Tom discusses the retail industry’s adaptability to changes like the rise of e-commerce, but notes that a major challenge is the lack of supply to meet the demand for retail space.
Tom discusses the retail industry’s adaptability to changes like the rise of e-commerce and shifting consumer demands. He also notes, however, that a major challenge is a lack of supply to meet the demand for physical retail space, due to minimal new development.
Welcome to Elevating Brick and Mortar. A podcast about how operations and facilities drive brand performance.
On today’s episode, we talk with Tom McGee, President and CEO of ICSC. ICSC is the leading international membership organization serving the Marketplaces Industry. It promotes and elevates the marketplaces and spaces where people shop, dine, work, play, and gather as foundational and vital ingredients of communities and economies.
Guest Bio:
As the voice of the industry at ICSC, Tom McGee 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.
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.
Timestamps:
**(00:55) – About ICSC
**(08:41) – The supply and demand issue of physical space
**(15:35) – Macro trends
**(17:50) – Long lasting impacts of COVID
**(28:12) – Advice for functions
**(32:34) – Future thinking
**(37:00) – ICSC’s consumer stats
**(45:19) – Where to find tom
**(46:00) - Sid’s closing thoughts
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[00:00:00] Welcome to Elevating Brick and Mortar, a podcast about how operations and facilities drive brand performance. On today's episode, we talk with Tom McGee, President and CEO of ICSE.
[00:00:11] Tom talks about how consumer expectations are changing, and makes it clear that the physical built environment is here to stay. He'll also let us know how brands can meet consumers, where they are in order to deliver on their brand promise.
[00:00:24] Now here's your host, industry and FM technology thought leader and chief business development officer at service channel. Sid Shetty along with our guest, Tom McGee.
[00:00:34] Sid: Hello everyone. Welcome to the show. Thank you for joining us. I am here today with Tom McGee, president and CEO of ICSC. Tom, welcome.
[00:00:44] Tom: Thanks, Sid. Great to be with you.
[00:00:45] Sid: Tom, thanks for being here. So, for folks in our audience who might not be familiar with ICSC, can you share what ICSC is and what your purpose is?
[00:00:55] Tom: Well, ICSC is a membership organization. We represent the marketplaces industry. which is fundamentally where, where everyone shops, works, dines, and plays. So think of retail real estate. We do, um, a whole host of things on behalf of our members. Public advocacy, public relations and media research. But we're very well known for our large networking events, so we have about a hundred events annually. The biggest of which is in Las Vegas in May, ICSC Vegas. And we, these events are really a forum for uh, people in the industry to get together, uh, to network, to talk about deals, and how to grow their business. And so, we'll host about 100, 000 people at our events over the course of the year.
[00:01:42] Sid: That's great. Yeah, I've actually been to your event, and, I can speak to the high quality, uh, of the show, uh, and, I definitely enjoyed my time there. So, Tom, you know, can you share what type of companies and persona, would be part of ICSC? You said marketplace, but can you elaborate a little bit more?
[00:02:04] Tom: Sure. So, uh, we have a very diverse membership. It's pretty much anybody that participates in the commercial real estate side of retail. So think of owners, developers, think of the retailers, the tenants themselves that occupy space in retail centers. Think of, all the service providers, brokers, capital market support, uh, think of lawyers, attorneys, uh, think of banks and financial institutions and investors, private equity firms.
[00:02:33] And so it's a, it's a very diverse group of participants and membership. Pretty much anyone that participates in the commercial real estate industry with a particular focus on retail would, get value out of being a member of ICSC. We also have, membership across all the experiential levels as well. So everyone from somebody just entering into their professional career in the industry, to someone who's been in the industry for 40 plus years, we have, uh, we have that covered. We have a very large focus upon what we call next generation members. So younger folks coming into the industry who are starting out their career.
[00:03:11] About half the folks that join ICSC on an annual basis are quote next gen members. And we've been very purposeful about that, trying to, encourage people to come into commercial real estate, into retail real estate, and have a whole host of service offerings and events and tools that are, you know, that help people as they are beginning their career in the industry.
[00:03:35] Sid: I love it. That's great. I'd love to ask one more follow up question on that. But before I do that, I'd love to hear about your journey. Like, you know, how did you end up in the role that you have today at ICSC? And, and what are you responsible for?
[00:03:50] Tom: Well, I'll answer the last part first, which is, you know, as the president and CEO, I'm ultimately responsible for, you know, all the different service offerings and quality of what we do on behalf of our membership, and I do an awful lot of public speaking and public relations as well as kind of the voice of the industry.
