Terry Montesi and Dana Telsey explore the evolving retail landscape through the dual lens of consumer behavior and real estate demand. Telsey, chief research officer and founder of Telsey Advisory Group, shares insights from three decades analyzing retail brands, department stores, specialty concepts, and emerging consumer trends. The conversation touches on resilience in consumer spending, the K-shaped economy, and how physical retail has rebounded post-COVID as a space for social interaction and experience-driven commerce.
They discuss:
- Why agentic AI will reshape how retailers anticipate consumer needs and curate product offerings
- How fulfillment and last-mile distribution are changing the economics of physical stores
- Which retail categories are expanding aggressively, from off-price and beauty to experiential and grocery concepts
- The return of capital to retail real estate and what it signals about investor confidence in the sector
- Why the distinction between outlet, lifestyle, and power centers is fading in favor of hybrid formats
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Transcript
[00:00:00] Dana Telsey: Where we are today in AI, I can tell you when we’re sitting here and talking two or three years from now, we’re gonna be somewhere else because the pace at which it’s being adopted [00:00:10] that we don’t even know what it’s gonna be utilized for yet. Agentic AI, where it’s anticipatory and changes the way that people think, very [00:00:20] important to what it means for retail real estate and the retailers themselves
[00:00:27] Terry Montesi: Today, I’m excited to welcome my friend [00:00:30] Dana Telsey to Leaning In. She is the chief research officer and founder at Telsey Advisory Group, and she’s spent more than three decades as one of the most respected voices in [00:00:40] retail. She’s been the number one ranked specialty stores analyst by Institutional Investor seven years running, and she sits on Barron’s list of the 100 most [00:00:50] influential women in US finance year after year.
[00:00:53] Terry Montesi: And if you’ve turned on CNBC or Bloomberg lately, you’ve almost certainly seen her breaking down the latest [00:01:00] retail earnings reports or consumer trends. What I love about Dana’s perspective is that she sees retail through the lens of the brands and the consumer and [00:01:10] someone who worked in stores when she was growing up, giving the rest of us in retail real estate a clear view of what’s driving demand for our space.
[00:01:18] Terry Montesi: Dana, welcome [00:01:20] to Leaning In.
[00:01:21] Dana Telsey: Thank you for having me.
[00:01:23] Terry Montesi: Hey, great, great to be with you today. Hey, so you’ve spent your whole career in and around retail, starting at Baron [00:01:30] Capital, then Bear Stearns, and eventually founding your own company, Telsey Advisory Group. For listeners who don’t know about you or know your story, tell us how you got into retail [00:01:40] research and, and what it is that you do that’s different from others.
[00:01:44] Dana Telsey: Sure. Thank you for having me again. I think basically I grew up in Manhattan in New York City. I [00:01:50] lived in the same building as a man named Ron Baron, who runs Baron Capital and the Baron Asset Fund. He’s involved in the s- in the stock market. My family was in retail. We had a [00:02:00] bookstore on Madison Avenue and 51st Street.
[00:02:02] Dana Telsey: My grandfather was cash register number one, my mom was number two, and I was number three, and my grandmother worked at Bergdorf Goodman. So it’s [00:02:10] always been about the consumer, it’s always been about stores, it’s always been about retail. With Ron Baron, he and my sister walked their dogs, ’cause we lived in the same apartment building, and he [00:02:20] knew my mom, and so he was a family friend.
[00:02:22] Dana Telsey: And he said, “I’m gonna start my own company. Would you wanna work there?” ‘Cause I was in college. And I go, “Well, I don’t even know what you do. You’re just this cocker spaniel man.” And he goes, [00:02:30] “Oh, in the stock market.” So I went to work for him summers in college and then for seven years afterwards, and he taught me how to analyze stocks.
[00:02:37] Dana Telsey: And he’s an expert particularly in [00:02:40] consumer stocks, and it couldn’t have been a greater fit, being able to marry the quantitative with the qualitative. So I was there for seven years, and then a lot of times you [00:02:50] can’t live where, where you grew up, so I went to … That was the buy side of the business, ’cause he invests.
[00:02:55] Dana Telsey: I went to the sell side, where stockbrokers are, and I was an analyst, and so [00:03:00] I would recommend names to a lot of institutional investors. And so in, only in retail. And so in u- this world there’s typically these [00:03:10] institutional investor ranked analysts, and I became one within 11 months, very fast. I was number one for many, many years and decades.
[00:03:18] Dana Telsey: And then in [00:03:20] 2006 when I was at Bear Stearns, you can’t live where you grew up sometimes, and people … I, I had 18 people on my team, and you couldn’t promote from within. And to me, you’re [00:03:30] only as good as your team, and so what did I wanna do? I could’ve gone to the buy side, private equity, you name it, but I felt we had a brand name.
[00:03:38] Dana Telsey: And now it’s 20 years, so [00:03:40] 2006 I started- Wow … Telsey Advisory Group. We’re 20 years old And what I’m most proud of is of the 32 people in my company, four of them I’ve worked with [00:03:50] for over 20 years. They were at Bear Stearns with me, and around 19 of the others here have been with us at least 15 years. So I’m a true believer in teamwork [00:04:00] makes the dream work.
[00:04:00] Dana Telsey: We have three areas of our business. We do research, and it’s all about consumer all the time in all different areas, whether it’s home improvement, [00:04:10] grocery, consumer electronics, apparel, department stores, luxury goods, beauty, you name it. We basically identify what [00:04:20] brands can work and how do they work by using qualitative and quantitative.
[00:04:25] Dana Telsey: And we’re those analysts on TV with what does the earnings algorithm look like, or [00:04:30] is sales going up or down? That’s what we do, figuring out how companies grow so they can have a competitive moat and scale. So that’s the first arm of our business is research. [00:04:40] Our clients there are typically the institutions, institutional investors.
