Shopping Mall Giant Westfield Group Focuses on U.S., U.K., Cautious on China

Westfield Group’s Retail Therapy

Shopping Mall Operator Focuses on U.S., U.K., Cautious on China

ROSS KELLY

Nov. 3, 2013 8:29 p.m. ET

Westfield Group, WDC.AU +0.46% one of the world’s largest shopping mall operators by revenue, is all about attracting big spenders. From Prada and Gucci to high-end restaurants, its malls cater to customers who are willing to pay for prized goods. So it may be surprising that Peter Lowy, the company’s joint chief executive, takes a cautious approach to investment. Despite a balance sheet bolstered by more than $6 billion from asset sales since the start of 2012, Westfield has resisted risky expansions into emerging markets like China. For now, it has no plans to join the rush of luxury brands and main-street retailers vying for the favor of Asia’s increasingly affluent middle classes.Instead, the Australian company is focusing on traditional markets like the U.S.—where it is building the retail section of the new World Trade Center development in New York—and limiting any new-market forays to Brazil and Italy.

Westfield’s caution is understandable. In April, it suffered a major setback in its attempt to break out of Australia, the U.S. and the U.K. when it ended a less than two-year-old Brazilian joint venture with Almeida Junior Shopping Centers SA over differences in strategy. Westfield has kept some capital in the South American country and hopes to start building malls there on its own.

Meanwhile, challenges remain closer to home. Online retailing threatens traditional stores, while consumer confidence in Australia, the U.S. and other developed countries remains vulnerable to shocks as their economies undergo fragile recoveries.

Mr. Lowy spoke to The Wall Street Journal about how Westfield is addressing structural and economic challenges, and what the mall of the future will look like. Edited excerpts:

WSJ: How is the World Trade Center development progressing?

Mr. Lowy: We are on time [for 2015] and on budget, until I’m told we’re not on time. But we have a fixed-price deal with the Port Authority, so we’re definitely on time and budget.

The buildings are just spectacular. The Oculus, which is the transport hub, will just be an incredible space. And they’ve done a fantastic job on the way they’ve built the memorial. It’s just a unique space in the world and for us to be able to have retail there is just a special, special thing.

I’m not going to give the features away. But I’ll tell you the building itself creates the space, because we’re actually integrating the retail right through the building. We are going to lease it with world-class retail as well as take care of the local inhabitants. Originally, we bought the lease six weeks before 9/11 and the amount of people who live down in lower Manhattan now has doubled since that time.

WSJ: How are conditions in the U. S.?

Mr. Lowy: The U.S. is growing slowly. Unemployment is coming down, house prices are moving up and the overall economy has been moving forward.

But you do see some slowing of that growth, especially in the first half of the year. Taxes went up, especially payroll tax, and growth was a bit slower than everyone had projected.

The teen retailers are hurting especially, although Gap GPS -0.57% has done quite well. It just looks like there’s quite a bit of unemployment in that teen market and that’s probably the soft bit.

But the economy itself is moving ahead.

WSJ: Are you considering expanding into new markets?

Mr. Lowy: Before you run to other markets all the time you need to bed yourself down where you are. And when you look at the size of the business we have, when you look at some of the developments that we’re doing, we’re not exactly in a position to be running to new markets.

We have to get ourselves set in Brazil. We have the capital there, but we don’t have any assets since we’ve sold out. We are looking at a number of sites in the marketplace that are up for public bids to see if we can get ourselves set with a development there.

WSJ: How about expanding into Asian countries like China?

Mr. Lowy: The issue about China is there are lots of developers and there are lots of opportunities. As a company, we’re pretty full at the moment with our development book. We’re doing the World Trade Center, the development in Milan—where construction should start in the next two years or so—the West London expansion, Croydon in South London and Century City in Los Angeles among others.

WSJ: How are you dealing with the threat of online retailing?

Mr. Lowy: We actually look at it as an opportunity. Every threat is an opportunity at the same time. We set up a division of the company called Westfield Labs in San Francisco and we are committed to creating a digital platform for our customers to be able to access both our assets and our retailers for their mobile devices.

The Internet has effected less profitable stores. Retailers will let those smaller stores close and cover those markets through the Internet.

WSJ: What will the mall of the future look like?

Mr. Lowy: The malls in the U.S. have substantially changed since the recession. In Australia and Europe, you have much more food integrated into the mall. You have much more discounters integrated into the mall.

Historically in the U.S., the malls were fashion and they were department-store fashion-based. Now, in our portfolio, we have nine supermarkets, we’re putting in gyms and spas, we are expanding the way theaters are used.

We’re putting in much more food, both fresh food and restaurants, and we don’t build food courts any more, we build dining terraces.

If the food offerings are good and they’re fresh, people come to the mall more often. So if we can create more shopping trips and longer shopping trips we can increase the sales revenues for our retailers.

In London we’ve created an area called The Village, which is totally high-end retail—the same as you would get on Bond Street or parts of Chelsea.

WSJ: Are malls killing the high street?

Mr. Lowy: The only thing I can tell you is that video killed the radio star. But really, I don’t think malls kill the high street. Take our malls in London, where we’ve put down 3.4 million square feet of retail space since 2008 in the heart of the city that’s doing £2 billion worth of business.

The center of London—Oxford Street, Bond Street, Regent Street—wasn’t servicing customers. It was hard to get to, hard to park, the shops they wanted weren’t there.

I would argue that we’ve enhanced the shopping experience of London. You didn’t have £2 billion of negative sales. And now you’re starting to see suggestions in England about how to regenerate Oxford Street and rebuild Regent and Bond Street. That’s all about competition, which is good for the customer and good for the city.

WSJ: Do you like to shop in malls?

Mr. Lowy: Yes I do, actually. I live in Los Angeles and my family’s a regular customer at Westfield Century City.

I sometimes go to some of the stores on Rodeo Drive, too, but not that often.

I enjoy going to the mall. For me it’s part of the experience of living in a city. People go to their local mall. They meet their friends. You sit around, you watch the people.

It has life. It has something that the Internet just doesn’t have. And I’ve said this before in a speech—I was being a little facetious—but the ultimate social network is the mall because what do you do? You go and meet people.

Résumé

Education: Bachelor of Commerce, University of New South Wales

Career: Co-Chief Executive of Westfield since 2011 and a Managing Director since 1997. Prior to joining Westfield in 1983, worked at Rothschild, CS First Boston and Furman Selz in various investment banking roles.

Extracurricular: Surfing, snowboarding and basketball.