[00:04:09] But I joined ICSC in the fall of 2015, so I'm in my ninth year in this role. Prior to that, I was a partner at Deloitte, and I did a whole host of different things there, including serving, uh, clients in the retail industry and the real estate industry. I'm a CPA by background, did a lot of M& A work, uh, and was an audit partner at Deloitte as well. And I, uh, I was recruited. I had 26 wonderful years at Deloitte. I wasn't looking to leave. Um, but I got a, uh, a call from the executive recruiter who was responsible for this search. And I made, you know, I made the choice to, to enter on the journey at ICSC, and it's been a wonderful experience, I'm glad that I did. It's a wonderful industry full of great people.
[00:04:57] It's also a very dynamic industry. You know, it's the ultimate consumer facing industry. It's been one that's been at the epicenter of an awful lot of change, whether it's the, you know, the change related to e commerce, and then obviously it was kind of at the, really at the epicenter of the pandemic, you know, as we had stay at home orders and so forth. It's on a different trajectory of, of really tremendous growth and strength, coming out of the pandemic. And so it's been a challenging, but very rewarding nine years. I'm happy to be here and happy to, to serve our members.
[00:05:33] Sid: That sounds fantastic. Thank you for sharing that with us and congratulations on what sounds like an amazing journey and, and progression of your career. I'd love to dive deeper into the North Star of ICSC. What kind of impact are you looking to make on the space? Like you touched upon a lot of these points around the space and the industry as a whole, and the fact that it's gone through a lot of change, right? What role does ICSC want to play in that and what kind of impact would you like to make and what keeps you motivated to come in and do what you do?
[00:06:11] Tom: Well, you know, first of all, the industry is huge, right? So there's, you know, about six trillion dollars of consumer spend, annually, um, the majority of which happens in, you know, in retail centers across the U. S. Whether that's shopping or dining or, Going out to, you know, to going to the movies, et cetera. And so the industry itself is quite significant and, and obviously the US economy is a consumer driven economy, so I feel like, the industries at the kind of at the intersection of all the things that are so critical to kind of American lifestyle and the American economy. I think our role in ICSC is really to help the industry continue to advance, to move forward.
[00:06:52] We do that in a whole host of ways, you know, through all of our service offerings, our events, our research, our information that we share. And we're always trying to think about, what's next and what's around the corner. I spend a lot of time with our members, I make a point of traveling and going out and sitting with members, sitting with them in their offices, talking to the leaders of, you know, of all of our major organizations and a lot of our smaller, organizations. Company members as well to really learn what's happening in the industry and the challenges and opportunities they're facing. Right now, you know, the biggest challenge in the industry, quite frankly, is the lack of supply to meet the demand for space that exists because there hasn't been a lot of new development.
[00:07:35] Which does put, you know, a real emphasis upon, you know, our networking events, because people are all competing for the same space right now because there isn't a lot of it on the market. And looking for information around what's happening in the capital markets, what's the transaction flow environment and so forth, because while there's a lot of strength in the leasing side of the business the capital markets or transaction side of the business, because of the rapid change in interest rates, uh, and just, you know, kind of trying to value things in that, you know, environment that's changed so quickly.
[00:08:08] There's a lot of uncertainty around that, so we can provide information that can be helpful to, you know, our members as they try to navigate that. What we do today might be different than what we do tomorrow, right? Because the industry changes so quickly. Certainly, you know, omni channel retail and e commerce and the intersection between those two is, is, is also, you know, a fundamental.
[00:08:29] Yeah.
[00:08:39] Sid: You mentioned there's a supply and demand issue right now. What does that mean? And like, you know, when you think, when you look at the news today, like sometimes it can be misleading.
[00:08:51] News can say, Hey, certain retailers are, are closing locations. They don't necessarily say why, and there's a very logical reason as to why locations are being closed because they just acquired a business and now they have locations that are in close proximity together. And, you know, they don't need two locations within the same mile.
[00:09:11] They could be, you know, a plethora of reasons, but it stops at, you know, hey, locations are being closed. Like, what does that mean? You know, when you look at the data and the fact that, you know, There's a supply and demand issue. Can you explain what does that mean? Like, should there be more brands popping up? Or, or is the idea that brands will open more locations to get a wider coverage?
[00:09:34] Tom: Yeah. Well, when I was speaking of supply and demand, I meant the, the supply of physical space right now is, is a challenge given the demand that exists. There's a lot of demand for, uh, for physical space. So, let me give you kind of one, A series of data points, you know, since the great financial crisis, the U. S. economy is almost doubled in size. it's, you know, grown by about 90 percent. The U. S. Retail sales have almost doubled in that period of time. The U. S., uh, pop, the U. S., uh, uh, economy has grown by a third, 33 percent over that period of time.
