The Walt Disney Of Retail: Meet The Billionaire Building The Malls Of The Future

To understand The Grove, the 575,000-square-foot shopping Xanadu in central Los Angeles, let its owner, Rick Caruso, introduce you to its neighbor, the iconic Farmers Market. He takes you to a butcher stall where, some 80 years ago, Caruso’s father was sweeping the floor. Next he points to a pizza stand founded by Patsy D’Amore, who baked L.A.’s first pie in 1939. “I grew up on his knee,” he says. Dapper in a custom suit and red-and-black-striped tie, Caruso weaves his way through the chaos, frequently stopping to ask merchants, “How’s business?”

It’s the same question Caruso asks of his own tenants, who have put this 59-year-old real estate developer on The Forbes 400 at No. 179. While the Farmers Market is gritty and authentic, The Grove is the pinnacle of artificial grandeur, where every detail matters. The copper garbage-can lids are polished. If a child drops an ice cream cone, a security guard will swiftly appear with a fresh scoop. Male employees must wear ties unless the temperature tops 85 degrees. Caruso obsesses over the positioning of trees, which arrive on his properties fully grown. A practicing Catholic, he begins planning for Christmas a year in advance and started his own Santa staffing business because the agency options didn’t meet his north of the North Pole standards.

And after all these years, Caruso hasn’t forgotten the lessons he learned growing up around the Farmers Market. “If you provide something that is unique and relevant, in a setting that people find captivating, you will do well,” he says. “Retail has gotten sideways because it became the commodity. It is not about being high tech; it is about understanding what your customer wants.”

The numbers suggest Caruso knows that lesson well.

The Grove’s 58 stores and restaurants welcomed 20 million visitors last year, more than the Great Wall of China or Disneyland. Its $2,200 sales per square foot puts it behind only Miami’s Bal Harbour Shops in the United States. ­American malls average about an 11% vacancy rate (excluding anchors), but Caruso says The Grove has a three-year waiting list. Most of the industry gives away space to glamorous anchor tenants; Caruso gives nothing away and also takes a percentage of sales.

“You pay more, but you get more,” says Rocco Basilico, who runs retail for Ray-Ban in North America. He says the brand’s tiny Grove location has the highest sales per square foot of any of his U.S. stores. The Grove’s Dominique Ansel bakery (of cronut fame) does more business than the New York original, and the movie theater is among the ten most productive per seat in America.

The Grove and his nine other lightly mortgaged shopping centers in the area have made Caruso worth $4 billion. Caruso hopes his four children, ages 18 to 28, will take over the empire one day. He has hidden likenesses of his kids across his properties—family Easter eggs that the average shopper would never recognize but for which he has great pride. If all of this success seems to contradict the further decline and fall of brick-and-mortar retail in 2018, there’s good reason. Caruso is among a few optimistic developers betting—at least until Amazon can deliver human interaction—that stores will continue to pay off. Indeed, Caruso insists that Amazon is great for his business. Online retailers understand their customers, he says. His job is to understand the customers at his malls. While Rick Caruso wasn’t born into a real estate dynasty, he seemed destined for entrepreneurship. His father, Hank, went from sweeping up at the Farmers Market to starting Dollar Rent A Car. (He sold the company in 1990 to Chrysler for a reported $80 million and died last year at 95.) Hank gave Rick, who got degrees in business at the University of Southern California and law at Pepperdine, his first taste of real estate by having him buy land in southern California and lease it to the car rental operation. When Rick lost his job in 1987—the law firm employing him collapsed financially—the transition to a new career was relatively easy.

Caruso tried his hand at industrial real estate, but it bored him. In 1992 he turned to retail with 333 La Cienega, in L.A.’s Beverly Grove neighborhood. He leased it to now-defunct Loehmann’s for two decades and is currently redeveloping the land as a mixed-use project scheduled to open in 2020.

With every new property Caruso opened through the 1990s, he expanded the concept of what a shopping center could be. The Encino Marketplace introduced green space and a fountain. The Promenade at Westlake was curved so you could see where you were heading as you walked. “Developers would build straight or flat because it was less expensive,” explains Caruso, who still considers himself a bit of a real estate outsider. For the Commons at Calabasas, Caruso hired a Hollywood set designer.

With The Grove, which opened in 2002, Caruso finally put together all that he had learned. He got inspiration from Charleston, South Carolina, and Savannah, Georgia, translating wide streets and low building heights into his new open-air shopping center, where a green-and-gold trolley designed by one of Walt Disney’s Imagineers shuttles visitors the quarter-mile from one end of the mall to the other.

The Grove’s common area adds up to an acre. Competitors scoffed at the wasted space, but a movie studio recently paid $600,000 to use it for a two-day stunt. A paid promotion this summer involved a giant Amazon box, a Jeep Wrangler and the latest Jurassic Park reboot. Caruso earns an estimated eight figures in annual revenue from advertising at The Grove, according to industry sources.

Each year we see malls closing and abandon by developers who didn’t have vision for the future or based their ideas on customers that visit the mall and buy from tenants at the mall. Customers will come if you give them a reasoned purpose to come.