Threshold Resistance (3 page)

So by the time I mustered the confidence to hand Milton Petrie the sketches for my alternative store plan, things were beginning to fall into place.

W
hy do people start their own businesses? Do entrepreneurs share certain personality traits? What motivates someone to abandon the predictable safety net of corporate life? Academic scholars are just now beginning to study these issues in a systematic way. I've never taken a scientific survey, but from a lifetime of close observation, I've reached a few of my own conclusions. I think men and women who go it alone in business are different. Because of that, they're also very insecure, which is not always a bad thing.

At root, it's really not about a propensity or a desire to take risks. No, it's about a different perception of what risk means. Entrepreneurs often see staying put as a more risky proposition than moving on. That's certainly how my father saw things, and I know it's how I approached life. For whatever reasons, many entrepreneurs don't grow up comfortably fitting in. I certainly didn't. Some are shy, others physically unattractive, many are from dysfunctional or disadvantaged family backgrounds, and still others are just smarter than those around them. But unlike people who allow these types of challenges or differences to get in their way, entrepreneurs—regardless of race, religion, or gender—seem to understand that being different makes it necessary to create their own paths. That's a powerful motivation.

Creativity and optimism are other common traits among people who start businesses, found organizations, and push innovation. Ideas drive them. They want to be a certain type of person and achieve a special dream that keeps forming and calling to them in their minds. But growing up different has convinced them that the only person they can really count on to make it all happen is the person they look at in the mirror every morning.

In 1950, at age twenty-six, I turned to the guy in the mirror, and with a $5,000 loan from Manufacturers National Bank of Detroit (now part of Comerica), started paving my own path. I wanted to use everything I had learned at Sims, in school, in my military travels, and in my brief career in the field to design and build extraordinary retail properties. I wanted to create places where customers would want to shop and retailers would want to do business—more business than they had ever done before.

At this point, I felt that I had a decent amount of experience. I had worked as a draftsman and store planner for the architect Charles Agree. Agree specialized in retail, and I learned a great deal designing interiors for drugstores and department stores. We would work with tenants to determine where they wanted to locate key departments, and I began to understand the way retail traffic flows through a store. But I realized that while I enjoyed architecture and drawing, I really wanted to build. Part of it was for lifestyle reasons. I couldn't see anyone in architecture who had done well financially. I remember the great architect Frank Lloyd Wright coming to the University of Michigan and telling us that you could either marry somebody rich, inherit wealth, or starve to death. None of these seemed to me to be a viable option. And when I looked over the horizon, I saw that there was money to be made by people who could build and own stores or, better yet, groups of stores. And part of it was temperament. I preferred the energy and excitement of construction sites and negotiating deals to sitting at tables and drawing.

My first move was to leave Agree and join the construction firm O. W. Burke, where I began to supervise job sites and learn a great deal about how buildings are actually constructed. By 1950, I felt ready to go off on my own.

I ran the office, which we opened in Pontiac. My father, who was delighted to come out of retirement to be my partner, handled the field operations and provided some much-needed credibility with the bank. I looked young for my age in those days, and my dad brought some gray hair (and years of valuable experience) to the enterprise.

The partnership reminds me of an old joke.

A joint British-French panel is reviewing proposals to select the construction contractor for the massive “Chunnel” project. The largest construction companies in the world—several combining into consortiums—are bidding to construct this massive public works project. The tiny Cohen and Son Construction Company, of Queens, New York, is also bidding.

A skeptical judge asks the senior Mr. Cohen: “In your company's proposal you pledge to complete this work in half the time at less than half the cost of any other competitor. How could this be possible?”

“Very simple,” responds Mr. Cohen with confidence and a thick Yiddish accent. “My son vill be stationed on the French side of the Channel, and I vill verk from the British side. Ven I say dig, ve dig! That way ve'll be done in half the time at half the cost.”

“Mr. Cohen,” the official asks, “what happens if you and your son fail to meet in the middle?”

“Then you'll have two tunnels for the price of one!”

