EP 210: Retail Store Transformation and Holiday 2024

Special Guest 

Tom McGee, President and CEO of ICSC, the International Council of Shopping Centers 

Physical stores still function as strategic assets in today’s era of retail store transformation. New research from ICSC shows 92 percent of consumers plan in-store purchases this holiday season, reflecting the resilience and attraction of physical retail. Join Shelley and Tom as they explore what’s up for Holiday 2024 and how the in-store experience can create a powerful connection with shoppers. Despite the popularity of digital commerce, what may surprise you is there's an acute shortage of physical retail space, particularly in suburban markets. Listen and learn about the future of physical store planning and retail’s ongoing transformation. 

For more strategic insights and compelling content, visit TheRobinReport.com, where you can read, watch, and listen to content from Robin Lewis and other retail industry experts, and be sure to follow us on LinkedIn and Twitter.

Transcript

Transcript by Descript:

I think the iconic days that we often associated with the holidays, like Black Friday, like Super Saturday, those types of days are still important. and there still are, you know, part of the psychology or the, of the sense of the holiday season. But they're not nearly as important as they once were. 

Retail Unwrapped is a weekly podcast hosted by Shelley Kohan from The Robin Report. Each episode dives into the latest trends and developments in the retail industry. Join them as they discuss interesting topics and interview industry leaders, keeping you in the loop with everything retail.  Hi everybody and thanks for joining our weekly podcast.

I'm Shelley Kohan. I'm very excited to welcome Tom McGee who's the president and CEO of ICSC.  This is the membership organization for the advancement of marketplaces industry. So ICSC promotes and elevates marketplaces and spaces where people shop, dine, work, play, and gather as foundational aspects of communities and economies.

So I'm so thrilled to have you on our Retail Unwrapped podcast to discuss one of the big things we'll discuss is your recent holiday shopping survey intentions. And of course, we'll throw in some other things going on in retail. So welcome, Tom.  Great to be with you, Shelley. Thanks for having me on.  Of course. 

So let's start. Let's just start right into the survey details. Maybe you can kind of give us a high level review of what you found out during your recent survey of shopping for holiday. Sure, our expectation is for this to be a very solid holiday season. Our forecast is for 3 to 3. 5 percent growth in retail sales, food and beverage better than that at 6%. 

1.7 trillion dollars spent over the holiday season 241, 000, 000 people shopping over the holiday season. So 92 percent of all shoppers will view out shopping that's,  what the one thing I would say that still is resident in people's minds is inflation. And while we've continued to see, you know, inflation moderating,  certainly the aggregate impact upon, you know, increased prices over the last number of years is still weighing on consumers.

So, 9 out of 10 consumers say inflation will impact their purchasing behavior. That being said, the consumer has continued to be really resilient throughout the last number of years in this post pandemic period of time, continue to shop, continue to spend. And I, you know, and I'm relatively optimistic going into the holiday season and even into 2025, as long as the employment market continues to stay strong. 

I think we'll see a resilient consumer.  Wow. That's great news. It would be really exciting to have a nice positive holiday season. So I just want to circle back about the inflation thing thing, because I do think, you know, especially with the, non discretionary discretionary categories, you know, shelter food, soon heating bills that are going to be hitting some of our consumers. 

Do you think that we're going to see like this rainfall of promotions this year? I mean, Part of me says a lot of these retailers have actually less stock, so they've gone through this stock optimization, they pull back on how much stock they have, so that would tell me less promotions, but, you know, I don't know.

Oh, and one more thing, we'll talk about weather in a second, but before I jump to weather, let me give you a chance to answer that.  Yeah, you know, look, I think in the holiday season, it is tried and true that retailers will use promotions to encourage shoppers. It's hard to say whether we'll have more or less than last year. 

I will say, you know, 2 things. 1, I think retailers have become  much more disciplined around inventory management. you know, that is 1 of the outputs of, of the pandemic. I think really managing supply chains and inventory very effectively.  At the same time, you know, I think consumers,  you know, the holiday season is longer.

It's just grown to be. That's why our survey, you know, period is really October through December, because we view the holiday season is really the 4th quarter  of the calendar year. And I do think with it with consumers being concerned around inflation that when they see promotions, or they see a product priced at something that they think is fair.

They're going to jump on it. And so,  I do think that's 1 of the reasons why the season is longer. Now, people don't just wait to the start of the traditional holiday season, a black Friday and and shop during that period of time. It really is is already begun. I, and so promotions. Always are important in the holiday season.

