go to a sporting event because the food, if you are under the age of 25 in North America, you stop, not every single person, you stop going to the venues because the cell service is rubbish and you want to take Instagram photos and send them to your friends and the reason the service is rubbish is both technology but also that they’ve done licensing deals with coms companies that are limiting your access if you are not a subscriber but when you go to an arena or stadium you didn’t choose the venue based on whether or not you are a subscriber and then the food, people are used to being able to order online on a device and have delivered to them anywhere, at their desks at work at lunchtime, any of now thousands of options and eating, eating packaged food where you don’t trust the kitchen and you don’t trust the source of origin and the food in a world where the young generation views sustainability and the environment as the single most important narrative obviously it’s in conflict. So, so people change when they are forced to. Institutions change when it is already too late. With moments that are of exception and er the fun of all of this is that new things are emerging and if we can understand why they bubble up we’ll… we'll be stronger and so a centrally controlled regulatory approach regardless of the, the nature of the political philosophy, progressive or conservative, it’s going to crush innovation and a vision where risk taking is up to a reasonable point rewarded and respected, is a different model.
Susan Freeman
So how are we going to facilitate that?
Scott Malkin
London and Britain have a better chance than most because… history says th- that to survive you know, an island, an island nation isolated based on trade um Britain had to keep on reinventing itself and has continued to reinvent itself. I think surviving better than most doesn’t necessarily mean it is going to be comfortable or easy and I think that it’s probably something about embracing change and decid- declaring, deciding institutionally and politically that change is inevitable so how do we make the best of it rather than arguing about whether change is necessary. Most of Europe is anti-change. That’s what the strikes are about you know, up you know up and down the Continent is, is generally speaking we don’t want change. Britain is more er balanced which I think is a big opportunity but it doesn’t mean that the institutions and those who lead them – we were speaking before we came into the studio about how fashion is fundamentally about women but shopping centre companies and retailers have virtually no women running those organisations or on their Boards and the women they do have effectively are products of the financial services sector and think in a way that is indistinguishable from the men who come from that same sector. So their point of view is quite consistent regardless of gender. So one would say alright well… aside from ideology and philosophy and all the reasons about how Boards might be debated and what they should be, one would say common sense would suggest that survival by adaptation – that was Darwin’s point right?
Susan Freeman
Mmm.
Scott Malkin
It wasn’t survival of the fittest, it was survival of those who adapted best and that would be, if I were an investor, that would be a great benchmark for me, I would invest in companies that touch the retail property and product sector, that have demonstrably embraced women who are not only from the financial services sector but women in addition to those from the financial services sector or in senior leadership positions and actually have a relevant voice at what’s happening. And by the way, I would say the same thing about tech. You know having one showcase millennial to give speeches doesn’t mean that a company is tech savvy or actually organisationally able to embrace tech. The key to WeWork is that all of these companies including tech companies, all of these companies are subcontracting their HR and their tech functions because it is simply too difficult to invent HR and tech that works for millennials. WeWork does that better than anyone else and so if you want to employ young people you send them to WeWork and they are dealing every day in an environment where the newest ideas in tech and the newest ideas in free and flexible work environments, whatever that looks like this week, are seen as normal and by the way, sustainability which we mentioned before, WeWork have a new policy, at least in the US, where they will not allow meat to be offered at any function that’s hosted in a WeWork facility and they will not sell meat in any of their on-site provisioning. And this was told to me by a woman who works at WeWork who had an event where she was thanking the organisers for the turkey sandwiches because she never gets any meat and so she is missing… but it’s virtue signalling right. It’s brand building. It’s saying this is what young people say they want so we will go ahead and try it.
Susan Freeman
Yes they were actually serving Prosecco on tap at one of their London WeWork offices, I don’t know if they are still doing that but that’s interesting because it is all about you know, talent wars these days. How to attract you know, bright, young people and to keep them and in fact I was going to ask you. I know with your company you don’t have any fixed physical head office. How does that affect the culture of the business? How, how, how do you keep bright, you know, bright young people in the organisation?