[00:04:45] Dana Telsey: We have the capital markets area. That’s our second line of business. We’re involved in [00:04:50] investment banking with debt capital markets and our co-managers on fixed income transactions, and also we’re in equity capital markets. We’re co-managers [00:05:00] on initial public offerings. So back in 2021 when there was the flood of consumer offerings, everyone from a Levi’s to [00:05:10] Birkenstock, a, a ton of them were involved in those transactions because we have the bat phone to the portfolio managers and analysts who buy those type of stocks.[00:05:20]
[00:05:20] Dana Telsey: And we have consulting where we consult in a lot of the different REITs, and basically it’s all very personalized, uh, and bespoke because it’s basically coming in and [00:05:30] talking with leadership teams, with leasing teams, what we’re seeing of who’s growing, who’s not growing, and with all different types of retailers and what we’re seeing [00:05:40] retailers do in thinking about their physical space.
[00:05:43] Dana Telsey: So you name it, it’s always been about consumer for me. I don’t like it, I love it, and you’re a student [00:05:50] every day in seeing what the consumer wants. So it’s super exciting, and I, I couldn’t be happier. And while TAG is my company, Telsey Advisory Group, TAG, has been around for [00:06:00] 20 years. My grandmother worked until she was 89.
[00:06:03] Dana Telsey: I expect to work way past that, and it’s exciting every day. As my, uh- Looks great … the CFO, COO of my [00:06:10] company, every day I call him after our morning meeting. Our morning meeting’s at 7:30. I call him at 8:00, and I say, “Jerry, how are we gonna win today?” And it could be in any line of [00:06:20] business, whatever it is, but I’m a glass half full kind of girl.
[00:06:24] Terry Montesi: Well, I’ve been around you a lot over the last 20 years, and you are [00:06:30] always fired up and energetic about talking about retail
[00:06:34] Dana Telsey: Thank you …
[00:06:34] Terry Montesi: and, and that is fun. That’s fun to be around. So next [00:06:40] question, what’s changed most about how you analyze retail today versus when you started? And how is AI changing that?
[00:06:49] Dana Telsey: [00:06:50] I’d say one– so what’s stayed the same is visiting stores. I’m a huge believer in visiting stores. I’m in them at least every week. I’m talking to sales [00:07:00] associates. I’m seeing what consumers are gravitating towards. I’m watching the checkout lines to see the traffic and how many items. I’m looking at stores and seeing what’s full price and what’s on [00:07:10] promotion, and our inventory inst- our inventory levels and stock.
[00:07:14] Dana Telsey: But what’s changed? Definitely online, the internet. It provides access and information. [00:07:20] And probably one of the biggest changes, I’m sure you remember like I did, around ten years ago, all we were fighting is the same thing. “Oh my, everyone’s gonna shop [00:07:30] online. They’re not gonna shop in stores.” Fast-forward, you had COVID.
[00:07:33] Dana Telsey: Fast-forward to today, and what do you hear? The Gen X consumer, where do they like to shop? They [00:07:40] like to shop in stores. And why? Because it gives the physical touchpoint and the social interaction that all of a sudden you communicate. And you know what else it does? [00:07:50] It’s an experience. And what comes from experiences?
[00:07:53] Dana Telsey: Memories. So what’s changed is online, but it does give you access, it does give you [00:08:00] information. What’s stayed the same is visiting stores. And you– when you think about AI, I think AI is about the curation of the assortment and personalization. [00:08:10] I think we’re still learning, and I think it’s still very early innings, except for some of the larger companies who spent a longer period of time and longer dollars on it, [00:08:20] but everyone’s still learning how to use it.
[00:08:22] Dana Telsey: I think the consumer is learning how to use it. But what it is teaching people is, so what sells? What sells better in the Northeast versus [00:08:30] the Southwest? Should I have more winter coats here versus there in whatever month it would be? And it’s teaching about personalization in terms of, wait, th-this [00:08:40] consumer or this person only buys these types of pants or whatever, and so then they can figure out where to go.
[00:08:45] Dana Telsey: So it’s making everyone smarter, but it’s still a learning curve. [00:08:50] And the other thing that’s changed is the metrics have changed. When you think about what companies are talking about, it used to be, “Here’s what our sales increases are,” or, [00:09:00] “Here’s what our stores that have been open longer than a year,” known as comparable store sales, “here’s what th-those numbers are.”
[00:09:06] Dana Telsey: But there’s a new metric that companies are talking more about, [00:09:10] and that’s the KPI of new customer acquisition. How many new customers are you acquiring every quarter, every year, whatever it may be? The more you know [00:09:20] about your customer, the more you can gain share and gain share of their wallet. So it’s new every day, and that’s what keeps it so interesting.
[00:09:29] Terry Montesi: Well, that’s [00:09:30] a great, great insight. So Dana, macroeconomics are, you know, at everybody’s, at the forefront of everybody’s mind right [00:09:40] now with so much uncertainty in the global economy, uncertainty here. All of that affects the consumer. How are you [00:09:50] seeing the macroeconomy affecting the consumer? Has anything surprised you?
[00:09:55] Terry Montesi: And do you have a sense of what the impact might be [00:10:00] if inflation continues to be above trend, if, you know, it pri- the, the, uh, i- interest rates stay high [00:10:10] for a while? G- give us your thoughts on both those. I know that’s something that the CEOs you talk to a lot are concerned with right
[00:10:17] Dana Telsey: now. It is top of their mind, how the [00:10:20] consumer is, what’s changing.
[00:10:22] Dana Telsey: Everyone’s looking around the corner for, is the pace of growth going to slow and adjust? But what we have been seeing, you’ve seen the [00:10:30] consumer trade down. You’ve seen that, and look what Walmart says. Their fastest growth is in their higher income consumer. So you’re seeing that. [00:10:40] You’re seeing the fact that when you think about the macro pressures, and we call about, we talk about it as inflationary headwinds, rising gas prices, and depending on what part of [00:10:50] the country you’re in, you could see stark differences.
