This week we do a deep dive into the rapidly changing world of retail real estate with Tom McGee, the CEO of ICSC, the industry's biggest trade association. In a wide ranging conversation we get Tom's view of how the industry continues to evolve from legacy concepts to marketplaces, what the pandemic did to reshape the landscape, and which key trends we should be paying attention to.
This week we do a deep dive into the rapidly changing world of retail real estate with Tom McGee, the CEO of ICSC, the industry's biggest trade association. In a wide ranging conversation we get Tom's view of how the industry continues to evolve from legacy concepts to marketplaces, what the pandemic did to reshape the landscape, and which key trends we should be paying attention to.
We also explore why so many people fell for the bogus "retail apocalypse" narrative, what the blurring of the lines between physical and digital portends, and how important the "halo effect" of physical stores can be for retailers.
But as is our custom, we kick things off by dissecting the biggest new of the week, including what to make of quarterly earnings and downward guidance from both Walmart and Home Depot. Then we briefly touch on Wayfair's very bad week before moving on to Target's good news decision to double down on the "stores as hubs" strategy by adding six additional "sortation centers." Next we try to wrap our heads around Amazon's decision to disband it's shopper experience group as well as the news that Shein may approach $60 billion on revenue by 2025, which would exceed the combined sales fo Zara and H&M.
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We're headed to Las Vegas in March for another edition of Shoptalk. Retailers and brands can get a Shoptalk ticket for a reduced rate of just $1950 rate here using our special discount code RBREMARK1950.
Past episodes mentioned this week:
Making the most of traffic: An expert panel on in-store innovation.
The global economy: An interview with Ira Kalish, Deloitte's Chief Economist.
The store as brand hub with Target SVP Nancy King
ICSC’s website https://www.icsc.com/
Tom’s LinkedIn Newsletter “From Where I Sit”
About Tom
TOM MCGEE is the President and CEO of ICSC, the preeminent international membership organization serving the Marketplaces Industry. As the voice of the industry, Tom is the leading expert on the marketplaces and spaces where people shop, dine, work, play and gather as foundational and vital ingredients of communities and economies. The majority of the nearly $6 trillion of U.S. consumer activity generated in 2022 by the retail, food-and-beverage, entertainment and consumer service industries occurs within America’s marketplaces, representing approximately 1 out of 4 American jobs.
As an organization, ICSC produces content, events and experiences that support and advance the growth of its retail and real estate member businesses, while also informing and advocating to shape public policy.
Prior to joining ICSC, Tom served as Vice Chairman of Deloitte, LLP, the largest professional services firm in the United States. During his 26 years with Deloitte, Tom held global and U.S. leadership roles, including Vice Chairman, Deputy CEO, National Managing Partner of M&A Services, and Global Chief of Staff.
Tom is a noted business speaker with frequent appearances on, among others, Fox Business, Bloomberg and Yahoo Finance. He coined the term “retail renaissance” to describe the convergence of digital and physical channels in retail and is often quoted in national media outlets such as The Wall Street Journal, The New York Times, and USA Today.
Tom is the former chairman of Covenant House International, the largest privately funded charity supporting homeless youth in the Americas. He currently serves on the Loyola Marymount University Board of Trustees and is active in numerous other business and community organizations, including serving as a member of the U.S. Chamber of Commerce Committee of 100.
About Us
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global eCommerce Leaders podcast, and The Food Professor with Dr. Sylvain Charlebois. You can learn more about Michael here or on LinkedIn.
Be sure and check out Michael's latest venture for fun and influencer riches - Last Request Barbecue, his YouTube BBQ cooking channel!
We're headed to Las Vegas in March for another edition of Shoptalk. Retailers and brands can get a Shoptalk ticket for a reduced rate of just $1950 rate here using our special discount code RBREMARK1950.
Michael LeBlanc 00:05
Welcome to the Remarkable Retail podcast Season 6, Episode 7 presented by MarketDial. I'm Michael LeBlanc.
Steve Dennis 00:12
And I'm Steve Dennis.
Michael LeBlanc 00:13
We’re off to the mall in this episode with our special guest Tom McGee, President and CEO at ICSC, formerly known or best known as the association representing primarily landlords and shopping centers now broadening their scope to Marketplaces. We'll hear more about that from Tom. Steve, you and I have both spoken at ICSC events. How long have you been associated with ICSC?
Steve Dennis 00:13
Oh, I think I did my first keynote for them maybe four or five years ago, which was in Toronto. As I recall, I think we talked about that, (crossover talk).
Michael LeBlanc 00:17
That's how we met actually.
