Back in Black: Retail's Recovery and Ongoing Evolution

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Spencer Levy
I'm Spencer Levy, and this is the weekly take, is it just me or do the holidays seem to start earlier and earlier every year for the retail industry? Tis indeed the season. And on this episode, we're talking shop. Well, shopping with two leading retail experts.

Dana Telsey
The focus and the function of a physical store has more use and more meaning than it ever did before.

Spencer Levy
That's Dana Telsey, CEO and chief research officer of the Telsey Advisory Group. Dana started her career on Wall Street before she founded her own business in 2006 and branched out into research, consulting and banking and asset management. Her New York-based firm is now one of the foremost consultancies around. And in 2020, Barron's recognized Dana as one of the 100 most influential women in U.S. finance.

Brandon Isner
People took the idea of Black Friday and went shopping. It's essentially the story of retail and what drove that. I think people are just excited to finally get out again.

Spencer Levy
And that's Brandon Isner, CBRE Americas head of retail research based in Miami. Brandon brings a fresh outlook, a belief in using data and metrics to tell stories and find unique angles on commercial real estate. With Black Friday and Cyber Monday fresh in our minds, we'll cover the numbers and share observations. We'll talk about foot traffic in e-commerce and more. We'll dig into the value and future of data headline issues such as supply chain and inflation and the enduring iconic power of shopping bags. Coming up, wholesale insights on the retail scene, that's right now on The Weekly Take. Welcome to the weekly take. Dana, thank you for joining us.

Dana Levy
Thank you for having me. I'm absolutely thrilled to be here. Couldn't be a better time given what's happening with the upcoming holiday season, but even more importantly, twenty twenty two. I'm thrilled to be here and talk shop with you.

Spencer Levy
We’re delighted. Brandon, thanks for joining the show.

Brandon Isner
Spencer, it's always a pleasure, as you know, and I'm ready to go. Let's have a chat.

Spencer Levy
Awesome. Well, next time in Miami, Brandon, how about that?

Brandon Isner
Definitely over mojitos.

Spencer Levy
You betcha. So Dana, let's just talk numbers first because we are recording this on the Wednesday after Cyber Monday and Black Friday. How are the numbers and how did you read them?

Dana Telsey
Well, I read the numbers. Overall, I think it was a good Black Friday weekend. I think there definitely was a pull forward. When you think about the numbers overall on Cyber Monday was down around one point four percent. When you think about the numbers over the Black Friday weekend, we didn't have stores open on Thanksgiving Day. Well, we have been seeing is some of the numbers came in right in the middle of what was expected. I think consumers started shopping earlier. You have less promotions. You have consumers who are in a healthy way. They have the ability to spend. Their wages are up year over year. Their savings rate is there and they haven't gathered with people in nearly two years as a result of that. They're out there with Thanksgiving Day celebrations. What's going to be holiday celebrations? And overall, I think that the Black Friday weekend, our forecast of up around six seven percent year over year, up 17 to 18 percent compared to 2019 for holiday season sales. Those hold, they stay steady in all my findings as I was out in the shopping centers over the weekend. Apparel sold through footwear sold through and in the world of essentials, which was so popular the past two years. My world of discretionary really shined for Black Friday weekend this year.

Brandon Isner
I agree with most of what Dana said. The foot traffic was really fascinating to look at. Placer A.I., which is this great tool that we have nowadays to track foot traffic. In indoor and outdoor malls it was still below 2019 levels, but not that much, about eight nine percent. It was way up over the year before. But what I find fascinating is when you're looking at indoor malls comparing Black Friday to other days in November, it was up over two hundred and fifty percent. So clearly, people took the idea of Black Friday and went shopping. It's essentially the story and what drove that. I think people are just excited to finally get out again and experience the holiday season because last year's holiday season was essentially lost.

Dana Telsey
The other interesting thing is that conversion is higher. We're seeing consumers go shopping, they're going there with a purpose. They're all carrying shopping bags. And that's good to see.