[00:10:53] Dana Telsey: And I always thought that $4 a gallon was a headwind, but you know what? Consumers are still spending [00:11:00] even though it is $4 a gallon. But the other thing that you’re seeing on the macro side, certainly in this first quarter, and now into the second quarter, you’ve seen [00:11:10] tax refunds, and the benefit of those tax refunds gave consumers the ability to continue to spend.
[00:11:17] Dana Telsey: So I think the headwind on gasoline [00:11:20] prices, we know that for companies, freight is typically negotiated on an annual basis, and that was done already. For consumers, I think we’re [00:11:30] beginning to see it. You’ve heard what Walmart talked about. They just mentioned the fact that consumers now are filling up their cars and doing it, like, for $10.
[00:11:39] Dana Telsey: They’re not filling it [00:11:40] up to the whole, whole amount that the car can hold, but to a dollar price point of what they themselves can afford. So very much watchful, very [00:11:50] much a key concern, and very much something that’s gonna be top of mind. And what we always know is there’s always a surprise. It feels like whether it was [00:12:00] COVID, whether it was, oh my, now you’re s- all of a sudden starting to see consumers buying things because of the stimulus you got.
[00:12:07] Dana Telsey: We have surprises every year. What’s been [00:12:10] amazing is the agility with which how companies can react and can react fast
[00:12:16] Terry Montesi: Thanks. So, uh, uh, are there any red [00:12:20] flags we should be watching for if, hey, gas prices and inflation stay up for so long? If, if this starts to happen, then I’m really gonna worry. Well- Is [00:12:30] there anything out there?
[00:12:31] Dana Telsey: Yeah, I mean, I watch the labor markets. If there are cracks in the labor market and wage growth, you don’t wanna see wage growth go below [00:12:40] inflation, because then it suggests that consumers’ compensation- We’re
[00:12:44] Terry Montesi: getting bit …
[00:12:44] Dana Telsey: is keeping up with the pace of daily living expenses. Yeah. So we’re watching the labor market and [00:12:50] wage growth very carefully relative to inflation
[00:12:54] Terry Montesi: Makes sense.
[00:12:55] Terry Montesi: So, the, let’s talk about the consumer. [00:13:00] You, you know, they have continued to spend, like you said. W- where, where specifically are they spending? Where are they pulling back? And, and what has [00:13:10] surprised you, you know, since the war started, prices are up, or, or prices up, inflation?
[00:13:15] Dana Telsey: I think overall the word to use about the consumer, they’ve been so resilient.
[00:13:19] Dana Telsey: [00:13:20] We– The surprise coming out of the first quarter and the commentary from CEOs is that even second quarter to date, business is remaining good. I [00:13:30] just met with the CEO of Steve Madden last week. Fashion footwear, occasion footwear trends are very popular. They’re doing very nicely. I’d say the [00:13:40] spending on newness and innovation is important.
[00:13:43] Dana Telsey: On soft lines or apparel, what people don’t have in their closet. And you’re seeing companies with the [00:13:50] increased investment in marketing spend and the viral nature with influencers and how TikTok influences particularly what people are wearing, that [00:14:00] newness is very popular. I’m sure you can imagine today, ’cause I’m in New York City, that’s where I live, that’s where I am right now.
[00:14:06] Dana Telsey: I literally s- my office is right on Fifth Avenue in the [00:14:10] Forties. Crossing 42nd Street, there are, are people selling, you can imagine what, Knicks T-shirts. And you could see p- [00:14:20] lines growing for those Knicks T-shirts because the fingers are crossed for many for Saturday night. So all of a sudden- Yeah
[00:14:28] Dana Telsey: newness and innovation matter. [00:14:30] Where I’m seeing the pullback, the pullback is on home. The pullback is on a focus on food and consumables, because you have seen, look what McDonald’s has been [00:14:40] saying. Value meals. The price of food has gone up a lot and people are paying careful attention. But the surprise is the resilience and strength of [00:14:50] demand.
[00:14:50] Dana Telsey: I watch the lower incomes consumer very carefully. They definitely have pressure points, while the rest of the middle and upper seem to be spending, [00:15:00] but whether it’s more discerning, maybe a little bit, but you’re certainly still seeing more full price spending than promo spending, because [00:15:10] inventories are managed carefully.
[00:15:12] Terry Montesi: Thanks, Dana. Yeah, so from listening to you, the, the K shape Economy and the, the K shaped [00:15:20] consumer economy is real. So get… Help us understand a little more what that is and i- is the bottom really getting squeezed [00:15:30] and the top is on a roll, or are you seeing something a little different?
[00:15:33] Dana Telsey: So overall, I’m seeing we’ve had the K shaped economy for a while.
[00:15:36] Dana Telsey: Higher income consumers always spend more as they [00:15:40] have the ability to spend more. And who knows what’s gonna happen with this IPO of SpaceX and however many wealthier people are gonna be created, but it’ll give [00:15:50] more optionality. The bifurcation of the K shaped consumer, I think will continue to stay around.
[00:15:56] Dana Telsey: The lower income consumer concerns, [00:16:00] and there always has been. But one of the things you’re seeing is value for their dollar. You’re seeing that with food. Look at the value meals. You’re seeing that with [00:16:10] clothing. Look at Primark, Old Navy. You’re having a lot more fashion appeal even at value prices. So the lower income has been and [00:16:20] continues to be more discerning, and we’re gonna be watching that very carefully and watch those traffic trends and spending trends
[00:16:28] Terry Montesi: Thanks.
[00:16:29] Terry Montesi: And you, [00:16:30] you, you said earlier people are always wanting to ask you who’s growing. You get paid to come tell a company who’s growing, who’s not growing. So let’s talk about that. [00:16:40] Categories, which ones are winning? Which ones are growing right now? Are there some… And then are there some quietly losing ground that nobody’s talking about?
[00:16:49] Terry Montesi: What are you [00:16:50] seeing?