[00:10:12] So there's been tremendous growth in the economy, tremendous growth in retail sales, tremendous growth in the population, but the amount of square footage, retail square footage in the U. S., has grown by about 6%. And so while you've had growth in retail demand and growth in the economy and growth in population, you haven't really had square footage and retail growth over that period of time.
[00:10:32] And there were a number of reasons for that. Obviously, the growth of e commerce, retail wasn't necessarily a favored sector at that point, and commercial real estate. So, you know, financing new retail development was challenging. We're in a different spot today. Now, coming out of the pandemic, Really, two, two things happened. One, people missed in store shopping, so there was this demand of kind of wanting to be together again as a society. But secondly, and probably most importantly, is that retailers have really gravitated towards physical retail. They understand the value of interacting with their customers and also the intersection of physical retail with their e commerce platform. So, they're using retail, they're using their storefronts, not just for traditional shopping, but also as mini fulfillment centers. If you think about click and collect, and curbside pickup, and buy online, ship from the store, all those types of things are using that physical store as a means to support e commerce sales. In addition to traditional, traditional shopping. It's really the way to fill, to solve for that last mile. So you have all these, not just new retailers, but, established retailers that are opening up, you know, stores and looking for physical footprints. Over the course of the last three years, store openings have substantially exceeded store closings, um, on a, on a pretty significant basis, including, in the first couple of months of this year.
[00:12:03] Retail bankruptcies always get a lot of attention, but quite frankly, the number of retail bankruptcies over the course of the last couple of years has been Relatively small based on an historic, as compared to historical and pre pandemic levels and associated store closings have been pretty small as well associated with that because there hasn't been that many bankruptcies and when there are well known bankruptcies or well publicized bankruptcies, generally speaking, those stores that close are in high, that space is in high demand and It's very common that there'll be multiple retailers that want to move into a store like, you know, a former Bed Bath Beyond space or something of that nature, which was a well known bankruptcy.
[00:12:46] The demand for that space is pretty significant right now because it's well, you know, it's well situated, it's generally in good locations and so forth. And so there's lots of people competing for really limited, limited supply. I don't see that changing anytime in the foreseeable future. Even if today, there was a big development boom, it would take a while for that, you know, that space to get online. But because we're in a more challenging interest rate environment, inflationary environment, the cost of construction is, is, et cetera, is quite high right now, that there isn't a lot of new development that will likely take place, until that all kind of gets to a sense of equilibrium. So I think this demand for space and the supply that we, that exists today will kind of be the, You know, will be the challenge that the industry will face over the course of the next couple of years, even if we have a, you know, some type of a recession or impact, a negative impact on consumer spend, I, I, I still think you're not going to see any kind of significant deterioration in occupancy, occupancy levels in the industry, particularly in open air suburban retail.
[00:13:57] By open air, I mean, think of grocery anchored retail, suburban retail, think of Target, Walmart, Costco, Anchorage Centers, things of that nature. The occupancy in that space is almost 95%, which is basically full occupancy, because you always want to have some level of turnover. So, um, and in the mall sector, you know, it's in, it's getting close to 90%.
[00:14:22] And so, and malls do get a lot of attention because of the size of the, of, of, of the property and because they're iconic, as it relates to shopping and so forth. And there are some wonderfully well performing malls. There's some that are very, that are more challenged. But as a percentage of the total shopping centers in the U. S. or total amount of retail square footage, there's still, you know, they're, they're a small percentage of it. So, demand really high, supply really limited right now.
[00:14:50] Sid: Wow. Is there a macro trend that's interesting in terms of like the kind of physical spaces that retailers or restaurants are gravitating towards? Because it seems like, how the consumers shop and how retailers are looking to deliver experiences has gone through like a lot of change over the past few years.
[00:15:13] And I want to talk about COVID shortly as well. But like with, you know, parking lots now having, you know, curbside pickup and that space being used differently, are physical spaces getting smaller? Like, are some getting bigger? What are the trends that you're seeing that you're finding interesting and you're like, you know, something to watch out for?
[00:15:35] Tom: Well, the biggest macro trend is, is, relates to kind of the impact of work from home, right? So you have, a lot more people working from their home, which means suburban retail is generally doing, you know, super, super well, right? Because people have more free time. They're not commuting into a central business district every day or, or certainly less frequently.
[00:15:56] So that has driven up demand and utilization at Suburban Retail. So that's a, that's a big trend and that is the vast majority of retail square footage. Urban retail is more challenged, you know, in commercial business districts because that depends upon office traffic. that's number one.
