Guest: Tom McGee
Topics: ICSC, holiday shopping season

Transcript:

Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa, and I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.

Welcome to Retail Retold, everyone. Today I’m excited to announce I’m joined by Tom McGee. Tom is the president and CEO of ICSC. Before ICSC, Tom was Vice President of Deloitte. Many of you know him. He speaks at many of the ICS ICIC events safer to be here. Welcome to the shutdown.

Tom McGee 0:41
Chris, great to be with you. Great to be with you as well.

Ressa 0:45
So Tom, looking forward to this. And you know, we have a lot of ICSC members listen to this. So why don’t you start off and tell us a little bit. Tell you a little bit more about who you are and what you do?

McGee 1:04
Well, sure. So obviously, you know, as you mentioned, I’m the CEO of ICSC and prior to that I spent 26 years at Deloitte. I’ve been at ICSC now for a little over eight years, which has gone by really, really quickly. From a personal perspective, I’m married to my high school sweetheart. And I have two wonderful daughters, Kelsey and Emma, 26 and 23. Kelsey lives in California and is in the film industry as a director, and Emma works in the East Village of New York, in the financial industry.

You know, being the CEO of ICSC, it’s a wonderful role. First of all, I think the industry is dying dynamic when I joined ICSC I hadn’t. I knew it was an industry that was in transition and, and going through a lot of change. But I had no idea I’d be living through the so called retail Apocalypse, and then the pandemic, and now the emergence out of the pandemic. And so there’s been a whole host of challenges.

And during that period of time, and quite frankly, you know, while some folks may think that is, you know, I might regret that I actually embrace you know, the challenges, and I’ve enjoyed, you know, living through that I’m working with members, working with the Executive Board and the chair. I’ve had great chairs throughout the period of time great Executive Board members, Adam being one of them.

Who is your CEO at DLC, I would say that, you know, a lot of what I do on a day to day basis has been dealing with a number of those challenges, whether it’s whether it’s talking about the narrative in the media, with the media, and trying to set the facts straight, whether it’s been going out with our members, I am when she said I talked about a whole host of member events. And ICSC is a business, right? I mean, we, you know, we have over 100 events that we host each year. There’s a lot that goes through that.

And so there’s a lot of challenges that come up in that in the context of that that needs to be dealt with. Just like in any business on a day to day basis. I spent an awful lot of time in Washington DC, also dealing with possible advocacy related items. And this year, one of the things I really wanted to do, I’ve spent a significant amount of time traveling out to member organizations and meeting with member companies.

I haven’t been out to DLC because I was spending most of my time outside of the New York area, I wanted to get out of tristate and go outside where I sit and really talk to member companies. And so I’ve probably been to 35 or so member companies this year, and talk to outside of events.

I’m not talking about going to events and so forth going to companies and sitting down and talking to member CEOs and understanding what’s happening in their business, what their perspective on the industry is, you know, where they think the challenges, the opportunities are, talking about the capital markets. And of course, this past year, this has been a year where there’s been, you know, a lot of different things have happened over the course of just the 10 months of this year.

And you know, perceptions of where we are as an industry have evolved from what I might have heard in January to what I might have heard, you know, two weeks ago. And so I spent a lot of time doing that, doing that as well. So it’s a dynamic role. We’re a service organization, that’s what we are, we serve our members, and so I try to spend a lot of time with members and hearing from them and understanding what’s happening in their business.

Ressa 4:52
So when you’re meeting with members, what are they telling you right now?

McGee 4:59
Why big, you know, I think it’s you and I, you know, had a little bit of this conversation before before we got on. I mean, I think it’s what’s the old saying A Tale of Two Cities? So I think from, from a, you know, a leasing perspective, the industry’s at a really good place, right, occupancy is super strong, the demand for space is, is super strong. You know, there’s, there hasn’t really been a lot of new supply put on in the market over the really since the great financial crisis over the last few years or so.