[00:16:50] Dana Telsey: So what I’m seeing out there overall, the growth, and frankly in terms of retail real estate, the unit growth. The off prices have been amazing. They’re each opening at least 100 stores a [00:17:00] year at TJX, at Burlington, at Ross Stores, with Ross Stores now feeling the expansion opportunity that in the [00:17:10] Northeast.
[00:17:10] Dana Telsey: Certainly with TJX, when you think about other categories like home goods where they’ve been so successful and those units are continuing to expand and [00:17:20] grow, and Burlington with some of their new flagships and retrofits, they’re opening at higher average annual sales volume. And you, you [00:17:30] marry this with other value players like discounters and dollar stores.
[00:17:34] Dana Telsey: We’ve seen the strength recently of the sales at Five Below, and you’re seeing continued new [00:17:40] store openings. That’s where I’m seeing the growth. I am seeing also growth. Look at beauty. You look at Ulta, which is growing in sales, it’s going, growing in traffic. [00:17:50] You take a look where we’re seeing active basically going through a stabilization period.
[00:17:57] Dana Telsey: W- And certainly you have Lululemon [00:18:00] where a new CE- new leadership, a new CEO is coming in shortly. Or you have Bioré and Alo, which continue to grow and basically being [00:18:10] able to expand. They’re not as big as Lulu yet. I’m seeing when people talk about luxury, North America is where the growth is, given that certainly [00:18:20] the, the Middle East conflict prev- has some headwinds there.
[00:18:23] Dana Telsey: In Europe, you have a slower consumer. I’m seeing continued pressure in home. The home [00:18:30] weakness w- it really hasn’t rebounded, and we still need to see that activation of home. I’m seeing some strength in footwear. You see about the [00:18:40] continued focus on Birkenstock, where frankly they’re opening more of their own stores, and they sell very well in wholesale.
[00:18:48] Dana Telsey: I’m seeing [00:18:50] bifurcations in accessories. The growth of Coach continues, while Michael Kors is trying to find its footing, while Steve Madden acquired Kurt [00:19:00] Geiger, and you’re gonna see more stores opening. So overall, it… A- And the other new category, private companies, juniors, whether it’s Addicted, [00:19:10] Brandy Melville, whether it’s Princess Polly, you’re seeing a new activation of juniors concepts that’s proven to be very exciting.
[00:19:19] Dana Telsey: So [00:19:20] I’m seeing growth, and I’m seeing where what I call it is Retailers and brands, to be at the top of the retail rollercoaster, they always need to [00:19:30] reinvent, re-merchandise, and rejuvenate. And one of the things we’ve noticed is legacy companies are doing this. Gap with a 10% comp. Reinventing and [00:19:40] modernizing, it’s impressive.
[00:19:42] Dana Telsey: You saw Ross Stores do it with a 17% comp. We’re seeing Victoria’s Secret have low double-digit growth in many of their [00:19:50] categories. So legacy businesses that reinvent, re-merchandise, rejuvenate are all of a sudden opportunities of growth [00:20:00]
[00:20:00] Terry Montesi: The three Rs.
[00:20:02] Dana Telsey: Yes.
[00:20:02] Terry Montesi: Heard it here. You heard it here first. So another sector of the retail business is experiential, [00:20:10] and you talked about people really, and we’ve watched that.
[00:20:14] Terry Montesi: Certainly COVID sort of heated this trend up. So entertainment, [00:20:20] F&B, beauty, dining. Is, is, is that… And, and in a lot of ways people have asked me, “Who, who are you putting in your centers now?” Because there’s not near as many [00:20:30] fashion tenants expanding as, you know, back pre-GFC. But I, I see a lot of these type tenants are, are who’s filling up our [00:20:40] centers today.
[00:20:40] Terry Montesi: Do you see that continuing?
[00:20:42] Dana Telsey: Oh, yes. I think basically experiential retail. What COVID did, more people continue to work at home. They still go to [00:20:50] offices but work at home. It created the vibrancy of open air. People can go out for lunch at, when they’re working at home, and then they’re [00:21:00] picking up their dry cleaning or, or going to pick up a pair of jeans or getting a new radio, whatever it may be.
[00:21:06] Dana Telsey: And I think these experience of, of experiential [00:21:10] create memories. Look how many, in warmer weather areas, look how many outdoor cafes there are. Look at what Ralph Lauren’s coffee has done. Look at what the AO- [00:21:20] AOK Cafe at Aritzia has done. And now you’re gonna have Coach coffee. Look at Tommy Bahama and their Marlin Bars.
[00:21:27] Dana Telsey: So experiential retail [00:21:30] allows for experiences to create memories, and I think there’s only gonna be more of that added because you’re no longer retail banners. [00:21:40] We only sell one category. You need to be gain a larger wallet share, and how do you do that? A brand has to say what it does and do what it [00:21:50] says.
[00:21:50] Dana Telsey: So whatever a brand expands into, it has to marry what the ethos of that brand stands for.
[00:21:57] Terry Montesi: Yeah. Let’s follow up on COVID. [00:22:00] That was a big shock to the retail system. Was really scary at the time, as you remember. And you just mentioned one of the long-term impacts. What, what are other [00:22:10] impacts that COVID had on the industry, good or bad?
[00:22:13] Terry Montesi: And what, what did we learn from that global event?
[00:22:16] Dana Telsey: You know what? I think it, it finally stopped the discussion of, [00:22:20] “Oh, my God, everything’s gonna go online.” That is what it stopped. And it made the presence of physical space more in demand, more wanted. It made [00:22:30] retailers invest in their spaces because consumers wanted to get out of their home.
[00:22:34] Dana Telsey: It’s a, uh, if you think about physical retailing, it’s a place of social interaction. [00:22:40] And that mantra and that meaning and significance came back to the forefront. And so you’re looking at it today, and now you have more [00:22:50] creativity in physical spaces that you ever had before, and it made the importance of physical space and in person that much more valued.