[00:16:12] Number two is, yes, I mean because of the kind of the e commerce physical retail convergence, retailers are thinking about, and developers are thinking about, how to utilize space differently. If your store is being used for multiple purposes, you might think about how you configure that store, how are you going to ship from stores, you're going to make it, yeah, you're going to make it easier for people that want to click and collect and get into your store and pick up their goods, you have to have some ability if you're offering curbside pickup to, and people potentially even to go put it in the truck of the car. That also creates, um, You know, a need to kind of think about traffic flow within a parking lot, um, because if people are stopping to pick something up and get a put, a curbside pickup, well that, how do you make sure the traffic flow continues to, to flow? So I think there's a whole bunch of things that are property specific and retailer specific as to how they want to address it.
[00:17:05] But those, those things are impacting the industry, and they're very tangible. If you think about your own kind of shopping experience, you probably have seen, you know, the impact of those types of things. And they kind of happened very quickly, um, because of COVID accelerated a lot of things that were already beginning, but you kind of took 10 years of change and pushed it into six months, you
[00:17:29] Sid: that's right. When you, you know, when you look at, What happened during COVID and then how businesses adapted to your point, you know, really, really quickly, what are the changes that you think will like just be the norm now over the next three, five years or even longer?
[00:17:50] Tom: You kind of have to take a step back and think of the impact of, of COVID and what it could have happened, um, and what, and what did happen. And, and, you know, tragically a number of small businesses and some large businesses obviously got negatively impacted in a pretty significant way and some went away.
[00:18:08] But generally speaking, You know, the entrepreneurial spirit of, whether you're a large established retailer or a restaurant chain or a small, small one, you really kind of took hold and people were quite creative as to how to continue to serve their customers and drive sales. And I think the biggest thing was, you know, how do you use technology and a physical footprint, uh, in a positive way, in a collaborative way. And if you think of things like, that we just take for granted, this is kind of a tangible thing, that you might do tonight when you get home. Um, you know, you might go and say, I don't feel like going out to eat, I don't feel like making anything, I'm just going to order DoorDash, or I'm going to order GrubHub, Postmates, or UberEats, or whatever.
[00:18:53] Well, just think, we didn't do that. I mean, that existed pre COVID, but not, I mean, the level of use of utilization of that went through, went through significantly. And, and think about all that goes into that. So, you have the interface on your smartphone, you know, the app, uh, whether it's using one of those third parties or directly from the, you know, the restaurant themselves. Okay. Uh, so there's the whole fulfillment, the whole user interface, you know, customer interface. But there's the back office part of that too, which is, I, that food is being made at a restaurant that's down the street from you. And that restaurant has to have a physical location, or it can't fulfill that order, right?
[00:19:36] And so, all of a sudden, you're using something that seems so 21st century, which is, you know, an app on your iPhone, To be fulfilled by something that was very 20th century, which is a local restaurant that, you know, cooked your meal, for, and probably is owned by a small local business. That has become so commonplace, but it was just, you know, it was, it existed pre COVID, but not, I mean, the level of market saturation and, and pickup has, has significantly grown.
[00:20:09] That same thing happens in retail now, right? I mean, you order something on your app, and you go pick it up in the store, or they ship it from the store. All those types of things just accelerated so significantly, and I think we've just taken them for granted. Because they make life a lot easier, they're very efficient, but they all have a real estate aspect to them at the, you know, at the back end. I couldn't fulfill that order. I couldn't get your dinner to you tonight, in an efficient way in the 15 minutes or 20 minutes that you expect after I hit order now and it's going to show up at your front door if I didn't have a restaurant down the street from your house. And so that's, that's back to that demand for space. You know, I, to fill that order, I have to have a, I have to have a storefront close to where people live.
[00:20:53] Sid: that's right. And probably the kitchen design and the kitchen space has to change based on the fact that now you've got in room dining that you have to serve, but also there's a bunch of folks that are ordering from Uber Eats and DoorDash that now have the same expectations as if they were in your restaurant, like they still want their food fast and they want it to be hot.
[00:21:16] And, uh, I
[00:21:18] Tom: you have all the delivery guys going in and out of that storefront constantly. And the same thing happens in retail, right? In a traditional product store, I order something online, and that consumer is going to go into that store, and they want to get in and out efficiently, while at the same time, you have a whole host of people that are doing traditional shopping.
[00:21:36] So, it's, you know, I think the industry has digested it, or adjusted fairly well in a rapid period of time, but But I think there's a whole element of refinement that's taking place now.
[00:21:49] Sid: Tom, what are your thoughts on consumer expectations? Like when you look at consumer expectations today of the physical built environment that they walk into and what brands have to do to kind of actually bring the consumer into their space, there's a lot of choices. How do you track that? And what kind of trends are you seeing on the expectations that consumers have for the brands that they love?
