Shelley E. Kohan (00:00.898)
which is the 23rd, the new one that hasn’t dropped yet. All right. Hello everybody and thanks for joining our weekly podcast. I’m Shelley Kohan and I am very excited to welcome back Tom McGee, who is president CEO of ICSC. And it’s actually a position you’ve held for over a decade.

Tom McGee (00:04.534)
Okay.

Tom McGee (00:24.15)
It has. I just passed my 10th anniversary in September, so thank you. It’s been a wonderful opportunity and I love working with our members and certainly love the retail industry.

Shelley E. Kohan (00:37.614)
Yeah, it’s a lot of fun and people describe you as the voice of marketplace industry. So you are an expert in marketplaces and spaces where people shop, dine, work, play, gather as a foundational vital ingredients of communities and economies. So impressive the impact you have on our industry.

Tom McGee (00:59.422)
Well, I hope I live up to that recognition in our conversation today. But obviously the marketplace industry, the retail industry is such a vital part of the American economy. And, you know, I always say it’s the ultimate consumer facing industry. So you have a really good sense of how people are feeling about a whole host of things, particularly about, you know, their outlook in regards to retail spend and consumer spending in general. So look forward to our conversation.

Shelley E. Kohan (01:02.818)
Ha ha.

Tom McGee (01:29.336)
you

Shelley E. Kohan (01:29.826)
it’s great. So today we’re talking about kind of two different things, but they’re kind of intertwined. One is the fantastic holiday survey that you released earlier in October, which is fantastic. So we’re going to touch upon some things there. Hopefully we’ll have some positive sentiment about holiday season going into holiday. And the other thing I’m really excited about is the Gen X survey that just released this week. So…

Excited to hear about some of those key findings on gen X what I like to call gen X the forgotten generation because no one cares about us But that may change

Tom McGee (02:03.445)
Yeah, you and I are in the same generation and yes, that’s often the case, but I think we’ll find some important, I think people should start thinking about us a little bit more.

Shelley E. Kohan (02:09.047)
You

Shelley E. Kohan (02:14.698)
I think so too. All right, so let’s first, I have to start with probably the hottest topic out there and every day I know this changes, but what is the impact of tariffs on the broader economic landscape and really consumer behavior? What are you seeing so far for holiday season? What did the survey tell us?

Tom McGee (02:35.477)
Well, I don’t have any more to add than I think everybody has observed, which is…

you know, obviously, tariffs are out there. We haven’t seen the kind of impact on pricing that we many people expected. I do think they’ve had a, you know, an impact upon consumer perception, and certainly people are more sensitive. They were already sensitive to pricing, given we’ve been living in kind of an inflationary environment for the last number of years post COVID. But that continues. And so I think the sensitivity to pricing, the impact of tariffs on that

I think is going to influence the psychology of people as they go shopping. But they’re going to continue to spend. mean, our expectation is that, you know, holiday sales or fourth quarter sales will grow by three and a half to four percent. So relatively consistent with what the rate has been throughout the course of the year. But I do think the consumer is, what I’ll say, cautious. I mean, they’re sensitive to pricing. Discount department stores will continue to be, you know, kind of leading the way.

in regards to where people shop because of that price sensitivity. And I think people will lean in more on traditions because of the concern around pricing. I think we’ll have to put an increased emphasis upon making sure people spend time together as well as just buying things, but actually spending dollars on experiences as well.

Shelley E. Kohan (04:04.226)
Yeah, I think that brings up a really good point, especially, you know, over the past year with everything going on emotionally and socially in our country. do think like Thanksgiving and like holiday time will be more sentimental perhaps than years of the past. One of the things I found super interesting about your survey is 71 % of consumers said they’ll be more selective about what they’re buying, but they are going to plan to buy.