I think consumers are very purposeful now when they see pricing on the item that they plan to purchase and a promotion on it, they're going to jump on it.  That's great, Tom. And you and I are in the same camp. I don't know why the retail pundits, all of the analysts out there, I'm not sure why they're not including October when we talk about holiday sales, because quite frankly, a lot of them do take place in October.

So that's kind of one of my pet peeves to get October included in that when we look at holiday sales.  so let's talk about weather for a second. So my friends over at Planalytics, Planalytics, they monitor and measure weather and weather's impact on retail. So what they are saying is, for one, I think the weather this year is going to cooperate a little better with us in terms of cold weather year than it did last year, according to Planalytics. 

Weather matters more than just, you know, the winter holiday period because there's so much sales that take place during this holiday season. So that's going to be a pretty big impact. Weather always impacts our holiday season. And not only does it impact the weather of what consumers are purchasing, but it also impacts people going out to physical stores.

So, according to Planalytics. Weather is actually going to be colder year over year in November, and so therefore that is going to lift seasonal categories such as blankets, heater, firewood, thermal, boots, fleets, hats, apparel, and also, they predict that December's weather this year is going to be colder than the last year, which again is going to drive up that demand for cold weather.

With all that said, Tom, you know that Weather can also negatively impact traffic actually going to the stores. So what's your take on weather?  Well, first and foremost, I certainly hope it's not colder this year than last year. I'm not somebody that particularly loves cold weather.  Look, you know, it's really hard to predict the weather, obviously.

And, you know, there's been so many severe weather events that tragically impacted so many people.  You know, I, I, I think we'll see, you know, that's really the, the honest answer. We'll see what the weather holds and how severe it is and how that could impact shopping behavior. Obviously, if we have very, very severe weather that impacts people's ability to.

You know, to navigate to shopping centers and go out and shop, that's going to have, you know, a negative impact on on the season.  That being said, you know, back to kind of our forecast and the consumer, you know, the consumer is in a is is resilient. and we're, we're in a strong job market and, and there's certainly an intention, on the, on behalf of consumers to want to have, you know, people, people lean into the holiday traditionally.

And so I would expect that to continue if there is a major weather event, obviously, that could impact, you know, shopping or consumer behavior, particularly in those regions that are most impacted by it.  So let me ask you this question about physical retail. Is it alive and well, and will shoppers be heading out to stores in droves this holiday? 

Shoppers will definitely head out to stores. You know, we expect 92 percent of folks to make a purchase in a store during the holiday season.  So that's nearly everyone. And, you know, I think there's this narrative out there that it's either or either eCommerce or either stores and, you know, increasingly the, you know, the reality is we, this terminology of Domini channel and, you know, the Shelley has been around for a while, but.

The, but the it has really become,  concrete and tangible in this post pandemic world. One of the things the pandemic did do was accelerate a number of trends that were taking place.  And one of those trends was the store as the central focal point of the consumer experience. So retailers become increasingly agnostic in regards to where a transaction happens. 

Although they prefer that that transaction happened within the store, because obviously that, you know, save shipping costs and so forth, it gives you an opportunity  to interact with, with, with their customer.  But, you know, we've done a number of studies, our HALO reports that indicate that, you know, as Retailers open up a store that drives not only the sales in that store, but drives, you know, e commerce sales in that region as well.

When they close the store, it, you know, it obviously you lose the in store sales, but you also have a big drag on on e commerce sales. So the store. it serves multiple purposes. It's really become a mini fulfillment center. In addition to traditional shopping, you know, curbside pickup, click and collect ship from store. 

It's a really convenient way to deal with that last mile.  and so, yeah, the store is alive and well, and quite frankly, the biggest challenge in the industry right now is a lack of supply for the demand that retailers have for new store openings, particularly in suburban open air retail.  Interesting.

You want to expand upon that a little bit?  Yeah, you know, if you look at the, if you look at kind of the, the,  the industry from really the great financial crisis to today,  on a net basis, there's been a very limited amount of new construction since that period of time. there's been about a 6 to 7 percent growth in, in retail square footage over almost a 20 year time period.

Now, there's certainly been regions in which,  there's been a lot of new, square footage added, but there's been a lot that's been taken offline as well during that period of time. And so, while there's been tremendous growth in retail sales, Almost double during that period of time. There hasn't been a lot of new growth in square footage.