Spencer Levy
Absolutely good to see. You know it brings up a funny story. My grandma Bess, who passed away a few years ago at one hundred years old, I used to love going to Alexanders and Bloomingdales and walking out with the bag. It was like, I know a cool thing for her, but maybe that's returning. But this time there's more things stuffed in the bags because of pent up demand.

Dana Telsey
We have something in common, Spencer. My grandmother passed away at 103 a couple of years ago and she worked in Bergdorf Goodman. And when she stopped working at around 89 years old, she worked in women's lingerie. She was the best salesperson in Manhattan on women's lingerie to the point where when she left at 89, Saks called her up and said, Would you -- she was a great La La Perla salesperson -- would you just work even whenever you want? On the prowl at our store, she goes, No, no, I'll do other things now. So I agree with you. Carrying a shopping bag is a feeling of excitement.

Spencer Levy
Agreed, agreed. And before we get into some of the issues like omni channel, I just want to ask Brandon a question about data. We talked about foot traffic. What are the other indicators that we should be looking at about the strength or challenges of bricks and mortar retail?

Brandon Isner
The data that we have available to us, it's remarkable and it makes our jobs easier at the same time as it makes it harder because now there's more things to sift through and find out what's the actual data that tells the true story. And I already mentioned place are. Another thing that I find fascinating, and this is essentially born through the pandemic is open. Table does a really great job of tracking seated diners in restaurants in comparison to pre-pandemic levels. And so that's an actual seated diner. And it's fascinating to see the levels between markets, which markets are up and which markets are down. Obviously, we've had different levels of lockdown within the country, and so something like that, it puts it right in black and white and what's happening in regard to just the restaurant industry. So that's a source that found fascinating.

Dana Telsey
So I think some of the interesting things with the analysis of retail used to be I used to go on these shopping tours all around the country and I would take clients with me in order to evaluate what's working in the different stores. What did you see in the different shopping centers around the country that is still valuable? The added tools that are available now, whether it's Google Trends, whether I do my own weekly review of all the websites of tons of 53 different retailers, frankly and gauge, what did they do this year versus last week and versus last year, either in promotion or merchandizing content of what they're selling? I think the data that's available allows analysts, if you do the work, to be able to even learn more and know more than what they knew in the past because of the tools that are out there for you. And yes, the old metric used to be that number of store openings, time same store sales and sales per square feet can give you the total sales. Now there's another dynamic, and I'm sure we're going to talk about this what omnichannel means today, whether it's buy online pickup in store, whether it is the attachment sales shift from store, the focus and the function of the physical store as more uses and more meaning than it ever did before. But the key is the investment in it. And are you listening to the data of what consumers want that store to be? There's more opportunities to be successful from the data that's out there. And you know what else? You need some sharing sharing between the landlords and the tenants in order to make everyone win.

Spencer Levy
That brings up another issue that I was going to wait to the end to get to, but I'm going to bring it up right now since you brought it up. Should landlords get a piece of the internet sales in the trade zone in which they sit? I think the point is whether that's a structural change or not. The relationship between landlord and tenant is not just changing, but it has to change in order for it to be successful long term. Brandon, I see you nodding. What your point of view?

Brandon Isner
I agree 100 percent. You know, I think that those boundaries aren't yet known. I think we're still just trying to figure it out. Then you kind of hinted at before, like I was M Commerce, you know, mobile commerce from store apps that's projected to be over 10 percent of total retail sales by twenty twenty five. And those aren't regarded necessarily as pure play e-commerce sales. And so all the boundaries of e-commerce and what's a pure play e-commerce and what's in store sale? The boundaries are muddy. Florida just put in place a measure to have a tax on online sales coming into Florida. This wasn't even in place before. And so I think a lot of these boundaries are still being established, and we're starting to realize how intertwined e-commerce in brick and mortar are. And to be perfectly honest, I've been a big proponent of this. It’s part of my narrative. We need to get over the idea that e-commerce and brick and mortar retail are in competition. They're not. They work together to make each other better. Retailers that are embracing e-commerce and figuring out that, wait, this doesn't mean that the store is going to die. This can actually make our store better. Those retailers are the ones that are excelling in today's world.