[00:22:59] Dana Telsey: So [00:23:00] I remember coming out of COVID when everyone first started being a- going out and doing things, it was all about FOMO, fear of missing out. Yeah. And certainly, I mean, [00:23:10] you’re look at what, look what’s gonna happen this year. You have the World Cup, you have the Americas 250, you have obviously the NBA finals.
[00:23:17] Dana Telsey: What is, what’s happening? You’re [00:23:20] selling more tickets for events that people wanna experience together. That’s exciting
[00:23:25] Terry Montesi: Yeah, I hear there’s a New York team in the NBA finals.
[00:23:28] Dana Telsey: Yep, it’s what it’s all [00:23:30] about. Walking home last night, oh my God, there was so many police cars ma- around Madison Square Garden.
[00:23:35] Dana Telsey: It’s crazy. And yesterday, you, everyone’s [00:23:40] fingernails were like, “Oh my God, could they even win?” And eked it out in the last couple seconds. It was amazing.
[00:23:46] Terry Montesi: Wasn’t that crazy? Yeah. Yeah. I’ve, I’ve never been a Knicks fan, but you know, I [00:23:50] kind of was for, for a moment last night. And, uh, Jalen Brunson used to be here with the Mavs, so- Oh
[00:23:56] Terry Montesi: we, we miss him.
[00:23:57] Dana Telsey: Yeah. Well, I will tell you, if you walk around the city and you [00:24:00] see all the Knicks T-shirts, the number 11 is what you see the most of.
[00:24:05] Terry Montesi: Wow. Well, he’s kind of the quiet assassin, you know? He doesn’t say much.
[00:24:09] Dana Telsey: Nope.
[00:24:09] Terry Montesi: [00:24:10] He just gets it done.
[00:24:11] Dana Telsey: Exactly.
[00:24:11] Terry Montesi: Pretty fun. Yep. Good for you guys. So you mentioned you are also in, in, in capital market consulting.
[00:24:19] Dana Telsey: Yes. [00:24:20] Mm-hmm.
[00:24:20] Terry Montesi: Well, as, as you and I at our last trustee meeting saw, and as I’ve been experiencing as I’ve been out raising capital for some, uh, new developments and acquisitions recently, [00:24:30] the, the retail real estate capital markets have raged back.
[00:24:34] Dana Telsey: Yep.
[00:24:35] Terry Montesi: And, and it feels like that it really just the last six to nine months.
[00:24:39] Dana Telsey: [00:24:40] Mm-hmm.
[00:24:40] Terry Montesi: And you know, that obviously makes some assumptions that retail is going to keep, you know, the retailers are gonna keep expanding, consumers gonna [00:24:50] continue to be resilient. So what do you think about the capital markets timing? They were off for 16 or 17 years, they’re just coming back. So [00:25:00] do you think th- th- is their timing good?
[00:25:02] Terry Montesi: D- will, will the retail industry and the retailer performance make them look smart a- and justify this euphoria? [00:25:10]
[00:25:10] Dana Telsey: Well, overall you’re seeing there’s more demand for retail space than there is supply. As you go quarter over qu- quarter after quarter and look at [00:25:20] retailers’ plans for store openings, they’re opening stores, they’re investing more in those stores.
[00:25:25] Dana Telsey: Those stores are fulfilling multiple functions ’cause they’re a place where people can come [00:25:30] in to buy, but they’re also fulfillment and distribution. So I think the usage of the physical space is making it more productive and [00:25:40] frankly, more profitable. So I think overall, yes. And the fact that we’re getting international retailers coming our way too, it only leads to more [00:25:50] excitement.
[00:25:50] Dana Telsey: So I think this is a good environment and both retailers and landlords continue to need to invest in that space to make it appealing. [00:26:00]
[00:26:00] Terry Montesi: So you, you think it’s, it’s, it’s a good time to be investing in retail real estate generally? Yep.
[00:26:04] Dana Telsey: My retailers are doing well. I think there’s more growth ahead of them.
[00:26:08] Dana Telsey: I think the newness and [00:26:10] innovation is driving more wallet share from existing customers and attracting new ones.
[00:26:16] Terry Montesi: Well, one thing you mentioned that, that, uh, [00:26:20] reminded me something I wanted to mention to you and, and ask you. So we have some retailers in some of our centers doing what appears to be historically, Dana, [00:26:30] very low sales per square foot, and they have what appears to be high occupancy cost, but we…
[00:26:36] Terry Montesi: but they have no interest in closing. We can’t get them to close.
[00:26:39] Dana Telsey: [00:26:40] Yep.
[00:26:40] Terry Montesi: And, and I, you know, it, I, I… the story I tell myself or what we believe is it, it’s because so much of that store is something other than just a [00:26:50] retail store. It’s last mile, it’s fulfillment, it’s, it’s, you know, try it on here and then go home and order it, et cetera.
[00:26:58] Terry Montesi: Uh, is, is, do, do you think that’s the [00:27:00] case? And doesn’t it make sense if it is, that the old occu- occupancy cost paradigm should theoretically be changing over time?
[00:27:09] Dana Telsey: [00:27:10] I think overall, yes, it’s being used for fulfillment and distribution. I also think part of the reason why some of those retailers aren’t leaving, and they do- and if they’re doing low sales per square [00:27:20] foot, is where else are they gonna go?
[00:27:22] Dana Telsey: Because wherever else they go, they may, might have to pay more money. I think always the dichotomy in, uh, between the landlord and the [00:27:30] retailer, what’s the retailer gonna share and what the online sales are that are attached to that store, and that’s been a headwind for forever. But one of the- Yeah
[00:27:39] Dana Telsey: interesting things is, [00:27:40] one of the things you hear from the retailers is, some of them are willing to pay some more money lately because they know there’s not a lot of supply out there. So I think there’s negotiations [00:27:50] that we hear, hear happening, we heard about it at ICSC, that negotiations are happening if retailers wanna stay in those locations, because the landlords, there’s three other people with [00:28:00] higher sales per square feet that they would love to put in there
[00:28:03] Terry Montesi: Yeah, I think you’re right.