Tom McGee (04:29.172)
Yeah, you know, and I think that’s, you know, in some respects, it’s kind of a continuation of what we’ve seen over the course of this year and maybe a year plus. You know, price sensitivity has been with us for a while, and I think it continues. And so people are selective. And that influence is not only what they buy, but when they buy it, I think it’s, you know, I think the holiday season gets a little longer.

to some extent, it starts earlier because if somebody knows they want to buy something and they see the pricing that they feel is attractive, they’re going to make that purchase decision at that point as opposed to waiting because they’re concerned around inflation. And so I think what you see is, and that’s why when we talk about the holiday, we really talk about the fourth quarter of the year because holiday, in our view, the holiday really begins, has already really begun. People have already started holiday shopping.

Obviously, it becomes more intense and more active as you get closer to the actual holidays. But people are starting to shop now because they’re concerned around pricing. And that was the case last year and the year before that as well.

Shelley E. Kohan (05:35.779)
I think the other thing that’s helped this kind of sense of urgency and pricing and purchasing and get consumers actually spending money now is everything out there in the news reports about low inventory, no inventory, not enough inventory. So I think as consumers, whether they’re consciously thinking about it, they may not say this in a survey, but subconsciously when they get to the store and they see the item they want and it’s there and it’s at a price.

that they are willing to pay, they’re just going to snatch it up. They’re not going to wait for the discounted pricing later on because it may not be there.

Tom McGee (06:08.488)
Sure, think that’s a fair point and a valid one for sure.

Shelley E. Kohan (06:12.91)
And so the other point about the tariffs, and this is just what I’ve heard, I have no substantiated evidence to back this up, but I hear like the tariff pricing, we’re actually going to see more of it in fourth quarter right at holiday, but also going into next year, first and second quarters really when it’s going to hit. I don’t know if you’re hearing the same thing or if you’ve seen any of that.

Tom McGee (06:33.302)
You know, I’ve heard various perspectives around tariffs and my kind of perspective on it is that we to date have not seen the type of impact we expected.

that at some point we may, but it’s really hard to speculate because the speculation to date hasn’t been totally on point. So I don’t know when or if we will see the impact that we may have expected. I do know it’s on consumers’ minds, however. mean, forgetting whether it’s had the level of impact that economists expected certainly has had an impact on the psychology and thinking of the consumer, which is important as well.

And so that, you know, is going to impact again to your point when they shop and, you know, be more purposeful in their shopping and where they shop and how they shop. And so and also what they spend on. So whether it’s products or experiences, both of which are positive for the economy if they spend in either a positive for retail and for shopping centers in particular. But I think all of those things are a, you know, a mix of

different attributes that need to be considered when you think about the holiday. again, the consumers have been resilient for the last number of years in the face of a lot. you know, our expectation is they’ll continue to be resilient, although we shouldn’t underestimate the level of strain that some folks feel and the level of concern that some folks feel around the economy.

Shelley E. Kohan (08:15.031)
Yeah, so I want go back to something you just mentioned about where consumers will be shopping. So I know you have a lot of data and I’m sure you can share with us where will consumers be? What, where are they going to be shopping this season?

Tom McGee (08:20.799)
Yeah.

Tom McGee (08:26.666)
Well, I think that not surprisingly in an environment where people are concerned around pricing, so discount department stores will be.

you know, will be the number one destination for consumers. That has been the case over the last number of years, but will continue to be the case this year. Department stores in general, as people are looking, you know, an array of things to buy, will continue to be popular. But the other item that, you know, has grown in popularity and will continue to be is gift cards as an item to purchase. And one of the reasons I think that’s interesting about gift cards, historically we looked at gift cards as a way to, you you give somebody a gift, you’re not exactly

what to buy them, you want to give them the flexibility of buying something. But one of the interesting things that came out of the survey and talking to respondents is it’s not only that aspect, but it’s also a known amount, As opposed to going and buying a product, they don’t exactly know whether I’m in a sweat or mine is it $150, $100, $125. On the gift card, I know exactly what I’m, you what my budget is, how much I’m spending. I know what I’m giving to that individual.

in an environment where consumers are price sensitive and conscious, think gift cards will continue and probably be more popular this year than they have been in the past.

