How Retailers Can Tech Out for the Holiday Season
As chairmain of ICSC and in his role as the CEO of CBL, one of the country's largest mall REITs, Stephen Lebovitz has his finger on the pulse of retail. Bisnow sat down with him to get his views on REIT spinoffs, interest rates and what the industry can expect from the upcoming holiday sales season.
Bisnow: We've seen a lot of things in retail this year, from REIT spinoffs to dramatic declines in sales. What trends do you see for 2016?
Stephen: Well, there’s, I’d say, a continuation of what we've seen in 2015—which is a generally healthy environment for shopping centers. This year we've had positive sales in our portfolio with over 4% growth in sales levels. Lower gas prices and lower unemployment and a favorable economy in general has helped feed that.
And as we look ahead to ‘16, we see that continuing. The recent job growth numbers were strong and the economy seems to be strong. There are some areas where there is strength and some areas where there is weakness, but we feel like there’s more of the former—more strength—and that will give us momentum going into 2016.
Retailers are healthy in general and we are seeing good growth in categories like jewelry, home furnishings, cosmetics, personal care, footwear—areas like that. And again, we see that going forward.
Bisnow: What are some of the more specific strengths and weaknesses?
Stephen: The strength in one area I didn't mention is food, the trend towards people spending more money on eating out, whether it’s fast-casual or sit down—that’s definitely a strength.
And then from a fashion point of view, there is a little bit of a market share transition. The retailers that have the strongest fashion—and can offer it at the best prices—are thriving. Then there are others that maybe aren't doing such a good job or are struggling, but that’s more just a competitive dynamic than a category.
And then home—people are investing in their homes; there are more home sales happening. Multifamily is still a growing business, and that helps our home business, so that's an area where there’s been some strength. In terms of where there’s weakness, there are certain retailers that have been shrinking—whether it’s GAP or Abercrombie or Aeropostale—there are a few that have had struggles competitively, and they've been shrinking their store base.
That’s one area where we’ve seen some challenges, in children’s apparel and junior apparel, but then it’s also competitive because there are other retailers, like H&M and Forever 21, that are taking that market share away and they are doing well.
Bisnow: A lot of retailers struggled during the last quarter. What is the sector expecting from holiday sales?
Stephen: First, we are expecting a good holiday in terms of sales. ICSC has forecasted a 3.3% increase, most of the forecasts have been in the 3% to 4% band, coming off of last year, which was almost 4%—that’s good solid year-over-year increase.
The 10-year average is 1.8%, so we are significantly above what the average has been—that’s a positive. Low gas prices help in terms of people getting out and visiting the properties.
It seems like the Santa experience is an ongoing draw for traffic. Families continue to bring their kids. We actually invested in a Santa experience by DreamWorks that is very interactive and digital and should be a really exciting new draw; we have a huge waiting list of people who want to do it.
I think it’s going to be a good season, just in general, we had a strong back to school and that bodes well for the holiday in most years. We are optimistic.
Bisnow: As a mall operator, location is key. Many are looking to urban centers to fuel growth. What strategy do you use when you look for new properties?
Stephen: When looking for new properties, in terms of either building or acquiring, it’s really a combination of factors, but it starts with the market, the supply-demand dynamics in the market and whether there’s an opportunity.
In some cases there might be a property [which]—because of changes in traffic patterns and demographics—isn't adequately meeting the needs of that market. For example, we just opened a new project in a town in Louisiana where we built a large new center that has a combination of open-air boxes and fashion and department stores, and that took a lot of share from another property in the market that was older and wasn't doing as well.
The growth had shifted away from where the older property is, so that whole supply and demand is a big part of it. And looking at local market factors, that’s probably the No. 1 thing.
Bisnow: Macy's recently had a brutal Q3, which they attributed to a decline in foot traffic. We see stores using new technologies to draw shoppers. What are some of the things malls and retailers can do to use tech to enhance the shopping experience?
Stephen: We’ve been talking about technology in shopping centers, and we had a conference here [recently] with some of the other landlords and the ability for us to use technology to improve the customer experience and generate additional sales and traffic at our properties.
That’s a big opportunity for innovation and a focus for ICSC and its members. So whether it’s something on your phone, or putting fiber optics around the property, more digital bandwidth.
There are different mechanisms to enhance the property experience, and that’s a big focus of ours. Working with retailers and emphasizing the experience of shopping, giving people more reasons to come to the stores and see what’s going on there and experience the fun of shopping. That’s a big focus.
Bisnow: Are you making efforts to combine the in-store shopping experience with advertising and a consumer’s preferences/purchasing history?
Stephen: Definitely. If you go to the property you can see all the places to buy jeans, and see what they cost. At a store you can use beacon technology to send a coupon to the customer from a certain store to give them opportunities to find what they are looking for.
So yeah, there is a lot of opportunity to use technology to communicate more directly with the customer and help them with the purchasing. And the retailers find that shoppers who use their phones spend 40% more in the stores.
Retailers want to get people into the stores because then they make the impulse purchases, so from a retailers point of view they are a lot better off than having someone buy something at home, so they are trying to figure out ways to get people to visit and come pick up [in store] rather than pay for shipping. That type of thing is becoming more popular.
Bisnow: Switching gears a bit, you run a REIT. How does the expected interest rate hike impact you?
Stephen: My sense is that it’s baked in the numbers, it’s been talked about so long, I mean we’re going back two years—over two years really—there’s been a lot of speculation on when our interest rate is going to increase.
We’re going from zero to 25 basis points, so we’re still historically at a low interest rate. Most of our lending is fixed-rate long-term, so it doesn’t affect our cash flows; it’s more of a psychological issue with the markets and feeling that costs are going to go up over time.
It’s so anticipated that it’s going to happen, that I think the impact when it happens is not going to be significant. And the other thing is this: the reason they're going to raise interest rates is because the economy is doing well. There’s good job growth, there’s some wage growth, so those are positives and help our business. We’re not against it; we want good growth in the economy. That’s going to be more meaningful than a 25 basis point raise in rates.
Bisnow: Do you see the interest rate hike impacting REITs more than the private equity sector?
Stephen: Well, it impacts REIT stock prices because there is interest rate sensitivity to stock prices, and we’ve seen that we are a public company, and from that point of view it impacts us. In terms of our overall business, real estate does involve borrowing, so there’s more cost at the margins, so yeah, there’s a cost to it whether you are private or public, I’d say.
Bisnow: What are the market conditions you are worried about?
Stephen: In certain parts of the country the lower commodity prices, and even lower oil prices hurt employment, we have a couple of malls in North Dakota and Texas, and certain parts of the country have been impacted by the low oil prices and other commodity prices. That’s an impact. The stronger dollar has hurt tourism spending; that’s an impact. So it’s not all perfect. There are some headwinds, but on the whole I feel like the positives outweigh the negatives.