Steve Dennis 00:20
Yes, that is actually, is that where you were going with that you wanted to like, have this beautiful, you get everybody a little teary eyed? Yes, I do believe that is correct the night before. And then I've done a few others. So, it's been, it's been good. And we touch on real estate a bit on the podcast. But I think this is maybe the first time at least in a while that we've, we've done more of a deep dive and I don't think there's anybody, anybody better to do it than with Tom.
Michael LeBlanc 01:12
Yeah, he brings a great perspective. It's a great interview. So, we'll get to that after the news. Now, as you know, I'm just back from LA. Now the next trip for me is joining you in Vegas for Shoptalk. And we'll be podcasting together but you're going to be on the stage there. And then another month later at Shoptalk Europe. What do you, what kind of knowledge you're going to be, what's the format for your presentations at those events?
Steve Dennis 01:34
Well, at Shoptalk Vegas, we're going to be talking about innovation. And I'm going to do a very short opening segment. And then we've got three panelists, one from a relatively new sexual wellness brand called Maude, then we've got a brand, a senior brand person from UGG, mostly, mostly known for their boots, and then the Head of Strategy for one of our favorite brands, Tractor Supply. And then Shoptalk, (crossover talk),
Michael LeBlanc 02:02
Is that the talk show format, where each comes up individually or is it a panel format, where they're all up, (crossover talk) together.
Steve Dennis 02:08
(Crossover talk) you're going very inside Shoptalk. It is not the talk show format, we'll have all three, all three at once. And then Shoptalk Europe in Barcelona in May, we'll be talking about in-store more in-store workplace kind of innovation and the panel is still coming together. So, I'll share more details on that in a few weeks.
Michael LeBlanc 02:30
All right, we’ll look at that. And then we're also going to be in Barcelona for the World Retail Congress. We'll be talking about that in a little bit more detail. On our next episode, you're speaking at that as well. So, a busy, busy spring. Speaking of a busy spring, let's jump into the news, earnings, earnings, earnings, what are we
Steve Dennis 02:40
Yeah.
Michael LeBlanc 02:41
What are we learning, learning, learning from all these earnings?
Steve Dennis 02:51
Well, yeah, this is gonna be a pretty, pretty brisk week coming up with earnings. But last week, we had quite a few as well, we're not going to dig into all of them, the three that I thought were most worth mentioning, the biggest retailer in the planet, on the planet, WalMart reported, and they actually did pretty well, relative to expectations, sales were up pretty, pretty nicely. One of the things they do, which I really appreciate is they break out transactions as well as the average ticket and you know, in this era of inflation, that's kind of helpful to understand. So, transactions were up 1.8%. So, you know, not surprisingly, the average ticket was up 6.3%. So, you can kind of get a sense for the inflation there. But really strength across the board. Sam's Club did particularly well, their grocery and private brand business is really strong. And really well, and also the ad business. You know, we've talked too much about the retail media networks on a couple of episodes last year, they were up 20%, year-over-year, for the quarter, that's down a little bit from the 30% that they ran for the whole year. So, still very robust, but maybe moderating a bit there.
Steve Dennis 04:25
I think the real, the two key things here have to do with what's going on with margin. And they did take a little bit of a hit. As folks may recall, there's this big inventory glut that a lot of retailers are working through. And it looks like they made some pretty good progress on that, but they did have to take a few more markdowns then are ideal. But the thing that really got Wall Street's attention was that despite having a pretty solid quarter and a pretty solid year, they guided down for this year, estimating that their sales and profits will probably only be up about two and a half to 3% which presumably will be less than inflation. So, that kind of spooked, spooked Wall Street in general and a lot of retailers were guided down. And we're gonna get Target this coming week. In fact, I think the day that this episode is out. So, some of the people listening to this have probably already heard the news. So, I think that'll be another kind of just bellwether for the broad, broad market.
Michael LeBlanc 05:09
It's interesting when you talk, you know, going back to what you're saying about up 1.8%. For, for transactions, I mean, let's keep in mind, they have approximately 37 million transactions a day, like, the 1.8% ain't nothing, they already got a lot of transactions going through that store. And, and you know, they're a big grocer, right. They're the biggest grocer by the numbers in, in the US, and there's lots of inflationary pressures and inflation builds into those numbers. So, it's an interesting mix. There's such an interesting business. So, it's a great, great place to start.
Steve Dennis 05:38
Yeah. And I think there's definitely a sense, and I think they stated it that they've been picking up market share in the grocery business. So,
Michael LeBlanc 05:45
Yeah, they're doing well.
Steve Dennis 05:48
I do think some of that is they have, they've really worked hard to not raise prices, very much. I think it is a strategic move for them. And (inaudible) very on brand, (crossover talk).
Michael LeBlanc 05:51
To the investment.
