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The Tanger Outlets CEO Thinks Online Shopping Is Overrated. Now He's Betting on It. For years, Steven Tanger staked his business on the idea that people want to buy clothing in person. When the pandemic hit, he made a bold bet on business as usual.The Tanger Outlets CEO Thinks Online Shopping Is Overrated. Now He's Betting on It. For years, Steven Tanger staked his business on the idea that people want to buy clothing in person. When the pandemic hit, he made a bold bet on business as usual.Walker, Sam.Wall Street Journal (Online); New York, N.Y.To formulate his strategy for surviving the pandemic, Steven Tanger, the 71-year-old chief executive of Tanger Factory Outlet Centers, focused on an unusual set of metrics: boredom and restlessness. He figured millions of people were profoundly desperate to go shopping. It's a bet Mr. Tanger has been making for years, even as online retail threatens to flatten every shopping center in America. Wall Street investors have taken the other side of that bet, sucking his company's share price steadily downward since 2016. Mr. Tanger's strongest rebuttal is that human beings will always prefer to buy some merchandise in person. Maybe not diapers or dog food, but definitely fashionable clothing. And because his company's 39 outlet centers, spread across the U.S. and Canada, specialize in discounted apparel, Tanger is well-positioned to take whatever the economy dishes out. "In good times, people like a bargain," he often said. "In tough times, they need a bargain." This particular downturn broke all the rules. Starting in late March, lockdown orders forced 99% of Tanger's stores to close. The only place shoppers could go to find anything, bargains included, was online. This was an especially grim development for a real-estate business that doesn't actually sell merchandise. Tanger makes money leasing space to retailers like Nike, Gap and Ralph Lauren. Its biggest problem was the absence of rent. In April, Tanger collected only 12% of it. In the first quarter, the company lost $27 million while its already torpid share price dropped by more than half. To keep the company afloat, Mr. Tanger and his team broke several longstanding precedents. They cashed out $600 million in previously undrawn credit lines, suspended the company's cash dividend for the first time in nearly three decades and launched a new service that allows online customers to buy in-store merchandise with the help of a personal shopper. When faced with a crisis of this magnitude, most business leaders respond in one of two ways. They either cut costs, hoard cash and hope to survive by curling into a ball, or swing for the fences by embracing fundamental change. Mr. Tanger did neither. He made an aggressive bet on business as usual. "We are not trying to reposition, shrink, or alter our business model or use the pandemic as an excuse to do it," he told me. The first "factory outlets" were literally at the factory: to move excess inventory at a markdown, retailers opened stores on premises. Mr. Tanger's late father, Stanley, noticed that people drove long distances to visit these places and figured they might drive further, and spend more money, if they could visit several at once. In 1981, he opened his first outlet shopping center in Burlington, N.C. Steven Tanger held several executive roles at the company's Greensboro, N.C., headquarters before taking over in 2009. For seven years, Tanger's share price rose, hitting a peak of $42 in 2016. It's been sinking ever since. Mr. Tanger is modest, reserved and unfailingly polite. But when doomsayers challenge him publicly, he never gives an inch. He tells them that his company is profitable and has never ended a year at less than 95% occupancy. Amazon, he once said, is a just a " convenient scapegoat " for traditional retailers who neglect their businesses. For Mr. Tanger, the pandemic was a profound moment of reckoning. If he believed his own talking points, he needed to prepare for shoppers to come storming back. And that's what he did. "We're not going to zig and zag depending on today's news cycle," he says. "People believe in our consistency." As of June 14, the company reported that 72% of its stores had reopened. It also released figures that show Mr. Tanger's gamble may be paying off. Weekly foot traffic at its centers had exceeded 85% of last year's levels. Focus on What's Essential Mr. Tanger's pandemic strategy points to three basic principles that many leaders might find helpful in a crisis. The first is the importance of understanding what your company really sells. Tanger began as a magnet for obsessive bargain chasers, but it eventually realized that shoppers were more likely to come back if they felt entertained. To give its outdoor shopping centers a lively theme-park vibe, the company built many of them near popular destination resort areas and added food courts, playgrounds, fire pits and even miniature golf courses. It also hosts pop-up stores and special events like wine tastings. During the lockdowns, Mr. Tanger suspected that his homebound customers were craving more than just shoe deals. "I don't know many people who spend life alone in front of a computer screen," he says. Exit Aggressively Most CEOs prefer to make bold moves in good times and proceed cautiously in bad times. Wall Street tends to reward this behavior. Mr. Tanger has enjoyed favorable conditions, too. But instead of leveraging up and expanding quickly, he took the slow road: maintaining liquidity and avoiding debt. "We have always prided ourselves on the strength of our balance sheet," he says. Tanger could have used its $600 million credit cushion to tread water for months. Instead, it continued paying its employees, even as some competitors announced furloughs. This kept Tanger poised to rebound fast. To help its retail tenants get back on their feet quickly, the company reached out to all of them with an offer: They could defer two months of rent until after the Christmas season. Put simply, Mr. Tanger turned the traditional CEO risk paradigm on its head. His caution in times of plenty allowed him to move aggressively in a crisis. "If anything," he says, "we will be stronger as a survivor a year from now." Invest in Your Principles In the darkest hours of the lockdown, Mr. Tanger leaned on a favorite saying: "A crisis doesn't build character, it reveals it." Giving rent breaks to his retail partners was a calculated business move, but it was also a noble thing to do, and a long-term investment in goodwill. "The tenant community really rallied around that," Mr. Tanger says. He applied the same thinking to retaining employees. "We have always prided ourselves on running a conservatively financed business with a family culture," he says. "We felt it was our obligation." By cutting executive pay, Mr. Tanger hoped to send a message to employees that "we are all in this together." But he also made a principled statement about leadership. He gave his team 25% reductions but took a 50% cut for himself. "Leaders need to show by their actions, not their words, how they feel," he says. During the pandemic, lots of companies suspended their dividends. Doing so would help Tanger free up millions to pay down debt. But the company's ongoing streak of 112 consecutive dividend payments was a major point of pride, and continuing to pay it could prop up its share price. In the end, Mr. Tanger chose principle over pride. Suspending the dividend helped Tanger pay back $100 million to its creditors. "To leverage and borrow to pay a dividend is not the way we intend to do business," he says. Mr. Tanger's pandemic response isn't complete, of course. His company can only recover if its tenants do, and since May, J.Crew and Brooks Brothers have filed for chapter 11 bankruptcy protection. If it works, however, Mr. Tanger may finally succeed in debunking one of management's oldest clichés: the idea that desperate times call for desperate measures. In a crisis, he says, "I think most folks want senior leadership to be calm, thoughtful, transparent and consistent." —Mr. Walker, a former reporter and editor at The Wall Street Journal, is the author of "The Captain Class: A New Theory of Leadership" (Random House). |
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