Rick Caruso
CEO, Caruso
The Snyder Innovation Management Center presents the 2021 CEO series focusing on innovations in the retail sector in partnership with The Robin Report.
Prof. S.P. Raj: I’m S.P. Raj, Chair of the Marketing Department and direct the Earl V. Snyder Innovation Management Center at the Whitman School of Management at Syracuse University. The Snyder Center presents the 2021 CEO series in partnership with the Robin Report and is pleased to present Rick Caruso, CEO of Caruso, in this series focusing on innovations in the retail sector.
Robin Lewis: You have great talents to use the power of imagination and creativity outside of a conventional retail mindset. And you have worked with Disney Imagineers in the past. So who, who do you tap onto to help you create these amazing settings?
Rick Caruso: The best and the brightest that are out there that are willing to think big. And the general rule has always been somebody that has never done retail before. We hired designers that had never done the hotel. I wanted to create a home that I was welcoming people back to. When I’m designing retail, I’m hiring people that are used to building parks and big open spaces and real streets. And the rhythm of a street and how you sort of get that sense of scale and understand scale. The Imagineers are incredible people because no different than what I tried to do in my company, I want to give permission and security for people to think big. Make a mistake, doesn’t matter, but just think big; when you think about the idea, Robin, of the Grove, I’ll go back to the Grove again just because it’s so well known around the world. We’re going to build a trolley in the middle of a shopping center and we’re going to design a street with real curbs and gutters. And the trolley is going to go about 1600 feet and dead end at the Old Farmer’s Market and come back. And now that trolley literally carries more people per mile than any Railroad in the state of California. And because of the crazy rules of the state of California, it’s actually licensed as a railroad. We have to write it as a railroad. But it’s those kind of ideas that excite. It has nothing to do with shopping or dining. It has everything to do with, let’s create a space that people want to come and enjoy as that’s all, that’s all that drives it. And then at best in class, best in class, restauranteurs. And let them do their job. Put the customer in front of their door and they’ll transact the sale.
It’s such a simple formula. I think for us what I see the pandemic with respect to all the tragedy and all the struggle and all the terrible things that happened; it was also the biggest reset button in the history of mankind. Every business had to re-evaluate their business model. And every human being had to re-evaluate their values and their priorities, right? And again, I think that we are in the midst of the great human reconnection and desire to be out. Like never before the isolation has worn on all of us. And so I think that retailers and merchants that are really great restauranteurs and engage the guests are going to be rewarded hugely over the next year; and to go, I don’t think it’s going to change. I think that human behaviors that had changed for good. And if you’re ahead of that and meet the customer where they want to be, you’re going to be paid off with great fortune. But I loved the model. I think the future model of retail is really Pacific Palisades, Palisades village. Small, it’s local, it’s curated. We forced every retailer and restaurant to have smaller boxes, more efficient boxes. We have as many stores at the Palisades that we do at the Grove. Yet the whole project of the Palisades can fit inside the Nordstrom at the Grove. Isn’t that great? Shopping experiences is so cool because you have so many different shops and doors, but they’re all curated. And I, I think localism is a big part of the future of retail.
So we meet on a regular basis, I meet weekly with all my department heads in a formal meeting. Obviously, we’re talking everyday about something. But we also at least every two weeks, we have meetings just talking about new innovation and inventions that we want to put together. We’re spending a lot of time right now with tech companies that we’ve made investments with. So that we can, as I ask everybody to develop the human algorithm so that we can predict what all of us want in the future. We’ve got, we have to respect and look back on historically what has worked. But then we also have to have the ability and the strength and the courage to be innovative and challenge that. And so my, probably most important job, is to continue to challenge people to think outside the box. And just because we did something a year ago, that worked, maybe we should rethink it again and we have constant meetings. We’ve got some new projects that I’ve told our team to really push the design on, and push the thinking on. And that’s what’s really fun – is the creation. So yeah, I love that the most. I think what I would recommend to your students is think about really the future of retail and how retail product is going to be delivered through a multi-channel basis, and how you can capture in your lease the value of that sale, whether it’s bought online and delivered at your store or it’s bought at the store and how that transacts. But I think we have to recognize which we recognize many of the brick and mortar stores are going to have a different purpose. And it may be, the purpose is more of displaying a product. So how you value success of that store is not going to be over a single metric like sales per square foot, right? So, if you could have a Nike store on your property and they didn’t do any sales out of that, would you reject Nike as your tenant? And my answer would be absolutely no, you wouldn’t reject Nike as your tenant. You’d encourage them to be there, but you would have to have a different formula for success. So I would keep a very close eye on what you’re seeing in the retail world. I’d keep a very close eye on what Amazon is doing in the retail world because they are really going to be changing the guest experience inside some of these new formats that they’ll be announcing soon.
When everything was shut down, it gave us permission to go onto our properties, we expanded every outdoor patio. We knew that outdoor dining has always been popular. It was going to be more popular. So the capacity of the restaurants outdoors was now greater than what they ever had indoors. And they’ve really benefited from that. So the pandemic, the biggest challenge we had is you’ve got a business that’s running at a 100 percent and the next day it’s 0; we were shut. And all of your operating costs remain. And there is not a case study, or at least before this, on what to do, but we immediately went into action and looked at every operating expense, every lever we could pull, everything that we could change in order to take what was going to be a significant projected loss in terms of net cash flow and reverse that. And we actually ended cash-flow positive through one of the most difficult years in business. And that’s all to the agility of the team. I want to give you one more example. We have movie theaters that were closed and we have parking structures that were empty. And the team immediately did drive-in movies on the top of the parking structures. We did five of them during the pandemic, for every one of them was sold out and generated millions of dollars of income. So you just gotta be innovative.
Prof. Shelley Kohan: That’s great. And I congratulate you and applaud you for keeping that innovation mentality in your company. Well, what advice would you give to young aspiring developers of next-gen retailers?
Rick Caruso: Break the rules. In fact, maybe don’t even learn the rules. Follow your instincts, follow your intuition. Watch people. Be a student of people. I — years and years ago I met Steve Wynn just randomly. And I said, “Give me the secret.” He said, “Be the customer, be the guest, and, and live it.” And I think they’re, like I was saying, to Robin, there’s basic things as human beings that have never changed. Human beings; they want comfort, they want safety, they want connection, they want joy in their life. If whatever business model you provide, whether it’s serving coffee or it’s opening retail centers, If you connect with that human being in a genuine way and you love that, it’s going to come through and you’ll have a successful business model.
Rick Caruso
CEO, Caruso