[00:00:00] James Cook: I think in business, it's fair to say the ability to change isn't just an advantage, it is a requirement to survive. Today we're talking with a CEO who has led true change in his company's retail real estate business.

Stephen J. Yalof: We're really an open air shopping center company that's gone from famous for being an outlet founded company and now pivoting more into an experience and entertainment oriented business.

That is Steven Yalof, president and CEO of Tanger. Tanger started in outlet centers, and if you live in the US let's face it, you've probably shopped at a Tanger center at some point in your life. I know that I have, but now Tanger is expanding its portfolio and also its appeal to shoppers. In this episode of Trends and Insights, Steven joins JLL's Naveen Jaggi to discuss this evolution [00:01:00] and what it all means for commercial real estate.

This is Trends and Insights. The future of commercial real estate. My name is James Cook, and I am a researcher for JLL.

James Cook: I wanna start big picture. So I'm gonna start with you, Naveen. Let's say you're at a cocktail party. How would you explain the current state of retail real estate in the US?

Naveen Jaggi: Boy, that would probably spend at least three or four cocktails just to explain that business overall.

James Cook: Gimme the one cocktail edition.

Naveen Jaggi: Look, at the end of the day, the retail business is a direct reflection of consumer behavior and consumer confidence. So I could tell you two different ways in the moment. The consumer is a bit cautious about the way they're behaving because of all the world events. And so as a result, I think retailers are paying close attention to how the consumer behaves as they frame their strategy for 26 and [00:02:00] 27. What retailers are doing today is not about opening stores today. Retailers are doing their due diligence to open stores in late 26, 27 or further. What I often say is watching a retailer's behavior today is their reflection of how they think the economy will be in 24 months. So as a result to me, most retailers are telling me they're still bullish long term on the consumer and on the industry. So unless something significant happens politically to make them change their mind, I feel good about our business today.

James Cook: So Steven let's, let's talk about this from your point of view, it seems like for the past few years, Tanger has started moving into what we would call a full price center, which is a place that has non outlet stores, or do you have, talk a little bit about that, the strategy

Stephen J. Yalof: Sure. Let's go back to Covid. I think it's really important, I started in April of 2020, 23,000 stores and everyone was closed. My first day of work pretty, pretty interesting. Good time to [00:03:00] join a new company. But what happened when the stores started to reopen? There were a number of brands that structurally just, decided to opt out of the retail business. And, we can go through the list, but gave us back close to 10% of our inventory. So we had to move quickly to figure out how to fill that space. Obviously there weren't enough outlet retailers at the time to fill the space, but we also, you know, the, another dynamic was happening. Open air was very popular post covid because people wanted to shop in an open air environment. They wanted to be outside. So as a number of those enclosed regional mall retailers were looking for places to go. We took a lot of retailers in. Not only that, we also brought in a lot more food, which was never something that was signature to outlet centers. So we started to create, let's say, more of a lifestyle experience in our shopping centers by rounding out the assortment with brands and uses that weren't necessarily standard in outlets pre covid. Those learnings have really informed our movement and our strategy into that full price business. [00:04:00] So over the past, I would say, going on, year and a half, we've acquired three full price shopping centers. One in Alabama, one in Arkansas, and one in Ohio. Each of which fit the open air narrative have a lot of the retailers that we do business with, in the outlet space. And, from my gap in, ralph Lauren experience. You made one phone call if you wanna do an outlet or you want to do a full price. The retailers were, the same phone call, same relationships, but now we're doing business with some new retailers too, like Warby Parker and Apple, neither of which are in the outlet space. But now we have them as tenants in our other centers, whole Foods, which are brand new for us. So we have the opportunity to really engage with some of these new retailers as we continue to grow our platform.

