Threshold Resistance

“So if you are not absolutely sure that a great management team is in place or can be recruited quickly, don’t buy the business unless you intend to run it yourself. And if you see yourself in that role, be sure you have the time to devote as much attention as you focused on your original business when it was first getting off the ground. It’s all about minding the store.”

“In the current retail climate, it’s difficult for department stores and other large retailers to compete if they stake out the middle ground. One of the defining features of our economy in the past few decades has been the growth and expansion of luxury retailers. And for almost as long as we’ve been in business, we’ve focused on appealing to the luxury retailing customer. Again, this involved overcoming threshold resistance. Because while comparatively few people can afford to do all their shopping at high-end stores like Tiffany’s or Neiman Marcus, a lot of people can afford to do some of their shopping at such stores. That’s why the world of fashion has expanded so rapidly.”

“You might be wondering if flying off to Budapest to meet with sau¬ sage gurus is the best use of an entrepreneur’s time. You bet it is. Your product is all-important. Why should your customer be excited about your business and its offerings if you’re not? Ralph Waldo Emerson fa¬ mously observed that “there is no strong performance without a little fanaticism in the performer.” Right on. Nothing pleases me more than”

“days after taking control, I turned my attention to the firm’s most important asset—its people. It was time for some straight talk and tough love. I had the deepest respect for the expertise and talent of our associates, but I was far less satisfied with the level of service we provided to our clients at every level. “Being knowledgeable,’’ I ex¬ plained, “does not give us the right to be rude.””

“In thinking about the interior design of malls, I was heavily influ¬ enced by a small but powerful book called Townscape, by the British ar¬ chitect and editor Gordon Cullen. First published in 1961, it should be required reading for every developer, architect, urban planner, and zoning official. Cullen introduced me to the importance of serial vision in planning productive, stimulating space. It’s not that I didn’t think about these things before reading Cullen’s book. In fact, I’m cursed or blessed with what some have called “third-dimensional’’ or “parallax” vision. With essentially every object or vista I see, I think about how it could be better. Not just different. Better. But Cullen captured these hard-to-describe concepts in understandable, almost poetic language. Here is his paragraph on optics from the introduc¬ tion to Townscape: Let us suppose that we are walking through a town: here is a straight road off which is a courtyard, at the far side of which another street leads out and bends slightly before reaching a monument. Not very un¬ usual. We take the path and our first view is that of the street. Upon turning into the courtyard the new view is revealed instantaneously at the point of turning, and this view remains with us whilst we walk across the courtyard. Leaving the courtyard we enter the further street. Again a new view is suddenly revealed although we are traveling at a uniform speed. Finally as the road bends the monument swings into view. The significance of all this is that although the pedestrian walks through the town at a uniform speed, the scenery of towns is often re¬ vealed in a series of jerks and revelations. This we call SERIAL VISION.”

“Identify the forces and factors keeping your customers from com¬ ing over your threshold. Be honest. Brutally honest. If you’re operat¬ ing a restaurant, consider the quality of the food as well as its price and presentation. Does your menu appeal to your clientele? Analyze the comfort and character of your premises. Does the music playing in the background set the proper mood? Is your location convenient for your target customers? What about your waitstaff? A,re they dressed appropriately, and focused on service and responsiveness? What restaurant options are in your immediate trade area, and what makes them popular?”

“America’s first franchise motel company, Holiday Inn, was founded in the early 1950s by Memphis home builder Kemmons Wil¬ son with much the same promise. You never wrote home about the accommodations, but every Holiday Inn met certain standards of cleanliness and service, regardless of its location. Pull in with your weary family after a day of dusty driving, and you knew just what to expect. I call this type of consumer promise consistent mediocrity. Don’t un¬ derestimate its power, especially at lower price points. Howard John¬ son restaurants and Holiday Inn motels had the same underlying appeal that food giants such as McDonald’s, Burger King, and Wendy’s have. Are you passionately drawn to the sandwich you order at Wendy’s, or are you more interested in its competitive price, con¬ sistency, and convenience? McDonald’s rarely comes out on top in newspaper surveys of the best burgers in town. America’s quick-serve burger franchises, now doing successful business around the world, are really in the frozen food distribution business. They specialize in serving customers a protein fix in environments of little excitement or delight. But a Quarter Pounder with cheese tastes the same in Bal¬ timore or Beijing. And McDonald’s bathrooms are clean all over the planet—no small feat!”