[00:28:06] Terry Montesi: Yeah. Dana, I’d love to hear from you some companies that you [00:28:10] think are really getting it right right now.
[00:28:12] Dana Telsey: Mm-hmm.
[00:28:13] Terry Montesi: And then if you could be so bold as some people you think, you know, might be heading, heading the, [00:28:20] the other direction.
[00:28:21] Dana Telsey: Couple things. I think obviously when you think about who’s been getting it right, the results of the off-pricers that has been absolutely stellar, they’re getting it right.
[00:28:29] Dana Telsey: They’re [00:28:30] doing brands at a value. They’re capturing more customers. They’re in convenient locations. I look at some of these legacy businesses, like a Gap, like a Victoria’s Secret, who all of [00:28:40] a sudden, guess what they’re doing? They’re capturing the new and younger customers. The data insights that Coach gleans from their customer and h- what product [00:28:50] they should produce is very impressive.
[00:28:52] Dana Telsey: Some of the data insights showed them that Gen Zs, they like reading books. So what did they develop? They developed these tote [00:29:00] bags that e- with a library setting with the marketing around it. It sold out. I was on the phone on Monday with Inditex, who operates Zara, and you think about all the [00:29:10] banners that Inditex has, you’re gonna see more of them coming to the US.
[00:29:14] Dana Telsey: They have a very low market share here with Zara, but also obviously their own other brands that don’t even [00:29:20] have anything. There’s more to come. They’re getting it right. We have companies where they have new cel- CEOs coming in where they have to go and reinvigorate the [00:29:30] brand. Nike’s an example of that.
[00:29:32] Dana Telsey: I mean, Nike we’re for, we’ll hopefully see the progress that Elliot Hill is making. It’s gonna be interesting to see what Heidi [00:29:40] O’Neill does at Lululemon in, when she starts in September, and hopefully we hear from her before the end of the year. But right now, the watch list in retail is very [00:29:50] low. And yes, you know, you continue to have- People talk about department stores, but I give credit to Macy’s for the bold new chapter and [00:30:00] the advancements they’re making both with Bloomingdale’s and also with the core Macy’s.
[00:30:05] Dana Telsey: I wanna see if JCPenney can accelerate their [00:30:10] reinvention over time. As,
[00:30:11] Terry Montesi: as
[00:30:12] Dana Telsey: Kohl’s- And Dana,
[00:30:13] Terry Montesi: what, what do you like that Macy’s is doing? Tell us a little more about that.
[00:30:16] Dana Telsey: New brands. More new brands are coming into the [00:30:20] Macy’s ecosystem. Definitely into Bloomingdale’s because vendors who slow down or are not selling as much to Saks anymore, Bloomingdale’s and Nordstrom are [00:30:30] getting the benefit.
[00:30:31] Dana Telsey: But you even look at Macy’s, who’s put in new brands. They’ve begun to invest more in the stores. The 40 million shoppers, the loyalty program has [00:30:40] been enhanced. One of the things they’re gonna do this summer, it’s gonna be amazing. What Macy’s basically with their 4th of July fireworks that’s seen all across the US, [00:30:50] they’re gonna have it on the East Side and the West Side of Manhattan this year.
[00:30:53] Dana Telsey: You have to believe that brings more awareness. Also, when you look at the Macy’s Thanksgiving Day Parade, [00:31:00] this year it’s the 100th anniversary of the Macy’s Thanksgiving Day Parade. So they’ve reimagined some of their stores. They’ve reimagined around 250 of them now. They’re [00:31:10] getting better results out of those stores, and you’re seeing it in sales, and you’re seeing it in profits.
[00:31:16] Terry Montesi: Well, that’s good to hear. And I- we are partners with [00:31:20] Dillard’s in a mall that we bought in Longview, Texas. Dana and I have been just blown away at how You know, and the kind of retail [00:31:30] apocalypse, COVID, and h- how, how well Dillard’s who, you know, run by merchants, not by, not by financial [00:31:40] engineers, has done so well over these past years.
[00:31:42] Terry Montesi: What, what are your thoughts about Dillard’s?
[00:31:44] Dana Telsey: I think one of the things with Dillard’s that they’re doing, they’re doing better, they’re doing more of it every year. They [00:31:50] localize their offering to the different regions and different communities that they’re in. And they’ll do that with influencers.
[00:31:57] Dana Telsey: They’re- they’ve brought in new brands. They’ve [00:32:00] updated and remodeled the whole cosmetics area, and they’ve, they really have modernized in the past five years or so, and it’s very [00:32:10] impressive. A re- regional, regional in nature, obviously not national like Macy’s, but their localization and personalization to the customer with the [00:32:20] brands.
[00:32:21] Dana Telsey: Look at the results they’ve delivered. They’ve been exceptional.
[00:32:24] Terry Montesi: Yeah. Danny, you and I, b- both ICSC trustees and, you know, I’ve [00:32:30] noticed over the last 10 years since I’ve been a trustee, the talk about the mall business has dwindled. Um, they almost forget about the industry and we’re, [00:32:40] we’re in the business and, and I like the business.
[00:32:42] Terry Montesi: I believe in the business. Um, what are your thoughts about the mall business, malls going forward? The, the all the retailers that are [00:32:50] mall centric. Give us your thoughts.
[00:32:51] Dana Telsey: I think one of the things we’ve seen happen with malls, like we’ve seen retailers. Retailers, I mean, they’ve all closed some stores in order to [00:33:00] focus on the stores that they’re strengthen and what the stre- they can strengthen and what they invest in.