Steve Dennis 05:55
That seems to be working for them, at least in terms of their long-term positioning, and maybe take a little bit of a hit in the short term.
Michael LeBlanc 06:06
So, I was reading about Home Depot and their investment in their people. What is it, 1 billion to provide workers with hourly pay raises, they're really putting the, they're really putting an exclamation point on the fact that it's very important to keep people because it's hard to find them to begin with, particularly in their format, right?
Steve Dennis 06:24
Yeah, I think that was one of the big pieces of news, I mean, overall, from an earnings standpoint it was pretty lackluster. And they also are similar to Walmart, but for I guess, for different reasons, because they're obviously very much tied to what's going on in the home market. Sure, not the broader, the broader market. They're pretty cautious about the outlook. But yeah, they said that they are going to raise their minimum wage to at least $15 per hour that varies by market, of course, and that was going to add a billion dollars to their cost structure. And you know, strategically, it seems like this is something to do, I expect a lot of other retailers will follow. But it does put pressure on their margins. And so that also, I think, spooked Wall Street a little bit.
Steve Dennis 07:23
But, you know, I think I guess kind of more of an editorial comment on this, I think, you know, retailers have been able to take advantage over the years of a pretty favorable labor market for them. And that kept wages down. And, you know, we've generally seen not to, not to sound like the Bernie Sanders of retail here. But, you know, we've seen lots of patterns over the last couple of decades of the rich getting richer, I'm not going to do a Bernie impression. I almost, I almost, (crossover talk). But you know, in the. the low and middle class really, really taking it on the chin. So, you know, I think, I think it's great that we've been able to see quite a lot of people move out of poverty level wages into closer to or above a living wage, but this will definitely put pressure on their, on their margins going forward.
Michael LeBlanc 08:01
Yeah, two quick comments. One is, generally retailers see the upside of, of when they, when they raise minimum wage, because these folks aren't saving for their next yacht, that money comes right back into retail, right? They're living, you know, at some degree paycheck to paycheck. So, the more money they make, the more they're able to spend and start,
Steve Dennis 08:10
Right.
Michael LeBlanc 08:11
And even start saving money. And then the second thing is this is a wise investment for Home Depot. If you're not, if you're outside the industry, you might not realize it but Home Depot staff on the floor are highly productive right. They're upselling, they're answering questions so it's a great way to just increase conversion like we've already said, like in our panel, our store, like in our store technology panel. Like if you're not getting more people across the doorstep, you better make sure that the people who are in the store are spending and buying and finding in a vast place like Home Depot, the things they need to find, and I think I think it's a nice investment right.
Steve Dennis 08:44
Absolutely.
Michael LeBlanc 08:46
A couple of quick takes, now we're not going to talk about Wayfair. Wayfair put out some numbers and, and a somewhat surrealistic investor presentation but we're gonna dwell on that a little more next episode because it's worthy of an entire episode but what, any quick comments on what you saw?
Steve Dennis 09:10
Well, I think it was charitable to call Wayfair a train wreck. You know their sales dropped, 5 million customers lost year-over-year and to your point which yes, we will unpack a little bit more as well as just kind of more broadly what's going on with some of these so-called retail disruptors. Their presentation was pretty much like everything looks to be great and oh by the way, you know we lost a billion too last year. So, (crossover talk).
Michael LeBlanc 09:36
(inaudible) let me tell you, (crossover talk).
Steve Dennis 09:38
They really, I don't know people, I think sometimes because I've been criticizing Wayfair for, I think coming up on three or four years now but maybe I have some sort of vendetta. But once again, I should point out that I'm a bullshit dispelling enthusiast, and there was quite a lot of bullshit in their presentation but more, more on that next week.
Michael LeBlanc 09:59
All right, let's talk about two quick takes. I mean, I see Target, investing in investment sortation centers, they're really, they're doubling down on, on their competition. They're fresh, and they're, they're what they're doing and how they're moving the product. What do you think of this investment? Do you think it's wise, what it, it portends and do you think it's a wise spend, for their money?
Steve Dennis 10:19
Yeah, well, if people are really interested in that, they can go back to our interview with Nancy King, the Senior VP of product at Target, because last year, we talked about this strategy of really leveraging stores for fulfillment of eCommerce orders. So, in some cases, that's shipping from the store through the mail, but or, or going to pick it up. But a lot of it is being able to offer same day delivery in the market. And the sortation centers, which are dedicated facilities that basically gather, gather product coming in from distribution centers that are coming out of stores to then be redistributed to the local market really gives them you know, kind of the antidote to Amazon. Because as I'm sure many people know, Amazon's been building out. Turns out, they built up too much. But they've been building out these local market facilities to facilitate same day and next day delivery, and in some cases within an hour or two.