“proach to space planning. Author Robert Lacey in Sotheby's: Bidding for Class writes: Graham Llewellyn [Sotheby’s UK CEO], knew that Alfred Taubman had taken control of Sotheby’s when he glanced out of his office win¬ dow one day and saw the considerable bulk of his new American boss teetering precariously on the roof. Taubman was looking down at the jumble of chimneys and roof extensions that reflected the auction house’s growth over the years. Flow had been the secret of his success in the mall business, and he made the redesign and reordering of New Bond Street’s rabbit warrens one of his first priorities.”

“The key to creating 100 percent locations is moving customers ef¬ fectively through our space. With inexpensive suburban land costs, it would have been cheaper (in construction expense) to spread out all the tenants on one level between potent department store anchors. But we took da Vinci’s warnings to heart, and stacked the stores on two levels, creating mall corridors between the anchor department stores of around 1,000 feet, a comfortable stroll of three city blocks. We punched holes in the upper floor, allowing customers to see the stores on both levels and encouraging shopping on both sides of the corridor—retail “undulation” that would be impossible along a busy urban street. We also installed clear handrails on the upper level to preserve unobstructed sight lines, and placed vertical transportation systems (escalators and elevators) on the ends of the mall corridors to create a balanced flow of customers past every store. To test the ef¬ fectiveness of these measures, at Southridge, a center we opened near Milwaukee in 1970, we gave incentives to a candy store and a hosiery store—two impulse operations—to open one store on the upper level at one end and an identical store at the lower level on the other end. We tracked each operation’s sales and found that the stores ran within 4 to 5 percent of each other per month. That showed we could equalize traffic through external and internal control.”

“Developing unique retail environments certainly made me”

“Introduction xi wealthy—wealthier than I could have ever imagined. Equally im¬ portant, it opened up a similarly unimaginable range of opportuni¬ ties for me: to travel and see the world; to pursue my passion of collecting fine art; to meet and work with many of our time’s leading entrepreneurs, businesspeople, artists, and civic leaders; to own a champion professional sports team; to get involved in businesses ranging from A&W Restaurants to Sotheby’s; to contribute to the well-being of institutions and communities that made my career possible; and to create entities—buildings, companies, educational organizations—that will last far beyond my lifetime.”

“store design. Every day, we encounter psychological, physical, cul¬ tural, social, and economic barriers. In order to accomplish anything, people have to find a way to get beyond the limitations they believe that personal background, conventional wisdom, common practice, or experience has placed on their imaginations. Threshold resistance might stop a customer from entering a hosiery store. But it might also stop a young woman from applying to medical school, or stop an engineer with a great idea from leaving the comforts of a job to start his own company, or stop a politician from seeking votes among a vital growing constituency. For everybody, being able to assess and overcome threshold resistance is nothing less than an essential life skill.”

“nities. Successful entrepreneurs and builders possess a sort of serial vision that allows them to look past things as they are to see how they could be better, not just different—and hence more valuable. It means looking at a wheat field in a rural area and seeing a massive shopping center that will serve a large local residential population. It means looking at a huge ranch in Southern California and seeing one of the nation’s most prosperous and valuable real estate markets. It means looking at a snooty, off-putting fine-art auction house and seeing an open, inclusive retail business. And it means looking at seemingly intractable problems—the persistence of low achieve¬ ment in public education, the economic struggles of Detroit—and seeing the possibility for change.”

“keep me out of a lot of fights. And thanks to some gifted, dedicated teachers in the Pontiac public schools, I never lost my sense of curi¬ osity and desire to learn. Where others saw challenges, my teachers saw potential. I think that’s why I so respect the teaching profession and have made education a major focus of my philanthropy.”

“By this time, we could see that developing large-scale retail prop¬ erties was a numbers game, a question of population (and popula¬ tion 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.”