[00:33:04] Dana Telsey: That’s what you’ve seen from some of the malls too. You are seeing continued… There’s a huge [00:33:10] demand to be in some of those highly productive malls that are out there. Obviously, Simon has a lot of them, Macerich has some of them, and that’s been very productive and important. [00:33:20] The reason why? They invest in the mall.
[00:33:23] Dana Telsey: They have the retailers are investing in their stores in the mall. They have other [00:33:30] experiential elements, whether it is movie night, whether it is events that happen within the mall. You still have malls are a destination for [00:33:40] social engagement. And I think if anything, the reinvestment in them have made them more important with the new tenants.
[00:33:47] Dana Telsey: It doesn’t hurt that you have some new anchors too. [00:33:50] Dick’s House of Sport has been very compelling and have brought newness there. And the f- the mall having the restaurants a- having the goods and the services [00:34:00] is compelling. So whether it’s a South Coast Plaza, whether it’s Fashion Island, whether it’s Cherry Creek, Short Hills Mall, there’s a lot of very productive centers [00:34:10] out there and very productive malls.
[00:34:12] Dana Telsey: And I always think that we’re seeing the investment in these malls, and that’s what’s driving the retailers investing there too. [00:34:20]
[00:34:20] Terry Montesi: Yeah, and there, you know, there’s a pretty good sized list of retailers that are primarily in malls.
[00:34:27] Dana Telsey: Yes. Mm-hmm.
[00:34:28] Terry Montesi: Do you know, of [00:34:30] course, you think about how do they expand if they’re mall centric when there’s nobody building malls?
[00:34:36] Terry Montesi: So what do you, what do you say about that list of retailers and, and [00:34:40] what do you see from them?
[00:34:41] Dana Telsey: I think they’re opening in open air, too. I don’t think it’s just a mall or open air, it can be both. And you’ve seen some retailers like Sephora, who used to be [00:34:50] just malls, now they have open air. And when they’re opening even within five to 10 miles, a one plus one is equaling four.
[00:34:57] Dana Telsey: So I don’t think it’s either/or, I [00:35:00] think it’s both.
[00:35:01] Terry Montesi: Yeah. I agree with you. So let’s talk about grocery.
[00:35:05] Dana Telsey: Mm-hmm.
[00:35:06] Terry Montesi: You know, in the retail real estate business the last few years it’s [00:35:10] been all about grocery. Al- almost exclusively all about grocery. And then the grocery business the last 15 years has also really changed [00:35:20] because, you know, the, the, uh, onslaught of different specialty grocers, Sprouts, TJs, Whole Foods, et cetera.
[00:35:28] Terry Montesi: So what, [00:35:30] what are your thoughts about grocers as anchors? What are your thoughts about the grocery business and what that says about consumer tastes and likes and dislikes? [00:35:40]
[00:35:40] Dana Telsey: A couple things. I think grocery anchored is always gonna be relevant, very popular. And you know why? People go there the most. If you look at the average number of trips that people [00:35:50] go to a grocery store, it’s almost more than any other type of retail trip.
[00:35:53] Dana Telsey: And like you mentioned, there’s more specialized grocers today, whether it’s specialized to [00:36:00] different demographics, different nationalities, smaller or bigger. I think probably one of the most expensive grocers I’ve seen that has a ton of [00:36:10] traffic. Have you been to the Erewhon in Southern California?
[00:36:13] Terry Montesi: Yeah.
[00:36:14] Dana Telsey: I mean-
[00:36:14] Terry Montesi: Pretty crazy …
[00:36:15] Dana Telsey: $20 plus smoothies, but they’re, there’s a line out the door. Yeah. So I [00:36:20] think that search healthy wellness, it, you can … people stay there. They have interviews, they have dates, whatever it is, they’re meeting friends. But [00:36:30] grocers have become a very hip and modern destination
[00:36:34] Terry Montesi: Yeah. And it’s interesting, the capital markets have gotten to the point in, [00:36:40] in a lot of cases, Dana, where it doesn’t matter.
[00:36:42] Terry Montesi: You, you could, you could have a 20,000 foot grocer in a 400,000 foot center, and they still call it grocery anchored.
[00:36:49] Dana Telsey: I know.
[00:36:49] Terry Montesi: It’s-
[00:36:49] Dana Telsey: [00:36:50] Amazing, right?
[00:36:51] Terry Montesi: Yeah. So we believe in that. We’re, we’re doing several deals with Whole Foods right now, and w- the capital markets really like them, and-
[00:36:58] Dana Telsey: Mm-hmm …
[00:36:59] Terry Montesi: I think for good [00:37:00] reason.
[00:37:00] Dana Telsey: Yep.
[00:37:00] Terry Montesi: So Dana, let’s talk about retail real estate. What are you hearing? What, uh, what have you learned maybe the last few years about how retailers are, [00:37:10] are finding their real estate? What’s new? How are they going about that? What’s mattering most, and what, how have you seen that decision [00:37:20] changed over the last few years?
[00:37:21] Dana Telsey: Over the last few years, I think big focus on open air. That’s definitely been topical. Because like we know, there hasn’t been many new [00:37:30] development of new centers or malls, so open air is definitely top of mind. They’re looking more at traffic patterns. And I think the other thing that’s changed, I think [00:37:40] we’ve seen a convergence.
[00:37:41] Dana Telsey: I no longer think you’re talking about value centers or outlet centers, because now the retailers are selling their f- full price goods [00:37:50] in whether it’s value centers, whether it’s malls. Because where’s the customer gonna, customer gonna be? It’s not the name of the th- it’s not the type of center, it’s what’s [00:38:00] the demographic nature, the household income levels, the drive-by of what’s going by those centers that makes it more compelling and of, and, and exciting.
[00:38:09] Dana Telsey: That is what [00:38:10] I think has been one of the biggest changes. The word outlet is a word from the past. The word value, the word experiential is the word of today.
[00:38:19] Terry Montesi: Yeah. And I, and [00:38:20] what we see a lot, Dana, what we, we have been doing, what we sometimes what we renovate centers into, and some of the ones we’re developing now is you can’t really [00:38:30] put them in a box.