So I think, you know, generally speaking, demand for space and leasing demand is exceptionally strong, right now. If you’re trying to buy or sell a property or trying to refinance, you know, that’s different. Because, you know, the capital markets have, have been challenged over the course of the last really over the course last 18 to 24 months, and you just seen this rapid acceleration in interest rates and, and I have a lot of gray, well, if I had a lot of hair on my head, it would be gray.

And so I remember an environment where, you know, the interest rates we have today are really from an historical perspective, not all that high. But what has happened is that acceleration and rates in such a short period of time, it’s been so dramatic, that market hasn’t, hasn’t digested that change in rate environment, really have kind of a mismatch of buyers. And just valuate.

Ressa 6:41
So, Tom, you’ve got all these members, why don’t you tell me. What are the members telling you?

McGee 6:49
Well, I think it’s a little bit of a tale of two cities, as the old saying goes, you know, on on one hand, occupancy has really recovered since the pandemic, you know, leasing demand is super strong. There’s really been no net new supply put on the market over the course of the last 15 years, since the great financial crisis, I’ll give you, I’ll give you a couple stats, as it relates to that, you know, retail sales have almost doubled since the great financial crisis, US GDP has grown by almost 10%, or US population has grown by almost 10%.

US GDP has grown by 30 plus percent over that period of time, shopping Gen center GLA is almost unchanged, since that point in time at a macro level. So there, there might be individual markets that have had, you know, that increases, but there’s been a lot of other places where, you know, GLA has been taken offline. And so you have an exceptional amount of demand for space, where you really have had no net new supply, put on as retailers are looking to grow on one hand, and also looking to use, you know, space for multiple purposes.

You know, stores are not just used for traditional shopping, they’re used really, in many cases, as many fulfillment centers to fulfill online orders. So occupancy leasing, you know, strong, generally speaking, some exceptions to that, depending on the company, but generally speaking, strong, if you’re trying to buy or sell a property, you’re trying to refinance a property that’s more challenging, for sure, given the, you know, the change in the rate environment over a very short period of time I, I have gray hair, if I had hair, my hair would be gray.

And so I remember, very vividly, you know, a different kind of rate environment in the 80s, and the 90s. And, and even in the early 2000s. And really, you know, these rates are not from an historical perspective, exceptionally high, there’s somewhat that kind of historic norms, but they’re certainly high relative to what we’ve experienced over the most recent pass. And what really has happened is you’ve had such a rapid acceleration of rates in such a short period of time.

And so expectations of buyers and sellers are mismatched, people are not a value, obviously, there’s the whole impact in the banking system. And, you know, and obviously, we’ve seen the demise of some regional banks. And so all of that’s put pressure on the system. And so, if you’re trying to refinance, if you’re trying to sell, there’s a whole, that’s a much more challenging environment.

So I think those are the two general trends from a macro perspective leasing demand strong occupancies recovering very nicely from the the impact of the pandemic, but, you know, obviously capital market activity, you know, as we all know, has has really been challenged over the course of the last year plus,

Ressa 9:50
For sure. That leads us into the next piece. We mentioned that leasing demand and retailers. Demand is strong and you spend a lot of time talking to a lot of different organizations that are members, some that are not really aggregating the data to really inform your membership as well as the media. And I think that brings us to, you know, we’re at this time of year that’s really impactful to the retail industry, this holiday shop. What are the consumer, what is the consumer shopping plans as we head into the holiday season?

McGee 10:27
Yeah, we expect a, you know, a positive and solid holiday shopping season. So our forecast is for 3.8% retail growth, you know, not quite as strong as last year, but still positive. I mean, the consumer has been really, really resilient throughout the face of higher inflation and higher rates. And so we expect that to continue during the holiday season, food and beverage will grow at a more rapid rate than that 7.6% growth.

And, you know, that’s really been the case, even throughout the last year and a half or so food and beverage growth rates have been in excess of retail growth rates. And so we expect that to continue over the course of the holiday season, we define the holiday as October through December, so the last quarter of the year. So $1.6 trillion will be spent. And the reason we do that is because, you know, the holiday season has just, it’s just become longer.

