Join Ken McElroy and CNBC Senior Retail Reporter, Courtney Reagan, in a discussion about how badly the retail industry has been affected by this pandemic and the future of commercial real estate.
Ken McElroy:
Hey everybody. I’m here with Courtney Reagan. Who many of you probably recognize at CNBC. She is a senior retail reporter as part of her, her coverage in the retail sector. She has interviewed many, many CEOs from Walmart, Target, Macy’s, Kohl’s, Home Depot, et cetera, et cetera. And she also contributes to market coverage of the New York stock exchange and the NASDAQ. Courtney. Great to have you on. Thank you.
Courtney Reagan:
Thanks for having me.
Ken McElroy:
Yes. Hey, so I want to jump right in, obviously, you know, things are starting to open up, I guess, in some cases and, uh, not necessarily worldwide, but in the U S and, and, and I know you cover a lot, I looked at your stuff, it’s really kind of neat. You’re going into these retail businesses. You’re talking to the heads of these companies. What types of retail businesses do you see rebounding the most strongly and which ones you think are going to need a little bit more time to recover?
Courtney Reagan:
Yeah, so it’s funny, there’s all these different silos in retail. And of course, when the pandemic began, the government classified many as essential and non-essential. And so if you were in a central retailer that you were a home Depot, you were a Walmart, you were a target, you were, um, a winner almost by default because of what the government had decided was necessary to keep the public safe. Uh, but if you were a Macy’s, if you were a Kohl’s, if you’re an Abercrombie, you were out of luck and you’re forced to close your doors and search shoppers only online. That is, of course, if you could figure out how to keep your warehouse employees safe, when it came to them, working to be able to ship you the product. And so I think that sort of forced winners and losers and we’re coming out of it, but we’re seeing a lot of interesting trends.
Courtney Reagan:
Um, we’re sort of seeing, I know this, this seems kind of like a small example, but, uh, denim styles have changed since they all went into lock. And so we’re seeing some specialty retailers, um, that may not have been doing so well during the pandemic. And even before doing a lot better now, like the gap has been doing better. American Eagle has been doing better. Levi’s has been doing better today. Contour brands reported earnings, they own both B and Wrangler. Um, they had some really strong sales in China and also digitally. Those were sort of two high points, but also here in North America. I mean, I think you, you can be a winner, um, at different times in different seasons of retail. But right now I think, you know, Americans are sort of starting to put the sweat pants away who will be for good, you know, you come home, you put it back on, but when you go out, you kind of want to feel like yourself again, and maybe you’re getting as dressed up for work as you did before, because I think the casualization of a workplace is real, but maybe you’re just taking it a step further beyond, uh, beyond leggings.
Courtney Reagan:
And you haven’t seen your friends, you haven’t seen your family in a while. You probably want the occasion to buy something new, uh, to look good, to feel good, to look special and all of those social media posts. So I think you actually can see a really big spectrum of winners right now because of what we’re facing more from a macro economic standpoint with the real winnings.
Ken McElroy:
Yeah. I see. There’s a lot of new businesses opening up as well. I know, you know, before the pandemic, I have a lot of friends that are in the shopping mall business, you know, on a local level, on a REIT level. And I know they, even before COVID, they were kind of struggling to attract some of these in-person shoppers. Uh, now, you know, what do you, what do you think this is all heading now that these are starting to reopen?
Courtney Reagan:
So I think that that’s really interesting. I actually just looked at some data from sensormatic solutions, which, um, owns shopper track, which is probably the name that many in business are more familiar with. It actually tracks foot traffic in physical stores. Um, and the foot traffic, even for the week day first was up something like 320% compared to April or that same week rather of last year. But that makes sense, right? Because a lot of the stores were closed, but then if you compare it to that same week in the prior year, it’s still down something like double digits, depending on the week that you’re looking at. So I do think that some malls and some shopping centers will struggle as more consumers got used to ordering online, got more comfortable, um, with ordering a dress that they didn’t try on or shoes from an unfamiliar brand where maybe they had to buy two sizes to really determine what they needed.
Courtney Reagan:
Um, I think those high consideration items like a couch or a coffee table that for so long people thought could not be sold online without being able to see or touch it, uh, proved during the pandemic that I definitely could. I mean, look at the success of Wayfair. So I think the mall and the shopping center is absolutely not dead, but I think it needs to be re-imagined I think, and this is not an original thought of mind and that many others believe, and I’m in their camp that we’re over-stored in America. We have much more physical square foot, um, per American than is really needed right now. But I still believe that the winning strategy is a combination of both in store and online. You have these direct to consumer brands that started online that now have physical locations, even like a real real, which is second hand or a Warby Parker. Um, they have physical locations now because there is just something about retail that still needs to be an experience, even if that begins to look a little different from what it’s been in the past. Right.