[00:38:31] Dana Telsey: Right.
[00:38:31] Terry Montesi: They’re part, they’re part power, they’re part neighborhood and grocery, they’re part lifestyle. You know, they’re, they’re really hybrid [00:38:40] centers, and, and it’s just more about retail real estate at great locations. It’s not about-
[00:38:46] Dana Telsey: Mm …
[00:38:46] Terry Montesi: format. You agree with that?
[00:38:48] Dana Telsey: Totally agree. And that’s why you’ve seen even [00:38:50] more flexibility in the size of space that retailers take.
[00:38:54] Dana Telsey: I don’t think they’re, they’re as rigid as they were in the past. It has to be this size box, and here’s how we [00:39:00] want the adjacencies. Now there’s more flexibility
[00:39:04] Terry Montesi: So let’s talk about trends. You being a researcher, helping people look toward the [00:39:10] future, what are a couple of the big trends you see in retail, and how might those impact retail real estate going forward?
[00:39:19] Terry Montesi: And I’d [00:39:20] love for you to share something that I might not have heard.
[00:39:24] Dana Telsey: So it’s all about agentic AI. AI is gonna be at- Yeah … where we are today in AI, I [00:39:30] can tell you when we’re sitting here and talking two or three years from now, we’re gonna be somewhere else. Because the pace at which it’s being adopted, that we don’t even know what it’s gonna be utilized [00:39:40] for yet.
[00:39:40] Dana Telsey: Agentic AI, where it’s anticipatory and changes the way that people think, very important to what it means for retail real estate [00:39:50] and the retailers themselves. So we’re- it’s very early innings. I think the bigger companies like the Walmarts are the ones who are adapting at first, [00:40:00] and everyone else will follow.
[00:40:01] Dana Telsey: But I think that’s gonna be the big story two or three years from now in how we see the retail real estate landscape with the retailers.
[00:40:09] Terry Montesi: [00:40:10] And so I, I’m, I’m telling myself a story about how my agent might impact my, my buying patterns in the future. Can- [00:40:20] give me an, give me an anecdote. What, what might that look like, Dana?
[00:40:24] Dana Telsey: Well, I think that’s gonna look like in March, they’re gonna know that you go, you go away on spring [00:40:30] vacation, and they’re gonna say, “You know what? Your spring vacation is typically coming up on March 18th. Let me show you shorts that you typically buy and what the newer [00:40:40] shorts are because you haven’t bought them in a year.”
[00:40:42] Dana Telsey: Uh, that’s interesting story Yeah, and I was
[00:40:44] Terry Montesi: think- got it. So I was thinking, yeah, so m- if my agent might know the six brands that I [00:40:50] love, and when something comes out from one of those brands that’s new that for some reason- Uh- … they think I’ll like, I’ll get some sort of a message from them, “Hey, check this out, Terry.”
[00:40:59] Terry Montesi: That kind of [00:41:00] thing.
[00:41:00] Dana Telsey: And can you imagine when your agent basically says, “Here’s the Father’s Day gift that you should buy your dad ’cause you bought him this two years ago,” or, “Here’s the Mother’s Day gift or [00:41:10] Valentine’s Day.” Yeah. It may take all the forgetfulness out of the way.
[00:41:14] Terry Montesi: Yeah. “Hey, Terry, don’t forget your anniversary’s coming up.”
[00:41:17] Dana Telsey: Right. ”
[00:41:18] Terry Montesi: Last few years you bought [00:41:20] this. You might wanna take a look at these.” That’s pretty interesting.
[00:41:22] Dana Telsey: Yeah.
[00:41:23] Terry Montesi: Dana, one of my last questions, but, uh, one I’m excited to, to hear you address. If you’re advising a [00:41:30] retail real estate investor-
[00:41:32] Dana Telsey: Mm-hmm …
[00:41:32] Terry Montesi: on where to be convicted in investing in retail real estate, not just geographically, but-
[00:41:39] Dana Telsey: Yep
[00:41:39] Terry Montesi: you know, [00:41:40] product type, type of retailers, what, what, what would you say?
[00:41:43] Dana Telsey: I wanna go where, where peers complementary to me are going as a retailer, but I’d look at the [00:41:50] continued focus on open air because they have the experiential with the goods. And to me that turns into an expanded lifestyle, and I wanna [00:42:00] go to the malls where they’re, where they’re occupied.
[00:42:02] Dana Telsey: I wanna be in those centers. And I also wanna look at who are the retailers who are investing in their stores. And I’ll give you an example. There’s a-
[00:42:09] Terry Montesi: Right …
[00:42:09] Dana Telsey: new [00:42:10] hip restaurant, h- new hip healthy restaurant out there. Have you heard of Pura Vida?
[00:42:15] Terry Montesi: Oh, yeah.
[00:42:16] Dana Telsey: Well, uh, what I know is Birkenstock wants to go everywhere where [00:42:20] Pura Vida is.
[00:42:21] Dana Telsey: Think about it. So where can you get complementary customers? Complementary is what builds the basket and what builds the loyalty. [00:42:30]
[00:42:31] Terry Montesi: Great. Before we wrap, anything that we missed that you think my listeners might want you to share with them?
[00:42:38] Dana Telsey: No, I, I basically [00:42:40] do a lot of consulting with a lot of the retailers, the real estate companies.
[00:42:44] Dana Telsey: Anyone would like to inquire about that, please give me a call and I’ll put you in touch with our head of consulting, [00:42:50] Tom Chin.
[00:42:51] Terry Montesi: Dana, this has been an informative conversation. What I appreciate about your perspective is that you bring the consumer into focus for those of us who spend our days [00:43:00] on retail real estate.
[00:43:02] Terry Montesi: The two worlds are so connected, but we don’t often hear from voices like yours in our industry. Thanks so much for joining us on Leaning [00:43:10] In.