Steve Dennis 11:41
And the challenge really for, for the Target's, and the Walmart's and many other retailers is how do you offer that level of convenience and leveraging their stores and these sortation centers looks like it's really, really working well for them. So yeah, they're going to invest another 100 million dollars in six more of these sortation centers. And this overall, kind of using the store as the hub for both online and in-person shopping. So, I think it's a really interesting strategy that seems to be working really well for them. And they look like they're continuing to invest aggressively behind it.
Michael LeBlanc 11:51
Now counter to what we've just said, for the past 15 minutes about wise investments in conversion and customers, Amazon put out a short (inaudible) kind of note that they're eliminating a shopper user experience team, which I had, like my head did a double take almost like you're doing what, why on earth would you have all things look at that? So, what did you make of that announcement? Am I reading that right?
Steve Dennis 12:12
We don't have the complete picture on this. But the person who as I understand the person who led the team got laid off and basically shared on social media, or somehow or other or a reporter got a copy of the, the, what she stated was the elimination of this team. And yeah, it seems bizarre, given some of the challenges Amazon is having, I mean, I think their site navigation is a mess. And, you know, you could certainly argue I don't know if this team worked in-store. But it seems like a really good time for Amazon to double down on how to improve the experience rather than going the other direction. So, it seemed pretty bizarre to me. But perhaps we don't have a complete picture. So, if anybody from Amazon is listening and wants to clean us up, please let us know.
Michael LeBlanc 13:03
I mean, it could just be that division. But there's another division that does basically the same thing. But hey, Amazon, give us a shout out and we'll, we'll bring it up in our next, our next episode. Shein, which I'm not a big fan of, lays out a 2025 target of a massive revenue of 58 billion. They're just, they're just like, if I take that number and compare them to other retailers. That's a big num-, it's a big number.
Steve Dennis 13:28
Right. I mean, it. I mean, here's, here's a business and just I guess just speaks to, you know, what I sometimes call the speed of disruption, which seems in many cases to be accelerating more exponentially than in a linear fashion. And here's a brand that barely existed, you know, three years ago.
Michael LeBlanc 13:39
Yeah.
Steve Dennis 13:40
That is now, I mean, according to this report, while I mean, it's not a report, Shein did an investor presentation, where they quoted that this is, their goal is to have close to 60 billion in revenue by 2025. That would put them past the combined sales of H&M and ZARA, you know, which are kind of the two other fast fashion leaders, you know, which have been around for how long? Those brands have been around for decades, right? So,
Michael LeBlanc 14:14
Longer, longer than Shein that's for sure, whatever the number is, (crossover talk).)
Steve Dennis 14:17
Much longer, I think probably multiplied by about 10. So, it's, it's quite extraordinary. There's a rumor that they may be angling for an IPO this year. And so they're kind of setting the foundation but it's, it's quite, it's quite extraordinary how, how impactful this brand has become in, you know, almost no time at all.
Michael LeBlanc 14:39
All right, well, it's so interesting. Now, let's go from interesting. We go from Shein to an excellent interview with Tom McGee who's less about virtual, but it's included now as well as q shopping center. So, it's a super interesting interview, but first a few words from our presenting sponsor.
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Michael LeBlanc 15:43
Tom, welcome to the Remarkable Retail podcast. How are you doing this morning?
Tom McGee 15:52
I'm doing great. It's great to be with you.
Michael LeBlanc 15:54
Well, and where are we finding you today? Thanks for joining us, by the way, where are we finding you today?
Tom McGee 15:58
I'm actually in midtown Manhattan in ICSC's offices.
Michael LeBlanc 16:02
Very nice. Now, is that where you're born and raised? Tell us a little bit about that. Where are you from?
Tom McGee 16:08
I'm actually from Los Angeles, Southern California. I lived in LA for the first 40 years of my life. I moved to the East Coast in 2007. I started my career with Deloitte, and I spent 26 years there. I moved for the firm to New York in 2007. I spent 26 wonderful years there.
And in 2015, I was recruited to become the CEO of ICSC. And so I've been here through, you know, lots of different, you know, major periods of time in the industry, everything from the retail apocalypse that was called when I when I began to obviously navigating, you know, through the pandemic to now which I think are you know, much more promising times and it's so I've had a wonderful career and had the benefit of living on both coasts of the US and the two major cities in the US and I like them both.
Michael LeBlanc 17:05
Well, and at Deloitte, right, very, very senior levels. In fact, we had one of your former counterparts on Ira Kalish, not too long ago. So, we've, we've had lots of great guests on from Deloitte and now you, you represent an entire industry. So, tell us more about the work you do at ICSC.