Naveen Jaggi: Hey Steve. I think you brought up an interesting point. I'm curious to hear on this take as you evolve out of being a outlet brand into a retail shopping center brand, the conversations you were having with retailers. You mentioned Whole Foods and Apple and others that you're talking to. [00:05:00] How has that conversation been when you talk to them about the fact that you have an asset in Arkansas or Ohio or Alabama or in the future or taking an existing outlet that you own and you're trying to transform it into something that's more non outlet. What's been their reaction when you've talked about the Tanger philosophy changing from outlet? Are they embracing, are they questioning because we all deal with shortage real estate. You've got lots of it. Love to hear how you have those conversations with retailers.

Stephen J. Yalof: Look, you said it. Retailers wanna bring their brands to the consumer. They wanna meet the consumers where they are. And I agree with you a hundred percent. I think that in order for our shopping centers to be more vibrant, have more variety, be more things to more people. And at the end of the day, we're all competing to get people off the couch and into a shopping center. We have to really serve up experience. And so I think the retailers, when they understand the narrative and why we're doing what we're doing, we're not just trying to fill space, we're trying to create an experience. They've embraced it. And in fact we find, it's like you said, it's very difficult to find space in a number of top performing [00:06:00] assets across the country right now. And we're finding as we're filling some of that former outlet space with these other uses, the outlet space becomes a little bit more rare, and as that becomes more rare, it becomes more competitive. And where we're sort of winning on the NOI line is downsizing larger stores, right sizing, getting them to be more productive, getting them to reinvest and getting more stores in same amount of square footage, which at the end of the day, the consumer wins.

Naveen Jaggi: And Steve, as you're transitioning away from being an outlet only. When you look at an asset, how have the conversations been about trying to mix in full brand and the discounted brand, if you will, of the whatever product they're selling. So if you've got Wrangler that's selling Wrangler outlet product, how does a retailer react to the proximity of being near a outlet door versus a non outlet door in a shopping center development that you own?

Stephen J. Yalof: You know, so, it's more [00:07:00] strategic for us to trade an outlet center up into full price than it is to take a full price and trade it down to outlet. We're going the first, we're trading up. And look there's plenty of retailers that have been full price in the outlet business for a long time, but they just help you round out the assortment. They're far more tolerant of a full price business in that environment when it provides utility to the consumer and that outlet retailer gets to see that consumer far more frequently.

James Cook: Naveen, this is something that you and I know very well, but I think a lot of our listeners for this show may have the misperception that there's a lot of vacant mall space out there that any mall type tenant has got their pick and is going to get a great deal. What's your answer to that?

Naveen Jaggi: Look, everybody wants to be where they cluster success, right? So if you're a retailer, you wanna be next to another successful retailer. So if you have a dying mall, a C level mall, which we tend to grade malls by A's, B's and C's, and if you're gonna be in an environment where you have a lot of [00:08:00] underperforming retailers or underperforming asset, most retailers don't wanna be there. They wanna be with successful retailers. That's why you often hear about co-tenancy and you often hear about retailers saying they wanna be near an Apple or a Tesla or a Lululemon who have great sales per square foot performances. So as a result, I think the success spread between great assets and weaker assets will continue to spread because at the end of the day, retailers wanna make sure they're with successful co-tenancy. Steve knows that he's gonna make sure they bring 'em all together, and as they pull together into the good assets, that weaker marginal asset will continue to decline over time. And I think ultimately that's okay. We all acknowledge we overbuilt back in the eighties and nineties and two thousands. So for right now, we're going the opposite journey, which is to start getting rid of the bad assets. And as many people have said, so this is not my original comment, we're not overdeveloped or over stored, we're under demolished. We still gotta go through that cycle of getting rid of assets that just don't need to be standing any longer. And [00:09:00] we all know it's very hard to kill a mall. But at the end of the day, retailers will determine the success of the mall, not the other way around, and retailers will go where they want to be successful.

James Cook: So Tanger developed historically an expertise in owning and operating these outlet centers. Now you're expanding into full price centers. Is it a difficult transition to manage and market a full price center?

