In this episode, Tom McGee, President and CEO of ICSC, joins host Terry Montesi to explore the future of retail.
ICSC elevates the marketplaces and spaces where people shop, dine, work, play, and gather. Drawing from ICSC’s extensive industry research, Tom offers perspectives on the vitality of physical retail, the necessity of adapting to changing needs, and the pivotal role of omnichannel strategies. He also shares key insights from ICSC’s Halo Report.
Tom also explores the ramifications of the demand for physical space, government regulatory constraints, and recent news such as Macy’s store closures.
Plus, discover the exciting initiatives of the ICSC Foundation, focused on providing valuable networking and growth opportunities for emerging talent.
Subscribe to Leaning In for more discussions with leaders in retail and real estate.
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Transcript:
Terry Montesi: Welcome to Leaning In, a commercial real estate podcast hosted by Trademark Property Company. Join me, Terry Montesi, CEO and founder of Trademark, and other Trademark leaders as we talk to industry experts about the future of retail, multifamily, and mixed-use real estate. Thanks for checking us out. And now it’s time to lean in.
Today, we welcome my friend Tom McGee to the show. Tom is president and CEO of the ICSC, the membership organization serving the marketplaces industry. As the voice of the industry, Tom is the leading expert on the marketplaces and spaces where people shop, dine, work, play, and gather. As an organization, ICSC produces content, events, and experiences that support and advance the growth of its retail and real estate member businesses while also informing and advocating to shape public policy. Prior to joining ICSC in 2015, Tom served as vice chairman of Deloitte LLP, the largest professional services firm in the U.S. Also, he is a noted business speaker with frequent appearances on, among others, Fox Business, Bloomberg, and Yahoo Finance and is often quoted in national media outlets such as the Wall Street Journal, the New York Times, and the USA Today. Thanks for joining us today, Tom. Let’s lean in.
So, Tom, you’ve been leading ICSC now for nearly nine years, and you led us through the e-commerce explosion, COVID, and some very turbulent economic climates. Highlight the differences in the industry today versus nine years ago when you arrived at ICSC.
Tom McGee: Well, first of all, it’s great to be with you. I think the industry is in a very strong position right now. I’m sure we’ll touch upon a number of these things over the course of our conversation. If you would have closed your eyes and imagined in the height of the pandemic, for example, that retail real estate would emerge from the pandemic in a stronger position than it was when it entered into it, you probably would have doubted yourself at that point. But here we are.
Terry Montesi: We all were doubting ourselves.
Tom McGee: And retail’s strong, retail sales are super strong. The demand for physical space is exceptionally strong. And when I started in late 2015, of course, the narrative was around the retail apocalypse, and there was no apocalypse. We’re sitting here today in a very strong industry.
Actually, if you looked at retail sales over the course of even that period of time from 2015 to today and all the way back to the Great Financial Crisis, say 2010 after the Great Financial Crisis and beginning to claw our way out of it to today, in every year but one, which was 2020 when we were in under the midst of stay-at-home orders, physical retail sales increased year over year in every year but one. And obviously, e-commerce sales did as well and increased at a faster rate generally than physical retail.
But physical retail sales always increased, even when we were going through this narrative about the retail apocalypse, and now obviously, we’re in a very strong position. At the end of the day, look, the demand for physical space, quite frankly, is in excess of the supply of physical space, particularly in suburban open-air retail, which is on fire right now. If you look at retail sales, since the Great Financial Crisis, they’ve almost doubled in the United States. The US population is up 10%, more than 10%, US GDPs grown by over 33%. But shopping center GLA is grown by about 6.8%. And so, you’ve had this dramatic growth in retail sales, you’ve had a dramatic growth in GDP, you’ve had dramatic growth in the population, and you’ve had very limited growth in retail square footage.
And of course, retailers are now using their store for not only traditional shopping purposes but also as little mini fulfillment centers. And so I would say the state of the industry is quite strong from a leasing demand perspective and the use of space perspective. Obviously, transaction activity, which we can talk about, I’m sure, just because of the rapid acceleration of rates and so forth, is definitely challenged right now. But the demand for space, the strength of the consumer right now is very strong.
