Shelley E. Kohan (00:05)
Hi everybody and thanks

for joining our weekly podcast. I’m Shelley Kohan and I’m very excited to welcome two guests today on Retail Unwrapped. We have Stephanie Cegielski who is the VP of Research and Public Relations at ICSC. And I have to mention this Stephanie, because as you know, I’m a professor also, but you also taught at NYU. So welcome.

Stephanie Cegielski (00:29)
Thank you.

Shelley E. Kohan (00:31)
And we also have Steve Morris. Now, Steve Morris is founder, chairman of Strategic Advisor Asset Strategies Group, affectionately known as ASG, and also founder and chairman of CBUS Retail Group. And I do have to mention, Steve, you too are a published author. Congrats.

Steve (00:41)
Thank

I’m

a published author. Yes. Thank you. All things real, it’s that.

Shelley E. Kohan (00:53)
On all things real estate, right?

Well, welcome both of you. So today we have a fun conversation. We’re going to talk a little bit about retail real estate, what’s happening in the market, what did last year kind of look like and what we can expect out of the future. what I’d love to start with Stephanie, if you don’t mind, I know you just had a big conference in New York City. So tell us what were some of the key takeaways from the conference ⁓ at the Javits Center, right?

Steve (01:00)
What is it?

Stephanie Cegielski (01:23)
We were. ICSC New York was last week. It was a great event. We’re very pleased. A lot of excitement and buzz, a lot of positive ⁓ feedback on it. ⁓ Not just the event, but ⁓ just how people are feeling about the industry right now.

You know some of the key takeaways we we in talking with with attendees They’re excited that deals are still happening You know, we’re still seeing money going into VC funding for some of the the prop tech startups that are happening And there’s just an all-around positive outlook which I know can be a little bit ⁓ Counterintuitive to what we typically see on the news each day with with consumer sentiment and whatnot but overall the industry is

feeling strong at this moment.

Shelley E. Kohan (02:16)
That’s great, Steve. I’m sure you want to weigh in on that as well. What are you hearing?

Steve (02:20)
I do, but I want to just first comment on ICSC. You know, I represent retailers. We’ve worked with over 200 retailers. So we’re somewhat adversarial with developers. But ICSC has been for multiple decades, probably 50 years now, bringing the two sides together to their great conferences. ⁓ So it’s kind of an adversarial partnership in a way. And I just know so many people have made so many great friends.

across the aisle. And it’s just great industry. I miss this year’s New York ICSC but I know when you go, you just run into people that you’ve known for maybe decades past, and you’re so happy to find. So it’s a great organization. do a great job. ⁓ One of the takeaways I took from this year’s event was the investment market is just really strong for retail real estate. ⁓

which, as I said, we’re heads and tails. That’s great for developers. And I’ve lived through multiple eras where the negotiating leverage has flipped from retailer’s advantage to the shopper’s advantage. But since 2007, I think the great financial meltdown, there just has been really little retail development and probably 150 million square feet of retail.

space demolished. So it’s getting tight and the good retailers are chasing the good spaces. It’s a very competitive environment. so that’s kind of the environment we’re living in right now for retailers. And I don’t see that changing much. I don’t see a lot of new development coming out. I still think lenders are not likely to finance new developments. So you’re finding these smaller developments, community centers.

going on and I think that’s the environment retailers are going to be living with. Now we still make deals, we still compete and the good retailers survive and do well. So that was my main takeaway. It’s just the environment’s shifted a little bit in the developer’s favor.

Shelley E. Kohan (04:37)
It’s really interesting because you said since 2007 there hasn’t been a lot of development on the retail side, but when I look at retail sales, they have grown tremendously since 2007. So we have more retailers, it’s more competitive out there. ⁓ So I can imagine that the space right now has to be very tight, a tight market.

Steve (04:58)
Yeah, we track and there’s one news that are attracted tracks opening closings every year. And it’s it’s always about the same. mean, one year there were obviously after Covid, it was shifted a little bit. But you have all the new entrants, the DTC companies, and then you have med ⁓ med spas or med tail and ⁓ athletic clubs and a lot of different things coming in. So even though some segments have suffered, particularly department stores,

Shelley E. Kohan (05:06)
Huh, yeah.