“America’s affinity for a suburban lifestyle is certainly not a new aspiration. In fact, archaeologists discovered the following inscrip¬ tion on a clay tablet dating back to 539 BC: Our property seems to me the most beautiful in the world. It is so close to Babylon that we enjoy all the advantages of the city, and yet when we come home we are away from all the noise and dust.”

“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 sophisti¬ cated, 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.)”

“only the first step. Our centers stood out because of what happened inside their walls and in their immediate surroundings. From the outset, I believed that building shopping centers wasn’t a real estate or a development business; it was a retail business. Shopping centers were department stores of stores, and we were the merchandisers. Understanding the psychology and history of retail, and understand¬ ing how properly designed stores can break down threshold resis¬ tance, gave us a competitive advantage. The real innovation we brought was the design of the malls.”

“Superb buildings, filled with beautiful covered passageways, most ol which rest on pillars. They are all well maintained. Each business has its own hall, where the merchandise is presented . . . visitors come for entertainment as well as business.”

“Suppose, however, that we take over this linking as a branch of the art of relationship; then we are finding a tool with which human imagination can begin to mould the city into a coherent drama. The process of manipulation has begun to turn the blind facts into a taut emotional situation.”

“the emerging view.” And then he suggests that the experience we enjoy whenever visiting an attractive town is more than “an acci¬ dental chain of events,” and argues that planners can use this under¬ standing to create better, more stimulating environments:”

“Next: parking. We surrounded the mall with convenient, close-in parking fields, free of charge. Understanding that people, like water, flow downhill much easier than uphill, we built more upper level parking (about 15 percent more than the lower-level parking areas) to assure a better balance of shopper traffic. And to reinforce that balance, we convinced the department store operator on one end of the center to reverse its traditional merchandising layout, offering the customary first-floor departments—cosmetics, jewelry, hand¬ bags—on the second level. The department store on the opposite end of the mall would merchandise in the usual manner.”

“are upper and lower parking lots. We graded the land to create these changes in elevation in such a way that the customer rarely thinks twice about this important balancing act. But the difference in over¬ all mall tenant sales is dramatic. Every space along the mall corridors becomes a 100 percent location.”

“Above, ceilings were designed of sculptured white plaster, mim¬ icking the effect of billowy clouds—comforting but not interesting enough to draw shoppers’ eyes away from the all-important store¬ fronts and the merchandise. Skylights were installed to spill pools of light into the space, encouraging movement. Any perceived change in daylight by the customer tends to discourage longer stays in the mall, so we installed artificial lighting units in the skylight wells to maintain the same interior lighting levels through dusk into the eve¬ ning hours.”

“As we planned our properties, we had another important advan¬ tage over cities and towns: We could control the merchandising of the center. That’s impossible when multiple landlords own the build¬ ings in a downtown’s retail district. Like a department store, we con¬ sidered the most effective adjacencies for the stores. What combination of merchants made the most sensei What men’s shoe store would do best adjacent to Brooks Brothers? And, years later, would shoppers appreciate a Williams-Sonoma store across Irom Pottery Barn?”

“Consistent mediocrity is the quick-serve franchise’s most impor¬ tant brand promise. And that’s where I saw an opportunity.”

“Remember, in the days of the urban arcade, train stations and cathe¬ drals functioned as very effective anchors for major retail destinations.”

“In recent decades, the fashion and design revolution has expanded into realms far beyond apparel. As consumer choice expanded, and as retailers and manufacturers aimed to build and serve new tastes and markets, design became an important consideration, not just for the growing of mass luxury products, but for all products. Consider a wastebasket, an everyday item you can purchase in any number of retail venues. You’re looking for a certain size or shape, or perhaps you want it to be waterproof, and you might want it to have a lid. For a few bucks, you can buy a terrific plastic waste¬ basket (in an array of colors) at Wal-Mart to satisfy all these func¬ tional criteria. For a few extra dollars, it can even be a brand-name wastebasket, like Rubbermaid, sure to last for years without any trouble. But for most consumers, utility is not the only consider¬ ation—even when buying a wastebasket. In a den, library, or bed¬ room, plastic will not do. The choices now extend to wicker, brass, leather, wood. Given the decor in the room, maybe a hand-painted wastebasket purchased during a vacation at the seashore would be perfect. Such a wastebasket will command a higher price than the Rubbermaid alternative. You have a story to tell your friends about the purchase, and you expect something so different, perhaps even unique, to cost more. The wonderful world beyond utility is the world of fashion. Here, design makes the difference, and the cus¬ tomer will pay for this added value. In fact, the closer an item comes”