Spencer Levy
Dana, in your opinion, when do you see internet sales peaking as a percentage of retail sales?

Dana Telsey
Well, look what you're having this holiday season. All of a sudden, online sales were down 1.4 percent over Cyber Monday. I think that we got an acceleration of the pandemic of up to 500 basis points. We're seeing normalization now where it's coming down for many companies, what the percentage of sales are. I think by twenty twenty five, it'll be more stable. But we got the acceleration that we would have had over five to 10 years already. And you're also having -- the other interesting data point for 2022 -- companies are not closing as many stores as they originally planned for ‘22. Companies that closed stores are bringing stores back to areas that they closed in, maybe with the more efficient model. And that goes to show why there's an integration between the two. It is not either or it is. Both landlords know it and retailers know it and the customer knows it.

Brandon Isner
I would agree with that and not to say that it's not going to grow. There's always going to be disruption. The personal computer and the business computer is supposed to wreck the office market and that didn't quite have an affect and accelerate it. There's a lot of different ways to judge it, but in the end, I agree with exactly what Dana said. There was that jump during the pandemic, but it's basically balanced out since, and early results from places like MasterCard went out there showing a pretty good jump in brick and mortar sales, and it's right in line with e-commerce sales. Again, I don't think it's an if or situation. I think they work together, and I think we'll find a great balance of e-commerce in brick and mortar sales going forward.

Spencer Levy
Mm-Hmm. So Dana, what's your perspective on this question about you brought up the topic about landlords and tenants changing their relationship. I brought up the concept of getting pieces of internet sales to both of them because I put just forward just a concept that a lot of retailers do. A lot of retailers have their head of sales within that particular store. They get paid a bonus based upon net sales, and that includes not just the sales, but also reducing it by returns. Well, the problem with the internet is that you get a lot more returns and you may return it in store. So even the stores themselves may need to change how they compensate people. So what's your point of view data?

Dana Telsey
I think one thing is that there's no standardization. Every retailer does things differently. Every landlord does things differently. And in order to be able to adapt something on a wholesale scale, you can't have 10000 different ways of doing things. And I don't know whether it's in third party committee. There's got to be something out there that is able to put things together about what can be a standard that everyone can be either held accountable to or that they're comfortable sharing. Because at the end of the day, I think for the landlords and to the retailers, it's an investment of money that they're making, whether it's in the land for the shopping center, it's an investment in money for the stores and a commitment of multi years that you're making. And everyone wants that continued investment in reinventing and renovating those stores and those centers in order to capture the most traffic. So it's a benefit for all how we get, how it gets there and how you measure the sales. There's got to be something that can be standardized because otherwise no one can go through with all these different tenants every different way. No one's ever going to agree on anything 100 percent because everyone thinks differently. But there's got to be some framework. Like we all talked about sales for square feet. We used to talk about same store sales. What are the new KPIs or metrics that are out there today that define the next 10 and 15 years? I think that is going to be one of the most interesting elements that we come out of this with. It's still in the discovery phase.

Spencer Levy
Well, I think that's right, because all of the metrics you just mentioned are somewhat old school even foot traffic is somewhat old school when you think about it and what people are trying to get is the highest and best use of that space. But I think what you're suggesting is that we haven't come up with that new metric yet to determine what is the true value of that physical space. Is that correct enough?