A lot of reasons for that. Most recently, you know, the cost of development cost of financing previously, maybe some over construction. Obviously, the,  the narrative around the retail apocalypse, et cetera. And so we're left today, where really, again, on a macro level, you have demand for space from retailers in excess of the supplier of space, particularly in that suburban  retail market, because remember, one of the other aspects of the pandemic is people are working from home more, that gives them more time to shop, that gives them more time to eat out.

They eat out all those things are happening closer to home, which generally the US is a suburban market. And that's where the vast majority of people live. And so suburban,  real estate suburban retail, real estate is really a high demand right now. And there has not been a lot of new development.  And I don't see that changing quite frankly, in the next number of years, because even if you had a big development, boom, start today, it would take a number of years for that new capacity to come on the market. 

That's right, the ketchup.  interesting. Thank you for sharing that. So let's chat about the drag of a holiday creep. So I've heard a lot of this. So the holidays keep moving up every year. So this, there's this idea out there out there of holiday shopping fatigue,  and it's a real thing. So what is happening?

Are you seeing this and do you think this is a real phenomenon?  I certainly think the holiday season has lengthened and that people shop over a longer period of time. That's why we're looking at the October to December time period. I think the iconic days that we often associated with the holidays, like Black Friday, like Super Saturday, those types of days are still important and there still are, you know, part of the psychology or the of the sense of the holiday season. 

But they're not nearly as important as they once were. People shop over a longer period of time. Again, back to this omni channel retail environment, I mean, just the convenience of shopping has changed dramatically.  and I, and I think inflation has played a role in this too. I think that the, that people's price conscious nature,  is also driving people to buy things when they're on demand.

When it's opportunistic when they see the right price for the right items that looking to buy. So, I do think the holiday season is longer than it, than it, than it has been historically, certainly longer than perhaps the traditional thought processes, which it begins right after Thanksgiving. And, you know, we're in a hurry over that next, you know, 3 to 4 week period of time.

I think this is really a, you know, a quarter period of time where people are much more deliberate, and opportunistic in regards to when they shop.  Yeah, I agree. So let's turn our attention to something you know a lot about, and that is the state of malls. And so what's trending in terms of build out and lease agreements?

Are you seeing changes in either build out or lease agreements?  well, I think, look, I think the, the narrative around the malls and obviously ICSC serves a broad range of, of retail, everything from, you know, urban street retail to super regional malls and everything in between.  and I mentioned, you know, open air retail as well. 

But the malls are a very important part of the industry and one that people associate with, you know, with physical retail, certainly the holiday season,  look, I think in malls, there are some, malls that are doing exceptionally well.  And are bursting at the seams with shopper traffic. There's some that are more challenged,  but I think all of them are looking at how to maximize,  you know, the, the maximize their opportunity.

And I think good real estate always finds its purpose. And in some to some, for some malls, it may be a greater mix of, experiences versus traditional product retail and others. It may be. Really looking at that piece of property and having retail as a compliment to more of a broader mixed use development where you're seeing a lot more housing, hospitality,  office, et cetera, depending upon the needs of that community.

So I think it's an all of the above, but the narrative around the mall, you know, we certainly are. They're not new malls that are being developed in the U. S.  but. The mall industry is still alive and well and an important part of  important part of retail.  That's good to hear. I'm also hearing that retailers and brands are looking more towards pop up shops and flexible leasing terms. 

A lot of them are, you know, experimenting with temporary locations, shorter lease terms to really test the markets and. Quite frankly, to become more agile.  I think that's absolutely all those things are true.  certainly pop up concepts have become, you know, very popular and least terms in some cases have become shorter. 

It allows you to be much more flexible in the curation of your mix. Certainly when you have local retailers, which is important. I mean, I think I think we've also learned that people,  the consumer enjoys having local retailers that bring a flavor of the community into whether it's an enclosed mall or an open air retail center for that matter.

And so short releases, particularly in that case, you know, make a lot of sense.  so I do think those are trends, that are, are in fact happening.  The other trend that, I'm really seeing is towards repurposing maybe spaces in the past. So like, you know, larger big box stores or malls.  and what I mean by repurposing is to begin to think about those spaces as part of a mixed use development, maybe residential offices, entertainment.

So many retailers are reducing their physical. Footprint, opting for smaller spaces, more efficient spaces. What are you seeing in this, space, pun intended?  yeah, no, I, you know, it's similar to what I mentioned, you know, to your question around, around malls. I do think you're seeing, where it makes sense, you know, it doesn't make sense everywhere.