Shelley E. Kohan (09:47.247)
That’s really interesting Tom, because I never really looked at it, but it is kind of a budgetary gift that you can kind of plan and…

Tom McGee (09:53.239)
You know, sure, you can budget. If you want to a certain set dollar amount, you can set and spend a certain set dollar amount. So it accomplishes a lot of different things. You know, I know we give.

many of our nieces and nephews at the holidays, give them gift cards because they’re spread out across the country and it’s an efficient way to make sure that we celebrate the holidays with them and recognize them with a gift. But it’s also a finite amount, know exactly what you’re spending and I think that sentiment is going to permeate a lot of people’s thinking this year.

Shelley E. Kohan (10:33.71)
The other thing about gift cards, which will really play into the Gen Z and the Gen Alphas in the future specifically is the sustainability, the footprint, the less of a footprint that sending a gift card has, especially electronic gift card as opposed to sending a physical gift, right? So that’s another big benefit of the gift cards too that might gain in popularity.

Tom McGee (10:57.056)
Hmm. Gen X is a fact. mentioned Gen X and I know you’re

we recently launched a report, not just a survey, but we have a full Gen X report that people can access on our website. And Gen X are basically folks between the ages of 45 and 60. So I’m on the older edge of that age group, but I am technically a Gen Xer. And that generation is gonna have a huge impact on the holidays and also just does a huge impact on the economy as well.

Shelley E. Kohan (11:21.56)
Thanks.

Tom McGee (11:34.36)
Those tend to be your prime spending years, know, 45 to 60. And that generation is smaller than the boomers and the millennials, which obviously have been studied. And the Gen Zs, all of whom have been studied significantly, but Gen X often are forgotten about. But while they’re only about 19 % of the population, they’re over a third of all spending comes from the Gen X population.

Shelley E. Kohan (11:58.159)
Well, first time, let me just first say thank you for doing a study on Gen X because I feel like we are the lost gen, like no one cares about us, our spending, our behavioral, how we shop, what we do, consumer, like no one cares about us and I’m with you.

Tom McGee (12:14.484)
I mean, we’re the, we were the MTV generation, you know, so.

Shelley E. Kohan (12:17.518)
That’s right, that’s right. And I’m with you. I barely made Gen X. So I’m at the tip tip of Gen X. But needless to say, can you share a couple key insights from that report that just came out?

Tom McGee (12:23.318)
Yeah.

Tom McGee (12:34.39)
Yeah, well the most important one is the one I just shared, is GenX. First of all, it’s a much smaller generational cohort than…

the two generations that surrounded, which are the baby boomer generation, which has obviously been well studied and talked about significantly and had an enormous impact on the American economy and culture. And then the millennials, similarly, who have also had a huge impact upon the economy and culture and continue to. But the generation that’s in the middle of those two, Gen X, is first and foremost 45 to 60.

you know, that is 19 % of the population give or take, a third of all spending. It’s a generation that’s fascinating because you’re in the middle of your prime consumption years. Many of us have either are in the midst of raising our children or have already completed that process and are now not only, maybe our kids are in college or in your case, one graduating, one going to college next year. And so we have the demands of all

of that, which are obviously significant financial burdens, but you also have the responsibility oftentimes for taking care of your parents and your spouse’s parents and all that goes into that. so it’s a general and then you have the demands of being kind of in your the middle or the know the prime years of your professional career. And so there’s a lot that happens in that generation that you know is is symbolic of the pressures that you the

Shelley E. Kohan (13:55.112)
yes.