Scott Malkin
I think three ideas come to mind. Firstly senior executives who are inclined to work with us… we’ve lost a number who look at us and say how can I work in a company where there is no head office and I don’t have an appropriate… spot physically in that head office, I can’t relate to that. So that’s a great filtering device actually because somebody who needs a head office and needs a corner office in that head office isn’t going to be agile enough for the realities that we're, that are confronting us every day. So that’s one statement. The second statement is we’ve got 17 nationalities and 26 languages in Value Retail and the absence of a head office means not only that there’s no head office to blame, there’s also no host nationality to blame and the goal is that when people are thinking about their day…and happen to glance at themselves in the mirror at the start of the day, they remember actually it’s up to them to make the difference, drive the change, there’s no one to blame as an excuse but there’s also no one to rely upon to do the thinking, take the initiative for them. So we are a complex matrix, we do launch initiatives but we are not very good at formalising and institutionalising them because we are not very formal or institutional ourselves and every time I think maybe it’s a moment where we could be more formal or institutional the world around us changes again and we have to adapt. And then I think the third thing is the power of being decentralised and not having head office is that younger people in some sense are constantly in a shallower, smaller er environment so if they are inevitably piece of the hierarchy it is a tight, shallow organisational unit and that should and seems to, should appeal to and seems to appeal to people who have lots of energy like embracing change and like feeling that they are part of the future and er…select employment with places hopefully that maybe a bit, you know, we are definitely a bit disjointed and a bit chaotic but if you go on Glass Door there are only two points of view – one is people are like lunatics it’s not worth it and anyway there’s no good you know, it’s impossible to get feedback but all these things are say it’s a not a good fit right or this is the perfect job. So that’s not a bad idea right because again that’s some kind of filter and remembering in the old days to go work at Ralph Lauren you had to watch a half an hour video of Ralph talking about the brand and his vision and it turns out that after 5 minutes applicant’s to the company either said wow this is great I love it or why am I watching this video. And the ones who didn’t think it was interesting to watch the video quite appropriately ended up somewhere else where they’d feel a better fit.
Susan Freeman
It sounds like a really good system so you effectively self-select.
Scott Malkin
I’d say that environment defines er realities and unintended consequences and we just try to, try to hold on. The good news is if you want to surf, stand in front of the wave. The bad news is you’ve got stay on the board.
Susan Freeman
I have a final question for you. When I go to Bicester Village pre-Christmas in 5 years’ time, how is it going to be different?
Scott Malkin
I love that question. The brands will be different. Size, composition, some will have gotten bigger, some will have gotten smaller, new ones will have arrived. The nature of experience will have evolved substantially and that will be because we will be able to attract higher quality, more flexible talent…that comes from hospitality and experience curation. If you ask me my vision of what creates… what’s… the image of great experience, it’s Studio 54 between 1977 and 1980, Matt Tyrnauer has got a great documentary on it and you realise that the pieces came together in a way that there was constant reinvention, constant renewal. Now that lasted for 3 years and it was a product of systemic and societal shifts but you can find that today in its 30th year of Burning Man, there’s a desert and then for 14 days there are 30,000 people and then there’s a desert again and somehow that’s despite the massive infrastructure acquired and the large numbers of people somehow the range and variety and you know, the embrace of creativity. I’ve never even been, I am just an observer right so so …
Susan Freeman
Sounds a bit like MIPIM.
Scott Malkin
There you go, there you go. The experience is probably better in MIPIM in that Burning Man is typically beset by wind storms and there is no cell service and…
Susan Freeman
Okay.
Scott Malkin
…but it’s, it’s um you know that’s interesting right. So the people who understand how to create environment out of the desert are going to be more logically central to experience but they are going to have to be willing to work for the people who are responsible for experience, your business improvement district example you know, why would that person, a really good one, choose to be associated with a quasi-Governmental infrastructure, that’s a great test. If he or she were interested then that quango is on the right track. So those… I talked to you before about you know, litmus tests or bow others, that’s a great example. So I think the last quick part to the answer might be that I hope you will see fewer people having a longer, better experience with us and spending more. So quality, of experience and quality of expenditure rather than quantity and and I hope that er you will know about us because of word of mouth not because of promotion or marketing or advertising. There will be an essence of in a tribal sense a best kept secret of those who can tell the difference.
Susan Freeman
So that’s it for now. It was pretty amazing to hear from one of the legends of the retail sector who virtually invented the idea of the luxury shopping outlet as a retail, tourism and experiential merge. I really hope you enjoyed today’s conversation and that you will join us for the next Propertyshe podcast interview coming very shortly.
The Propertyshe podcast is brought to you by Mishcon de Reya in association with the London Real Estate Forum and can be found at mishcon.com/Propertyshe along with all our interviews and programme notes. The podcasts are also available to subscribe to and download on your Apple podcast app and on Spotify and whatever podcast app you use. And please do continue to let us have your feedback and comments and most importantly, suggestions for future guests. You can also follow me on Twitter @Propertyshe for a very regular commentary on all things real estate, prop tech, retail and the built environment. I'm Susan Freeman, see you next time.
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