Hans Sy, fourth child to retail king and Philippines’ richest man, is not only building more and bigger shopping malls but also turning them into lifestyle hubs and integrated communities.

The opening of SM’s Seaside Mall in Cebu last November is a boon for SM Prime Holdings, the country’s biggest operator of giant commercial complexes, but may have been physically taxing on Hans Sy, its 60-year-old president. He was on his feet all day and walked almost 20,000 steps during the two day celebration for the opening of SM’s newest shopping mall. “I do some brisk walking but sometimes I get very tired,” says Hans, who wears a fitness tracker. His left leg is fitted with orthopedic screws following a bad fall years ago. The fourth child of the Philippines’ richest person, retail king Henry Sy Sr., talked to FORBES Philippines in Cebu City a day after the inauguration.
 
But Hans, who used to run marathons before he broke his tailbone, was too excited and busy attending to last-minute glitches to notice any discomfort. After all, it was his idea to build the new mall in the area, which was newly reclaimed and empty when he first set foot on it in 2006. He saw the potential right away, noting the similarities with the location of the then newly opened SM Mall of Asia (MOA) in Pasay City.
 
“I reported immediately to my dad: ‘Dad, I’m seeing this property (in Cebu) that’s similar to MOA. It’s beside the sea, a reclaimed area, and the access is very good’,” recalls Hans who was tasked by his father early on to oversee the building and operation of SM malls. “I got the family board to agree and so we bought it.”
 
After almost 10 years of planning and building, the SM Seaside Mall opened in time for the Christmas season last year. With a gross floor area of 430,000 square meters, it is the country’s third biggest shopping mall, currently bigger than MOA with 407,000 square meters. The latter will have an additional 200,000 square meters in the next two years.
 
The huge crowds, who kept coming to the mall despite its 4.9-kilometer distance from Cebu City’s downtown area and heavy traffic along the way, reaffirmed Hans’ initial assessment of the location’s potential. From only 200 stores when the mall opened in November, the number of tenants at SM Seaside Mall has risen to almost 400 in February. 
 
While the SM Seaside Mall has plenty of unique features – the circular shape departs from the usual box-like structure of other SM malls – it still follows the SM group founder’s vision for his giant malls to be places not just of shopping but also of dining, entertainment and services. “When we were planning the project, we had in mind that this is a destination center, just like the Mall of Asia,” says Hans. “And learning from my father, we have to give reasons for people to come over.” 
 
THE SM GROUP’S NEWEST GIANT shopping mall continues the trend in the evolution of malls from convenient one-stop commercial centers to destination and lifestyle hubs.
 
To attract the crowds, the Seaside Mall features a Skypark with open air greenery, an amphitheater and an observation deck that offers one of the best views of the sea and mountains around Cebu. It also has a children’s park planned by globally acclaimed designer Kenneth Cobonpue. The Cebu Ocean Park is in the works. “It is not all about just shopping for your needs. It is really about being a tourism site in itself. It’s a ‘destination mall’,” explains Marissa Fernan, SM Prime Holdings vice president for Visayas and Mindanao.
 
By mid-2016, the Observation Tower is expected to rise almost 50 stories high from the center base of the round-shaped mall, treating shoppers to a commanding 360-view of the island province of Cebu. “There’s always something new so people will be curious and will continue to come here,” Fernan adds.
 
These features are in line with the SM group’s efforts to introduce a “wow factor” to its shopping malls to encourage shoppers to come and visit. SM City North Edsa has a sky garden occupying the whole second floor, giving a concrete jungle theme. The MOA in Pasay City will soon open a football field on top of the mall- a first in the world. The Manila-Acapulco Galleon Trade Museum, which will house a full-scale replica of the 18th-century sailing ship, is coming soon to MOA. 
 
As well, SM is allocating more space for restaurants, a number of them Michelin starred. The group has been adding new food concepts as part of its efforts to rebrand select SM malls as a dining destination. Among recent entrants are the popular Din Tai Fung, Todd English and 8Cuts Burger Blends.

FOR HANS, THE IDEA OF TURNING SM shopping malls into destination hubs is also a preparation for the eventual rise of ecommerce. Though online shopping is still in its infancy in the Philippines – it accounts for less than a percentage of total retail spending according to the World Startup Report 2014 – the SM Prime Holdings president is seeing signs it could disrupt parts of the brick-and mortar retailing business.
 
While walking around one of the SM malls in Manila, he saw an acquaintance trying out an item in a tenant’s apparel store. But rather than buy the clothing from the store, the customer took out his phone and ordered it from the Internet. 
 
“I said this is serious. We are becoming a fitting room!” says Hans.
 
By increasing what he calls “experiential (offerings) that people cannot get from the Internet” such as more dining and entertainment options as well as services, Hans hopes to keep people coming to SM shopping malls even if some of them increasingly do their shopping online. This May, for the first time in the Philippines, some of the voting will take place inside malls rather than in cramped public school buildings.
 