Tom McGee (14:14.712)
typical American goes through in many aspects of their life. They’re kind of living through that. That said, that generation, once again, it’s not studied much. Secondly, it packs a punch in regards to spent, you know, as I said, 33 of all 33 % of all spending. And it makes sense because of where they are the lifespan, because of the demands that they have placed upon them, not only the traditional demands as a parent and raising your kids, but also often, you know,

care of your parents as well. And all the professional aspects that go with it. Very active, you know, that generation is very active in social media and things of that nature as well. They all use, you know, social media. Almost 92 plus percent use social media on a daily basis. It is a generation, as you and I can attest to, that, you know, MTV launched during our, you know, high school years and, you know, we grew

up with video games and all those types of things that was really kind of the launch of that. while we’re not thought of, people don’t think of the Gen X generation as a group, a cohort that necessarily is technologically savvy. You know, we carry our weight in that regards as well. So I think it’s a generation that has had a, has absorbed and accepted, you know, technological advance really well. It’s also a generation

that has been impacted by a lot of different things. Obviously, 9-11, the pandemic, the great financial crisis. Think about people living between the ages of 45 and 60. They’ve been in the midst of all of those substantial things that have impacted this country, and that has had an impact upon the generation as well in regards to being pragmatic and cautious and so forth in their spending habits.

Shelley E. Kohan (16:12.846)
saving money and you know being very cautious about what they’re spending their money on. So selective right?

Tom McGee (16:20.49)
Wait.

Yeah, sure. And not surprisingly, when you have responsibilities on both sides of your life, your parents, and making sure that they’re taken care of, and also your kids, you’re going to be purposeful in making decisions, which by the way is somewhat attuned with what’s going on in the broader economy right now. It is a generation, however, that’s going to, know,

likely inherit a great amount of wealth as their parents pass away. And so it is, while millennials are often viewed as the generation that will inherit a lot of wealth, and they will because they tend to be the kids of baby boomers, so will jet-accers as well. And so that’s going to, there is going to be an enormous wealth transfer that happens in this country over the course of the next number of years as the boomers in particular transition.

Shelley E. Kohan (17:21.774)
Well I can tell you Tom, distinctly have a very clear memory of turning on MTV and seeing Tracy Chapman’s fast car and being so blown away by the technology and my god it was unbelievable. yeah and we did have to learn a lot about technology.

Tom McGee (17:39.978)
Well, my, sure, well my first date with my wife, we went to a movie and then we went to a video arcade afterwards and played Space Invaders and Pac-Man, so there you go.

Shelley E. Kohan (17:55.887)
I love Space Invaders. my god. So if you ever go down to Jersey on the Jersey Shore they have the Pinball Museum in Asbury Park. they have Space Invaders, they have Pe…

Tom McGee (18:04.106)
Sure. I know, I’ve never been in a pinball museum. Okay. I’ll have to do that because we do go to the Jersey Shore on an annual basis. It’s wonderful. And we generally visit Asbury Park for at least one of the days and maybe make a pilgrimage to the Stone Pony even. I hope that Bruce walks it.

Shelley E. Kohan (18:11.276)
They have all those games there, so.

Shelley E. Kohan (18:27.862)
Of course. Yeah, I know, right? Well, my kids wanted to go to the pinball museum years ago and I’m like, well, all right, okay, I’ll pay. They couldn’t get me out of there. I found Space Invaders and I was playing and playing and playing.

Tom McGee (18:38.928)
Hmm, well because

Tom McGee (18:43.562)
That’s fun. Well, again, that Gen X generation, think our estimation is that they’re going to inherit $1.4 trillion of wealth over the next number of years. And so that’s a lot of wealth transfer that happens. Again, another reason why that generation should be, I think, studied more, because of the impact it has on the economy.

Shelley E. Kohan (19:10.956)
Yeah, that’s amazing. So let me go back. Before we leave, I want to just kind of ask you a little bit about consumer behaviors, changes in behaviors you’ve seen in pricing, promotions. Like, are you seeing anything considerably different so far this year?