Dana Telsey
That is absolutely correct. We have not come up with that new metric. I think we are beginning to see new metrics come about. I'll give you examples. All of a sudden, an average order value because. Tomorrow, acquisition costs the long term value of a customer, the way that the metrics that used to be so relevant. Same store sales still is relevant. But now what's underneath that? The units per transaction, the I mean, there's always traffic and the conversion rate, but we haven't come up with yet what online contributes the margin, the margin profile, all knowing now is the fact that online sales in the margins are more profitable today than they were years ago because they weren't profitable. And so companies are now talking that there is profitability, but what goes in that line item is different for every company. There's been very limited standardization, and I think there needs to be a committee formed of outside third parties that are not biased, whether it's the landlord and the retailer. How could we come up with what do we all agree on? And not that everyone's going to agree on anything, but we need that framework, and I think we need that for the next 10 and 20 years because the usage of the store has more functions than it ever did before. Buy online pickup ship from store. Keep in mind, a lot of these stores were closed during the pandemic that sold discretionary goods. They were closed to customers, but yet there were personnel in their shipping goods from the store. So we're at the beginnings of how do you incorporate new functionality into metrics and data that can be analyzed for retailers and for landlords so that we can all see what productivity is because productivity matters and being able to attract other adjacent tenants into that space. It's also important to help decipher how much are you going to invest in the center in the store in order to keep it vibrant and fresh because we know that that also drives sales. There's a lot more discovery that needs to be done on an equal footing because everyone will benefit at the end of the day. This is a we, not an either or not a you or me, but everyone wants returns to be higher.

Brandon Isner
Just to follow on Dana's point, one thing that I've been able to observe is that there is an extraordinary amount of venture capital being poured into tech related companies that are retail focused that are trying to find these retail solutions. We already talked about mobile commerce a little bit, but the solutions they are out there and this issue will be solved because there's a lot of interest in it right now. And quite frankly, there's a lot of revenue at stake behind it. And so it will come up. I love that idea about having a third party panel to come up with the solutions, but I think that, you know, we will start to see solutions emerging within the next three to five, 10 years, for sure.

Spencer Levy
Well, I think getting rid of some of the opacity would be a benefit to all, and I certainly know who I'd nominate to be at the head of that committee, Dana. But one of the concepts you brought up, which I think is absolutely central to the debate over bricks and mortar versus the internet or omni channel, is this concept of customer acquisition costs now, customer acquisition costs have a lot of categories. Traditionally, they were advertising, but that's not what the main customer acquisition cost is today. The main cost is the cost of free shipping. Guess what, folks? Free shipping isn't really free. It is the retailer picking up the tab. OK, now the original internet model was not profitable because they were essentially buying market share through these subsidized shipping costs. Now, because of what you just said, Dana, about buying online, picking up in-store curbside, those customer acquisition costs are dropping and we are now seeing more profitable internet sales. Is that what you're saying, Dana?

Dana Telsey
Yes. When you look at buy online pickup in store, the attachment sales link or when someone comes in to pick something up that they bought online. Well, guess what? They're going to buy a pair of pants on the way out or they're going to buy a lipstick on the way out. Are they going to get shampoo, whatever it may be, but you're going there and it's the retailer's job to excite them. OK, let's put something else in the cart. Why do we see all these new partnerships lately? They're exciting. Why did Macy's bring in toys? Why did Kohl's bring in Sephora? Why did Target bring in Ulta? That's what's changing. Brands have a wider scope. Retailers and their ability to capture new customers. And while everyone wants the millennials and Gen Z, they don't want to give up the baby boomers. And older to a dollar is a dollar and market. Share matters.

Spencer Levy
Dana, I'd like to go to you now on the retailers or retail concepts you like. What are you seeing now? What do you see the trends as?