Well, my father and I did not set out to join two continents, or to change the world. But we certainly put together our share of ambitious proposals. Our first job, however, was a modest free-standing bridal shop, Mrs. Ray's Bridal Salon, across from Federal's
department store on Oakman Boulevard in northwest Detroit. The contract with Mrs. Ray (which I used as collateral for the Manufacturer's loan) called for design, construction, and fixturing—what we in the building trade call a turnkey job. Mrs. Ray, an authentic entrepreneur herself, could literally show up with her inventory and a cash register and be in business. The store was a big success and we had our first satisfied customer.

Fortunately, work came to us on a pretty steady basis during our first few years. We quickly graduated to department stores, an occasional hotel, and a few strip shopping centers. As our workload grew, so did our company. Dick Kughn joined us in 1955 as our estimator and would quickly become a partner and rise to the position of president, a position he held until he retired from the company in 1983. I was glad to have Dick on board. Being responsible for an ever-expanding family of employees was one of the most difficult aspects of business for me.

At our first company picnic, I remember looking out at the employees and their families on the lawn and seeing instead a very large nest of birds, all craning their necks, mouths wide open, calling for food. That's when it really hit me just how responsible I was for their well-being. If I screwed up, their children's teeth wouldn't be straight or white, and their mortgages wouldn't be paid. I knew I needed great people to help my business grow, and I deeply appreciated my employees' commitment, but the responsibility I felt for them and their families was at times overwhelming.

I still remember the feeling in the pit of my stomach when I received a phone call at home in the middle of the night from the father of one of our young secretaries. Our employees had all gathered earlier that evening at a restaurant in Detroit for our company Christmas party. Apparently, this young woman, who still lived with her parents, had decided to spend the rest of the evening with one of our not-so-young executives. That was the last company party we
had for many years, and I made sure that everybody had Dick Kughn's home phone number.

I was pleased with my progress, professionally and personally. Reva and I were married in 1948 and settled in an apartment in Detroit. Our first child, Gayle, was born in 1951, and Robert followed in 1953. William completed our clan in 1958. But I was eager to take on larger building projects, and in 1953, I saw an opportunity. A friend from school, Irving Rose, pointed me in the direction of a troubled project in Flint, Michigan. An out-of-town developer was putting up a large (for the time) group of stores, anchored by a Federal's department store, but had made a mess of the design and execution. The original developer had designed it to connect to a nonexistent sewer in the street, to cite one example.

At the time, Flint was a growing and prosperous market, with its huge Buick plants. The Taubman Company stepped in and completed the project. And we did something comparatively radical: we moved the stores from the front of the lot to the back, and put the parking in front of the retail stores.

North Flint Plaza was a success and gave us the confidence to plot our own larger-scale developments. In 1957, we completed the forty-store Taylortown Shopping Center in Taylor, Michigan, and in 1959, we started work on our first large mall—the single-level Arborland, a large center near the University of Michigan campus, which included a Montgomery Ward, Kroger, JCPenney, and S. S. Kresge. We broke ground in early 1961 on the 350,000-square-foot project. Montgomery Ward alone took 120,000 square feet, and the entire project cost about $5 million. These were the first of what would prove to be a very fruitful and profitable line of business for the company.

In the mid-1950s, I also formed a friendship and partnership that would be as fruitful and profitable, economically and personally. Through doing business and living in the Detroit area, I had gotten
to know Max Fisher, who was one of the most successful entrepreneurs in the state and in the country. Max, who had made a fortune in the oil industry, had acquired the Speedway chain of gas stations to distribute fuel from the successful refinery business he had built in Detroit during and after World War II. He asked me to help transform them from discounters into a new merchandising and service concept. I designed an innovative fascia treatment for the stations, using just-introduced outdoor fluorescent lighting (prior to this technological breakthrough, expensive, hard-to-maintain neon tubing was the only exterior option). By creating what was essentially a large plastic light box along the front of the service building, we dressed up the station with a brilliant illuminated sign for Speedway 79, easily read by motorists zooming by. Max eventually hired us to redesign and remodel a very large number of his stations. He became a lifelong friend, mentor, adviser, and partner.