Tom McGee 17:22
ICSC is the international membership organization, we're a trade association representing the Marketplaces industry. You know that the Marketplaces industry represents everything from where people shop, dine, work, play and gather. It's often referred to as retail real estate. But as we'll talk, you know, the terminology of retail real estate and shopping centers, I think has really broadened to, to a much greater extent.
ICSC, you know, provides a whole host of services to our retail and real estate members. We provide content, we provide, create events and experiences and really help our members advance and grow their businesses. And we're very active in public policy as well. It's a huge industry you know, the Marketplaces industry. If you think about what's comprised of that, it’s retail, food and beverage, a whole host of consumer services, that's about $6 trillion worth of consumer spend in 2022. And the majority of that happens in America's Marketplaces, and probably one out of every four jobs is related to that industry.
Michael LeBlanc 17:24
Now, you also work on both sides of the border. I'm here in Toronto. I think you just did a big event in Whistler or in BC. So, talk a little bit about that scope and scale. So, pan, North Americans, talk a little bit about that.
Tom McGee 18:49
Yeah, yeah. So, we have over 50,000 members, about 3500 members in Canada. We had a wonderful event in Whistler, we had two major events in Canada, one in Toronto in the fall and where we take over the convention center there. And then we have a major event in Whistler and a whole host of local events as well. We provide similar services in, in Canada as well, you know, content experiences, events, to help our members grow, grow their business. We're also active in public policy in Canada as well. And it's wonderful, we have wonderfully active members and a whole host of a large number of volunteers that are really engaged in Canada. And then we have members from around the world as well. We probably have members in ICSC that are from almost 100 Different countries from around the world. But predominantly, the majority of our members are, are North American, US and Canadian base, the vast majority of them.
Michael LeBlanc 19:54
Now I know, I know of the organization well. I was with the Retail Council of Canada for many years. So, advocacy, an advocacy organization similar now. I and perhaps many of the listeners might know you for what you were prob-, what you were formerly let's say, this is what I want to talk to you about, you know, ICSC when I think of ICSC I think of, you know, shopping malls and retail, but you kind of did a bit of a rebranding or repositioning you keep you know you refer to Marketplaces. Talk a little bit about that, unpack that for us, just in case someone hasn't kept up with current events about the nature and the scope of the business?
Tom McGee 20:30
Sure, our, our, our brand is really, the name is not technically changed, we still go by the acronym ICSC. You know, lee-, our legal name is the International Council of Shopping Centers. But, you know, when we really looked at who our members were, and the composition of our members that had evolved over a period of time, and so while we were, you know, obviously, our legacy is around retail real estate and, and shopping centers. The nature of the tenant base within those centers, the nature of the development community, as they've navigated more towards mixed use, the folks that were attending our conferences and events were evolving to be, you know, much more inclusive towards this concept of Marketplaces where people really gather.
Tom McGee 21:01
And if you think about, you know, just what's happening in Canada and the US around traditional shopping centers, they're really becoming more than just retail. They're becoming experiential, you're seeing an increasing amount of offices, and experiential type offerings there residential. And so that was really happening to our members. our membership. And so we thought it was important to really modernize our brand, to really reflect the nature of our membership, but at the same time respecting our legacy, I mean, we are known as ICSC, we're well known, particularly in the US and Canada and, and obviously what the norm of stakeholders, both in the industry and in, you know, public policy, and we wanted to respect that brand and the brand that was built by our members, but also modernize it.
Tom McGee 21:22
And so, you know, our focus has broadened to characterize the industry as Marketplaces, with really, you know, leaning in on the impact that this industry has upon commerce and communities really innovating commerce serving communities. If you think about what's, all the things that have happened in this industry, and all the evolution that's taken place, you know, from, really, from its inception, but particularly over the course of the last 10 years, the tremendous amount of innovation and change that's taken place.
Tom McGee 22:49
And then fundamentally, this industry really represents, you know, a place where communities gather, and it also represents a huge source of funding, you know, for all the infrastructure and public services that provide, you know, for citizens and communities. So, communities are a big part of, you know, of, of this industry. And we really want to lean into those (inaudible) two twin pillars of commerce and communities.
Steve Dennis 23:03
So, maybe just digging into that more on some of the things that you and your membership are focused on. I guess, it would be the first thing and you alluded to this idea of a retail apocalypse. I keep hoping by now that terminology is, is in the rearview mirror, but, but this general idea that physical retail, was dead or dying? Why do you think so many people got this wrong?