A chance encounter with Jack Ma, founder of Chinese ecommerce giant Alibaba, during a state dinner in Malacañang when Manila hosted the 2015 APEC Summit in November, convinced Hans the SM group needs to take ecommerce more seriously. Ma told Hans he doesn’t know how to program and that his computer skills are confined to emailing and watching online videos. The Alibaba founder thus requires his engineers to simplify apps so even he can use them. 
 
The chat with Ma came days after Alibaba’s record $14-billion online sales during the Singles’ Day shopping festival. That’s equivalent to almost 2.5 times the annual revenues of SM Prime. “Talking to people like that makes me think that I really have to be creative here or else I will lose my business,’ says Hans. 
 
BUILTON PART OF THE 30 HECTARES OF reclaimed land in Cebu that SM Prime acquired from the Cebu City government’s South Reclamation Project, the Seaside Mall underscores the constraints facing the SM group as it expands its footprint. It wants to put up 18 new shopping malls in the next three years on top of the 56 existing ones in the Philippines as of February 2016. It has six malls in China, which it wants to increase to 11 by 2018.
 
Running out of large tracts of land on which to build its giant malls in dense urban centers, the group is turning to large-scale reclamation projects. It has submitted proposals to reclaim 600 hectares from the Manila Bay fronting Pasay and Paranaque cities, potentially adding a tenth to the combined land area of the two cities. It has also proposed to reclaim 1,500 hectares of Cordova town’s foreshore land in Mactan Island, Cebu.

SM is also expanding to less developed towns and cities throughout the country as these areas rapidly urbanize. It has built up a land bank of over two million hectares indifferent parts of the country. “We have quietly bought a lot property. We have land in almost all parts of Mindanao, including Butuan and Zamboanga,’ says Hans. “As long as the consumer spending growth story remains valid, then SM will always be seen as well-positioned to take advantage of that,” says Robert Herrera-Lim, managing director at Teneo Intelligence, a U.S. investment advisory firm.
 
The SM group’s preoccupation with land reclamation is the latest sign of the exponential growth and transformation of the retailing business that began as a humble shoe store called Shoe World in Quiapo, Manila in 1958. In some ways, it can be seen as the next logical stage in the history of the group, which progressed from a shoe store to a department store, to building shopping malls, putting up residential and office towers, and eventually creating self-contained and mixed use communities.
 
The big move from department stores to shopping malls came about in the mid-1980s when the senior Sy built SM City at the intersection of EDSA and North Avenue in Quezon City. Despite the economic slump at that time, the new giant shopping mall became an instant success and was quickly followed a few years later by SM Megamall along EDSA. According to family lore, one of the impetus for Sy’s decision to go into shopping malls were the constraints he faced in expanding Shoe Mart in Makati because he merely leased land from the Ayalas. 
 
After putting up scores of shopping malls, Sy’s first son and namesake Henry Jr. convinced the family to engage in real estate business in the 1990s, selling middle-market residential condominium units under SM Development Corp. (SMDC). Commercial offices were added into the mix, boosting the group’s recurring income flows.
 
Next came the integrated communities composed of SM shopping malls, residential condominium buildings, office towers and entertainment and recreational facilities. A prime example is the 60-hectare MOA complex in Pasay City. It began with the mall, which now has an average daily foot traffic of up to 300,000 on weekdays and up to one million during weekends. Over the years, new projects were progressively added: five office centers carrying the “E-Com” brand catering mostly to outsourcing firms, three high-rise residential condominiums, the Arena sports and concert venue, the SMX Convention Center for exhibits and conferences and soon, Conrad Hotel.
 
As president of SM Prime Holdings, Hans is in charge of the malls and real estate business units, which the family is banking on for the growth of SM Investments Corporation (SMIC), the Sy family’s listed holding company. The malls and real estate businesses account for almost 40% of the total income of SMIC but swallow almost nine-tenths of the holding company’s capital spending budget.
 
Eldest sister Teresita Sy-Coson heads the banking and retail units, which account for a combined 62% of total income. She is the most publicly visible among the siblings and widely perceived as the heir apparent of Sy. She is the vice chairman of SMIC and chairman of BDO Unibank, the SM group’s main banking subsidiary.
 
Among Sy’s six children, Hans worked the closest with the SM group founder in the construction side of the business. His siblings were asked to focus on the department store and other retailing aspects. Straight out of college, Hans was told to help in building the new department stores. “I was going around with my dad who was personally handling the construction of the department stores,” which they started to build in the ’70s. A decade later, they built shopping malls. 
 
The only engineering graduate among the Sy siblings, construction-related work naturally went to Hans. “I graduated with [a degree in] mechanical engineering (De La Salle University), which has nothing to do with construction. But since I am the only engineer in the family, he asked me to help him out.” His siblings took business-related courses.
 