“perspective and relationships to the table. I put up $38.5 million for 60 percent of the stock, while my fellow investors contributed around $30 million, and we borrowed $70 million from Chase Manhattan Bank. Members of the art press, especially Rita Reif of the New York Times, were apoplectic over the $139 million purchase price, which they considered far too high. Their analysis of the deal reminded me of the early reviews of my Irvine Ranch acquisition. For the record, as I write this book (October 2006), I sold a portion of my Sotheby’s stock in 1992 for about $100 million, received dividends over the years the company has been public of $100 million, received $168 million in September 2005 for hall my remaining stock, in April 2006 sold 3.98 million shares for $110 million, and still own a 4.9 percent stake valued at more than $100 million (based on the company’s share price as of January 16, 2007). Even when you lactor in inflation, that’s not a bad performance for an initial investment of $38.5 million. I re¬ spect Rita anci her art journalist colleagues very much, but rarely consult with them for stock tips.”

“From now on, Sotheby’s was going to embrace a service mental¬ ity and treat everyone with respect. We were going to introduce the auction experience to a broader audience of consumers around the world and encourage the development of new collectors and con¬ noisseurs. Together we were going to open up and make more trans¬ parent what had been traditionally a closed and unnecessarily intimidating business. In short, we were going to break down the threshold resistance that had been holding us back and stifling the art market for as long as I could remember.”

“tally honest with themselves. Challenge your management team with this assignment: “Let’s pretend that we leave our company and create the toughest competitor we’ve ever faced. What would we do to beat us? How would we do things differently and better? What would we keep the same? Remember; we want to win, and the oppo¬ nent is us!’'”

“On one of my less acrobatic space-planning tours of the New Bond Street facilities I noticed that there was a little-used storage”

“Cookie Jars and Irises 99 room off the lobby. Although it had a very low ceiling, the space was perfect for a cafe to enliven the lobby and create a more welcoming feel to Sotheby’s historic front door. We raised the ceiling, added a kitchen on the level below the lobby, and installed a motorized dumbwaiter to deliver orders to the cafe. A simple video system al¬ lowed the kitchen and waitstaff to communicate effectively. Shortly before we opened for business, I received a call from a se¬ nior Sotheby’s executive in London. He was nearly hysterical and was concerned that our cafe looked too much like—perish the thought—a French cafe, one you might see on the streets of Paris! That was exactly the look we were after, and I assured him that our cafe would fit right in and be attractive to people from all over the world. And that’s precisely what happened. The Cafe (which is what we unimaginatively named it) was an instant hit. Clients stayed lon¬ ger, staff held small meetings over lunch, visitors stopped in for tea and discovered Sotheby’s for the first time. We introduced a lobster sandwich on brioche bread (a London first) that put our simple but distinctive cuisine on the map.”

“Here’s where serial vision came in. We didn’t simply want to make existing auctions better. We wanted to change the nature of a hide¬ bound and inefficient business, and make it better. Without turning off our critical dealer customers, we wanted to add some competi¬ tion in the salesroom. After all, just as was the case in our centers, Sotheby’s primary responsibility was to the person selling the goods. It was our job to create the most vibrant and exciting market possible in which they could showcase their merchandise. Passionate individ¬ ual buyers would drive higher auction results and make it more diffi¬ cult for dealers to control the process.”