Terry Montesi: You covered a lot of topics. I may be able to eliminate a few questions because that was a great answer. I’m going to expand on one, the potential supply-demand imbalance in brick and mortar. Tell me what kind of data have you been seeing? What have you been hearing, noticing? How do you think about the supply and demand? Are you seeing anything happen that you think is going to change that?
Tom McGee: Well, first of all, there’s been some increase in supply. I said 6.8%. Obviously, there’s been a lot of obsolete space that’s been taken offline over the course of that 15-year time period. The stuff that’s come online is newer and typically in areas where there’s population growth, kind of like in your market. In Texas, it’s growing very fast. Florida, the southeastern part of the US, some of the Sunbelt states are growing, a lot, and so retail follows that, and retail square footage follows that.
But I think if you look at the market as a whole nationally, I think we’re going to be in a period of time where the supply is still going to be constrained relative to the demand. One, because retailers, many retailers, Walmart, Target, for example, have both announced intents to open up stores, and there’s many more that have made announcements around that. And so they’re using that to grow as part of their growth strategy in the traditional sense, but also again, back to this mini-fulfillment center concept. So there’s demand for that space. But if you just look at construction costs are super high. It’s hard to get financing for ground-up development.
Terry Montesi: Is that right?
Tom McGee: Yes, you could speak to that better than me, I’m sure, and your colleagues in the industry. So, I think while there’s clearly going to be development, the pace of development is going to be challenged because of the macroeconomic conditions. It’s not because there’s something wrong with retail. It’s because the cost of the capital, it’s because of a lender’s risk tolerance.
Obviously, there’s regulatory pressures on the banks and concerns around making sure they maintain capital reserves, and there’s even potential new banking regulations coming down the pike and the Basel requirements that potentially are going to get implemented. Although, Chairman Powell said yesterday they’re going to re-look at that. So you need liquidity and you need capital and debt to do development, and I think that’s going to be a challenge.
Terry Montesi: The capital markets are still somewhat unkind and unwelcoming to retail even though our fundamentals are so strong. Don’t you hear that?
Tom McGee: Yeah, I hear that. I’ve had the opportunity to travel a lot over the course of the last year, really gone out to a lot of member companies, look forward to coming to visit you in Dallas sometime soon, face to face at your headquarters. And that’s the one thing that I hear consistently from everybody in the industry. Leasing demand, super strong; financing, transaction activity, much more challenging.
And quite honestly, even if you were to- there was a construction boom. Today, everybody said they were going to start building and there was tremendous access to capital, it still takes a number of years for things to get built and to get online and so forth. So, in the absence of an economic calamity, which obviously none of us hope happens, I think that you’re going to continue to see this demand for space be strong and the supply be challenged.
And that’s the biggest concern about the industry. I get asked that question and that’s the one thing that I say, biggest concern and the biggest thing that people don’t necessarily understand that are observing the industry that aren’t in the industry.
Terry Montesi: Yeah, it’s funny. I have a lot of friends that run brokerage, retail brokerage companies and one of the things they’re most worried about is they have a bunch of tenant rep brokers and project leasing brokers that they’ll have and there’s no supply for them to bring their tenants to or projects to go lease. Interesting.
One thing you mentioned, speaking of leaning in, that’s the name of our podcast, we’re leaning in. We have three ground up developments deep into design, pre-leasing, and one that’s a major redevelopment, but it’s a big ground up deal too. We really have four ground up retail deals in Dallas, Fort Worth, Austin, and Houston going right now. Tom, I haven’t been able to say that since the Global Financial Crisis.
Tom McGee: Well, congratulations. I mean, that’s tremendous.
Terry Montesi: Well, we don’t want all our brokers and retailers to have nothing to do. So, I’m just trying to help them out.
Tom McGee: You’re playing your part, Terry.
Terry Montesi: I am. I’m a dedicated industry participant, Mr. McGee. As we go forward, Tom, how do you see the integration of online and brick and mortar retail experiences shaping the future of shopping centers? And you can, in the same question, comment on, is omnichannel the winner? And how do you know? And why is that different than what some people were saying?