I mean, people shop over a longer period of time. And so while the iconic days of, you know, Black Friday and Super Saturday and so forth are still really important and so forth. They’re important from a symbolic standpoint, yes, they’re important operationally, but they’re not as important as they once were.

People spend over a longer period of time, in fact, you know, one out of every four folks that responded to our survey, had already started shopping for the holiday in August, so they’ve done some holiday shopping as far back as into the summer.

And one of the reasons is because they’re really concerned about inflation, so, you know, inflation is, is front and center the consumers mind. So while they’re going to continue to spend, they’re looking to take advantage of discounts that they see something that’s priced at what they think is a good price, they’re gonna hop on it right away and not delay to the some folks might delay to the end, that’s part procrastinate. I’m probably be one of them.

That’s just a personal flaw not not a good shopping habit. But But consumers in general are gonna, you know, they’re it’s a longer holiday season, they’re gonna hop on discounts, they’re concerned around inflation, but they’re gonna continue to spend the consumer has been super resilient.

Ressa 12:43
Well, it’s been remarkable, the consumer. And, you know, I wonder, have you guys forecasted what you think happens going into the beginning of 2024 yet?

McGee 12:59
We have, and we will do that. As we get closer to the end of the year, we always put an annual forecast out. You know, my expectation would be that, you know, absent a whole lot of things that that could happen, we’ve learned to expect the unexpected in the world as you know. But as long as the employment situation continues to be as strong as it is, that the consumer will likely continue to be resilient. You know, we’re at historically low unemployment levels.

And that creates a level of some stability and consumer confidence, although we’re seeing starting to see signs of that eroding even in the most recent signs that came out on the last couple of days. But generally speaking at the employment, at the employment market continues to be strong, the consumer will be relatively resilient. So I would expect to see positive retail sales next year as well. I don’t, I couldn’t comment in regards to what percentage that is so forth yet, but strong employment market usually means resilient consumer.

Ressa 14:10
For sure. I’m with you there. You mentioned Black Friday, Super Saturday. Is Black Friday going to be higher this year than it was last year? Just, do people still measure this? I think, are people still measuring? Like how was our Black Friday this year to last year? Was the street character retailers care?

McGee 14:32
I think symbolically it’s still important. You know, I do a lot of media at this time of the year as you know, and the first question I always get asked is what’s traffic like, you know, I’ll do a bunch of media on Friday, on Black Friday, and people will say what are the crowds like at the stores and they’ll show and they will take whatever video they have of what every shopping center they were at, and they will extrapolate that to, you know, the entire United States and say, well, the crowds are up or down from last year and so forth.

So I think symbolically it still means something. But it is not as it’s certainly not as meaningful as it once was, from the performance from the financial performance of the industry, back to that concept that it’s just a longer holiday season now. And there’s just an and, as you’ve seen, many retailers have closed their stores even on Thanksgiving, because they want to give their teammates a chance to have the day off and so forth. So it’s still important, but not what it once was, not as important as it was 10 years ago.

Ressa 15:43
Before, you mentioned this consumer, they’re concerned about inflation, so that they were even buying Christmas presents in the summer. That’s a very baby boomer mentality. You know, I think millennials and Gen Z have been purchasing like that, nearly like the baby boomers, had been purchasing like that.

Right. You know, I remember that. But you know, my grandmother would be asking what we’re doing for Christmas, in July? What’s going on here? But you mentioned inflation. And so one of the things to get for that 3.8%, are retailers going to have to be very promotional. Are we? And I think that slogan that I guess is my question, or are are they able to maintain price?

McGee 16:38
Yeah, I think that depends on the retailer. I think that generally speaking, we’re, you know, in the holiday season, there’s always going to be a level of promotion at discount, right. I mean, that’s just the nature of what happens. But I think in an inflationary environment, you know, you’re probably not going to see the level of discounting and promotions you’ve seen in the past, that’s kind of just the, you know, just because of the definition of inflation, right.