Steve (05:26)
There are a lot of new players are coming in. So there’s a lot of demand for space.

Stephanie Cegielski (05:32)
I would add to that, that that’s what we’re hearing. We’re hearing from the owner developer saying, in the good

occupancy rates are sitting 96, 97%. There just isn’t space. So when you see a situation like a Bed Bath & Beyond or a Joann’s go out, those boxes are getting snapped up quickly because that’s the only space available.

To Steve’s point, there hasn’t been much new development.

And this year alone, we’ve seen it’s been a strong year with around 10,000 announced store openings versus the announced 5,000 store closings. So yeah, the numbers speak for themselves. We did have one year. Pre-pandemic, those numbers actually were inversed. We had a couple of stressful years. ⁓ But then the pandemic, we saw one year that that shifted for obvious reasons. But since then, there just, there isn’t enough space and there isn’t the new development based simply because

Lending’s been expensive the last couple of years, and so that’s part of the thought process. And there just isn’t a lot of space for that development to happen. It has to be a redevelopment situation.

Shelley E. Kohan (06:30)
Mm.

Steve (06:39)
Yep, absolutely.

Shelley E. Kohan (06:40)
So

the other thing that’s really changed is a lot of retailers are kind of changing their store formats, footprints. I hear a lot getting smaller, looking for different types of spaces and all of that. So how does this retailer’s kind of trying to right size their business impact what you’re doing Stephanie?

Stephanie Cegielski (07:01)
Well, it’s a new sort of frontier, if you will. You talk about retail sales, and part of that is that online experience. ⁓ COVID really, really. ⁓

accelerated that. A lot of retailers suddenly found themselves having to implement a strong omnichannel strategy. Many of those then converted some of that floor space into a pickup area so they could do the buy online pickup in store. And so they’re shifting the formats that way, but you’re also seeing just like a Bloomingdale’s, know, not a lot of big box retailers across the country, but are looking at opening the smaller Bloomy’s version. So they are looking at how can we

still meet the consumer’s needs in a particular market without building something larger and sort of just bring it more to scale for what that community needs. So that too then creates this new challenge on what do we develop and how big should it be because retailers are really thinking about that in a very strategic way going forward.

Steve (08:10)
Yeah, I would add, think there’s, well, I’ll give you this example. I moved to Columbus in 1997. I think there were seven or eight or nine Victoria’s Secret stores. We had Northland Eastland, Westland, South, Tato, City Center, Lane Avenue. And now, you know, we’re dominated by Easton and maybe Polaris. And if a new entrant came to the market and we were advising them on location strategy, would be

a one and maybe a two store market and maybe put a store on the outlet Jeffersonville. So retailers need to, know, 20 years ago, 30 years ago, labor was less expensive, rents were more affordable, capital, the cost of construction was less and you could do more stores and make money on a lower sales per square foot. Now you need to be better stores, better centers and drive your sales per square foot higher to make your economics work. So you’re seeing

⁓ Columbus and unusual markets way ahead of most other markets were the way it’s consolidated its ⁓ shopping centers, but you’re seeing retailers more thoughtful about how many stores they put in the market and how they spread that. And they have e-commerce to lean back on as well. So that’s a benefit as well.

Stephanie Cegielski (09:31)
What I’d add to that too, Steve, you’re seeing some of what used to be the classic mall retailers going out to open air centers to meet those consumers a little bit closer to home. So they’re even thinking about it from that perspective of maybe I don’t want to be just in that central mall hub. Maybe I do want to branch out more into the suburban area closer to that consumer.

Steve (09:54)
Yeah, live, play. That’s a big, we all want that.

Stephanie Cegielski (09:55)
Yes. Especially now. I mean, when you’re

Shelley E. Kohan (09:58)
Live, work, play.

Stephanie Cegielski (10:01)
working from home and you have the ability to

Steve (10:02)
Ha

Stephanie Cegielski (10:03)
go do that in the middle of the day on a Thursday, yes, I have errands to run this afternoon. I’m going to take advantage of that. ⁓

Steve (10:05)
Nah.