Tom McGee: Look, we’ve been talking about omnichannel retail for the last decade or longer, and we are now not talking about it, we’re living in it. And clearly, the pandemic accelerated some things that were already happening and they accelerated them rapidly. And so, things now like curbside pickup and click and collect and ship from store have become very commonplace. And I think it is, it’s the wave of the current and the wave of the future. And I think for a number of reasons.
One, operate, these stores are incredibly, they’re the most efficient distribution channel and the most profitable distribution channel. So, while we’ve all grown up, or we all think, I shouldn’t say grow up, but we all think, many people think that the free shipping is a constitutional right, actually somebody pays for that. And so, to the extent that you can encourage a customer to come to the store to pick something up, obviously you’ve given an opportunity to engage with that customer and you’ve also preserved your margin erosion that would happen from shipping.
And it’s really a way to- so stores have become a way to not only fulfill traditional shopping experiences, but to really fulfill online orders as well. And as you know, we’ve done a lot of studies around that at ICSC. And we did a recent, our third in a series of reports called the Halo Report.
Terry Montesi: Well, that was one of my upcoming questions. So, let’s go ahead and talk about it. I know y’all have done a lot of work on the Halo effect and how you’ve kind of quantified the value of physical stores. So, elaborate on that.
Tom McGee: Yes, we looked at almost a trillion dollars, 850 billion dollars of in-store and online spending at 69 retailers, over 2100 stores, and in all 50 states plus the District of Columbia.
Terry Montesi: And Tom, did that require the retailers’ cooperation, or you just used public information?
Tom McGee: We did cooperate with some retailers, but we also used some publicly available information and an outside consulting firm to assist us to do some statistical analysis. They really looked at credit card transactions as the baseline data source. And what they found is that when a retailer opened up a store in a trade area, whether it’s an established retailer or it’s an emerging retailer, that their online orders, so their online sales increased by almost 7%. So, for all retailers it was 6.9% as a weighted average. For established retailers it was 6.8%. For emerging retailers, it was 13.9%. Obviously, we looked at established retailers were a bigger percentage of the population.
So not only do you get the positive pickup of opening up a store and getting that physical sales traffic, but by opening up the store, you’re increasing your online sales in that particular area. We also found that the basket size of online orders also increased. And so for established retailers, the average basket size went from $94 to $104. And for emerging retailers, it went from $111 to $119. So, meaningful, almost 10% increases in both cases. And when a retailer closed a store in a trade area, their online sales went down by over 11% in that trade area as well. So, they lost the physical sales, they lost the online sales.
And so, really, again, it speaks to that synergistic relationship, both of the store, quite frankly, probably helping fulfill some of those online orders, but certainly the advertising, the promotional aspect of having that store, the brand awareness, and clearly the confidence that consumers have when they see, we’re still visual beings, and when we see a physical store, brick and mortar store, it adds some substance and legitimacy and certainly brand awareness when you drive by it every day.
So, clearly that study, along with previous studies that we did, but this particular one was very granular, very dollar-based, not just kind of number of visits, number of clicks, number of visits on a website and so forth. This really got down to nitty gritty in regards to revenue increases. So, it really kind of proves out that synergistic relationship. And again, back to that supply demand challenge that exists because with that positive pickup in online sales, you’re going to see more retailers probably want to open up those stores.
Now there are some retailers that, for whatever reason, tend to be more online driven. And Amazon obviously has physical locations, but they’re very online driven. And then there’s some retailers that maybe don’t have as much of an online presence, and they have kind of that treasure chest kind of concept of, what am I going to find when I go to the store? But generally speaking, you need to, if you’re a large national retailer, again, generally speaking, you need to have a consistent presence both in the online and physical world.
Terry Montesi: Where do you see AI fitting into the landscape of the marketplaces industry? Do you see it affecting site selection, marketing, merchandise mix, other data-driven decisions? What are you hearing out there about how AI, how people are using AI, how they’re studying the possibility of using AI, and how do you see it affecting our industry?
Tom McGee: I see it having a profound impact on the industry and obviously business in general and, quite frankly, society in general. I think that there’s a lot more to learn around AI. And so right now, people are all, everybody’s talking about AI. They’re talking about the applications of AI. It’s being used, I would think, generally speaking, probably more in transactional type activity, looking at contracts, understanding, looking at leasing terms, things of that nature.