By the end of the 1950s, we had certainly come a long way. The Taubman Company had evolved from a two-person upstart builder backed by $5,000 in debt to a developer with a substantial track record in Michigan and a healthy book of business. But our dreams were much bigger. And as it had to so many previous generations of adventurers, California beckoned us to go west.

P
ostwar America was booming. New housing developments were springing up everywhere. Highway systems were being constructed across the nation, and Detroit's factories were churning out automobiles around the clock for growing families. After nearly two decades of depression and war, an unprecedented national prosperity was creating the largest and most prosperous middle class any society had ever known, and a new phenomenon—television—was fueling a national desire for more and better consumer goods.

By this time, we could see that developing large-scale retail properties was a numbers game, a question of population (and population growth), income, distances, and roads. We had experienced and profited from this growth in Michigan, but we could see that other parts of the country were growing more rapidly, like California. I began to think about building there. But I faced a huge amount of threshold resistance. The logical place to expand for a company like ours would have been an adjacent area, such as northern Indiana or Chicago. We didn't have much in the way of experience, contacts, or reputation in California, but it seemed like a natural move for me. We were facing some resistance to further expansion in the Detroit area. Hudson's, the dominant department store chain in the region,
didn't have any interest in working with me, and California was growing by leaps and bounds.

In 1959, I went to San Francisco to find a leasing company and met with old Mr. Coldwell at Coldwell Banker, who practically kicked me out of his office, saying, “I hope you bought a round-trip ticket out, because we don't need any shopping centers.” I walked down Sutter Street and hired the Milton Meyer Company—a brokerage firm with a young leasing agent named Sheldon Gordon (who would become my lifelong friend and partner), and began to look for a large plot of land.

I found it in San Francisco's East Bay area, where we set out to do something revolutionary: build malls about twice the size as comparable ones and enclose them.

I can remember as if it were yesterday the first meeting I had in 1963 with James O. York, who was working on the Macy's account for a prominent market research firm. Jim had concluded from his analysis of population growth, highway patterns, and existing competition in the East Bay area that our proposed project—Sunvalley, to be built in the town of Concord—would be a great success. But he felt the center should be around 300,000 square feet total. He also recommended that the project's Macy's store be only 60,000 square feet.

I, on the other hand, was planning a center of 1.25 million square feet, including Sears, JCPenney, and a Macy's of more than 200,000 square feet. In other words, Jim and I were only about 900,000 square feet apart!

At the time, construction was already well under way at our first West Coast project, a much smaller mall thirty miles to the southwest, in Hayward, California. Southland, the first enclosed mall in northern California, opened in 1964, anchored by Sears, JCPenney and Emporium Capwell.

To understand the level of resistance to my plans, you have to consider the conventional industry wisdom at the time. Major department stores, in order to preserve the dominance of their flagship
locations (in this case, the 600,000-square-foot Macy's store in downtown San Francisco), severely limited the size and merchandise selection offered in branch suburban locations. This strategy vastly underestimated the pace of population growth in suburban communities surrounding central cities and, ironically, threatened the very market dominance it was devised to protect.

Before I get back to my discussion with Jim, a bit of history will be helpful.

Many people to this day blame the suburban mall, at least in part, for the demise of America's downtowns. I have found throughout my adult life at cocktail and dinner parties that it is politically correct to be prodowntown and antisuburb. Inner cities are alive with culture and sophistication; suburban communities are vacuous and homogenized.
West Side Story
vs.
Leave It to Beaver.
The “21” Club vs. McDonald's. In fact, a popular myth holds that regional malls began to spring up in cornfields across America shortly after World War II, creating suburbia—an evil, all-powerful magnet that drew people, housing, and commercial development away from our nation's vulnerable inner cities.