Yeah. And I think the

I think public policy and zoning rules have helped that. And certainly the the ⁓ again, going back two decades, you wanted to be in a mall because the department stores drove traffic. And now you drive your own traffic to your e-commerce branding. And especially the DTC companies that are looking at new space and looking into getting the brick and mortar, they don’t feel they need to be.

anchored to a mall. they’re much more flexible about looking at nodes in a market and using technology to see where their customers are. they’re much more, much ⁓ more adapted, taking these really innovative kind of live work play kind of shopping places. And I think and I think everyone’s kind of followed that. Now you still need traffic, you know, the top 150 malls still have better traffic than any place else.

So it’s a mix and I think people are being more sophisticated. It used to be a DTC CEO would say, never put me in a mall if we were talking to them. And now it’s like, no, I understand the dynamics and you just have to approach it market by market.

Shelley E. Kohan (11:24)
Yeah, I think it’s also ⁓ interesting when we talk about the evolution of e-comm, I can imagine that the footprint that retailers are looking for are much different. They’re looking for access to maybe creating buy online pickup in store space. They’re looking for different configurations in stores to meet this kind of omni-channel or unified commerce. Would you say that’s what’s been happening over the past few years?

Steve (11:52)
Yeah, we also design stores and build stores. And yes, there’s a lot of ⁓ more attention to that kind of backroom. You’re going to ship from store, you’re going to return to store. So the whole supply chain network got ⁓ put on its head with e-commerce. That was one reason there was a of a lull in leasing a pre-pandemic. Retailers decided they’re going to spend all their money on.

building out their e-commerce technology and the supply chain around e-commerce and handling returns on e-commerce. So yeah, that definitely impacted the way stores are built and people think about stores.

Stephanie Cegielski (12:31)
Well, even how the parking is situated, right? Like that has changed. Steve, to your point, some of these retailers are going to other locations now because permitting and local regulations and ordinances have changed. But so have those parking guidelines. And some of it has to do now with people aren’t going and staying long, but they want to go and they want to be able to easily get in and out to pick up their goods. So it’s kind of thrown parking on its head as well.

Steve (12:47)
and

Yeah, absolutely. Convenience has become, thanks to Amazon, invented convenience, think, with their one button purchase, become a big part of the value equation. Absolutely.

Stephanie Cegielski (13:11)
Yeah.

Shelley E. Kohan (13:13)
So on this, just to build off of what you said about parking, so I know in over the past few years, the EV, electronic vehicles, has really driven up this idea that you can install the chargers in retail locations and that will then help build traffic. Have you heard, have you seen any of those ⁓ applications in place and successfully implemented?

Steve (13:18)
you

Stephanie Cegielski (13:40)
So I can’t speak to that. mean, can speak to the EV charging station is a fascinating conversation because on the one hand, it can actually drive traffic to malls that are, say, along an interstate corridor because if somebody’s doing a long distance trip, they’re going to probably have to stop at some point and they may stop at that mall because it’s going to take a couple hours to charge that vehicle. And so then they get that traffic that wasn’t expected. ⁓ But then on the flip side,

You’ve got people who, know, the electrical infrastructure, that infrastructure of that electric grid isn’t there because we have this outdated system. And so they’re struggling with that. So the EV charging station, depending on where you are, can be a huge bonus or it can be a hurdle to even just getting it done.

Shelley E. Kohan (14:16)
not.

Steve (14:30)
Yeah, I’ve seen, I haven’t seen, and maybe it’s because of those infrastructure hurdles. I haven’t seen a lot of that. Obviously it’s a new revenue source for a landlord. I see a lot of thought and effort and creativity in the C-store industry around that. And they’re getting ready for EVs and they’re enlarging their store and their, know, Bucee’s is the famous example of.

Shelley E. Kohan (14:47)
Mmm.

Steve (14:56)
park it and spend two hours in a Bucee’s get gas but make it a shopping trip. So it’s interesting what’s going on in the C-store industry, which has kind of different economics around this.

Shelley E. Kohan (15:09)
Yeah, that is interesting. So I know Steve. Yeah, go ahead. I know you.