Tom McGee (19:15.187)
No

Tom McGee (19:25.642)
think it’s a little early to say there’s anything considerably different. do think, you know, I can’t I think sensitivity price sensitivity will be first and foremost. I the consumer is and I often say, you know, a lot of times I’ll get questions about how much are people going to spend in store versus online and and so forth. And I think honestly, I think that that’s a somewhat dated way to look at the retail industry because it’s there’s really only one channel that matters and it’s called the consumer channel.

retailers have to be, generally most retailers to be successful. There are some exceptions, but generally have to be really good at both, the physical and the digital world. And I think to your point around just, I wouldn’t say changes, but I do think you’re seeing a real merging of a retailer’s ability to serve customers both on their online channels and in store. And you’re seeing consumers really adapt. I think that the pandemic was really the accelerant for this.

And so you’re really seeing that continuation of retailers using their stores for multiple purposes. they’re going to use stores are obviously going to be used for the traditional purposes of people browsing aisles and making making purchase decisions. But they’re also often being used as many fulfillment centers, you know, as a as an opportunity for, you know, buy online, pick up a store, ship from store, all those types of things. And, and I think, you

We are really experiencing in retail real estate a supply demand mismatch where what I mean by that is the demand for space, particularly well positioned suburban retail space is in excess of the supply of that space. just hasn’t been a lot of new retail development on a net basis across the country. Now there’s pockets where there have been obviously, but generally speaking there hasn’t been a lot of new development.

And the demand for that space from retailers, both emerging but traditional and established retailers is significant right now when there are.

Tom McGee (21:36.849)
know, pieces of, significant store closures of, you know, a well-known retailer. Oftentimes, there’ll be multiple buy orders on that property almost immediately to lease that property. And so that, I see that continuing to happen. see retailers continuing to really lean into physical retail as a mechanism, not only to grow their brand and to, for traditional purposes, but also as a way to fulfill online orders.

And it’s a very, it’s the most cost effective way, you know, to grow your brand and be profitable in selling products.

Shelley E. Kohan (22:16.322)
Wow, and that’s so true. So that’s interesting about the supply and demand on the space side because that’s kind of a long-term commitment. That’s not something that changes like quickly, right?

Tom McGee (22:28.916)
No, you were, even if you were to have a significant development boom in the next year or two.

it wouldn’t significantly change the what I just described because first of all, takes a while for that to be built and completed and to be put into use. And I’ll give you a statistic. If you look at retail sales over the course since 2009, so since kind of the financial crisis to today, retail sales have almost doubled in this country over that period of time. You know, the number, the specific number is about 82%.

The amount of physical retail space has only grown by 7%.

period of time. And so while yes, there’s been growth in retail and yes, there’s been growth in online sales, but online sales, depending upon whose statistics you want to look at is still between 10 and 14 percent of total retail sales. So, so much retail still happens in physical stores. But yet there hasn’t been new development to keep up with that growth. And I don’t see that changing. Even again, I don’t even if there was a lot of new development, but I don’t think there will be a lot of new development because of the cost of labor, the cost of

materials, the cost of capital, I don’t think we’re going to see a major development period for a reasonable amount of time.

Shelley E. Kohan (23:52.714)
Tom, it’s always a pleasure having you on Retail Unwrapped. Is there any closing thoughts you’d like to share? And before you leave, I definitely want to tell our listeners where to find the two great, the survey, the holiday survey, and of course that fantastic Gen X report.

Tom McGee (24:08.336)
The only thing would say I would reiterate what I

mentioned about the demand, the supply and demand mismatch in fiscal retail. I’d also say the consumer has continued to be resilient, but we need to be cautious and continue to be observant to consumer sentiment. I do think as long as the job market continues to be strong and the employment rate continues to maintain at historic lows, you’re going to continue to see people spend because people have a job and they’re confident in their job.

Historically that retail sales have followed and grown, but if we were to see some type of erosion in the employment market, that would be, I think, a period of time that we should start being concerned about consumer resiliency.

Shelley E. Kohan (24:56.481)
Thank you so much and where can we get those reports?

Tom McGee (24:59.366)
ICSC.com. Go to ICSC.com. They’ll be very prominently on our website.

Shelley E. Kohan (25:07.347)
Awesome. Thank you Tom so much. Thanks for making time out of your day to chat with us.

Tom McGee (25:11.659)
Thanks, Shelley.