‘We are getting 60 million people a year,’ reports Scott Malkin, founder and chairman of Value Retail. “We want each of our guests to feel special. It’s about defending the soul of the experience,” he says, “and creating joy for our guests.” Value Retail owns and operates about a dozen open-air luxury shopping destinations in Europe and China. Malkin says these retail destinations have among the highest sales per square foot of shopping centers in the world.
Value Retail’s shopping centers, which the company calls “villages,” are collectively known as the Bicester Collection. The collection is named after Bicester, a town outside London, where the company in 1995 opened its first retail location, Bicester Village. Ten other retail villages have followed, including La Vallée Village near Paris, Ingolstadt Village outside Munich, and two villages in China, near Shanghai and Suzhou. A New York location, Belmont Park Village, is slated to open in September 2024. These shopping villages are designed for the traveling luxury consumer, who Malkin describes as a cosmopolitan shopper who is “well informed and should never be underestimated.”
On this episode of the McKinsey on Consumer and Retail podcast, Malkin talks with McKinsey senior partner Anita Balchandani in London about what’s ahead in luxury, fashion, and customer experience. The following is an edited transcript of their conversation. Subscribe to the podcast.
‘Retailers serving retailers’
Anita Balchandani: Scott, now is a very interesting time in the luxury landscape. Over the past few months, headwinds in the global luxury sector have started to appear. What’s your outlook on the industry, and what role do you see the Bicester Collection playing?
Scott Malkin: The fashion industry’s extraordinary creativity and capacity for reinvention drive everything we do. We are a company composed of retailers serving retail brands, and our vision has always been to find ways that add value for those brands.
Scott Malkin biography
Education
Holds BA, MBA, and JD degrees from Harvard University
Career highlights
Value Retail
(1993–present)
Founder and chairman
S.D. Malkin Properties
(1984–present)
Founder
Fast facts
Has lived in London since 1991
Co-owns the New York Islanders professional ice hockey team
Has served on boards for several not-for-profit groups, including Carnegie Endowment for International Peace, Lincoln Center for the Performing Arts, the New York Public Library, and Partners in Health
The project we built in the early 1990s, Two Rodeo Drive in Beverly Hills, which is an open-air street of boutiques modeled on great European architecture, taught me three lessons. One was that fashion is the exciting part of retail; it’s where the energy and the opportunities are most obvious.
Two, it’s fundamentally the traveling luxury consumer who makes fashion possible. She could live across the road or halfway around the world, but she is the one who defines for all other groups what works and why. She’s not fashion forward; she’s not a fashion victim. She is a long-term brand loyalist who has a vision of a sustainable and evolving wardrobe.
The third lesson is that if one can create a location that serves the brands and that embraces the traveling luxury consumer, one should operate it in the tradition of the great “carriage trade” department stores—the grands magasins—and strive, every year, to do better.
What we’ve learned—as technology has disrupted so many things, including physical retail—is that the reason for physical retail, at any touchpoint, is the flagship experience: the presentation of the brand in all its glory. And it doesn’t matter where that takes place; it can be at an airport or in a monobrand boutique. But it’s increasingly clear that brands cannot acquire customers affordably online. The direct-to-consumer model has not made anyone any money.
The reason for physical retail, at any touchpoint, is the flagship experience: the presentation of the brand in all its glory.
So there has to be an omnichannel, all-embracing vision of distribution; you and Anne Pitcher talked about this. The part I like—because it adds the most value—is the identification and embrace of the perfect customer or the ideal guest, which is fundamentally rooted in something that everyone in fashion recognizes and desires but doesn’t typically execute, because it’s extremely difficult to do: high-end, productive “clienteling” and “black book” services. These are the ingredients that provide the perfect counterpart to what is considered success online, which is efficiency.
High-quality online shopping is about speed, quick delivery, limited friction. It’s everything but the part that involves the soul and the human emotions. As the best brands in the world move toward distributing online, they diminish and commoditize their own product every time they successfully sell an item.
The way to counterbalance that, it turns out, is the physical embrace and the idea that the magic and the memory of great experiences can compensate for an anonymous, emotion-free, transactional acquisition of an item that, from a fashion perspective, has a huge margin built in to cover the expense of building a brand. But if one were only doing so on the basis of efficiency, that would drive to the lowest possible price and destroy the brands.
So I hope we’re in the brand preservation business. We are retailers serving retailers, and that’s what makes it fun every day.