Stephen J. Yalof: It's not, and let's go back to marketing is great. That's a great differentiator right there. Outlet shopping centers are marketed typically by the operator. Not by the brands because the brands are using their, their marketing capital to tell you to go shop full price. It's where they make bigger margin. So it's really incumbent on the operator to tell the consumer in that catchment. There's an outlet center there. Now, the brands at, and this is a new phenomenon over the last 10 or 15 years, actually letting you use their names in some of your marketing. Obviously social media is critically important. The influencer business on social media is really important and not the ones you pay [00:10:00] for, but the ones that just come and shop and get so excited about the products that they're buying. An outlet, I bought all this stuff for only this amount of money. It's an amazing phenomenon. And then they go and they open their haul online and they tell their friends. And for us, that's wonderful marketing for us right there. And they're talking about the brands. I bought this at the Ralph Lauren outlet and I bought this at the Lululemon outlet and I bought this at the Nike outlet, and that's great. Viral, word of mouth, grassroots, influencer led social media advertising. It really tells a great story for us and our consumers. Now we have that base. People know Tanger, I would argue. Some people say, I'm going to Tanger. Going to Tanger means I'm gonna outlet shopping. So when you can become the verb in outlet shopping, I know it's a pretty powerful thing. Mr. Tanger did a great job of branding the centers using Tanger first. Most shopping centers across the country are city first, like Bal Harbor. So you know where that shopping center is, but we're Tanger Nashville, [00:11:00] we're Tanger in Riverhead. Full price business is different. We kept the original names since we bought them because, we're not branding those Tanger, as I mentioned to you earlier. They're a slightly different product. So I think it's the advertising that's the key differentiator, but that Tanger marketing muscle really translates well into the full price business because we have that consumer there and we can continue to message that consumer as they shop in full price business as well.

Naveen Jaggi: So that's a really, great way to position it, right? Taking the fact that Tanger is a brand for outlet, you made sure that the three most recent assets, other ones you bought, aren't labeled Tanger. They're labeled by their destination and their city. But, which of course leads me to the following question, then the muscle that an organization needs to operate full priced destination retail, where you're gonna go and do full price shopping versus a muscle that Tanger's had for over 40 years, is that muscle different or ultimately it's the same muscle?

Stephen J. Yalof: I would say it's very easily [00:12:00] translatable into the full price business, but I don't think the full price business goes the other direction because of that, that marketing. So I think we have the opportunity, we've built the machine, we've leveraged it over 40 shopping centers. We've got great scale. We've built a loyalty program, which is really difficult to do in a full price business because you really don't have a product. If you build loyalty in the outlet business, the product is extra discount, 'cause the retailers are always willing to work with you on a couple extra percentage points off for a loyal customer. So that business is actually working for us, and that's creating a flywheel for us to communicate with our customers and meet them where they are. And there's a lot of consumers that are looking for their favorite brands at value pricing, particularly that Gen Z younger customer, that is probably more difficult to get off their phone and off the couch than most. But when you can bring them the brands that they want at great value, and they have the opportunity to experience actually going into the store, you know that's, we're winning all over the place with that customer right now.

James Cook: Steven, I think that another, going back on a topic you touched on [00:13:00] earlier, another thing that generate young shoppers and really all shoppers want is a place to eat, like a good place to eat. So you said adding more food and beverage. What kinds of food and beverage do you need to have in a center to make it attractive?

Stephen J. Yalof: It's interesting. I think, food and beverage is just it's like a brand, like in the case of Nashville we were able to get a nice mix of national and local. And the local are, big, regional, local, Princess Hot Chicken is an example. I mean, that's a staple in Nashville. They came to our, our shopping center, but then we also have a Shake Shack. Shake Shack is a great destination. People will make the move. They'll come to Tanger Nashville, which is outlet center. They'll come for the Shake Shack and stay for the shopping. Or they'll come for the Pottery Barn outlet, get a Shake Shack or go to a Princess Hot Chicken and then continue shopping in the afternoon. As we're starting to position ourselves closer [00:14:00] to the consumer. And if you think about it, we built Daytona, Myrtle Beach and Hilton Head 25 years ago when the consumer was, it was just really very tourist driven. Now people are living there full time. As people are moving into those geographies we're seeing them more frequently, and that's really what's driving the food business. You can't have a center that's 50 miles away that only shops on the weekends and really sustain a great restaurant. And that's really why outlets never had great food. But now as we're closer in, in the case of Savannah, Hilton Head, and I can run the gamut on the list of centers. Nashville's a great example. The food and beverage does every bit as well as the brands do.