What we haven’t yet seen is it really profoundly be integrated into things like, I’m sure there’s exceptions to this, but on site selection, on design, quite frankly, integration with customers. It’s beginning. And obviously, we all experience AI in our day-to-day basis in lots of different forms.
But I think it’s in the early stages. And what I often say about AI, it’s kind of like we know it’s going to be a big deal, kind of like we knew the Internet was going to be a big deal back in the late 90s. It was starting. We kind of got it, that it’s going to be a big deal, but we didn’t quite grasp it. Then all of a sudden, as things evolved, we got it, like, oh my goodness.
The applications of the Internet and the web and how it all played out, we couldn’t have even anticipated back in the late 90s. Then all of a sudden, of course, that’s just grown and grown and grown with the iPhone and handheld technology and all that kind of stuff. And I feel like AI will be like that. We know it’s going to be a big deal. It’s hard for us to predict exactly how we’re going to use it, but we know we will. And we’ll use it in ways that maybe we can imagine today and probably a whole host of ways that we can’t quite imagine.
Terry Montesi: Yeah, I was talking to somebody about one that we were imagining. Just think about, say, grocery anchored or a Target anchored shopping center or power center where you’re not doing elaborate public spaces or garages, but just that you load in, here’s a 100 that have been done, and here’s where the intersections were, and here’s some parameters. I’ve got to have at least X parking in front, and I don’t want more than this. And you could have a site plan. You can just plug in the site. You could have a site plan in two minutes, and it’d be pretty dang close because it’s listened to all your guidelines and it’s put it into that actual site. And instead of waiting a week on an architect, you have it in two minutes.
Tom McGee: Yeah, I mean, it’s going to be profound. It’s almost mind-blowing when you you kind of imagine where this could go. And that’s what I’m kind of saying. It’s going to have elements of what each of us imagine, but it’s going to have a whole bunch of stuff that we just have no clue, because how would we know?
Terry Montesi: Yeah, yeah. Coming from the consultant world, you could probably ideate a little more than the boring real estate guy. But, man, it is crazy to start thinking about some of those things. I’ve got a lot of friends that use it to take notes in meetings instead of bringing somebody in and that sort of thing. I’m sort of waiting just a little while. You know what they say about pioneers, the guys with the arrows in their back? I’m going to give it a few more months and then I’ll probably be late to the party.
Tom McGee: Sometimes the best course is to be the fast follower.
Terry Montesi: Yeah, well that’s right. I’m a fast follower. That’s great. I haven’t heard that term, but I’ve got a new one. Thank you for that. So you just returned from the annual Federal Fly-In for ICSC, which I’ve done with you a few years ago. What were the hot topics that you talked about in Congress and what kind of feedback did you get from our elected officials? What’s on your mind? What’s on their mind as it relates to our industry?
Tom McGee: Yeah, first of all, it was an exceptional experience. It really was. We had over a hundred ICSC members participate. We had a lot of those members participate for the first time. We’ve seen a whole kind of new generation of members really get engaged in ICC in general, but in public policy. And our membership is changing. It’s becoming younger and more diverse. And seeing them, a new generation get involved in DC was really inspirational. It was motivating, quite frankly.
That was really cool. Being on the hill, it’s a great experience. For any ICSC member that’s listening, I would encourage you at some point in your time, in your journey with ICSC, go participate in the Federal Fly-In. Even if you’re not someone that is highly interested in public policy, but as an American citizen, to get that opportunity to go to the halls of Congress.
Terry Montesi: It was special when I went with you.
Tom McGee: It’s cool. No, it’s really cool. But I think, look, I think there’s a couple things. One, from a tactical perspective right now, organized retail crime is a big issue for us. We just recently had, last year, there was a new bill passed called the Inform Act that required basically disclosure of the source of goods that are sold online. A lot of times when things are sold from organized crime syndicates, they turn up online and they’re sold. And so this required online marketplaces to disclose where the source of goods come from.