[00:22:14] Tom: Yeah. For someone to make the choice to go into a store, right, if they have to make the choice of pushing a button or going into the store, there's multiple reasons that they make that choice, but the, but the tried and true things that existed a hundred years ago are still the case. You better have the right merchandise in stock to attract the consumer. And secondly, I better have a good customer experience. Service is really, really, really important. And the third is efficiency. You know, it needs to be efficient. So I think those kind of tried and true things as a merchant, as a retailer that have always been true. Customer experience, product availability and selection, efficiency, Are super, are still fundamental, so I, and I don't think that will ever change, because that's, you know, that's inherent in being, uh, being a consumer.
[00:23:10] But I do think that, customers, and it kind of goes back to what you said around the restaurant industry, where whether I'm eating in the, eating in the restaurant or I'm getting it delivered to my house, I still expect the meal to be hot and taste good and et cetera, et cetera. And it's the same thing when I go. So, whether I buy online or I, or I buy it in the store, I expect the consumer experience to be consistent and consistent with the brand that you're, you know, the brand promise that you're making to me as your customer and, and I also expect that if I buy it online to probably be able to go return it in the store if I want to and those types of things. And so, retailers are increasingly becoming somewhat agnostic in regards to where they the transaction originates and where it gets completed, because they know the customer expects a great experience in both.
[00:24:00] However, their preference, a retailer's preference is always to get somebody to go to a store. And there's really two reasons for that.
[00:24:08] Sid: Right.
[00:24:09] Tom: One, while all of us kind of think it's a constitutional right to have free shipping, somebody's actually paying for that, right? Somebody's actually paying for that goods to get delivered to your house. And generally speaking, it's the retailer that pays for it. And so, if they can get you to go to the store to either buy it, Without doing anything online or to fulfill your online order, they've saved the delivery cost, right? They've saved margin on that, which is, which is quite, uh, significant. Secondly, it's an opportunity to, you know, to interact with a customer, right?
[00:24:42] And if I interact with a customer, I'm making a, I, I can make a, Hopefully a good impression with them. And it's more likely they're going to buy more stuff. If they go to the store, every statistical study suggests that they'll buy more than if they bought it online. We've done a whole host of of studies around what we call the Halo Impact, which is um, the positive relationship between a store and e commerce sales and vice versa.
[00:25:10] Our most recent report, Halo 3, Halo 3. If a retailer opens up a store in a trade area, that retail sale, that retailer sales obviously go up in the store. 'cause they opened up the store. They didn't have the store before. But in that trade area, their online sales go up by 6.9% as well. And the average basket size. So total aggregate sales go up in that area by 6.9%. And then the average basket size. So if I'm a customer and I'm buying something, my average basket size before. The store was there, and after the store was there, for the average customer, it goes up by about 10%. So, it has a hugely positive impact. And of course, the return, the return rates on online sales are about, three times greater than they are in the store.
[00:25:57] In other words, somebody, uh, online, people return, um, products about 15 percent of the things that they buy. In the store, they, uh, return less than 5%. And the things that they buy. So, there's a whole host of reasons why retailers want to have that storefront, outside of just traditional shopping, it's a, it legitimizes the brand, it's a chance to interact with their customer, but it's also just a heck of a lot more profitable, because I shave delivery costs, I save return costs, it's the most efficient and cost effective way to serve your customers.
[00:26:32] Sid: That Is fascinating. And those are some amazing stats that you just shared. So thank you for doing As a, as a show or a big proponents of the physical built environment has the name of the show as well. And we a hundred percent believe that the physical built environment is one of the best ways you can actually showcase how you think of your consumer.
[00:26:54] Like what you think of the consumer and what kind of experience you want to deliver to the consumer. It is a way in which you can welcome the customer and engage with them. And you could have digital experiences, but ultimately, you know, having that storefront, does a lot of good for the brand. And clearly the stats show it as well. As you know, like our audience is a mix of, you know, folks in facilities and construction design and so on. And, not always do these functions get their due credit, right? They don't necessarily articulate all the things you just said, which is the impact of the physical space to the brand, to the top line, and to the brand promise that brands make to their consumer. When you look at the physical built environment, like what are your thoughts on, The importance of the functions that take care of those, of that key element of a brand, which is the physical space. And what advice would you have for those that are in those functions to say, here's why I do what I do, and here's the impact we have on the brand overall.
[00:28:12] Tom: Well, it's critical, right? I mean, you start out with the, the most basic, which is the structure and the format of the, the aesthetics. The look of a, of a store. It's, you know, it, is it welcoming? Is it inviting? Is it high quality? Without even touching the goods or interacting with the person, people can, you know, create a perception about that store that they're entering into, right? By the way, it's the same thing around the whole shopping center itself, right? The, the brand. The property, the whole property. Is the parking lot clean? Is the lawn mowed? Is the trash picked up? All those types of things, you know, create a perception. Is this the kind of place I want to go shop and spend money at, right?