That's a distorted view of history. First of all, we need to recognize that settlers from the beginning of our nation's history established unique patterns of urban development far different from the Old World cities from which they fled. An urban study in the 1890s, a time when commuter railroads had already kickstarted the growth of suburbs, found that the population density of American cities averaged twenty-two people per acre, compared to 157 for cities in Germany.

America's affinity for a suburban lifestyle is certainly not a new aspiration. In fact, archaeologists discovered the following inscription on a clay tablet dating back to 539 BC:

Nevertheless, we tend to focus on the 1940s and 1950s as the dawn of America's suburbs. Of course, by the 1920s, immigration, advances in mechanized farming, as well as the flow of returning servicemen from World War I, had created an unsustainable wave of urban population growth. Because our cities could not accommodate these numbers, growth migrated to the city's fringe. In response, retailers followed to conveniently serve customers in these new communities.

But as a general rule, the major department store companies—Dayton's in Minneapolis, Hudson's in Detroit, Wanamaker's in Philadelphia, Lazarus in Columbus, Marshall Field's in Chicago—stayed put in their protected downtown locations. For the first half of the twentieth century, established downtown department stores exercised significant control of land use and the political process. Politicians marched in store-sponsored holiday parades, and wings of hospitals were built with generous corporate contributions from retailers. These stores were among the largest employers and most visible local businesses. In 1953, Hudson's flagship store in downtown Detroit employed 12,000 people and maintained a delivery force of 500 drivers operating 300 trucks!

Because of this extraordinary influence and their ability to control the distribution of name brands, department stores were able to forestall competition from new retailers in their markets. America's cities were essentially one-store towns. Before landmark free-trade rulings in the 1960s and 1970s, if you wanted to purchase a Hathaway dress shirt in Detroit, you had to go to Hudson's—and only Hudson's. They, like powerful department stores in other cities, absolutely controlled distribution of the most popular apparel brands.

For decades, dominant department stores made it difficult if not impossible for upstart merchants such as Sears, Montgomery Ward, and other variety and specialty stores to secure competitive downtown locations.

Contrary to dinner party myth, retail
follows
residential growth.
People shop where they live, not necessarily where they work. As a result, upstart stores found locations called “hot spots” two, four, or six miles from downtown. These street-front properties were serviced primarily by foot traffic, buses, streetcars, and increasingly, automobiles. The irony? If department stores had not excluded competitors like Sears and JCPenney from downtown locations, fewer new retail developments would have been built to splinter the markets and challenge the flagships' dominance.

The automobile and the mobility it provided to America's growing middle class changed everything for the downtown department store. By 1930, 23 million cars were registered in America. And after World War II, federal programs offering affordable financing for new home-buyers and historic expenditures on highway construction accelerated the exodus of formerly captive customers. By the 1960s, major downtown department stores had no choice but to join the outcast family of chain stores in major new suburban centers like Southland and Sunvalley.

Of course, the department stores themselves played a significant part in the migration of retail to the suburbs. Some people credit Northland Mall, which opened in the Detroit suburb of Southfield in 1954, with being one of our nation's first regional shopping malls. What made the 1954 opening of Northland so pivotal to development patterns in southeast Michigan was the size of the Hudson's department store that anchored it. Now, it's understandable that Hudson's, the region's dominant retailer, would make the decision to build its second store beyond the city limits. All major department store operators were beginning to build branch stores in the suburbs by this time. What was unusual, however, was Hudson's decision to build such large stores—a 600,000-square-foot store at Northland and, in 1957, a 400,000-square-foot store at Eastland in Harper Woods. These were not branch stores, which typically were between 150,000 and 200,000 square feet. And they gave shoppers another reason to make purchases closer to where they lived instead of downtown.