So I don’t expect to, I don’t expect this to be a heavy promotion, discount kind of season, but there will be promotions and discounts, because that’s the nature of the holiday season in a way to kind of entice consumers, etc. One thing you did say, by the way, it’s unrelated to the holiday, but we did do a Gen Z study on Gen z’s.

And, you know, for any of the ICSC membership that’s listening, so for the rich to go on our website, I mean, we did a lot of promotion around this, I did a lot of media around it. You know, Gen Z is an interesting, you know, a very interesting demographic group. And I’m very bullish on Gen Z. I really think they’re, you know, I think it’s a fascinating generation, very hard working, different than my generation, for sure.

But, but very pragmatic and financially responsible, and they are price conscious, you know, and I think one of the reasons is they saw their, they saw their parents go through the financial crisis, and they, they’d lived through the pandemic, and so forth.

And so, you know, Gen Z is a very pragmatic, financially responsible kind of generation, at least the early signs of that are around that. So they might have shopped earlier, we didn’t ask the specifics around this generation, but I wouldn’t be surprised if you saw some Gen Z’s out there looking for discounts early, because they are pretty financially prudent.

Ressa 18:32
Fair enough. Fair enough. I looked at it that way. I’ve seen a lot in the media, and the content you guys have put around Gen Z. And I think it is a generation to be excited about, I hadn’t connected the dots to that. One of the things you said, that I think is interesting, and maybe people don’t consider when they’re thinking about holiday shopping, as you mentioned this, food and beverage up. So why is food and beverage going to be up in the holiday season? And why does that matter?

McGee 19:09
Well, obviously, you know, increasing number of tenants and shopping centers are FMB related. So, you know, it drives traffic to shopping centers, and that in turn drives traffic to retailers and so forth. So it’s a virtuous circle. So I think that it matters from that perspective. But, you know, post pandemic, there’s been tremendous growth in FMB. And I think some of it is just, we were, you know, we weren’t able to do some of that for a period of time during the pandemic, and a good portion of that is stock.

And so that behavior of going out to eat, you know, has stock, and then you throw the holiday season in there and during the holidays, that’s when folks get together for, you know, get togethers with family and friends and work colleagues and so forth. And so, last year, it was even greater. Of course, that was really the first year that from the pandemic that you could go back to kind of business as usual as it related to that. And I think you’re continuing to see that that happened this year.

So, you know, again, I think it’s all part of the consumers being resilient, strong employment market. This is the time of the year when people get together and celebrate. And there’s still that pent up, look, we couldn’t do it for two years. And we’re still living on, you know, the, the excitement of being able to get back together. I think you throw all that in the mix. And there’s a lot of new, great concepts out there too. I mean, a lot of good new restaurant and F&B concepts that exist.

Ressa 20:45
Yeah, sure. There’s a lot of new F&B concepts. And I think, you know, it feels like maybe it is the pandemic that, you know, like revolving around beverage is just continuing to grow, whether that’s through the holiday season, whether that’s through date night, whether that’s through, you know, through a lot of the concepts that we’re seeing, whether it’s a top golfer, new pickleball, trying to create a food and beverage rack, people want the beverage graph, the experiences that they’re doing, so I think it’s also good.

McGee 21:23
Yeah, well food at the center of almost anything is usually good, you know, food is a way to celebrate and share, you know, positivity with each other.

Ressa 21:34
For sure. All right. All right. So I think that’s a that’s a pretty good, what I would call out summation of what’s going on this holiday, you know, for a while, we’ve had this narrative about physical retail, and we heard things like retail apocalypse. And to me, I think that’s the tailwind. We’ve got through that, right. Everyone’s, maybe you could tell us, but it feels like the world is starting to turn that like, hey, physical retail is not going away. And not only it’s not going away, it’s important to the ecosystem of goods and services being sold. So, to that end, how important is the role of physical retail?