James Cook: Yeah, that's fantastic. Gotta love that Prince's hot chicken, by the way.

Stephen J. Yalof: It's very hot.

James Cook: Very hot. So you've acquired a number of centers in the past few years. Most recently was Pinecrest. Are you in the market for more centers and if so, what makes for the center that you want to acquire? What are you looking for?

Stephen J. Yalof: Without giving the whole playbook away, first of all, we're an open air company. I think that's really the most important part. So we like [00:15:00] great open air and what I would consider the sought after destination for retailers in that marketplace. We're not a workout company. We're not looking to buy the C mall in the geography. 'Cause that's just gonna take a tremendous amount of money to convince retailers to come to your shopping center, or it's gonna require redevelopment. But if we start with a shopping center in a tertiary market that has the best brands, and the brands that are out there looking right now, haven't made their decision yet. We can get out in front of those brands and introduce them to this product in the market, whether it's Huntsville or Little Rock, and hopefully bring some of those great brands there. Each one of those have started with really good foundations. Lululemon in Huntsville, apple in Little Rock and Whole Foods in Pine Crest. We've never had the opportunity to lease off of those types of brands before. And the first deal we did in Huntsville, Alabama was Warby Parker, another new brand to the Tanger family. It's been an [00:16:00] interesting journey for us, to pick, be able to pick up the phone and call brands that aren't typically outlet brands and bring 'em into the full price environment and create relationships. Because as you know, we both uh, Naveen and I have been in this business for a very long time. It is a relationship business through and through.

Naveen Jaggi: Hands down. It's interesting you brought this up because I think about my conversation I had with Jeff Resick at Federal recently, and spoke to Eden's recently, and both are also players in the open air center. And their comment was very similar to what you just said right, Steve? They said, we're not looking to buy something in Atlanta or Dallas or Houston. They're overheated. They're overbought. They've been over picked off. We're looking at markets like Chattanooga, maybe looking at a market like Knoxville, Birmingham, Huntsville. And there's dozens of these cities that are growing and growing wide because of a big state college there as an example. They have a high consumer base, and that's this market that they just haven't seen all these brands. Like you just said, Warby Parker is not something you would think of to go to Alabama, right? They'll go to other markets, logically speaking, [00:17:00] Dallas, et cetera. I love your strategy because I think it makes so much sense now because in open air, the new consumer wants the full experience. They're not just going to go buy something and go home. They want that full experience. Why social media has made them aware of all the things that they should be experiencing, whether it's Bentonville, whether it's Little Rock, whether it's Fayetteville, whether it's Jackson, Mississippi, they all want the same thing.

Stephen J. Yalof: What I'm hearing from you is exactly what's happening from the operator side. There's nothing new being developed. Um, the only thing three things developed in the last five years is really the Belmont Outlet, the Tulsa outlet, and the Nashville outlet. Can you imagine? 'cause for two reasons. One, because, outlet is winning, everybody's filling 'em up. The other is because they're the cheapest to build, and you can't afford to build. Right now you can go outside of town on cheap dirt and you're building a warehouse and calling it an outlet.