Dana Telsey
I think overall, when you think about the trends of retailers and what happened coming out of COVID. COVID basically took away the old narrative that I'm so glad is away. I mean, that Amazon was going to take over the world. Well, that didn't happen. If anything, the strengthening of the company's retail portfolios got enhanced. Second thing, the narrative that, oh my, there are too many stores. You bet there were and to try and twenty twenty cleansed a lot of those weaker stores away. And then also the narrative that, oh, so many retail companies are going to go bankrupt. They did 96 went bankrupt in twenty twenty. And now we're at the forefront of newness. When you think about the newness there, I think brands morph into evolving from just one item to many categories because they are lifestyles. Look, what you're having was active out there now. Active remains strong, and there's many different brands that fit all different purposes. The strength of Lulu is phenomenal, and now they purchased Mirror so that they can make the art of purchasing something to do. Part of doing also with the activities that you're doing when you are doing your exercises with the Mirror, I think Lulu and the potential for a loyalty program is exceptional. I think beauty and beauty and wellness. I think one of the things that came out of the pandemic is that love for beauty and wellness too and taking time for yourself. And so all of a sudden you're seeing more brands, whether it's wellness like the well, health spa initiative that's going on, whether it's beauty and what you have that support and Ulta as they continue to expand their brands, whether it's new brands that have the authority to go into other categories like hair care and the strength of Olaplex, could that go into skincare too? I think that's very interesting when you think about sustainability and purpose. That's a messaging that we're at the beginning of. It's further along in Europe than what it is here. But take a look at all the brands now where yes, it matters to Gen Z's matters to millennials. But the education the awareness of it is making it appeal to other brands too. I've always heard the rule of thumb that it takes sixty 65 days to form a habit. We have been in this pandemic for a lot longer. The outdoor activities of hiking and return to nature is going to be part of everyone's mindset and, frankly, mental health. And I think you're going to see these outdoor brands, whether it's Sperry, whether it's Merrell, whether it's what you have with what Allbirds is doing. I think it's going to be super interesting that way. And we think other areas of health and wellness look at Warby Parker. I mean, and how every one of their stores is different today. And yet the adoption of optometrists and eye exams really drives attachment sales. I'm seeing other interesting things, even in apparel and clothing. Check out those Aritzia stores, the different brands that they have and the way that they decorate their stores. They're exciting and appealing when I think of other newer concepts that are out there. I think streetwear is fascinating. I think the streetwear collaboration with mainstream brands are definitely front and center. Whether it's the Fenty's of the world, the Supremes of the world, there's only more. And I think the next every 10 years is a wave of newness. I think we're at the beginning of this wave of newness. And you know what? Don't count the department stores out. We're not going to have as many. There'll be fewer. But they may be more engaging them what they were before with the digital and physical component.

Spencer Levy
Often when I talk about department stores, people ask me, What's your favorite department store in the world? And I say it's Harrods in London because there's one of them and it's an experience, and I think you're going to see more like that. Though I did go to a great Nordstrom's recently in Seattle at one of the most beautiful bars I've ever seen in the middle of the store. While for husbands like me who were not as into shopping as maybe others.

Dana Telsey
My last trip to London before the shutdown was the end of January 2020 and I was in Selfridges. I always think Selfridges whenever it rains in London. I could spend the day there because it's so big and so many different things. They literally had like a skating bowl for skaters. It was amazing. And people are learning up with their skateboards how to state from that skating bowl. So the activity of doing is married with the activity of entertainment or retail.

Spencer Levy
Let me jump into that. I'm going to turn to you now, Brandon, because I think what we're talking about here is experience entertainment. All of that is fun. It's great. It drives foot traffic. But is it the highest and best use of your space? Because to me, if somebody isn't buying something in that square foot? Maybe it's not the best use, and where I'm going with this is restaurants, because restaurants are great tenants, because they bring in foot traffic. They're fun. They're if they're cool, but they're tough tenants because it's expensive to bring them in. They fail a lot. But nevertheless, we're seeing more and more landlords putting more and more of them into their centers to drive this experience to drive this entertainment factor. Brandon, what's your point of view?