We think there’s more the federal government can do. There’s obviously a lot that needs to happen at the state and local level. There’re two bills that are very similar, one in the House, one in the Senate, that create some aggregation limits around theft, $5,000 aggregation limit, because in many jurisdictions, these…
Terry Montesi: $999.
Tom McGee: Right, exactly. And then it creates kind of a resource sharing center that allows the sharing of information across state lines and jurisdictions that we think would be helpful. There’s generally bipartisan support. Obviously, sometimes it’s challenging to get things done, particularly in today’s Congress. But there is support around it. And so I’m hopeful that will be the next step on this journey.
There is a whole host of things that are coming on the- that will be a focus of conversation next year in 2025. What happens in 2025 is a lot of the tax cuts that were part of the Tax Reform Act in the Trump administration will sunset and begin to sunset. So there’s going to be a whole conversation around what should be extended, what should be sunsetted, what should be made permanent, a number of those things, including the pass-through deduction which kind of helps pass-through entities, which a lot of our particularly smaller privately held owner-developer members, it’s important because the corporate rate for public companies is 21%. Obviously, pass through entities pay at the personal tax rate. There was a pass through deduction that allows you to deduct a certain amount of income to get you to some level of parity between pass through entities and C-Corps.
We talked about that. We talked about carried interest, which is currently capital gains treatment for carried interest under the tax code. As they begin to talk about taxes again in 2025, I’m quite confident carried interest will be talked about again. And as you know, the use of carried interest or promote in a real estate transaction is quite a bit different than how it’s used in a private equity and hedge fund scenario. And real estate developers like yourself, you’re putting personal guarantees on debt and putting your home and personal assets at risk. And so, we want to make sure we continue to educate lawmakers around that.
Terry Montesi: And that’s been a long time coming because we were talking about that when I went 15 years, 10 years ago, whenever it was. Yeah, when I went, it might’ve been pre-you, but that was one of the things on the list, I guess, every year.
Tom McGee: Yeah, it’s always going to be on the list. And so far, it’s continued to get capital gains treatment, but it will be something that will always be looked at because it gets positioned as something that financial engineers are benefiting from. But as you know, real estate’s a very different industry.
Terry Montesi: Tom, do you think, let’s say a majority of the people on the Hill understand the difference between a hedge fund manager who’s not taking that the risk that we are by signing personal guarantees and real estate developers that are? Do you think a majority understand it yet or a few?
Tom McGee: I think some or many do. I wouldn’t say a majority do. But I think as in anything in politics, there’s a combination of folks that will always be against any type of tax increase or tax change, plus those that get it and understand the distinction. And so they might be for other changes in the tax code, but not for changes around this. And then some that either just don’t understand it, don’t choose to understand it, or want to raise taxes for a variety of reasons.
So, I think that will be- taxes will be a big conversation next year. And I think the broader thing that is a topic of conversation, we brought it up in many conversations, but also lawmakers brought it up in many conversations, was just federal debt, federal deficits, concerns around interest rates. None of these are necessarily legislative things, but things that are top of mind. Access to capital, like we talked about, rapid changes in interest rates, strength in the banking sector, banking regulations, and obviously that has a pretty big impact upon our industry and real estate. So that was a topic of conversation and I think there’s a- we just happened to be there yesterday which was when Chairman Powell was speaking in front of the House Financial Services Committee, so it was really top of mind.
Terry Montesi: Oh, did the flyover just end yesterday?
Tom McGee: Yes, we just got back last night from DC.
Terry Montesi: Oh, it was just yesterday.
Tom McGee: Yeah, it was just yesterday. Well, it was multiple. The core day was yesterday. We had some activities on Tuesday as well. And so, it’s kind of a two day event.
Terry Montesi: So, it is fresh on your mind.
Tom McGee: Yeah, fresh on my mind.
Terry Montesi: Well, that’s exciting. Hey, Tom, I really like to look forward, and I know you do as well, and I really want to talk about some of the megatrends, and what are some of the trends you are feeling like are likely to have a material impact on our industry over the next, say, five to 10 years?