Naveen Jaggi: It's interesting the transformation of retail has happened much faster in other parts of the world than it has in the states in the following [00:18:00] way. We still don't see everyday retail in the mall or the open air as much, right? So if you have a grocery anchor, whole Foods, for example, whole Foods is now starting to go into Open Air. Trader Joe's, some open airs. We're seeing some of that transition. You never would see a target in a mall. But now you're starting to see Targets approach older malls because they need to grow and there are some good malls that just need to be repositioned. I think that's a question I would love to take on with you, if you don't mind. If you look at the expanse of real estate out in the country, there's still a lot of real estate out there. It's just either underutilized or not fit for purpose, but there is some good real estate out there. And as you think about, as an individual, as the CEO of Tanger, do you still see great opportunity to acquire product or are you feeling like most everything's been picked off? It's just getting harder to make the acquisitions. That's why I'm really curious about your acquisition profile. Is it just harder and harder because what you're trying to buy is also the most competitive asset class today?

Stephen J. Yalof: [00:19:00] I think if we continue to be really creative, we continue to go to markets that probably are less obvious to a lot of our competitors. But ones that, look, we've got great history of dealing in markets that, in cities that people have never heard of before. And, some of those cities have great population, have seen great population growth, Pooler Georgia as an example. We call the shopping center Tanger Outlets, Savannah. It's really north of Savannah in a small town, a rapidly growing town of Pooler. These are markets that we're focused on, so we're looking at places that are, one, two, maybe even three ring roads outside of the major city. And again, without giving up too much of the playbook, we've got some really good experience working in those markets and bringing some of the best brand name retailers on the planet to those environments.

Naveen Jaggi: You're a great operator. I think that's what helps you, right Steve, as you're a great [00:20:00] operator. So when you look at an acquisition, it's not an investment acquisition, it's an operating entity that you're buying. I think that changes the way you think about assets that you're gonna acquire, right? As opposed to an investor, not, you can pick any investor. Nuveen is one example. They're much more investor than they are in operating. They have an operating partner. In many cases, you are first and foremost an operator. I think that's what likely helps you look at an asset differently because the product that you guys have acquired, the stuff that you've been operating since the eighties is in most cases, premium operation, premium assets. I think that's what you bring to the landscape.

James Cook: Alright, so Steven, I'm gonna ask you to look into your crystal ball. Look, let's look 10 years into the future, do you think the shopping center's radically different, either the outlet center or the full price or is it just more of the same? What are your thoughts?

Stephen J. Yalof: No, I think the centers of the future will continue to evolve. I think as the customer becomes more savvy, they have many new places to window shop. They can window shop online. It's [00:21:00] always gonna be incumbent on the retailer, uh, uh, sorry, on the operator to make sure that we're creating a great experience and we're bringing as much variety to the shopping center as we possibly can. There's a couple of great parallels for that. I think sports stadiums are, just the evolution of sports stadiums, a lot more comfortable to sit on the couch and watch a game. But, week after week, the NFL packs everybody in because there's, like I said earlier, people come for the Shake Shack shake, and stay for the shopping. I think that in sports stadiums, people are coming for the upscale food, the great VIP experience, all the wonderful things that your kids can do. And oh, by the way, there's also a game going on. I think that they're a great business model to look at as we continue to pivot our business.

Naveen Jaggi: Steve, you don't think about movie theaters going to an outlet center. You don't think about a Pet shack or a Topgolf and many of these great other entertainment brands that are out there. In your [00:22:00] eyes, as you look at Tanger's evolution into these assets that are non outlet, gimme your sense of the importance of these entertainment concepts that we keep seeing more and more of. There's lots of these baseball like dugout and others. Just gimme your take on the non-food, more the entertainment side and how you look at mixing that into your offering.

Stephen J. Yalof: Look critically important. I was just out at Grand Scape, which is a multimillion square foot Nebraska furniture store and an unbelievable assortment of entertainment, and the place was packed. The food and beverage is killing it. The movie theater, there were line lineups to see the new movie that was out at the time, Pop Stroke had a line to play. There's plenty going on there, and it's just, it to me, that's an amazing venue and that's a great model for what shopping centers are gonna look like in the future.

James Cook: Steven Naveen, thank you so much for joining me today. This has been a fascinating conversation. I [00:23:00] really appreciate your time.

Stephen J. Yalof: Thanks for having us.

Naveen Jaggi: Thanks James. Appreciate it.

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