McGee 22:27
Well, it’s usually important, right? I mean, retail is really the glue. You know, it’s where people build community, you know, in so many ways our industry is really the community centers that, you know, that bring life to communities. And so I think, I just think from a social perspective, it is incredibly, incredibly important.

And then you talk about all the, you know, the financial impact and economic impact, as it relates to the generation of sales tax and property taxes that fund, you know, all the first responders and public services and so forth, you know, which is enormously important, we’re the largest source of those types of local tax dollars that go into local communities and so, it’s, it’s enormously important.

I do think you’re right, I think, you know, retail, for so long was the, you know, was the, the sector within the commercial real estate space that, that nobody wanted to touch, and it was, you know, it was a, it’s past was, was a lot greater than its future, and etc. And I think that narrative has changed, for sure. And people, you know, realize the importance of the sector and the revitalization of the sector, you know, I think in so many ways, the pandemic was so challenging and difficult.

But if you would have imagined that coming out of the pandemic, you know, when we’re in the midst of the pandemic, people couldn’t go shopping. And many cases for a long period of time are discouraged for a long period of time, and certainly food and beverage with getting together restaurants, and so is discouraged. And so we had this sense of Oh, my goodness, you know, the industry was already under stress. And now look at the stress we’re under.

And now, fast forward and the industry is in a much stronger place today than it was when I went into the pandemic, you know, and I in an accelerated so many changes, you know, that were that needed to take place. And so now you’re at an occupancy that is back to pre-pandemic levels. Leasing demand, as I mentioned, is exceptionally strong. And so I think that we’re, we’re at a very good place and there’s other sectors of commercial real estate that are being much more challenged.

Ressa 24:55
There certainly are. What I think the market, whether it’s the media, Wall Street, what they’re looking for is, we had to prove our case to them. It wasn’t going away. And I think things come out and came out like the halo effect that ICSC put out. As things came out that we were fulfilling from store, as things came out, like, the cost of customer acquisition and ecommerce, as digitally native brands started opening stores, as the lack of supply continued to be, you know, stay, or the supply muted for new construction in retail space.

All these factors have led to pretty robust retail performance. And I think that was the proof that was in Wall Street, in the media, and all other pundits really needed to see to believe in retail. And I think what happened is, we proved it, you know, the way you were, when you’re in, when you were not able to go to a physical store because of government restrictions, yet, majority of retail sales are still happening at a physical store. It’s quite remarkable. And I think that really shed light on how strong or physical resemblance for America.

McGee 26:32
Yeah, you’re absolutely right. Look, I mean, we know the ceiling, right, we know the ceiling, because we lived through it in the, in the pandemic. And, and, and we know, people wanted to come back and shop too. So and we’ve seen that and experienced that. And so I You’re absolutely right, I agree with everything you said. And in regards to Halo. You know, what Halo studied. You know, we did Halo, a first table report that a second Halo report.

And that was really the study of the convergence of the physical and digital world. And really the interdependency upon stores and online shopping and online shopping at stores and, and we are going to be releasing another Halo report in about a month. So that’ll come out, that’s going to study that even more in this post pandemic world. And the real, the real point is, like, what we’ve seen is that if you have a store in a market, you open up a store that generally positively impacts online sales.

And of course, you get the you get the physical sales as well, but you close the store in a market, that not only do you lose the physical sales in that market, your online sales go down as well. So there’s been no more effective, cost effective way to build brand awareness than a store. I mean, we all think that, a lot of people think it’s a constitutional right. Free shipping is a constitutional right.

It’s not, somebody actually pays for that, you know, so, you know, to the extent that you can, you have a store, you’re building brand awareness, your customer acquisition costs are so significant online, and you’re able to use that store for multiple purposes. Now, the retailers over that’s one of the vestiges of the pandemic, was really learning to use those stores in multiple ways. That’s why you’ve seen curbside pickup and click and collect really explode.