I certainly wasn't alone in building large projects in different states. This period of explosive growth saw the formation of several shopping center companies that grew to be national firms, and there was plenty of room for all of us. On the West Coast, Ernest W. Hahn started his business in 1947 as a general contractor specializing in carpentry. Ernie handled the carpentry for me at Eastridge, which opened in San Jose in 1971. His first center, La Cumbre Plaza in Santa Barbara, opened in 1967. For a few years in the late 1990s, Taubman Centers owned the property along with the Paseo Nuevo center in downtown Santa Barbara. Hahn was one of the first mall developers to form a public company—the Hahn Company—which was ultimately acquired by Canadian real estate giant Trizec in 1980.

For whatever reason, the Midwest bred several mall pioneers. Matthew and Martin Bucksbaum, brothers originally from Iowa, formed what is today the very successful General Growth Properties in 1954 after trying his hand at managing a supermarket business. I made an offer to buy the Bucksbaums' portfolio in the late 1960s. They turned me down. And while the discussions were entirely friendly, I think I hurt their feelings. I didn't mean to, and to this day I deeply respect the family and their business.

Melvin Simon, along with his brothers, Herbert and Fred, started in the construction business in 1960 in Indianapolis. The Simons were from New York, but Mel's job as a leasing agent for Albert J. Frankel Co., a strip center developer based in Indianapolis, brought the family west. Edward J. DeBartolo of Youngstown, Ohio, formed his construction company in 1948 and soon branched out into retail development close to home and later in Florida. The DeBartolo Company was acquired by Simon in 1996.

Philip M. Klutznick, also a product of the Midwest, was born in Kansas City, in 1907. His father, Morris, was a cobbler. Philip and his family lived above the store—literally. A lawyer by training, Philip became a champion of public housing and was named commissioner
of the Federal Public Housing Authority by Franklin Roosevelt in 1944. The opportunity to plan the model city of Park Forest, a suburb of Chicago, brought Philip to the Windy City after the war, where several Klutznick retail projects were developed in the 1950s. These centers were not enclosed. On a windy winter day in suburban Chicago, shopping at a Klutznick mall can be a physical challenge equal to reaching the North Pole. Later, Water Tower Place would be his crowning achievement. Again, he lived over the store (in this case Marshall Field, Lord & Taylor, and dozens of smaller shops), occupying one of the building's luxury residential units on the upper floors.

The character of these companies and the quality of the projects they developed were clearly influenced by the vocational roots of their founders—carpenters, builders, attorneys, engineers, leasing agents, supermarket managers—and the relationships they formed with major department store chains. The Simons hitched their star to Montgomery Ward, an uninspired retailer, to say the least. DeBartolo forged a great relationship with Sears, Klutznick with Marshall Field, and, again, Hahn with Broadway Stores. I was fortunate enough to earn the trust and respect of multiple national and regional department store chains, including Macy's, Sears, Marshall Field, Lord & Taylor, J. L. Hudson, Allied Stores, Saks Fifth Avenue, and promising upstarts like Kohl's and JCPenney. In fact, I built Penney's first full-line store at Southland.

Which brings me back to James O. York and our Macy's discussion.

Jim was open-minded enough to hear me out.

Together, we considered the potential draw of a much larger project and a much larger store, in which Macy's would be able to present its apparel lines and soft goods in depth, fulfilling the promise of its respected brand. We drove around in the market. Jim eventually agreed with my assessment that recently built and soon-to-be-built highways were changing everything. Old shopping patterns were meaningless. Trade areas of 50,000 to 60,000 people
were expanding overnight to 250,000. Without the freeways, our trade area would have encompassed a five-mile circle, in which shoppers would travel twenty minutes to the center. With the freeway, the circle expanded to ten miles, which meant three times as many people. The freeways around Sunvalley had the capacity to deliver in twenty minutes or less more than a quarter million people living within ten to fifteen miles of the center. (As we got more sophisticated, comprehensive drive-time studies and license plate surveys were conducted by our market research department to establish the size of our primary trade areas with scientific precision.)

Even though Concord and the communities surrounding it were for the most part commuter towns, the market's young families were not going to cross bridges to shop in downtown San Francisco with any regularity. And every day, more and more companies were shifting jobs out from San Francisco.