Curating the guest experience
Anita Balchandani: Let’s talk about the traveling luxury consumer. As you said, she is who you’re looking to serve. Clearly, travel and tourism were severely disrupted over the past few years due to the impact of the COVID-19 pandemic. But looking ahead, in 2024 tourism is probably one of the key growth opportunities in luxury retail. What’s your take on the traveling consumer? And how has your business evolved to cater to both the traveling consumer and the domestic consumer?
Also, when consumers travel—and they tell us this—they care first and foremost about experiences. They care about retail and luxury, and they intend to shop, but they care more about experiences. You’ve been at the forefront of that: your broader portfolio spans not just retail but also hospitality and hotels. Talk to us about how you bring experiences to life for traveling luxury consumers.
Scott Malkin: We think of each destination in the Bicester Collection as an emotional oasis, free of stress. Our goal is to welcome the traveling luxury consumer, whether she’s on the road or staying at home—and during COVID-19, she stayed home—in an ever more sophisticated and more satisfying way. She lives in or near every major urban hub in the West or in China. She is cosmopolitan; she is sophisticated; she is well informed and has high expectations. This woman should never be underestimated. If one treats her without respect or treats the brand without respect, either one is a death wish.
Our goal is that when guests arrive at our villages—we’re getting 60 million people a year—we want them to feel special. We want them to experience elements that are different from what they might have seen or received last year with us or what they’re seeing and receiving elsewhere in their experiences, not just retail. Around the world, all our villages have apartments, VIP services, and a host of extra benefits. It’s about defending the soul of the experience and the human qualities of experience.
In our villages—and we saw this throughout COVID-19 and also at the end of 2023—our footfall and our sales densities have been breaking every record. People are happy. The fundamental principle is that we are creating joy for our guests. We don’t do that ourselves directly, to a very large degree; we do it indirectly through the brands. We try, everywhere we can, to support the brands in that vision.
We hire hoteliers whose jobs are to provide hospitality to guests in our environments. So it’s essentially a concierge mentality, not a hotel operations mentality. We have teams of visual merchandisers to help the brands make the merchandise sparkle. We have proprietary approaches: we’ve partnered with École hôtelière de Lausanne [now called EHL Hospitality Business School] to work with all our boutiques to get us to think about what a great experience can be.
I can go on and on; these are just examples. It’s time consuming, it’s costly, and it’s absolutely required. This notion of black-book services and clienteling is fascinating because any of us can tell the difference when something feels special, authentic, personal—not simply a rote recitation of a script. We can deliver those special services in partnership with the brands.
Every brand has a different culture and identity. In each of our villages, there are about 150 individual boutiques in open-air, pedestrianized streets. Every single moment should create sparks of interest and opportunity.
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For example, from the outset, we banned music in our streets because real streets don’t have music piped in, and because at every boutique you want to hear the music of that boutique and the message of that opening door, that welcoming voice. Brands that let the store manager choose the music are missing something, and brands that dictate all the music from their head office in Milan or Paris are also missing the plot. There has to be some midpoint, but it’s not a random outcome. The five senses can be addressed in a very intentional way that doesn’t have to be formulaic.
Off price and full price
Anita Balchandani: So much of the experience you’re describing is rooted in the physical. What’s the role of digital and of the power of customer data to help unlock some of these experiences? AI is exploding, and we think it will advance very rapidly. How do you see the role of that dimension, and what interplay does it have with the physical experiences that you’ve been talking about?
Scott Malkin: Technology is crucial to where physical experience is going, but technology is creating tools to enhance physical experience—it’s not replacing traditional methods of delivering physical experience. Every time we think we can delegate execution to technology, we fail.
There are layers of how technology can be used. For example, in our boutiques, we work with the brands so they can sell their current collection at full price on iPads. When someone comes in and says, “I’m looking for this,” the sales staff—if they know the collection and if they are well trained—can say, “Here are the things we have that you might like. By the way, can I show you these items from our full-priced current collection that could be at your hotel or your house this afternoon? You can send them back if you don’t like them.” Suddenly, they’re getting that crossover into full-price customer acquisition. They’re also getting the data of that hotel guest or that new or discovering customer.
What we are trying to do is make people comfortable and not feel intimidated about discovering new things. That’s hard to do on Bond Street. It’s hard to do at the airport because people are distracted and in a rush. It’s easier to do in a more neutral setting, and that’s our goal. At 160 boutiques, we’re a one-floor department store, and yet each brand has its own identity in a stand-alone space. Each brand can create a statement.
Anita Balchandani: Scott, I’d love to go deeper into a point that you just made. Many people in the industry—and, indeed, consumers—see the Bicester Collection as an off-price destination. But I know from our recent conversations that the full-price element of the business is also growing very rapidly. Talk to us about how you see off price and full price coexist in the environment you’ve created.