[00:28:56] And so, I think it's super, super important because why does somebody make a right turn versus a left turn when they have two, you know, competing retail properties across the street from each other? Oftentimes, it's just a motive based upon what they, how they see it. And how they perceive it. And then, obviously, then the word of mouth becomes and people talk about it.
[00:29:19] Those types of things are super important again, because I'm spending money here. It needs to look like a place that I should, I want to hang out with and there's, if you can't get those basics done right, then what makes Me think that you're going to be honoring the brand promise that, you know, I'm rewarding you with my dollars for.
[00:29:39] So, there's all of that, but then I think there's a whole host of things now that are going to, if you are fulfilling a lot more online orders from your store, that is going to change, the way that you, um, lay out a store. You might have, a station up front for people to come pick up, pick up online orders. You might have more space devoted in the back to ship from the store, depending on the size and sophistication of that retailer. You might have less space devoted to traditional shopping. You may have more space devoted to traditional shopping if that's not what you're using that particular storefront for.
[00:30:16] You certainly are going to, if you have curbside pickup and those types of things, you really have to think about, okay, well, how am I going to get those. If I'm a grocer, for example, which there's a lot of that, where people order online, pick it up, and people go and put it in the truck of your car. How is that going to, how do I make sure my employees can get in and out of the store, have all that stuff picked?
[00:30:36] How do they, how do I just structure the whole layout of the store? Think of Instacart Organizations like that, that have to get in and out and turn that stuff super quickly. Well that's, I don't want, as a retailer, I don't want to miss out on that sale, right? So, I'm gonna make sure that, I have to now think about not only the person who's gonna go and do their shopping themselves, but how do I make sure that The person that's hiring somebody to go do their shopping for them is going to do it efficiently, as well, because some other retailer will if I don't do those things.
[00:31:08] So I think there's a whole host of things that need to be thought through. It depends upon what kind of retailer you are what products you sell. A high volume grocer has a different, set of, of requirements and things that you need to think through than, you A high end jeweler would, which is, you know, or a high end luxury who's going to sell, you know, a lot less volume on a day to day basis.
[00:31:31] But the experience of that individual is super, super important. The other thing I would also mention is security is becoming increasingly important too. Because With retail crime and organized, particularly organized retail crime, you know, having, making sure customers feel safe. Whether that's just having a visible presence of security, uh, on the, on the site or other mechanisms to, you know, security devices and so forth that people can easily observe. I think all those things are hugely accretive to sales or not if you don't do them right.
[00:32:05] Sid: As you look at. the time that we're in where there's so many new technologies that are making their, its way into the restaurant space, the retail space, consumer, in the lives of consumers, right, are there any particular ones that excite you, you know, because you've got robotics, you've got AI, you've got, you know, um, autonomous vehicles, like what, what do you
[00:32:30] Tom: Now,
[00:32:31] Sid: will stick, what excites you?
[00:32:33] Tom: well I think they all excite me. I think it's hard to know. I'd look, AI is obviously the most, uh, potentially transformative for For every industry, retail included. But I think that the challenge with AI is it's hard. You know it's going to be big and you know it's going to have a traumatic impact, but it's a little bit like predicting what the internet was going to be like in 1995.
[00:32:55] You knew there was this big thing happening called the World Wide Web, but you didn't exactly know how it was going to impact the world. And in fact, it impacted the world in a whole host of ways that we couldn't even have imagined back, you know, in those early days of the internet, and even 15 years ago, some of the things that we do now.
[00:33:13] So, I think AI, we're in the early stages. Certainly going to impact the industry. Probably, it's, one thing we'll be certain is you'll have a better informed consumer. You'll have a, uh, a consumer of higher expectations as a result of that, you know, additional information. So the needle keeps, you know, moving up in regards to, customer expectations.
[00:33:35] The one thing I would say, though, that is, and it might be a little counterintuitive, the younger the general, the younger the consumer the more they value kind of in store shopping and experience, and I think it might be, in fairness, it's probably a product of really two things. One, because they've grown up with technology their whole life, there's a certain escapism, I think, in doing, social interaction type of things.
[00:33:59] And the second thing is they're, you know, they're younger, and they, you know, they generally are, are, are using, cash, or they don't have the kind of credit and, availability that, you know, as your older consumers do, so they don't shop as much online as a result of that. But we've done a bunch of studies, and Gen Z, by far, their preferred shopping experience is in store, versus online.
[00:34:23] Baby boomers do, actually are the highest percentage of shoppers online are baby boomers, not Gen Z. Again, that might be counterintuitive, but that's, that's in fact the case. I would also say the other thing about demographics is, and this is why I'm bullish on kind of consumer spend in general, the baby boomers are, we're the world's largest generation.
