Chapter 8 – Flexibility

In chapter 8 we learned how to understand the financial side of strategy and understanding risk and ways to quantify cost/benefit or opportunities. Whether it is identifying direct risk and the financial projection from a strategy, or an indirect risk and/or indirect financial gains from a strategy, there is opportunity and multiple ways to look at it.

Simon Property Group is a REIT, and therefore risk is everywhere and Simon has done a great job in minimizing risk or tackling risk. The financial pro-forma’s they use is highly confidential as competitors with their same projections could beat them to the punch. So how does Simon assess risk?

1. Simon looks at their portfolio as a whole and identifies properties where competition can gain an advantage. This could be through newer nicer common areas and better tenant mixes to security and safety of shoppers. In 2018 Simon invested $600 million back into their developments with an average yield of approximately 8%. That is an impressive number with rates of returns any company would be glad to see. Simon takes the stance that having highly desirable properties in high desirable locations will drive traffic no matter what the competition is doing and they are proving to be right and are maintaining it with investments into capital.
2. Simon grew its Simon Insider loyalty program members by 30% and those members spent an average of 20% more! Growing a loyalty program is not easy. It requires a lot of strategy and financial analysis to see the cost/benefit of catering sales/discounts/etc. to specific members but the performance metrics seem to be going well.

Strategy is important and understanding the financial impact and having flexibility to pivot is key for a business successfully implementing strategy. Like my boss always says “show me the analysis of why you think this is a good idea.” We may not have access to Simon’s analysis but I can almost guarantee it’s there and it’s in depth.