Tom McGee: It’s a fascinating question. I’ll break it down in a couple of components. One, I think we are the ultimate consumer-facing industry. Obviously, we depend upon consumers to shop in our shopping centers and at stores and so forth. So I think, first and foremost, the health of the consumer is something we should never lose sight of.
I think in the short term, if unemployment continues at historic lows, you will likely have a consumer that continues to spend. If there is some erosion in employment, that will place additional stress on consumers. I say that because I think there are some things that we need to keep our eye on. Consumer debt has increased pretty substantially over the course of the last three years or so, about three trillion dollars more of consumer debt. And credit card delinquencies and auto loan delinquencies, which are often leading indicators of kind of a stressed consumer, have started to rise in the last couple of quarters and personal savings rates are down.
So, while unemployment is low, that is a good thing because when people have a job, they tend to have confidence, they tend to spend. But there are some warning signs about the strength of the consumer. We should never lose sight that we’re the ultimate consumer-facing industry and we depend upon the consumer to shop and so forth. So, I think that’s one thing that’s a, I won’t call it a trend, but a macro condition that we need to kind of keep our eye on that will impact our industry and the whole U.S. economy depending upon the strength of the consumer.
Secondly, again, keeping on the fiscal side of things for a second or just the financial side of things for a second, I think obviously the rate environment is going to impact our industry, both the consumer but also development and also transaction activity and so forth. So where did interest rates stabilize and land, inflation and where does that stabilize and land? All those things are going to hang over the industry and depending upon the trajectory of those, those will have an impact and a substantial impact and maybe more of an impact certainly in the immediate term that some of the larger kind of big trends might have in the long term when you think about big things that will impact the industry and what it might look like 10 years from now.
And I do think things like the federal debt and so forth also have an impact because they place upward pressure on interest rates, and that has an impact on the capital markets. So there’s that whole side of things. Then there’s the things that we talked about like technology and where does AI- AI from a big topic, but just the use of technology in general, PropTech and the integration of PropTech and how folks manage their business, whether it’s AI or just improving kind of interaction with engagement with the customer on the retailer side, on the web and in the store, I think will have an impact.
Then I think because stores are being used, so we talked about demand for space, more limited supply, but also how stores are used is changing. What I mean by that is, as I said, they’re now being used as mini fulfillment centers, there’s a lot more click and collect, curbside pickup, ship from store, etc. So, I think you will start seeing and you’re already beginning to see some changes in the way stores are laid out. If stores are going to be used in different ways, the layout of a store will start to adjust to accommodate how that store is being used.
So, I think we’ve begun to see some of that, making it easier for consumers to pick stuff up at a store. So you may have some stuff in the front of the store that used to be in the back of the store to make things easier for the consumer. I think things like parking lots and parking lot utilization will change too to accommodate that because if people are doing curbside pickup, the click-and-collect, they want to be able to get in and get out, and that impacts traffic flow and all that kind of good stuff. So I think you’ll see things like that as well.
So I think there’s a whole host of things that will impact the industry. I continue to be- look, I’m bullish on retail and bullish on physical retail in particular because of just this rebirth that happened. I think it was back to the start of our conversation. I don’t think that we would have imagined we’d end up in a place where the demand for space and the demand for physical space would be stronger today than it was in 2019 after living through a pandemic, but it is. This is an industry that evolves. It evolves quickly because consumers change very quickly. So, while physical space is a long lived asset, commercial real estate, how it’s used gets adjusted based upon how consumers interact with it. And I think we’ll see some things that I didn’t talk about because we can’t always anticipate what the future will look like.
Terry Montesi: Hey, just a follow up on that, Tom, can you think of any one or two innovations in retail that you’ve seen, say, the last six or nine months, that you found particularly meaningful, valuable, or interesting?
Tom McGee: I wouldn’t say new innovation, but what continues to amaze me is how seamlessly the digital world and the physical world are interacting. And I’ll give you an example, and it’s kind of stuff that we take for granted, but think of like DoorDash and Grubhub and stuff like that. We don’t think about the fact that we order something on DoorDash and then 20 minutes later it’s at our front door.