And that just is so important to a retailer’s profit margin, right, I’ve eliminated the shipping costs, I’ve encouraged the consumer, I have made it easier for the consumer to count on my store. And so I’ve used that as a as a fulfillment center. Of course, if I can get into the store, they may actually convert into additional sales as well. So that is a, I think, a really, really important story around the importance of physical retail.

Ressa 28:57
Totally. Tom, this has been awesome. Last question. Are there any trends or insights, or anything you’re thinking about hearing that we haven’t talked about that might be interesting for the listener, as it relates to retail, the physical store, holiday shopping, anything?

McGee 29:21
Well, I think there’s a lot of things I mean, we’ve touched upon a lot of stuff I do think that you know, if you think about the conversation we just have which is you know, kind of the convergence, the real omnichannel world that we talked about for years is really coming to fruition and that’s going to have a lot of implications for retail. Going forward, you know, store configuration will evolve.

And so the way a store is configured will evolve, parking lot configuration will evolve as a result right, curbside pickup, right, you want you want the consumer to be able to get in and out really quickly. So I think you’re gonna see a whole host of things happen on that for I want to, that’s on the positive side. On the negative side, one of the biggest issues we have to deal with as an industry, both from a public advocacy standpoint, a public awareness standpoint, at the local and the federal level is is organized retail crime as well.

And so, I think you’re going to, you know, you have seen a lot of attention placed upon that issue and I think you’re going to continue to see a whole lot of emphasis placed upon that issue. That’s probably a whole other conversation we could have at some other point in time around things that need to happen to you know, address that issue in a more effective way.

Ressa 30:39
Yeah, organized crime is certainly a whole other topic, and it is a challenging one no doubt. I’m gonna take you up on that and we should talk about that maybe in the new year. We’ll set something up. All right, Tom. Really appreciate you coming on. You shared some really good insights love this stats. I have some questions for you. Are you ready? All right. Question one. What extinct retailer do you wish would come back from the dead?

McGee 31:14
Oh boy, well, my very first job was at Kmart. And so I would have to say Kmart because there’s just a emotional connection there. I was in charge of rows 11 through 24 at the Kmart store in La Fuente, California, the city of industry which is right next door to where I grew up in California, so I have a strong emotional connection to Kmart because I worked there for many many years.

Ressa 31:46
Amazing, Kmart you know, I’ve had many guests that have come on and I don’t think anyone said Kmart for number one.

McGee 31:53
Well, they probably didn’t have the emotional connection that I had.

Ressa 31:58
And what aisle was it? 11 to what?

McGee 32:01
11 to 24, it was all my household goods you know paper towels, all anything cleaning silly. All that kind of stuff. I was I would those were the best. Those shows were always fronted Chris, they were always fronted.

Ressa 32:15
Amazing. I love it. Great answer. Okay, question two. What is the last $20 You bought in the store?

McGee 32:23
Definitely running shoes. So I’m a I’m a, I just did a I’m a triathlete. I just did a triathlon in Atlantic City about a month ago. And so I bought a new pair of running shoes, because they wear him out pretty quickly. So running shoes, a pair of running shoes.

Ressa 32:42
Got it, what store?

McGee 32:45
It was running store in Basking Ridge, New Jersey, a local running store.

Ressa 32:52
Very cool. Okay. Last question, Tom, if you and I were shopping at Target and I lost you, what aisle would I find you in?

McGee 33:03
Definitely the electronics probably around the TVs, because, you know, I, first of all, I love television. And second of all, if there was any type of if I was shopping, I would probably be at the same time thinking about whatever game was going on.

And I’d want to know what the score of the game was. So I’d probably be, I’d always make a point of meandering around televisions and so forth to see what’s going on in a football game, a basketball game, a baseball game, a golf tournament, whatever is going on. So probably you could find me over at electronics for TVs that are being sold.

Ressa 33:35
Fantastic. This has been wonderful. I really appreciate it. Thanks for doing this and I look forward to seeing you in New York ICSC.

McGee 33:45
Yes. Thanks, Chris. Appreciate the opportunity.

Ressa 33:49
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