[00:34:44] Until the Millennials came along, and that's now the world's largest generation in human history. And the Millennials, while they, there was a whole conversation around Millennials were different than the Boomers, and different than Gen X, and you know, they were never going to get married, they were never going to buy a home, they were never going to have kids, and then they all started having, getting married.
[00:35:05] Buying homes and having kids. And, and they just did it a little bit later. , and I, I do know one thing. When you have a, uh, when people get married, buy a home and they have kids, that's always been good for retail spend. Because you buy a lot of stuff once you get married.
[00:35:23] You buy a home and you have kids. And so you have this enormous generation That is moving into their prime consumption years. Even when you have another big generation that might be moving out of their prime consumption years, but generally living longer than any other generation previously have, and are spending more as a result of that.
[00:35:46] You know, spending a lot more on entertainment and, and those types of things, which is also good for retail and consumer spend. So the demographics for retail right now are in a pretty good spot, um, because you have two big generations, millennials and baby boomers that are kind of in a period of time in their life where one is spending because of big life events, particularly raising a family.
[00:36:13] Is spending a lot because they're retiring more and they have more free time and they're spending a lot, maybe not on traditional products, but certainly on entertainment, going out to eat, those types of things that are quite good for retail and consumer spend. So, I'm pretty bullish on retail, recognizing there's some challenges in the broader economy that could, you know, that could cause a hiccup, particularly inflation, so.
[00:36:36] Sid: That's fascinating. I mean, if you look at the economy today and you look at unemployment, like really, really low rates, is there more disposable income in the economy right now? Like, are consumers spending more on
[00:36:51] Tom: Yeah,
[00:36:52] Sid: and things that maybe not, you know, necessities, but like, you know, luxury or experiential in nature?
[00:37:00] Tom: well, I think the, you know, the high, the most, successful retail segment right now would be discount, because of the inflationary environment. So, discount department stores and things of that nature are generally doing better than luxury as a broad category. Obviously, there's exceptions and, you know, and all of that.
[00:37:18] But if you look at personal savings rates, they have gone down, since the height of the pandemic when personal savings rates were at historic highs because people couldn't go out and spend and there was a lot of fiscal stimulus in the economy and so forth. You are seeing a rising level of consumer debt and so forth. So those are some troubling signs. But the, but the thing that has, the consumer has been incredibly resilient through all of this and in the face of inflation. Particularly, and the primary reason is the one that you mentioned, which is unemployment is at historic lows. So, when you have a job market where there's, you know, when you have a job market this strong and people feel confident in their job, they'll generally continue to spend.
[00:38:00] If you started to see some erosion in the. Uh, in the employment market of significant levels, that would obviously not be good for retail. Our expectation is that, you know, retail sales will grow in kind of the four to four and a half percent range this year, inclusive of F& B, um, but that would be the risk.
[00:38:20] The risk would be, you know, does the job market change? The consumer has been resilient in the face of higher inflation and I think, that resiliency really goes back to confidence in the, in the employment market. If that was to change, then I think that, then, then that could impact consumer, sentiment for sure.
[00:38:40] Sid: As you look at the future, over the next three to five years, what's your outlook in general for, you know, the entire retail space?
[00:38:52] Tom: I do think there'll be, you know, an increased level of development that will take place over the course of the next, you know, three to five years. But not enough to, at least immediately in the short term, deal with the lack of supply. Because it just takes, construction takes a period of time, right? And the costs both the cost of financing and construction costs, wage pressures and so forth. There's a shortage of trade skills in the United States. And so Hiring electricians and project managers and so forth that are experienced is quite expensive right now. So I think those things will are mitigating factors that will put a cap on how much development can really happen.
[00:39:35] Getting the financing, the cost of the financing, getting the people to build it, if you can get the financing, how fast they can build it, all those types of things. But I think you'll see it increased. interest in doing development, and so I think you will see some new stuff come online. But I do think you're still going to be living in an environment for, you know, a reasonable period of time where the demand for physical space is in excess of the supply of that space.
[00:40:02] Now, different markets might have different answers, obviously. You know, growing markets, the demand for space, you know, the southwest of the U. S., Florida, Texas, places where population is growing, you're going to see the demand for space and the supply of that will be very, very challenged, because they're just trying to keep up with population growth. The more mature markets, where the population is stable, there's not a tremendous amount of population growth. You know, that won't, the pressure won't be quite as high, in those environments. But anywhere where there's population growth, there's going to be a lot of demand for space. And it's going to be very difficult to keep up with that demand.
