Experimental feature

Listen to this article



Experimental feature


When Westfield founder Sir Frank Lowy opened his first mall nearly 60 years ago in Sydney, he would have struggled to see a time when ‘bricks and mortar’ retailing could be under such threat.

On Tuesday, Sir Frank, who became one of the pioneers of the global retail mall model, positioned Westfield for the challenge posed by the rapid rise of Amazon by striking a tie-up with Unibail-Rodamco, Europe’s largest property company.

The shift to online sales has hit traditional shopping malls hard, sparking a wave of consolidation in the retail property market as mall owners seek strength through size. And there will be few bigger than Unibail after its acquisition of Mr Lowy’s US and European retail empire, bringing together some of the world’s best located malls with an ambition to give shoppers an experience beyond simply selling them goods.

“We aim to create the world’s premier operator and developer of shopping centres,” says Christophe Cuvillier, chief executive of Unibail-Rodamco, who will become chief executive of the combined group. He has long admired Westfield and Sir Frank’s business nous: when Mr Cuvillier lived in Sydney during the 1990s as an executive at L’Oréal, “Westfield was my daily bread,” he recalls.

Unibail is paying $24.7bn to acquire Westfield in a move that marks the largest real estate deal on record with a European acquirer, and the largest European acquisition of an Asian company ever.

Unibail-Rodamco Westfield chart

Unibail and Westfield have no geographical overlap, and so the combined group will have 104 shopping centres worth €61.1bn ($72bn) across 13 countries including two large London malls and ‘Les 4 Temps’ and ‘Forum des Halles’ in Paris.

The deal reflects how real estate retail groups are trying to strengthen their position in the face of the mounting threat from online retail and changing consumer habits.

“The retail industry is under severe pressure from internet selling and particularly Amazon,” says John Colley, professor of practice at Warwick business school.

Traditional bricks-and-mortar operators are having to think up new ways to increase customer footfall and boost sales, with Westfield seen by retail analysts as one of the best in the sector at mixing high street shops with high-end restaurants, bars, cinemas and luxury brands.

It has focused its portfolio on larger cities such as London, New York and Los Angeles, rather than outposts in poorer regions. It has also cranked up “experiential” attractions in its malls — for example, last year organising a surprise concert by Lady Gaga at Westfield London.

Zlote Tarasy shopping centre in Warsaw, owned by Unibail © Getty

But the US and UK — where Westfield owns its malls, having spun out its Australian business in 2014 — have been particularly pinched by a retail slowdown. US department store operators such as Macy’s and JC Penney, which once dominated retail malls, have announced plans to close hundreds of stores, and centre owners have come under pressure from activist hedge funds. The UK high street has also suffered from retail failures and store closures.

Unibail’s Mr Cuvillier is betting that a strategy of “concentration, differentiation and innovation” will insulate the combined group from the troubles facing the wider retail sector, and will rebrand its bigger Unibail malls as Westfield.

Unibail, too, has been selling offices and weaker retail centres in Europe. On Tuesday, the group said that this reshuffle of its assets would continue with the sale of a further €3bn of assets.

Unibail-Rodamco Westfield chart

Following the acquisition, 85 per cent of the market value of the group’s portfolio will be in the most affluent areas of wealthy cities where the GDP per capita far exceeds the national average.

“The future of physical retail will mostly lie in flagship shopping destinations in the US, the UK and central Europe,” says Mr Cuvillier. “Most of these places are growing when they’re well managed.”

Tuesday’s deal follows British shopping centre owner Hammerson’s £3.4bn all-share offer last week for Intu, a smaller rival, and Toronto-based Brookfield’s $15bn attempt to buy GCP, one of the largest owners and operators of US shopping centres. Unibail-Rodamco said it had identified synergies worth €100m per year and it expects the deal to be accretive to earnings per share in the first full year.

Unibail-Rodamco Westfield chart

The deal also gives the group greater clout with tenants. “Unibail is accessing a global and broader pool of retailers,” says Hemant Kotak, managing director at Green Street Advisors, a real estate research and advisory firm. “It’s all about keeping the offering fresh. If you can do that you drive sales growth in your shopping centres and that will ultimately lead to rental growth.”

Mr Kotak says online sales growth will probably continue for the medium to longer term, adding: “They’re trying to make the best of the situation.”

Unibail and Westfield’s deal, which was signed on Monday evening three days after Sir Frank received a knighthood from the Queen at Windsor Castle, follows six weeks of intense negotiations.

However, “the combination of the two companies has been mooted for some time,” says one person involved in the discussions. “When you are of the scale that these two are, you know each other quite well. There’s always discussions and there’s a dialogue.”

Sir Frank said that it was time for the family to take a back seat as investors rather than executives, ending 145 years of retailing experience between him and this three sons, who have all held roles in the Westfield empire. The Lowy family owns 9 per cent of Westfield.

A sale of Westfield’s US and UK portfolio was a natural outcome of its 2014 demerger from Westfield’s Australian and New Zealand assets, Sir Frank added. For the self-made billionaire, who survived the Holocaust and arrived in Australia with only a suitcase, it marks the end of an era.

“Who would have thought that 57 years ago I would be sitting in snowy London talking to you in Sydney,” he said. “It’s a day of mixed emotion but I am 100 per cent comfortable with the decision.”

Leave a Reply

Time limit is exhausted. Please reload the CAPTCHA.