Tom McGee 23:29
Yeah, it's really an interesting question Steve. So, you know, the, you know, first of all, when, when the, the terminology, retail apocalypse was really adopted by the media, I tended to think we were really living through a retail renaissance, which was, you know, a rebirth and a reimagination on what was taking place in the industry. But I think that concept of, of, you know, an industry that was somehow in distress, in many respects, you know, was representative of, kind of the broader thinking about technology. And, you know, technology was just changing all aspects of life, right? Not just shopping, but all aspects of,
Michael LeBlanc 23:48
Sure.
Tom McGee 23:49
Our life. And so, you know, people saw eCommerce and saw the convenience of eCommerce and just, you know, made this broad assumption that it was going to eventually lead to the ultimate demise of physical shopping. And instead, I think it's done, you know, something quite different. First of all, I think it forced the industry to modernize and evolve and innovate and become much more consumer centric and customer centric.
Tom McGee 24:06
But secondly, you know, really the nature of physical retail and the use of physical retail has started to change. So, we're using it for traditional shopping purposes, for sure, but you're also starting to see retail being used, many fulfillment centers and you think of things like curbside pickup and click and collect and so forth. That's all being driven generally, out of those local, you know, retail establishments. So, I think there's an evolution that's taken place has been driven, you know, by technology. And there's been an evolution that's taking place.
But I just think the, you know, the concept of physical retail and somehow was going to go away or was going to become obsolete because of technology. In some ways was just driven by this general mindset that technology has had such a great impact. And there's been other industries that have obviously gone away as a result of, of technology, there was this assumption that this massive industry that was, you know, sitting in everybody's neighborhood, and a huge part of the community would somehow go away, and that we would have all these vacant storefronts across the United States and Canada, you know, just obviously didn't make sense. And so,
Michael LeBlanc 25:53
Sure.
Tom McGee 25:54
But I really think it was driven somewhat, you know, by that broader kind of thought process around the change to technology, and the pace of technology is driven in other industries?
Steve Dennis 26:00
Sure, well, you know, as you know, you're preaching to the choir here to a certain degree. But one of the things I wanted to talk about, which I thought was very interesting, there have been a few times where I've either had my own narrow experience at a particular retailer, or with a client, or just my intuition, to suggest a particular line of thought. And then it's nice that folks come along, and sometimes actually do the hard work and put data together. And one of the things in this vein is the "halo effect" studies that you did, (crossover talk) not exactly when those, those came out. But could you explain to folks what that was about and what some of the key insights were?
Tom McGee 26:40
Yeah, we did a series of halo studies, which were really focused upon understanding the, you know, the relationship between you know, having a store and online shopping, and online shopping and having a store and, and what we really found was that, you know, there was a mutually beneficial relationship. And so, generally, if you had a store in a geographic area, that not only generated, obviously, the foot traffic and the positive sales that happened within the store, but it increased the amount of eCommerce sales you have within that geography.
Tom McGee 26:57
When a retailer closed the store, not only did you lose the sales within the store, but your sales within that geography, online sales also went down as well. And so there was, that was the "halo effect", that there was a very beneficial impact upon having a store to also the growth of your eCommerce sales, and then the obvious negative impact when that went away. And, and clearly, you're seeing that, and that was, you know, that was a couple of years ago was pre-pandemic, when we did that study.
And now you're beginning to see that really come to fruition and an action, you know, across the retail industry, in general, because of really, because of what the pandemic taught us, which is, you know, the importance of having a physical location was interesting, you know, if you were to close your eyes, and when we were entering into the pandemic in March 2020, and we were an industry obviously, that was at the epicenter of what was taking place, you know, the discouragement and people gathering together and community and the (crossover talk.) beginning to social distancing,
Michael LeBlanc 27:45
Yeah.
Tom McGee 27:46
Etcetera. But, but now, here we are, you know, today and the industry is in a much you know, stronger position, it accelerated a bunch of changes, but you're also seeing, you know, retailers looking to open up stores, and why are they looking to open up stores, because one, they know what the cap is on eCommerce sales, because we've experienced it over the course of the pandemic. So, we know what the absolute ceiling is, as it relates to eCommerce sales.
But we also know retailers have really learned. One, it's super important to engage with your customers to build that brand. But secondly, the profitability or the lack of profitability of eCommerce. And as I know, you've talked about in the past, the margin erosion of eCommerce is quite significant. So, to the extent that you can use your physical retail that you've already invested in your store network to not only support in person shopping, but to also fulfill customer orders is hugely beneficial to the, to the bottom line.
And so, you're seeing the demand for physical retail, you know, increased significantly. Occupancy in the industry has really accelerated over the course of the last two years because of this demand for physical retail and, of course, particularly in the US where, you know, the financial crisis caused such distress in the industry. There's been almost no new supply, any meaningful new supply of retail space, put on the market in the last decade plus and so you have increased demand for physical space at a time where there really is As more supply put on the market for almost a decade.