[00:40:44] Sid: Now consumers, you know, like you mentioned earlier in the call, their life has changed in the sense that the office space is no longer a physical building that you have to drive to all the time. It could be your home. Many consumers are in their home and work from home all the time. Some consumers are now having to return back to the office. What is your outlook on how that impacts retail? Do you think eventually We're going to get back to pre pandemic levels and that'll have an impact on how consumers shop. Or do you feel like this is now the new normal and there might be a slight fluctuation but like this is a new way of, of working and this is a new way of, of having to meet the consumer where they are?
[00:41:32] Tom: Yeah. I mean, I don't know exactly where the office market will land. you know, I think there's a stickiness to the way, um, you know, things have evolved, and so I don't think we're going back to 2019 in regards to people coming five days a week into a central office across the entire economy.
[00:41:50] I think different companies will maybe have that policy, and others will be much more flexible. You're seeing the pendulum start to swing some. towards back to the back to the office, but I don't think we're going back to 2019. So generally I would say urban retail will be more challenged as a result of that, because those that, you know, that depend upon, I should say central business district retail, not urban, because I'm sitting here in Manhattan and all the, you know, the Upper East, the Upper West, you know, Chelsea, Tribeca and so forth, Soho, I mean they're Lower East, the East Village, I mean, they're, They're booming at the seams because people live there.
[00:42:31] But, you know, Midtown's a little more challenged. The financial district's a little more challenged because those are more office centric. You know, San Francisco, L. A., you know, those central business districts will be more challenged because you're not going to have five days a week of people in the office that support those restaurants and retail that are there.
[00:42:49] And I think you will have to find that equilibrium, you know, the cost benefit will have to work its way through. Suburban, I think, will continue to be strong as a result. However, the corollary would be people are home more. And so if they're home, they're not in a car traveling or a train traveling to work.
[00:43:08] They have more free time. And what we found is that That means they're going out to the local restaurants for lunch, they're going out to dinner more often, they're going out to shop more often because they have more free time. And I, so I think suburban retail, also because of, you know, millennials buying homes, or at least the demand for homes, um, is, is super strong that I think that will continue.
[00:43:31] I think you'll see a lot of, you know, a more mixed use type of development where you have, um, Maybe existing retail where apartment or multifamily is added on or condos are added on, um, or suburban office because people are, you know, don't want to commute into the central business district. So I think all those things will impact, you know, suburban retail in a positive way.
[00:43:57] So that, that would be my broad trend. I think suburban retail is, is, is going to generally do pretty well. Central business district will be, For the obvious reasons, it'll be more challenged because there's people, there's less people in the office five days a week, so.
[00:44:14] Sid: Yeah. Any advice for our audience who works in a function that touches the physical built environment on how they can better prepare to meet the demands of tomorrow's consumer?
[00:44:27] Tom: You know, I think, uh, one, I think flexibility because you, what we do know is that things move really quickly, right? what the next 12 months will hold won't be exactly what we think today. There's always new and unexpected things that happen. So I think just being, having a flexible, You know, sense of being is super important. But I think the fundamentals are always important. Making sure that the property, the design, the cleanliness, the layout are functioning effectively. Anything that can reduce the friction on the consumer, and create a positive expectation or perception of the consumer is going to be good for physical retail, right? I mean, it just is because that's, you know, that anything that, that deters from that isn't, isn't good. So that's, that would be my number one piece of advice.
[00:45:15] Sid: this has been a fascinating conversation, Tom, thank you so much for being here for folks in our audience who would like to look you up and find you or look up ICSE, um, where, where should they go?
[00:45:28] Tom: link, I'm on LinkedIn, obviously, I'm on Twitter at Tom McGee, uh, CEO, ICSC, the same thing at ICSC, we're on LinkedIn, uh, on Instagram, uh, and then just go to ICSC. com, and we have a whole host of information that's available to, to anyone that goes on our site about the industry and about upcoming events and ways to network.
[00:45:50] Sid: I love it. Well, with that, I just want to say a huge thank you again, Tom, really appreciate you being on the show and for all in our audience. Thank you for joining and I'll see you on the next episode of Elevating Brick and Mortar.
[00:46:02] music break
[00:46:02] Well, that was Tom Magee, President and CEO of ICSC. Tom shared some fascinating insights on consumer behavior, some of which may be counterintuitive and definitely changed my outlook. Tom talks about how consumer expectations are changing, how today discount stores are the ones showing the most growth, and how even with all the demand for space, there's actually a shortage of real estate to fulfill it. One thing is very, very clear. The physical built environment is here to stay, and will continue to be key for brands to meet consumers where they are and deliver on their brand promise. With that, I'm your host Sid Shetty, and I'll see you on the next episode of Elevating Brick and Mortar.