Stephanie Cegielski (15:12)
I should say,

what a great additional source of revenue for that. They don’t have to just focus on the gas piece of it then, and they can still get those EV people in to get that revenue for those sodas and those strips.

Steve (15:23)
That’s right. Yeah,

they can go beyond the beer and the potato chips. They’re already pretty strong on QSR offerings. And I think you will see them continue to expand their store size and their ⁓ effort to keep you in that location longer.

Shelley E. Kohan (15:44)
So I was gonna ask you, Stephanie, I know you ⁓ do research for ICSC. I’m just wondering, I’m sure there’s a lot of new AI capabilities in terms of location data and understanding locations at a very finite level. Can you share any application use cases that you’re using or any type of data analytics that you’re using to help inform on location strategy?

Stephanie Cegielski (16:07)
Yeah, I think we’re looking at a lot of different, there’s a lot of providers out there right now and it is this sort of ⁓ interesting shift from ⁓ going even just from when we didn’t have any data. know, sort of, like Steve’s saying, they’re making these more intelligent and informed decisions now because the data now exists. And that’s gone through kind of this transition of we started getting mobile data and mobile data is okay.

but it doesn’t really answer all the questions because you’ve got to ping off towers and now there’s more localized GPS data and now it’s moving into ⁓ even better cleaner data around demographics. And really what we’re seeing is from an AI perspective, and listen, AI has a lot of different meanings and uses from agentic to generative, ⁓ but it’s these computers that are…

taking vast amounts of data and quickly and concisely whittling it down to answer those questions. So what a human might take a week to do, a computer can do in a few minutes with a bunch of different data sources on sales, on local economics, on demographics in the area and whatnot. And so that’s where you’re starting to see it. you’re also, mean, listen, you’re seeing companies use it just to streamline efficiencies and do kind of, you

like lease review and whatnot. And that’s not, it’s not to say it’s taking away jobs, it’s just creating efficiencies. So it’s what I’ve seen and I was at a conference earlier this year on AI and there were I think three or four different people in the residential market all using AI differently. So nobody has yet quite agreed on what it is, but they’re all trying it in these different ways. But from a site selection perspective,

it’s able to take vast amounts of data and really drill it down right to the zip code level. And that’s important because that local data is what matters most. ⁓

Shelley E. Kohan (18:06)
Yeah, and I know Steve, you have at ASG, not that you’re gonna tell us any secrets, but I know you use a lot of data analytics and can you maybe speak to kind of how you’re using it?

Steve (18:09)
Yeah. Yeah.

Stephanie Cegielski (18:11)
Thank

Steve (18:17)
No, absolutely. I ⁓ mean, technology is part of the DNA of retail. think retail has always been on the forefront of any new technology. And we’ve been into machine learning tools for ⁓ probably a decade. And it is amazing what it can do. We were in a portfolio meeting with a client and we were debating a particular store, whether to renew it short term, long term, close it, renew it, remodel it.

And on the fly, we could pull up that store and build a mobility trade area. So we could say, here’s how the store trades. Here’s the other stores it overlaps with. Here’s what’s going to happen if you close it. What’s going to happen to those customers? I’m going to go to e-commerce. So we have all of that data ingested into our system. And it just gives you the tools to make decisions so much more effectively and quicker.

You still need to know markets. still need to know trends. What’s, you know, if you’re looking at shopping centers, what’s happening in that shopping center? Is it one of Macy’s 150 centers that they’re remodeling or is it not? So you still need to be pretty smart about markets and what else is happening in the market. the data is amazing. It really is. It’s, it’s, uh, uh, compared to what we were doing. And I’ve been doing this for decades.

Stephanie Cegielski (19:42)
Now Matthew, can you do that?

Steve (19:42)
It’s very, it’s amazing.

⁓

Stephanie Cegielski (19:46)
But yeah, mean, in building on that, and you have to think about what data to put into that. So you’ve got to think about, and the nice thing is, is that there’s so much data available out there now. You can really add new data to give you new insights, but you still as that human being have to think about what matters, what’s the data that matters to feed into the model. ⁓ Otherwise it just doesn’t matter ⁓ at the end of the day.

