At last week’s International Council of Shopping Centers (ICSC) New York and National Deal Making trade show at the Jacob K. Javits Convention Center in New York, retail real estate executives hunted for deals, new concepts and new approaches to a market that is evolving rapidly as consumer shopping behavior changes.
For the ICSC, which is poised to celebrate its 60th anniversary in 2017, the state of the current market is challenging, but there are opportunities. As the global trade association of the shopping center industry, the ICSC positions itself as a community builder that drives the economy and helps foster “vibrant civic spaces,” noted ICSC president Tom McGee. Here, McGee shares his perspective on the retail real estate market, the impact of online sales and the role of the ICSC in serving 70,000 of its business members.
WWD: How are shopping malls/centers staying relevant in an ever-changing retail environment?
Tom McGee: The retail real estate industry is an integral part of building communities, fueling economies and inspiring innovation. Shopping centers and malls always have been a central gathering place for the community. They help to create and anchor vibrant civic spaces, providing an essential public place between work and home and a dynamic marketplace for commerce.
The industry is successfully evolving to keep pace with the needs of consumers, and right now the consumer is placing a high value on experience. It’s no longer just department stores; it’s grocery stores that offer eateries inside them, or movie theaters that include restaurants.
Additionally, centers are embracing entertainment tenants and amusement attractions like go-kart racing, indoor rope climbing, laser tag, skydiving simulators, escape rooms and more.
As time progresses, developers and retailers alike will continue to provide ever-more personalized, interactive experiences, emphasizing new touch points, time-saving services and meaningful consumer engagement.
WWD: How is technology playing into the evolution of the mall?
T.M.: Technology is being integrated into the shopping experience, just as it has been integrated into almost every aspect of our daily lives. People have access to information instantly, allowing them to be savvier and more informed than ever before. Digital channels and the ability to conduct research prior to a purchase have positioned consumers further along the purchasing funnel, making them more motivated when they arrive at a store. In fact, our research shows that omnichannel consumers spend 3.5 times more than other types of shoppers.
Click and collect is an example of the convergence of the physical and digital channels, as it intertwines the experience between online and offline in a tangible way for consumers and retailers.
Adapting this kind of omnichannel approach to meet consumer demand is essential to remaining competitive in the new retail landscape.
WWD: There is a perception in the market that e-commerce is set to take over in-store shopping. Do you agree?
T.M.: Not at all. Online retail continues to grow, but is doing so at a slower rate than in years past. The facts demonstrate the strength of our industry overall. For example, occupancy rates in shopping centers remain very strong – 93.4 percent in the mall segment – and sales continue to grow. While many may perceive online sales as dominating the market, in fact, online-only retailers represent about 3.5 percent of all U.S. retail sales. The reality is that physical stores continue to dominate retail sales with the shopping experience complemented by technology.
WWD: Some online-only retailers are taking their products to brick-and-mortar locations. Is this going to be a trend that shopping center operators can rely on as a new source of tenants?
T.M.: Yes, this is another example of convergence. Prominent pure-play e-tailers like Warby Parker, Bonobos and Blue Nile spurred the clicks-to-bricks movement, first testing physical locations via pop-ups and small-format stores and then committing to expanding their brick-and-mortar footprints after reporting significant returns.
We see synergy between physical and digital retail with research indicating a strong relationship between a physical store and online sales generated within that trade area. This is demonstrated by the “halo effect”– when the physical store thrives so too does the online business in that region; when a store closes, digital sales in that region also wane.
We view this convergence as an opportunity for retailers. Take the recent news of Wal-Mart’s purchase of Jet.com, as well as news of Amazon opening physical stores. Both demonstrate the importance of true convergence and alignment in retail. Digital and physical retail are meeting to create a seamless, winning experience for the consumer.
WWD: With all of the retailer closures, how is the retail real estate industry faring?
T.M.: Overall, across all of our key indicators, retail real estate is very healthy. There are more than 115,000 shopping centers that provide jobs to 12.7 million people. That means that every one in 11 jobs in the U.S. is connected to the industry. Additionally, we are seeing occupancy rates remaining strong at 93 percent and current demand for retail space outpacing supply.
Shopping centers truly fuel our economy both in the U.S. and globally. During the first quarter of 2016, 75 percent of American adults – approximately 184 million people – visited a mall at least once; on average they went 4.2 times. During nearly half (48 percent) of those visits consumers spent on discretionary goods.
WWD: With a new president in the White House and a Republican majority in Congress, what would you like to see lawmakers prioritize over the next few years?
T.M.: We are working on several top-priority legislative issues right now including “E-Fairness,” tax reform, and reforms to the Americans with Disabilities Act.
ICSC continues to aggressively advocate for federal lawmakers to enact E-fairness legislation that reflects 21st century retail. Under the current state sales and use tax system, local retailers must collect sales taxes on all sales, while their online-only counterparts are exempt. When a retailer does not collect the tax at the time of purchase, the consumer is responsible, by law, for remitting the use tax. This is rarely factored into the purchase decision and as a result local merchants suffer from this government-sanctioned price disadvantage. This flawed system hurts communities across the country, to the tune of $23 billion in lost sales-tax revenue.
Regarding tax reform, ICSC supports policies that are focused on growing the economy in communities across the country, spurring investment and new development. The right U.S. tax policy could positively impact decisions to develop or redevelop new retail and restaurant destinations that make a community great. Policy improvements can grow the economy in communities across the country, spurring investment and new development.