Well, it’s at your front door because that small restaurant that you order from or national chain happens to be five minutes from your house. And pre-pandemic, you didn’t do- it was starting again, but you kind of would have probably gone out to eat, likely gone and picked it up and so forth. Now, not so much. You might go out to eat, but you won’t drive somewhere to pick it up because why would you? You could get it delivered to your store, delivered to your door.
I think things like that that make the life of the consumer easier, to me, continue to be, I think, underappreciated in regards to how quickly they became integrated into our lives. And we think of that as a technology advancement, but that’s also a real estate demand because you can’t fulfill that order unless you are five minutes from your house. So the demand for space associated with that has increased because I’m not going to participate in that portion of the economy unless I have a storefront that’s somewhat close to where people live.
And so, things like that, I think, and I was just thinking about this last night because I got home late and I didn’t have anything to eat in the house, so I ordered on DoorDash, and 15 minutes later, it was there. I probably would have gone to bed, I would have foregone dinner a couple years ago and probably been a little lighter in the morning. I shouldn’t have eaten that late at night. But it was like, it was just so simple. It’s a simple thing but it’s a profound thing because it has a cascading impact across an industry as large as ours and the demand for space.
Terry Montesi: Yeah, that’s good for our industry. Even though people are eating at home, they’re not eating at our places. Our places are more versatile. They are distribution centers and retail places.
Tom McGee: Yes, exactly.
Terry Montesi: So, Tom, just a few weeks ago Macy’s announced that they’re closing 150 stores. It opens up a question on malls and how you see the future of malls and how this announcement will affect that sector of our business.
Tom McGee: First and foremost, for the last 40 years, there’s been articles. I think it was probably in the mid-80s, early 90s, it was on the cover of Time Magazine.
Terry Montesi: The death of the malls.
Tom McGee: The death of the malls and so forth. We need to put things in perspective. People have talked about the death of the malls for an awful long period of time. Here we are today with fundamentally a similar number of malls than we had 10 years ago. We lived through a pandemic and so forth.
So I think malls evolve and I think they will continue to evolve. Obviously, they’ve become more experiential and entertainment-based, been redevelopment, whether it’s mixed use or repurposing of that space to some other type of commercial real estate, because good real estate always finds its purpose. And generally, even malls that may not ultimately be their best purpose, may not be retail, they’re generally well positioned for some other utilization. So I’m not one that buys into this whole demise of mall narrative.
I would also say there are a whole host of malls that are thriving right now and performing performing very well also. So every mall is not created equal. And there have been many anchor stores that have closed over the course of the past decade and two decades, and mall owners have been creative in finding different uses for that space, whether it’s new retailers or whether it’s hotels or some other form of tenants. So I think they’ll evolve. I don’t- it’s an event, but it’s an event that we’ve seen happen many times over the course of the last number of years.
Terry Montesi: Yeah, and that we’ve been anticipating also. It’s funny, we operate a mall and we have one of the most innovative, interesting, and with credit tenants that we’re negotiating with to take a vacant box. And it is just such an interesting user and it’s going to be so game-changing. And I just am super excited. And I think the innovation, that’s why I asked you a question about that a little while ago, in today’s world, like you say, where technology and the physical world all kind of come together and entertainment and retail and F&B, and technology all come together, there’s so many interesting things happening out there. So, what 150 Macy’s boxes becomes in the future is little innovation hubs.
Tom McGee: Well, and also think about back to just the changing demographics of the United States. And you have obviously a rising millennial generation that are in their prime consumption years. You have a big Gen Z generation that is just beginning to get into their consumption years. And then you have a baby boomer generation that’s beginning to transition into their retirement years and beyond. And their needs are different. And retail, because we’re a consumer-facing industry, will adjust to those needs.
And it’s a silly example, but I never heard of pickleball 10 years ago, and it’s all the rage, and there’s demand for space for pickleball courses and so forth. So that’s my point. It’s important that these are events, and yes, they need to be taken seriously, but there’s always new and innovative needs for space that need to be filled.
Terry Montesi: Yeah, that’s why I mentioned that. I’m fortunate enough to be on your board of trustees, and I know we’ve got a lot of interesting things happening at ICSC. I want to give you a minute to talk about our foundation and any updates or successes or initiatives that you’d like to share about that and then also fill us in on how the ICSC Las Vegas show is looking. Give us a little insight on that.