Shelley E. Kohan (20:13)
Yeah.

Steve (20:13)
Yeah,

you’re absolutely right. can be, you can say, want to be next to so and so and you can pull up data now and say, you know, we’ve done a model on that doesn’t really matter. Or does we can confirm these kind of anecdotal ⁓ things that sometimes people use to make real estate decisions. So it’s very effective, but you have to build it all starts with data and technology. You have to start with that.

Stephanie Cegielski (20:21)
Thank you.

Shelley E. Kohan (20:43)
Steve, that’s super interesting. ⁓ some retailers’ location strategies to build stores near liked stores or ones they have on their list. And I think you just said that’s not always a successful strategy to have.

Steve (20:57)
It’s not always, yeah, for sure. So, you know, I got into Realistic because I was recruited limited. We had 12 divisions, know, Lerner, Lane, Brian, Victoria, Secret, Bath & Body, Avrocrub. So one of the first things we did was just do an analysis on how they performed versus each other. No correlation. So everyone has their own brand, their own customer demographics, their own unique.

Shelley E. Kohan (21:17)
Interesting. That’s just fascinating.

Steve (21:25)
unique things that draws people to them. So I shouldn’t say I shouldn’t say no correlation, but not nothing that was a while.

Shelley E. Kohan (21:29)
Okay, one last time. go ahead.

No significant correlation.

Stephanie Cegielski (21:35)
⁓ But you

can say that now with data. And so it’s not just, we’re not performing well, why aren’t we performing well? You have that data so readily available now to say, is why. Here is why it just might not work the way you think it’s going to.

Steve (21:41)
Yeah.

Yeah, that’s right. if you’re, you know, you have to have a certain scale because we work with multiple companies. So we’re mining, I think, 2000 retailers location data for 2000 retailers, keeping that current. So you got to, you got to invest in the data and you have to have a certain scale to be able to do that.

Shelley E. Kohan (22:06)
Wow.

So one last topic I want to hit upon before we leave. can’t believe how quickly our time goes, but where are we on lease negotiations? So Steve, you mentioned this kind of market leverage and who has the power now and what are we anticipating in the next few years?

Steve (22:33)
Creativity. We’ve abstracted over, I think, 20,000 leases, including about 5,000 COVID leases, COVID amendments. And the creativity on both sides of table is just astounding. And you build a system to be able to abstract and calculate rents and percentage rents, and then somebody comes up with a new deal, I’ll pay a

Shelley E. Kohan (22:43)
⁓

Steve (23:00)
flat rent until this sales level and then a percentage rent and then I’ll go back to a flat rent. It’s great. mean, the industry is very good at this. The deal makers on both sides are very good at trying to find that middle ground. And it’s tough. You’re competing with other retailers. You have your relationships that are important with those developers and you’re trying to find that common path. So ⁓ I do think the mixed use and the off-mall

opportunities have given opportunities for people to be a little more creative and work with new developers and do kind of one-off deals that are unique to that market and that developer. And I think that’s a good thing for the industry.

Stephanie Cegielski (23:46)
Yeah, would say, I would say, know, 2008 wasn’t that long ago, but everybody remembers it so clearly, even though it feels like a long time ago. But, you know, it also, it also gave us this opportunity to start looking at how to diversify that tenant base.

Shelley E. Kohan (23:46)
What are you saying Stephanie?

Steve (23:54)
You

Stephanie Cegielski (24:04)
so that you were a little bit more recession proof. And I think we’ve really seen that since COVID as people are demanding more sort of fitness and health and wellness and they want that kind of that balance. And I know one of the things that we’ve seen and this started a little bit pre pandemic was just that shift in lease length. So what started out as just kind of the mall kiosk has now become the pop-up has now become, you

I’m talking when they went into the market said why why would I sign a 10-year lease? haven’t been in business for 10 years So not sort of understanding and so I think it’s it’s been this nice sort of as

Steve was complimenting ICSC and thank you again for that. It’s a little bit like, I think right now developers, owner developers probably have the leg up because there isn’t the space, but they’ve learned to work together much better than I think historically they had. I think that the banks did that in COVID as they were trying not to foreclose on everybody because they couldn’t pay their mortgage, because they couldn’t be open. The government shut them down. And so it’s this fantastic,

Steve (25:02)
Ha ha ha ha ha ha!