Steve Dennis 30:03
Yeah, no, that's, that's really interesting. So, one thing I wanted to talk to you a little bit about is, as we've seen the blurring of the lines between digital, physical and digital, and this "halo effect", how is that affecting? Or is it affecting the way your members think about how they get paid and how they measure success? Because I think it's still pretty common for folks in the real estate industry to have some sort of percent of rent, or percent of sales, rent factor, and then things like comp store sales and sales, sales per square foot productivity are common members. But those things start to become a little bit harder to understand, when you know that a physical store drives online and online drives a physical store. Any, any thoughts on how that's evolving? And is it evolving?
Tom McGee 30:14
Well, I don't know that it's changed much over the course of the last number of years. There are a lot of conversations happening around that, because of what you just said, the blurring of lines, and, you know, the, you know, the, you might initiate a sale online, but actually pick it up or have it fulfilled from a store or vice versa, go into a store and make the order and then it gets delivered to your house. And so there is a blurring of lines. I do think those conversations will continue to evolve. And I you know, I wouldn't be surprised if, if things changed within the next, you know, 5-10 years, but you haven't seen a fundamental change in leasing terminology yet.
Tom McGee 30:22
Now, I will say that the pandemic has, you know, again, in a surprising way, because of what happened during the pandemic, and the need for, you know, retailers and landlords to work closely together. And a whole host of a whole host of areas, particularly small business tenants, but large tenants as well, you're seeing, you know, a real strengthening of relationships between the two. And that's super important, not just for the reasons that you've raised around, you know, leasing, the construct of a lease, but also because, you know, we talked about curbside pickup and Click and Collect, and so forth. That has, you know, implications on the configuration of a store, how much space you use for traditional aisles versus, you know, warehousing and also traffic flow within a shopping center, right. I mean, if you got a bunch of folks doing curbside pickup, or Click and Collect, and so forth, you know, that changes, parking patterns, and traffic flow, and so forth. So, it's really important that, you know, landlords and tenants work closely together.
Tom McGee 31:03
So, I would say the relationship, in my time at ICSC as CEO, and I'm going on my eighth year now. This is as close as I've seen the relationships in a positive way during my, during my tenure, and I think a lot of it goes back to the challenges that they jointly went through during the pandemic, despite some of the headlines that, (crossover talk)
Steve Dennis 31:25
Sometimes a crisis brings people together. So, I'd like to get Michael back in here in a second. But I'm wondering, and also, just being mindful of our time, maybe you can just kind of give us your hot takes or kind of quick takes on what's going on broadly within the retail real estate landscape. And maybe particularly, particularly talking about some of the different types of real estate, you know, malls, power centers, neighborhood centers, those kinds of things. Any just kind of global statements you can make about what's going on, and maybe what people should be paying attention to over the next year or two.
Tom McGee 33:36
Yeah, so at the very macro level, 2022 was a, you know, was a strong year for retail. You know, I think that consumers, you know, rediscovered the joy of physical shopping, and obviously retailers have, you know, crystallized their thought process around the importance of, of physical retail. So, I think 2022 was a strong year. I think 2023 You know, I actually anticipate it to be a, you know, a good year as well. Consumers are clearly concerned around inflation, and this is a consumer facing industry. And so, you know, inflation is a concern that, you know, will have it, will impact consumer behavior. So, I'll make that as our macro, macro statement.
Tom McGee 33:56
I'm hopeful and I know you had Ira on recently, he mentioned they didn't think that the US economy would fall into recession. We're hopeful that won't happen as well. We actually have Mark Zandi at a recent ICSC meeting, and he used the term slow session when he thought that we would, you know, skirt (inaudible) a recession. I think as it relates to, you know, kind of the different segments you know, I think the, the other big macro trend that's taking place that really crosses across all different types of retail centers is you know, demographics. And, obviously, we all know that, you know, because of the pandemic, that some things have happened in the way people, you know, where they live and how they work. And we've seen a real increase in the number of folks that are living in the suburbs. And that was happening beforehand with, you know, the millennial generation starting to buy homes, etc.
Michael LeBlanc 34:19
Yeah.
Tom McGee 34:20
And then people are spending more time at home, as you see, you know, less people going, commuting into work five days a week, and that has pretty big implications upon you know, this industry, why and where the vast majority of physical retail is in suburban markets and, and if people are working from home, it gives them more flexibility in the middle of the day to go to the store and to run errands and to do things. And so that's super positive for suburban real estate. And we're seeing that particularly for in kind of a grocery anchored neighborhood centers. But for all sects, but, but for, but for power centers, and for malls, etc, because it increases the amount of time that people can spend doing those types of things, because they're spending less time commuting into an urban center. Urban retail has been more challenged, right? I'm sitting in midtown Manhattan, and that, you know, that's a much more challenging environment,
Michael LeBlanc 35:33
Yeah.