Scott Malkin: The idea that we could serve the brands by giving them, in physical form, the chance to dispose of their authentic surplus through a complementary, productive, safe distribution channel has been overtaken by our more modern vision of our own business, which today is fundamentally and wholly focused on identifying and introducing new full-price consumers to the brands.
One of the things we introduced during COVID-19 and has been very well received is current-season bestsellers at full price. Each boutique in the Bicester Collection is invited and encouraged to take 10 or 15 percent of its floor space and sell not the current collection but the bestsellers in the current collection at full price. Why? Because that traveling luxury consumer touches a brand only a few times on a journey.
Another opportunity is when someone comes and spends six or seven hours with us, which is the normal time spent. Last Saturday, we had 43,000 people in Bicester Village and 28,000 in Ingolstadt Village. These are big numbers. When they go home, around the world, why shouldn’t they carry back—having paid full price—the totemic, iconic item that defines the current collection and say not “Look how much money I saved” but “Look at these amazing shoes that I found that define the brand. And by the way, I bought all these other things and had a great shopping trip.”
The fun—and stress—of reinvention
Anita Balchandani: I’ve experienced that every time I’ve gone to Bicester Village. There’s always something different and surprising. How do you think about this constant cycle of reinvention, and what’s next on the horizon?
Scott Malkin: We’re currently enormously committed to the term “unreasonable hospitality,” which I love because no one can define it. It comes from my friend Will Guidara, who wrote a book called Unreasonable Hospitality: The Remarkable Power of Giving People More than They Expect [Optimism Press, 2022] about taking Eleven Madison Park from a respected brasserie to the number-one restaurant in the world over five years.
The notion of unreasonable hospitality starts, of course, with facing inward. You can’t have authenticity in the way you greet, embrace, and inspire your guests if you treat your colleagues like rubbish. At one point, I had to put a fining system on rolling eyeballs. It was an unconscious pattern of behavior that we wanted to stop because you want to debate and discuss; you don’t want people intimidated to put forward an idea. Lots of ideas lead to things that will work but may not be the answers themselves. We never had to charge any fines—everybody stopped rolling their eyeballs.
You can’t have authenticity in the way you greet, embrace, and inspire your guests if you treat your colleagues like rubbish.
I think the fun of reinvention attracts people who can deal with the relentlessness of that journey and the stress that comes from waking up every day and saying, “I don’t know what will happen next.” The terms we used throughout COVID-19 were “agility” and “resilience,” and I think those are the natural definition of entrepreneurial or responsive behavior.
We know a woman from Britain who invited one of her friends, a princess from the Gulf region, to go to Bicester Village. They spent four or five hours in one of the personal-shopping suites. At one point, the woman we know said to the princess, “Shouldn’t we go shopping?” And her friend said, “We are shopping. This is what shopping is.”
So people have all these different ideas, but we can address that. We’re in France and Germany and China, but we’re not trying to be Italian in China or German in Italy. On the other hand, we want to be international, and it’s a struggle because people get into their patterns and their comfort zones—but that’s why it’s so much fun. Like the fashion brands themselves, we have to keep up.
Anita Balchandani: Every year, we ask executives in the industry about their outlook for the next year. So far, every time we’ve done it, the industry tends to converge very clearly on whether they think the next year is going to be better or worse. This is the first time we’re seeing the jury out: roughly a third of the industry says it’s going to be better in 2024, a third says it’s going to be the same, and a third says it’ll be worse. Where do you come out?
Scott Malkin: Next year will be different. One of our points of view is that we as an organization always need to be raising the bar, so that guarantees difference. Technology is constantly evolving—that guarantees difference. The behavior of the traveling luxury consumer will invariably change—that guarantees difference.
We’re definitely past this idea that brands can simply raise their prices and sell more; that moment has moved on. I think we are living a balancing act between traditional definitions of luxury and accessible luxury, but we’ve seen these flows come and go. For a while, everybody had rappers as identifiers for their brands, and then they went to something different.
One of the themes that’s enduring, though, is the power of music. That’s an interesting thing to think about because that gets back to the five senses and the question of why certain things inspire, engage, and sometimes amaze. In the end, a lot of it is just doing the right things consistently and then, when achieving that, being able to go beyond.
Anita Balchandani: I think you dodged the question about whether 2024 is going to be better or worse, but I think this much is clear for the Bicester Collection: we can expect to see a lot of new innovations. I look forward to seeing the exciting progress you make next year.
Scott Malkin: Thank you. It’s been a pleasure to be with you.