“I was always part of the construction of every mall. I know every story of every mall,” he says, pointing to strategically located cashier counters so customers don’t have to walk more than 75 meters to pay for goods. SM malls are also designed to optimize tenants’ exposure to customers who know what they want and to those who buy on impulse. “These are not taught in school but I learned these while walking around with my father, asking the professional designers and getting really involved.”
 
His role as implementor of projects initiated or launched by his father was carried over in his relationship with elder brother Henry Jr., who is technically his boss as chairman of SM Prime. “We work well together. He’s the thinker, I’m the executor,” says Hans. 
 
Though he didn’t have a business education, Hans was asked by his father to sit on the board of China Banking Corp. in which the Sy family had acquired a stake in 1988. He drowned in finance-speak during board discussions. “In the first few meetings, I just kept quiet but wrote down the acronyms. I then asked a close friend who is a banker to explain to me what those in my notes meant. That’s when I finally learned that ADB, which they kept using during board meetings, meant average daily balance. So simple!” he recalls, laughing.

HANS’ ENGINEERING MINDSET has proved helpful in managing big and small crises in the SM malls’ relations with customers, regulators and other stakeholders.
 
In 2012, the SM group came under intense public criticism on its plans to earth-ball about 60 trees around its mall in Baguio City despite having secured local government and court approvals.
 
During a dinner at her house, Sen. Loren Legarda, chairman of the Senate environmental committee, confronted Hans about the move before guests who included United Nations disaster management officials. He calmly explained that his structural engineers noticed signs of soil erosion, which may  pose danger to the mall and a school below it. Various engineering options to address erosion necessitated removing some of the soil and cutting the trees. 
 
Though initially sceptical, the U.N. officials eventually believed him, especially when they learned that the SM group had one of the best disaster preparedness programs among local companies. Hans was even voted to the board of the private sector alliance of the United Nations Office for Disaster Risk Reduction.
 
When one of the SM malls came under fire from the media for the mall guards’ lack of sensitivity in dealing with a troubled autistic man, Hans immediately moved to educate himself and mall personnel about the neurological condition. He got in touch with the Autism Society of the Philippines and worked with them to conduct a special training program to help mall guards recognize and help people with autism.
 
“When there’s a problem, look for a solution. Don’t even try to challenge it,” he says, summing up lessons from past crises. “If it’s our mistake or not our mistake, it can happen again.”
 
With a size and scale like no other – 3.5 million people visiting 17,200 shops in 56 SM shopping malls each day – Hans’ methodical approach to problem solving is a most appropriate one. His father must be pleased at least one of his children trained as an engineer. 
 
MIXING FAMILY AND BUSINESS
 
All of Henry Sy Sr.’s six children are involved in the family business. Unavoidably, the family’s Sunday lunches often turn into something that resembles more a business meeting than a family get together. To appease their mother, Felicidad, the children agreed to hold separate family business meetings on Tuesdays.
 
The siblings work in committees. Banks are handled by Teresita and Hans. Property is shared by Henry Jr., Hans and sister Elizabeth (on anything related to tourism and hospitality). Retail units are handled by Teresita and Harley (department stores and other non-food retail). Another brother, Herbert. oversees food. Each holds several positions, whether at the board or management levels, in companied under the SM group.
 
The Sys have formalized some rules for the next generation. One of these is to give the younger family members the freedom to choose whether they want to work or not in the SM group. Those wishing to join the SM group or put up their own businesses using family money have to meet certain conditions and must comply with rules.
 
Hans and his siblings, however, followed a radically different set of rules. Basically, they complied with their father’s wishes. “When he tells us to jump, we don’t ask ‘why?’. We ask, ‘how high?’,” laughs Hans. All the six Sy children were required to help in the stores after school or during summer breaks as soon as they reached the age of 13. The senior Sy forbade them to study college abroad because he wanted them to stay and work in the family business.
 
Unlike his father, Hans allowed his children to study abroad. When his eldest son wanted to study in Australia, Hans had to overcome his father’s objections. “He told me, ‘Didn’t I already each you that (keeping the) family together is very important?’,” he recalls the uneasy discussion. “But I explained to him that it is different for the kids. During our time, we could live normally. I could sneak out after being dropped off in school and take the bus with my friends to Cubao. I had a normal life. But look at us now, our car is bulletproof. We cannot leave (to go anywhere) alone. But we’re adults already, we understand. The kids don’t. I don’t think they can even cross the streets of Makati. They are not living normal lives anymore.”
 
Before Sy eventually agreed to let Hans’ son study in Australia, he had a serious talk with his grandson. “You are the first to study abroad. If you don’t do well, I may not allow the others,” Hans quoted his father telling his son.
 
Things turned out very well. Living abroad gave the first of the third-generation Sy family members a taste of independence and a sense of responsibility. He later joined the family business. Says Hans: “It was one of the best decisions I’ve done for the family.”