Brandon Isner
The restaurant industry is fascinating, and in a lot of markets there's been a really good rebound, obviously, and we know in the buildup before the pandemic. Yes, restaurants were one of the higher lease Ressa's of space within retail, and even now, some markets have risen above where they were before and restaurant traffic. But the one thing that I think is going to be fascinating in the restaurant industry is that in urban environments, a lot of these cities have allowed additional sidewalk access to restaurant tenants, and that's not in their lease. And so it's going to be fascinating to look at when some of these leases start turning over. And if the new tenants come in, if they try to put in something in the lease which guarantees them use of that sidewalk or use into the parking strip into the street. So there could be a drop off in restaurants. But going back to your point, though, any foot traffic is is generally good. Retail works so heavily on perception and I think that that's how retail was allowed to be kind of tossed through the dryer air so many times. Reality is, people say that the U.S. is over retail in comparison with other countries. That definitely true. But I did a study in an on an index basis. Sales per square foot of retail have been increasing fairly regularly since several years back, and so retail space is getting more efficient. And one of the reasons of that is retail construction has been relatively below average since the great financial crisis, and so it's really allowed sales to catch up with the retail footprint. The retail footprint has expanded about four percent from 2010 to 2020, while retail sales increased 42 percent. That's incredible. They definitely should be keeping a close eye on how much of that foot traffic is converted. But if people are having a good time, they're going to want to spend. They're going to want to come back because that's an experience and they're going to want to remember that.

Spencer Levy
Well, Dana, you brought up two concepts of streetwear and ESG sort of in the same context. And you mentioned Allbirds, which was a guest on this show, and they make their sneakers now out of eucalyptus leaves, which I only knew about eucalyptus leaves because while a bears like to eat them.

Dana Telsey
Next year, watch. They're going to come out with a plant based leather sneaker. And I think it's in demand.

Spencer Levy
So this shifting consumer tastes and consumer tastes not only as it relates to more casual wear becoming more common in the office, but also more ESG friendly product. What do the older products do? Are you seeing any older retailer that has reinvented itself? Or if you were an older retailer, is it tough to rebrand?

Dana Telsey
Look at Levi's, look at Levi's. I mean, you're talking about one of the oldest brands out there. Eighteen, thirty seven or so they have rebranded. Their messaging is one of purpose. They show you exactly how the denim jeans are made. They're expanding the reach with collaborations. You take a look at what they've done with tick and really going viral. They're capturing the father, the grandfather and the grandson at the same time. Look what Koch is doing. Same thing that they have become more relevant today for the modern consumer. And those brands I mentioned, like Sperry, look at Uggs. Who would ever thought that Uggs would have as many lives as it does. Yet it keeps coming out with such appealing products, keeps having influencers that get younger and younger, bringing newness. What the pandemic did and what came out of it, you got three things. Processes were enhanced. Purpose came into the mindset of what the brand messages for and what the product means. And at the end of the day, it all delivers a profit, so enhanced profit processes adjusting to matter with purpose in order to drive profit. The three Ps process purpose leading profit. And I don't care whether it's for a brand, for a retail or a landlord, everyone can follow those big themes and find how it applies to their business.

Spencer Levy
Let's go through those three Ps one more time, Dana. Just repeat them one more time.

Dana Telsey
Assess what came out of the pandemic that you enhanced your process. You take a look at what brands are doing to update their offering purpose, and you think about what brands are doing. And at the end of the day, what they all need to do in order to be able to deliver success is grow profits so that they can reinvest. And what we're seeing because you have to compare everything against 2019. Many companies are reaching 2019 levels of profitability faster than ever expected because they were given another pay. They were given the permission during the pandemic to accelerate change.

Spencer Levy
We’ll that’s a fourth P

Dana Telsey
Exactly

Spencer Levy
We have Process, Purpose, Profit and Permission. So let's switch gears here for just a moment. Let's talk about a more of a macro issue, and the macro issue has to do with the supply chain disruptions that we're seeing today. We're seeing shortages on many shelves and we're seeing the specter of, if not in reality, more inflation that may be with us for a while. Data from your perspective, how is this impacting retailers today and how might it impact them longer term?

