a trip through time. a pioneer recalls the early years

6/24/2015 A trip through time. A pioneer recalls the early years. | ACROSS | The European Retail Real Estate Magazine

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JUN 24, 2015 09:18

A TRIP THROUGH TIME. A PIONEERRECALLS THE EARLY YEARS.

Heinrich Kraft: “Our idea was that, if tenants are doing well, so are the owners and investors.” Image:Norbert Weidemann

Today’s level of professionalism in the shopping centerindustry is impressive. It wasn’t always that way. From 1974to 2000, Heinrich Kraft was CEO of ECE. In an interview withACROSS, the center professional recalls his beginnings andwhat problems pioneers had to battle with.

ACROSS: How were things when you began at ECE?HEINRICH KRAFT: Werner Otto hired me as Head of Investments in mid-1972. In fact, however, my role was more to assist him as he began tobuild enclosed shopping centers in Germany. Otto had imported the ideawas from Canada and the US. A full-blooded entrepreneur, he promptlybrought the idea to life in his home country. And he did it all with just ahandful of people who knew nothing about shopping centers (laughs)!ECE thus opened seven objects from 1965. By assisting him, Otto wantedto make me an expert on ECE’s business. For hours, he and I analyzed

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sales figures and the tenants’ situation in the various centers. Since thatrepresented new territory for him, too, we always went into extensivedetail.

ACROSS: Were your analyses crowned with success?KRAFT: We had learned in the meantime how to build shopping centers.In terms of management, however, we were still groping in the dark. Thatproved to be serious handicap. The result was that some objects were inthe red in 1973. To make matters worse, the oil crisis broke out in 1974.Werner Otto then decided to halt the development of new projects, whichled to enormous uncertainty among the team at that time – about 30people in the headquarters, with six or seven in each mall. I was thenentrusted with ECE’s management.

ACROSS: In retrospect, why did the malls perform so badly?KRAFT: On the one hand due to the wrong sector/tenant mix, on the otherhand because not enough attention was paid to revenues. Take theHessen-Center in Frankfurt, which ECE still manages today. We let itthrough a broker. A clear error. The retailers who were prepared to paythe highest rent got space in the center. There was no strategy aboutwhere in the center they could set up a shop.

ACROSS: What happened next?KRAFT: A period of consolidation followed. We had to get the shoppingmalls on track. But how? We had to work from the bottom up to build theknowledge and skills to do it. In particular, we had to improve the leases.For example, the originals included non-compete provisions thatprevented a second shoe shop from moving in, for instance. We learnedquickly from this and began to target an optimal tenant structure. Beforethat, the industry mix had not even been a topic, unfortunately. We alsoanalyzed where in each case the best place was to locate a bank,pharmacy, etc. within a center, for example. Before then, hardly anyonehad thought about that.



The popular Franken-Center in Nuremberg in 1984. LikeECE’s other shopping centers, it had to be fundamentallyrestructured. Consolidation hit. Image: ECE

ACROSS: What was your strategy regarding rent levels?KRAFT: We had agreed turnover rents and therefore intensively promotedsales in the centers. Our idea was: When tenants make good sales, theyare doing well. If tenants are doing well, so are owners and investors.

ACROSS: What did you still have to work out?KRAFT: The entire accounting system. This included above all reliableprojections for the current year and forecasts for the following year, anexact accounting of utility costs, etc. Working all that out was no easy job.Thankfully, I had the freedom to hire management colleagues. Isuccessively created the management areas development, construction,finance and accounting, letting, and center management, which still existtoday. This management circle was a close-knit community. We weredoomed to success.Since we were taking a break from developing new centers, we dealt inthis round – as already mentioned – with restructuring. We fought forevery square meter in the shopping malls. We placed kiosks under theescalators and the like. We also took advantage of vacant commercialspace in order to optimize the mix of offerings. We were the first to gainHennes & Mauritz (H&M) as a tenant in Kranzlereck in Berlin – in a nightof marathon negotiations accompanied by a number of secretaries. Theytapped away and corrected continuously on their typewriters. The lease,with five carbon copies, had to be ready for countersigning without delayat the end of the negotiations. We were tough.

ACROSS: What marketing measures did you take in the malls?KRAFT: Here, too, we acted as pioneers and conjured several advertisingconcepts out of our hats. One example was a campaign called “the most

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beautiful butterflies in the world.” In the Alstertal shopping center, wedistributed coloring kits to the children, who colored in the butterflies. Thedrawings were hung by the thousands in the mall and the parents camewith their children to admire their works of art. This strengthened customerloyalty. Step by step, we developed ECE-specific measures that increasedthe popularity of our shopping centers. And don’t forget, people then didnot even know what a mall was! They said, “Yes, but we already have asupermarket.” We had to raise awareness of our concept first. But wepersevered and increasingly made a name for ourselves. When thesuccess came, the full-blooded entrepreneur Werner Otto was then openfor developing new shopping malls.

ACROSS: How did decision-making work back then?KRAFT: In the early days, we made all the important decisions in our so-called Monday meetings. Nothing was ever postponed. This required aconstructive culture of debate. The longer those meetings lasted, thebetter the resulting decisions. This set time brought the team together andinformed them comprehensively. The construction manager, for example,thus gained extensive center management knowledge. By no means couldthe key functional areas begin to live lives of their own. They had to beclosely linked.

ACROSS: What maxims did you follow when developing shopping malls?KRAFT: We always structured them so that they could keep up with thetransformation of the retail sector. You had to be able to make big storesfrom small stores and vice versa. We also relied on prime locations, asthese are the last stumble. If bricks-and-mortar retail gets into trouble, ithappens in secondary locations. One more point is important: We werequite willing to forego rental income in order to keep a certain sector in acenter to ensure a balanced mix of tenants.

ACROSS: How did the shopping centers change over the years?KRAFT: They used to have a large proportion of independent retailers.There were shops from independent bakers, butchers, confectioners,caterers etc. After all, the shopping centers always reflect the structure ofwider retail. Due to the general expansion of branch operations, the shareof independent retailers in the centers shrank. Many people often blamemalls for the proliferation of chain stores, which is not justified – this was adevelopment within all of retail. Centers generally just reflect the structureof the retail sector. The sector structure also changed dramatically. Justone example: In the ‘70s, every mall was home to fur and lamp shops.These are now present only in exceptional cases.



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a trip through time. a pioneer recalls the early years

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