“To get the students’ attention and set up my central themes, I led with a provocative introduction: How can one find even the thinnest of common threads running through the worlds of fine art, football, root beer, fashion, and real estate? You may find there’s more similarity in the challenge of mar¬ keting a precious painting by Degas and a frosted mug of root beer than you ever thought possible. Before examining my individual companies and the industries in which they operated, I offered these four personal precepts for consideration: 1. Our consumer society, not driven by the satisfaction of basic needs, is fueled by the fantasy, flight, and excitement of a possible purchase. People will buy—on impulse—prod¬ ucts and services they feel will make them happier. 2. You can sell almost anything once. But repeat business is built on consumer confidence, perceived quality and value, excitement, a rich mix of customer opportunities, as well as convenience anci service. 3. The biggest mistake you can make is to price your product or plan your development based on what others are doing, rather than on how you see the opportunity. Study the consumer. Work for that part of the market that’s there for the taking, with a creative new idea or an old idea made better, not just different. 4. Become an expert in one fundamental area of your market or business. No one starts out as a generalist. In my case, I started as a store planner and learned the basics of success¬ ful retail design. Through that discipline, I sharpened my understanding of the customer.”

“Taubman malls, and A&W. But the class really wanted to know more about the logic behind the new United States Football League (USFL), the spring football experiment of which the Michigan Panthers were inaugural members. The world certainly did not “need” spring- summer professional football. There was plenty of football on televi¬ sion during the fall, and the Super Bowl drew international audiences in the hundreds of millions. In the spring-summer, fans seemed per¬ fectly happy with the other sports and activities on offer. But television advertisers longed for more television sports aimed at men 18—54 years old, especially in the spring and early summer months after the end of the hockey, basketball, and football seasons. There was no NASCAR on TV to speak of in those days, and golf, in its pre-Tiger era, had limited appeal. So only baseball provided con¬ tent over the summer for the companies advertising to guys who drink beer, chew tobacco, use razor blades, and buy cars (which sell best in the spring and summer months).”

“This was not my first exposure to a family-owned media business. I owned a small media company headquartered in Phoenix, Arizona, in the 1970s. And in 1986, I pursued an investment in the Pulitzer Publishing Company, a very successful family-owned and -operated business. The deal was brought to me by Felix Rohatyn, a partner in the investment firm Lazard Freres. Flush with cash from the divest¬ ment of the Irvine Ranch and a major investment in the Taubman Company portfolio by the General Motors Pension Trust, I asked Felix to keep his eyes open for promising opportunities.”

“States of America, there was a Sotheby’s. In fact, when I learned that my responsibility tonight would be the toast to Sotheby’s, a story came to mind that is told about Sir Winston Churchill.” I don’t think there is a historic figure I admire more than Winston Churchill, and I incorporate his quotes in my public speaking when¬ ever it makes sense. I hoped this anecdote would effectively communi¬ cate the positive aspects of Sotheby’s Anglo-American personality. “In 1942, while reviewing a joint command of British and Ameri¬ can troops in North Africa, Sir Winston was warned that the two cultures often clashed most dramatically in, of all places, the officers’ mess. The Americans, who religiously drank their whiskey highballs before dinner, forbade alcohol during the meal. The British, on the other hand, allowed no drinking before dinner, but always served claret and burgundy at the table.” I continued: “Faced with the task of toasting the officers that eve¬ ning, Churchill arrived early and announced, ‘Before dinner we Brits will have to defer to the American rules. But at the table, you Yanks must abide by the British regulations.’ ” (Enthusiastic laughter and applause from the assembled lords and ladies.) “Churchill raised his glass and added, ‘I hope this arrangement for the fraternity of Anglo- American relationships will be accepted in good spirits by all!’ ””

“Essentially, the prison is a human warehouse, plain and simple. Prison officials are in the human warehousing business, storing peo¬ ple away for a period of time. From my experience, there is nothing correctional about the environment of a federal prison. Not even close.”

“Not everyone in the Federal Medical Center was so lucky. Close to 90 percent of the men I met—most were African Americans or Latinos—were serving time for nonviolent drug-related offenses. Thanks to mandatory sentencing guidelines, they were taken away from their families and communities for outrageous lengths of time—many for more than twenty years. In almost every case, their wives had divorced them, their children had lost touch, and their communities had forgotten them. They received no mail, welcomed no visitors, and had little hope.”