Stephanie Cegielski (25:09)
and fascinating time because while you’re adversaries, you’re also fighting for the same thing and that’s ultimately to pay your bills and to make ⁓ revenue. And so it’s fascinating to watch, you know, there is definitely more room in negotiating some of those leases ⁓ than there previously had been. And it’s giving a lot of smaller businesses or those what formerly were DTCs ⁓ opportunity to enter a market.

Steve (25:37)
Yeah, I would agree with all of that. And I think generally, think everyone’s looking for protection on both sides. And so you can’t get locked into deals where you don’t know what the impact of e-commerce in three years or next year really, or competitive developments. developers have to deliver really vibrant centers. So they need some certainty on their side. And I do think

the two sides do come together in a good way and protect where the retailers have some protection they need. And the developers have financeable leases that they can bank. ⁓ Right?

Shelley E. Kohan (26:20)
Yeah, similar.

Similar to the retail ⁓ industry over the past five years, I don’t think I’ve ever seen it as collaborative as it is today. So same could be said of real estate. We all just want to win. We all want to make sure that we have viable businesses and that we can be successful in the future. The other thing I just want to mention, Steve, about I love mixed use spaces. I think they’re fantastic. And that just builds into the live, work, play, or as I like to say, live, play, work, right?

Steve (26:51)
Yeah, restaurants have a big part of that. I ⁓ think for decades, their zoning rules went the other way and they didn’t like mixed use spaces. From a public policy, that’s come back to where I think it should be. I think we’re all going to benefit that in future generations as well.

Shelley E. Kohan (27:16)
Awesome. Stephanie, do you have any closing thoughts?

Stephanie Cegielski (27:19)
No, just to kind of build on that, I do think that the mixed-use spaces, think that having six restaurants next door to each other, all different. ⁓

tastes and styles is beneficial because it gives you something different every day. I’m so happy. I’m worried in 2020 that that trend of restaurants and entertainment spaces would suddenly be a thing of the past because we were living in this time when people didn’t want to be together and it has come back really strong. We’re definitely seeing a slowdown there, but I think that’s probably a saturation issue more than a desire. listen, of its economic people are pulling back.

back

in their spending just a little bit as we still live in this slightly inflationary environment. But for the most part, they’re still doing well and people are going. And it’s really wonderful. I’ve been doing this for nine years now. not, mean, Steve’s the expert here, but I’ve seen a lot in my nine years. And this is actually a really positive time. And that’s not me just putting a spin on it because that’s what I’m supposed to do.

Steve (28:26)
Yeah.

Yeah. I’d just like to add two trends that we see. One is, you know, shoppers, middle income shoppers have learned to become value shoppers and treasure hunters. And we don’t think that’s going back. It’s not when the economy turns around, they’re not going to all of sudden abandon TJX or the or the they’re they’re going to continue to look for bargains. And that’s kind of a permanent change, we think.

And the other thing is just ⁓ how disruptive the GLP trend is. Six percent of the population’s on these diet drugs. They’re buying new wardrobes. They’re going to health spas. It’s not just losing weight. They’re changing their lifestyle. It’s one of the factors behind the med spas that are opening up. And that ⁓ is projected to grow to maybe 10 percent of the population. That’s 30 million people.

That’s a core segment that’s really significant. We’re it affecting packaging, sizing, everything. And the retailers that are really on top of that and ahead of the curve on that are going to have some success, I think. So that’s the other, those two trends we’re watching out for.

Shelley E. Kohan (29:43)
Well, great. Thank you, Steve. Thank you, Stephanie. It was a bit of fun conversation and I know our listeners learned a lot today. So thanks for being here.

Steve (29:50)
Sure thing. Nice to meet you, Stephanie. Take care.

Stephanie Cegielski (29:52)
Thank you, Shelley. You too, Steve.