Dana Telsey
I think it's been going on for a while, and I think supply chain headwinds are going to continue through most of 2020 to. I think the change really is the fact that number one, where the goods being manufactured, we know that Vietnam had the issue, particularly in southern Vietnam. Now goods are being produced again. There's the headwinds of containers. Can you get a container and the capacity on the container to bring it in? And then when you get to the port in Los Angeles, are there enough labor in order to take the goods off the container and load them into trucks to get to stores and distribution centers? So it is a 360 degree loop where the headwinds are companies have ordered. Earlier, they brought in goods by air freight. It's costing everyone more. Pricing increases are being passed on to the consumer, more innovation is being put in the product and those price increases now being accepted the length of time until this normalizes. I think that's going to take until sometime in the second half of twenty two the big retailers have planned. The smaller retailers are adapting and I've even heard some companies working to get manufacturing closer to North America in order to accommodate the need for speed.

Spencer Levy
Well, interesting on that last point, Dana, I had a debate with one of my good friends, Henry Chin, or head of investor research for the company based in Taipei. And what he was talking about was exactly what you just said. This quote plus one strategy and the plus one strategy, as he described it, was that we were going to see more manufacturing in the VIP countries Vietnam, Indonesia, Philippines, in addition to China. And I responded with: What about the Big Mac, Mexico, America and Canada? So if you're if I'm going to steal your four piece, you can steal my Big Mac, Dana because I believe in the Big Mac, because Mexico, the average worker there, makes 10 percent of the average American workers or what's efficient to build there. And in Canada, when you're dealing with more complex manufacturing, they have five times the amount of skilled immigration on a percentage basis as the U.S. So it all kind of works together in that regional approach, and maybe we will see more manufacturing come back.

Dana Telsey
I'm going to use your Big Mac algorithm.

Spencer Levy
See that Dana? Touche. We could share these little things. So Brandon, what's your perspective? Supply chain? Inflation?

Brandon Isner
I think it's interesting to see how quickly retailers have adapted to what could have been a bigger problem. There's no question, you know, inventory to sales ratio within retail is at an all time low right now. But what we've been seeing is the larger retailers that have economies of scale. They've seen this coming. They've been building up inventory over a longer time. We've seen stories of some retailers even hiring their own ships to bring goods here and to bypass some of the congested ports. I've heard narrative from some of our retail brokers. That's some of their local brands might be struggling, that they have just had less inventory on hand than they normally would for the holiday season. And I've seen that on a local level. My local coffee counter for a while, they were out of ice cups. They had to go to the store to buy red solo cups, and that's how they delivered their their iced coffee Iquitos. But again, they were able to adapt. And so I think that's the story of retail, it's adaptive and any issues that come up that will match it to deliver the goods to the consumer.

Spencer Levy
Let me bring up a couple more issues, then we'll wrap it up. And Dana, I'm going to introduce you to a new concept. Your new employee, if you’re a retailer, is your customer, your customer is your employee. By putting many of the tasks that you might have originally put on one of your sales professionals onto them through automation through buy online pickup in store and maybe we don't even have a labor shortage have done well enough. What do you think, Dana?

Dana Telsey
I think part of why you go to stores is for that relationship on the discretionary side. We want to talk to someone. Does it look good? Does it feel good? One of others said, And yes, you can automate a lot of things, but one of the things you get from an experience is you get a memory. And one of the issues that we've had during the pandemic, especially with Zoom on the 28 of the hour or the 50 80 the hour everyone leaves because they have another zoom at either one, 30 or two o'clock, whatever it may be, the hole that we have is we don't have the memories from the experiences of Zoom and automation can create that whole of the memory. So how can we marry the need and the speed of automation with having a person who can help socialize and create that memory? That's the challenge for the retailers and part of the secret sauce going forward.