Tom McGee: Yeah, so the ICSC Foundation is 100% focused upon future talent coming into the industry, particularly focused upon students, university students. And there’s a whole host of initiatives that they’ve advanced and have done remarkable with. And kudos to all of our members and trustees and Foundation Board members for the efforts around this.
So, for example, we have partnerships with 60-plus universities around the country, formal partnership agreements where those universities become partners of ICSC and their students become members of ICSC free of charge. And then we have a whole host of student activities for them. A huge thank you, one of those activities is bringing students to ICSC events. We had 400 students at ICSC Vegas last year. We’ll have like 600, 700 this year, and we have a large number of students going to events beyond Las Vegas. And one of the reasons we’re able to do that is the generosity of Glenn Ruffano who contributed a million dollars to a student engagement fund to support the cost of those students going to those events.
And as you know, you can talk about ICSE, you could talk about our industry, but there’s nothing like experiencing it. And when those students come to ICSC events, all of a sudden, they get excited because they realize what a dynamic relationship driven business it is.
So we’re focused upon students and bringing those university students to our events. We have formal mentorship programs. We’ll have over 700 folks participating in our mentorship program where we assign a student with an industry mentor to help them as they journey through their student experience and begin to think about a career in commercial real estate. We have a number of formal internship programs, including our Launch Academy, which is…
Terry Montesi: Yeah, we’re involved with the Launch Academy.
Tom McGee: Yeah, thank you for that and your participation and other members. We’ve had 60 students participate in that program in the last two years. That’s really focused on underrepresented students and providing them internship opportunities at great companies like yours. We did a pilot program that will no longer be a pilot program with Project Destined this year which is another program focused upon underrepresented students. We are now launching larger scale internship programs across our entire student membership. And we have a very robust scholarship program. We’ve given $2 million of scholarships over the last few years to college students in the commercial real estate space.
So, it is an exciting time. And that has led to really, I mentioned our membership becoming younger and more diverse, and we’ve had a substantial increase in the percentage of next-gen membership in ICSC, almost a 40% increase in next-gen membership over the course of the last number of years. These are folks that are under the age of 40, and I’m not including students in that. And then that has spawned an increased level of diversity also in our membership.
As it relates to Vegas, right now Vegas registration is on fire, to use a technical term. So right now, it is 11.5% ahead of the pace it was last year at this very time. So, my expectation is that it’s going to be hugely successful. It was a great event last year. My expectation is we’ll end up somewhere around 27,000, 28,000 people. Attendance at our events across the board this year is up year over year. Actually the event in your neck of the woods, Red River, Texas, that was up 15% year over year and that was the first event that we’ve had that was in excess of 2019 attendance. So that was a great event, and we’re seeing that across the board. We’ll have 75 to 80 local events this year and every one of those is oversubscribed. So, there’s a real demand for people to get together.
Terry Montesi: Well, we’re nearing the end of our time, Tom. I appreciate you for joining us and taking the time to be with me today. I was wondering if you had any questions for me or anything else you wanted to mention before we sign off?
Tom McGee: The only thing I would say is I mentioned our membership is becoming younger, more diverse. I mentioned 100 folks participating at the Federal Fly-In this week. We have a lot of new people entering the industry and entering ICSC, and I would just encourage those folks that are new to ICSC, get involved, volunteer, get on a committee. We welcome that. We are a networking organization, and we want to lean in and support people as they advance their career.
For senior folks like yourself, just kind of encourage those younger people to get involved because I know you’ve been such a great supporter of ICSC, and I think you’d agree, it’s been really positive for you and for your business and so forth and you can do the same thing for young people entering in the industry. So that’s the big message. We love our members. We love them to be engaged in ICSC, and so if you have an interest, just reach out and we’ll get you plugged in.
Terry Montesi: Great, well I’m very grateful for your time today, Tom. It was good being with you, and I was happy to hear about a successful fly-in yesterday. I need to put that on my calendar for next year and come join you guys. So, thank you very much and have a great day.
Tom McGee: Thanks, Terry.
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