Ken McElroy:
Right. I couldn’t agree with you more. So we’re going to take a quick break and we come back, we’re going to talk about the shift to online shopping, stay with us. So Courtney, so now I know there’s a surprising number of people, you know, all this pandemic here that were first-time shoppers in 2020, it was very interesting to, to watch all that. Do you see them coming back to the brick and mortar stores, or do you think that they’re, you know, full converts now to the online shopping?
Courtney Reagan:
I think that most people that tried online for the first time during the pandemic, as long as the experience, wasn’t horrible, um, we’ll continue to buy online, but I also believe that that doesn’t mean that they’ll buy only online. Most retailers will tell you their goal truly is to get a shopper that uses all of their platforms because that shopper spends more money. Um, it’s just a fact whether it’s a target shopper or a whole shopper, if you shop on kohls.com or you use the app and you use the store, you end up spending more over your lifetime as a shopper on those brands. And so while I used to think it was a little bit of lip service for the retailers to say, we don’t care how they buy as long as they buy from us. I think that they need it a little bit more now, especially as the profitability of online has improved for a lot of these retailers, even if a part of that is just the maturity of the business, um, and using the stores and their online offerings together, that interconnected Omni channel way. I know everybody talks about omni-channel, it’s a word I wish we had something shorter for, but it is what it is. Right. And I think that retailers are getting more productive and that also means that their store and their physical space can be more productive too, if they use it to fulfill those online orders.
Ken McElroy:
I completely agree with you. So I know, you know, I just did a video the other day about, you know, the number of businesses that have had to close their doors and, and, you know, I’m in commercial real estate, as you know. And so we’ve got office and storage and apartments and we do development. Um, and I’m seeing, you know, just in our office buildings, you know, people are renewing and taking smaller spaces and people are vacating big floor plates. And I know in our non anchored grocery stuff, you know, there’s, there’s some problems with some of the little guys. Um, what do you think will be the long-term impact, you know, from a commercial real estate standpoint, we’ll be,
Courtney Reagan:
Yeah, that’s such a big question and such an important one to figure out. I, I do think that in general move stores will end up being smaller. Um, I think some will find themselves almost using the model that Bonobos really, um, get some credit for inventing where they’re more like a showroom. So you come on and you can see the fabric, you can see the fit, you can try it on, but they don’t keep that inventory there. It’s kept somewhere else and then shipped to you fairly quickly. Um, and, and so perhaps that could be good for commercial real estate. If that means get more tenants in a space, if they need to just take up smaller footprints. So I don’t think that it’s all gloom and doom or they keep the same footprint, but part of it becomes a micro fulfillment center because they figure if they shift from a store, there are a lot closer to that end consumer.
Courtney Reagan:
They can shape save on the shipping costs. They offer a point of return swimmers and maybe we’ll see more retailers adopting the Nordstrom model, where they have service hubs, Nordstrom, and several of these and New York city. And they just talk about the success of them and how it becomes a flywheel for the business where you may buy something from a store or the internet, but you take it to the service center, which is a physical space. And you have it tailored there, or you have it personalized there, um, or you return it there. I mean, there are certainly still paying rents to their commercial mortgage. Now they’re actually selling already there. Um, and I think so many retailers are trying to figure out what experiences could enhance that trip. Um, you know, is it, is it live music? Is it, you know, discussions by fashion designers when they release a new line? Um, but they opened the doors for the loyal customers to, um, I mean, I think retail needs real estate, real estate needs retail. You just have to get creative about how best to use those locations. And maybe in the end, you know, the, the rent overall doesn’t drop, you just have more tenants paying less rent for less space. I mean, that could be a possibility as well.
Ken McElroy:
Yeah, very good points. I, I, you know, locally, I’ve, I’ve seen, uh, I know Amazon cut a deal with Kohl’s, you know, for that and their drop off a package. And I thought that was brilliant because those people are bringing their, you know, things in there. And then of course, you know, what do they do? They hang out. Right. So yeah, a lot of companies are really moving to that. So thank you. So we’re going to hop over now over to the premium side for a bonus question. If you guys are interested, jump over to KenMcElroy.com/Premium.
Ken McElroy:
Well, thank you very, very much. And guys, listen, like real estate is boots on the ground and this is what Courtney does. So jump over, make sure that you’re watching her, you know, wherever she’s going to be. Uh, because as she’s interviewing these folks, he CEOs they’re telling her what’s really going on at the retail level. It’s very, very, very important as you guys are investing in your commercial real estate. So Courtney, thank you again. I appreciate all your time. Thank you.