Brandon Isner
I'm nodding as you’re saying that Dana. I'm a local retail person and I tend to buy gifts and whatnot at local retail stores, and I had friends that opened up a taco restaurant in Cleveland. And so when I went there and I had a city burrito in Cleveland where I would go and buy tacos there, and then I saw when the owners moved into my neighborhood and I would see her out in the neighborhood, walking her dogs. And then she had some kids and then I'd see them and I'd talk to them and by buying food at their restaurant helped create that. And so when I buy gifts at a local retailer, it's like giving two gifts and it draws you in and it just makes you part of the community. I talk sometimes about the romanticism about retail, and I believe this one hundred percent sometimes I don't need a coffee, but I want to go down to my café counter here in Miami Beach and I want to talk to them and I want to see them and say, hi. Those are experiences that you can't get anywhere else, and you brought up a perfect point and I wrote it down this Zoom world that we kind of live in now. It does need these outlets and it needs like a break, you know? Let me get up and walk for 30 minutes and go, say hi to my person, that's at the coffee counter, or let me walk by and see if my favorite kind of person is at Macy's today. These are things I actually do, and I think they're a part of who we are as people and retail is a part of our community. It's in our artwork. It's in our songs. Who doesn't tear up a little bit the beginning of a Christmas story, looking at them, looking through the window in the department store and all the kids just looking up at wonder. It's just an amazing experience and it's never going to go away. We need it as part of our human culture.

Dana Telsey
And I think one of the things that happened the pandemic reinforced that even more human connection matters more than anyone ever thought.

Spencer Levy
So let's now wrap this up and I'll start with you, Brandon. So five years from now looking back, we're going to look at the retail landscape of bricks and mortar. What do you think is going to change and what do you think is going to stay the same?

Brandon Isner
Retail is part of our culture as members of the human race. The concept of marketplaces have been around for thousands of years. The Grand Bazaar in Istanbul has been around since the fourteen hundreds. So brick and mortar retail is not going to go away. It's going to be perfected by the technology that's been born out of ecommerce and convenience. And that's going to work its way into the store to create a seamless retail experience for people that everyone can take part in, regardless of generation.

Dana Telsey
So I think what's going to stay the same physical footprints? I think physical footprints matter. You're going to see even this new generation of retailers opening stores because that helps to attract digital sales and digital sales help physical sales. And the other thing I think is going to stay -- not stay the same, but have a return to -- the theater of retail. I think that theater of retail -- curtains up and all of a sudden it's a stage -- I think that aura, that excitement and that celebration is going to return. And I think that brings the purpose to retail also. I think what change is going forward. I think this new wave of companies is going to have a wider appeal than people think. I think there's going to be some consolidation among that new wave of companies. But I think the inventory management is going to be more precise. We're still going to have discounting, but we're going to have better margin management and better profitability. I think we're going to. Be a stronger industry in five years than we were even a year ago.

Spencer Levy
Well, on behalf of The Weekly Take, I couldn't have expected a better conversation. What a great talk today about retail from two of the great minds in the business. Starting with Dana Telsey, the CEO of Telsey Advisory Group, one of the true legends of the retail business. Dana, thank you so much for joining us.

Dana Telsey
Thank you for having me. Have a great and safe holiday season.

Spencer Levy
You too, Dana. And then my very good friend Brandon Isner, the Americas head of retail research for CBRE, based in Miami. And Brandon, I can't wait till we have that Cuban coffee and mojito together.

Brandon Isner
I'm absolutely going to take you up on that. I can't wait. Thanks for having me. It's a pleasure.

Spencer Levy
For more information on the retail sector, please visit our web site at CBRE.com/TheWeeklyTake. You can also check out the latest insights from CBRE Research that includes a recently published brief on 2021 holiday shopping trends, which projects a strong comeback for the sector this season. We'll be back next week to dive even deeper into the numbers with a follow up on retail: Part Two in our retail series with Brian Harper, the CEO of RPT Realty, one of the largest retail rates in the country, along with CBRE’s own Lisa Stoddard. In the meantime, please share the show. Subscribe rate and review us wherever you listen. Thanks again for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.