Tom McGee 35:34
Here. Because you don't have the, you know, the word traffic, the office traffic. And you know, how that plays out? I think it will be, you know, looking five years from now, what the ramifications of that will be, you know, it's hard to see. But it's likely we're not going back to where we were, you know, pre-pandemic, where people were going to be commuting into, you know, major metropolitan centers five days a week. And so, you know, I think there is some transition that will take place, you know, in city centers, particularly commercial business districts, but I think the broad macro trend towards people spending more time at home and working from home, ultimately is positive for suburban retail and for and for all the different types of suburban retail.
Michael LeBlanc 37:06
Let's follow up that point, just and talk about, you know, transformation and innovation. I mean, we seem to be at an inflection point, as you say, who can see too far in the future. And, and you're, you know, the ind-, your industry takes very big, long swings, right? Lots of infrastructure and lots of investments and things like that. How do you think about this, you know, when you sit down with the members, and when you talk with them, and with your vast experience in the consulting world? How do you think about crafting a future strategy based on what you see today? And you know, in other words, how do you, how, what does innovation look like? We've talked about lots of tactical innovation throughout our discussion today. But you know, as we, as we kind of bring our conversation to a close, what are your kind of final thoughts? What you're hearing from the members? And as you sit with them and say, you know, think forward a number of years, how do you, how do you move that process forward together as an industry?
Tom McGee 37:58
Well, I think the most important thing is what does a consumer want? You know, so I think that, you know, the most important thing is to think about what prospective current and prospective customers want. And so, you know, I think we're clearly living in an information age and, and, you know, technology is going to be further and further integrated into our lives. And so, consumers are going to become much better informed. And they're going to expect a much more curated, you know, customer experience, because they're better informed. And because, you know, they can, in every other asset, facet of their life,
Michael LeBlanc 38:30
Yeah.
Tom McGee 38:31
You know, they have a much more curated experience. And so whether you're a property developer or a retailer, you know, the experience you offer, you know, in one, geography needs to be somewhat curated to a different geography and the experience that they offered to me might be different than the experience they offer to you, Michael, because of the information that they'll have access to, and, and should be utilizing to, you know, to inform the customer experience. So, I think you're gonna see a lot more in the broad world of retail, just a lot more curated customer experiences.
I do think at the end of the day, the one thing that doesn't change in the industry, you know, good merchandisers, good locations, you know, could, good customer experience, and those, those will still win no matter what, but you're going to be better equipped because of Information and technology to, to you know, to personalize it and, and, and I think that integration of the seamless integration of technology in the physical world is going to take place I hope we end up in a, in a, in a world soon where we stop talking about the growth of eCommerce and the growth of physical retail and so forth and just think about the only channel that really matters, which is the consumer channel.
Michael LeBlanc 39:54
Yeah, well, well said and, and speaking of well said, I'd like to thank you for not mentioning the metaverse and conversation because we're not big fans of that. Anyway, Steve, why don't you bring us home.
Steve Dennis 40:05
Well, thanks. Thanks, Tom, so much for, for joining us. The real estate industry is always a dynamic industry, I think as it's related to retail in particular, it's just more and more interesting all the time. So, I appreciate your sharing your perspectives, and I look forward to seeing you out in the world sometime soon.
Tom McGee 40:27
Thanks. It's a pleasure to be with you guys.
Michael LeBlanc 40:29
If you like what you heard, please follow us on Apple Spotify, or your favorite podcast platform so you can catch up with all our great interviews, including "Organized for Growth", our interview with Satish Malhotra, CEO of The Container Store.
New episodes of Season 6 presented for another season by our friends at MarketDail will show up each and every Tuesday. And be sure to tell all your friends and colleagues in the retail industry all about us.
Steve Dennis 40:50
And I'm Steve Dennis, author of the bestselling book, ‘Remarkable Retail: How to Win & Keep Customers in the Age of Disruption’. You can learn more about me, my consulting and keynote speaking at stevenpdennis.com.
Michael LeBlanc 41:05
And I'm Michael LeBlanc, Consumer Retail Growth Consultant, keynote speaker and producer and host of a series of retail trade podcasts including this one. You can learn even more about me on LinkedIn and you can catch up with Steve and I in-person at Shoptalk in Vegas March 26 And a month later in Barcelona at the World Retail Congress, April 25.
Until then, safe travels everyone.
SUMMARY KEYWORDS
retail, store, retailers, industry, pandemic, people, physical, centers, brand, year, big, sales, Marketplaces, members, bit, shopping centers, Canada, technology, investment