And so,  you know, the concept of mixed use is certainly one that, you know, is used a lot, or the terminology is used a lot.  you need to look at kind of the community and does it make sense in that community, and is the location optimal for that?  but I, but you do see a lot more,  focus around mixed use development.

It's almost bringing to some extent a city, style living, to, you know, suburb suburbs because it's this, yeah. Ability to live, work, and play all in one place. and certainly there's, you know, there's some,  as we all know, there's a hous, a housing shortage, in our country as well. And so utilizing that space to build multifamily with a retail compliment makes a whole lot of sense.

It obviously drives traffic to the retail. It adds an amenity for those that are living in that community, but it needs to make sense. It's not, it's not right for every retail property. It's not right for every enclosed mall, but where it makes sense. We found, you know, marvelous success in in in a number of cases. 

Well, thank you for that.  what I'd like to talk about now is, so in the past, real estate companies have really tried to become retailers. I'm not so sure that's panned out and that's probably another whole podcast that we could have at a later time. But now I'm reading about retailers getting involved with real estate.

So I don't know if you've seen this in Europe with Ikea and Frazier's, we just had Mark Faithful write a terrific article in the ROM report. I would love to get your perspective on this. Especially if you think, will something like this work in the U. S.  Well, if you think about it, you know, I think everyone,  you know, every retailer or property owner is trying to curate the mix to meet the needs of that community, first and foremost.

And as we all know, you know, people,  experiences are, are, are differentiating, and draw,  you know, draw people to a store or to a center.  So I think as a baseline,  something like an Ikea, which in many respects is very experiential, right? With the showroom and you should walk  through the store, et cetera. 

So that's not necessarily a new con it's it. Ikea has a, you know, a specific approach to it, but the concept experiential retail has been,  among us for, for a long period of time, whether retailers. Become property owners or vice versa. You know, I think, you know, I think that depends.  you know, the owning property and man owning and managing property is a lot different than being a retailer and vice versa.

So we'll see. And the U. S. market is different, than the European market as well. The European market tends to be much more,  You know, dense, you know, they, you know, people live in in cities and communities were much more suburban. so it, it will depend,  you know, retailers have owned property before many of the large department stores own the property upon which they were. 

There were built, so, but it's different than what you're describing. So. I think we'll see, we'll see, but I don't think the concept of. Being experiential and really trying to invest in things that draw people to your store,  is, or your property for that matter, is, is, is unique.  Well, thank you so much. I love having you on the podcast.

Do you have any closing remarks or comments that you'd like to make?  You know, the only thing I would say is, is back to where we began. You know, we do, we do think this will be a solid holiday season.  you know, I, the consumer continues to be very resilient.  and as I look into 2025, you know, I can, I continue to, to be fairly optimistic as long as the employment market stays strong,  because consumers will spend if they feel confident in, in, in their job. 

And then the second thing, you know, is really the store, as the we've, we've called this 2024, the year of the store,  and the reason we said that is because this is the year where really,  so many stakeholders. Have recognized what the retail community retailers themselves and developers have recognized, which is the store is such a central part of the consumer journey and and fill so many aspects of needs. 

The traditional shopping, but I need also many fulfillment centers. And so, I think the, the concept of the store and omni channel we're living at right now,  and I do think that last point around just the supply demand mismatch right now, that the supply of physical retail and the demand from physical retail, particularly in suburban markets, is stretched right now. 

And so I, I do expect,  retail real estate to continue to do well for the next number of years.  I agree with you. I think that the idea, I think the stores are really the heart of retail. It's the lifeblood of retail. I was literally born in the stores. I was 18 when I got my first job in retail and I was in the stores.

I went to corporate for like a year and a half. I really didn't like it because I wanted to get back to the stores being the pulse, the center. So I agree. Stores are so important. So I'm excited to hear you say that.  by the way, where can listeners find your survey?  they can go right on ICSC. com.

It'll be right there.  Perfect. Excellent. So make sure our listeners, make sure you go to ICSC. com and look for that survey. Next week, we have a great podcast. We have our CEO of Skypad coming on, and they're going to be talking about some of the biggest challenges retailers are facing, and they're going to talk about some of the solution to the, some of those challenges. 

Also just want to remind our listeners, if you have feedback on our podcast, please go to TheRobinReport.com go under contact us. Contact us and give us that feedback. Thank you so much.  

Thank you for listening to Retail Unwrapped. We'll be back in one week with another podcast. Please subscribe on Apple Podcasts, Spotify, or any podcast service. If you have questions, ideas for a podcast, or anything else, please contact us via TheRobinReport.com.