LAS VEGAS — After nearly 35 years of developing and brokering commercial real estate, Scott McLain has no doubt about the deep connection between retail and human nature.
McLain, principal and managing broker of Huntsville, Ala.-based Coldwell Banker Commercial McLain Real Estate, sees e-commerce and other new forms of delivering retail products and services as mechanisms that hit on the most basic wants and needs of consumers.
For all the talk about how e-commerce is putting retailers out of business, McLain’s view is that retailers that don’t offer value, convenience or the ability to delight consumers are the most vulnerable and have been exposed by online competitors. That holds equally true for online-based and brick-and-mortar retailers.
REBusinessOnline.com caught up with McLain at the RECon show in Las Vegas in late May for a quick lesson in human psychology and how it applies to Amazon, store closures and retail real estate in the 21st century.
His edited responses are as follows:
REBusinessOnline.com: In your opinion, have we seen the worst of the store closures yet? How do you see the closures playing out over the next 12 months?
Scott McLain, Coldwell Banker Commercial
Scott McLain: What I’ve discerned recently about this industry is that there’s a lack of understanding about how retail works — why we like retail and why we don’t. Retail is human nature. The industry hasn’t labeled it this way, but the fact is that retail has always succeeded or failed based on human nature.
The older generation appreciated value, and when retail delivered value it was deemed successful by that generation. Then the baby boomers came along and created communities, which led to more interaction in retail with malls and restaurants and social clusters.
Now we have the millennials, who crave experiences. That demand for experience impacts what jobs these people work, where they live and how they’re going to react to retail. When we as retail professionals recognize that it’s human nature we’re trying to address, we do a better job.
Human nature demands novelty and delight, as well as convenience. So we’ve come up with these platforms that make some mundane retail tasks very convenient, and these platforms are really quite fun. They come with cool graphics and exciting delivery, so we’ve flocked to these platforms for retail that isn’t experiential. When it comes to necessity items, you can have them delivered to you.
We can have air filters delivered to our homes at the exact time we need them replaced. There’s no delight in going to the store to buy air filters, plus trying to remember what size you need and when you need them. So we have a new medium that delights human nature and provides convenience and excitement, and that has generated a lot of store closures.
I do think we’ll have more closures. As technology becomes more exciting, there will be retailers that don’t respond and will fall through the cracks because they’re playing by the old rules.
There’s a heightened awareness in the industry now of some [key] questions: How do we respond to these changes and new demands? How do we make something boring fun? How do we address the experiential demand that millennials want in everything?
REBO: Do you think e-commerce exposed some of the weaknesses and cracks within the industry that were already there?
McLain: I would generally agree with that. E-commerce is a medium. It’s a way of doing business, and it’s a tool. In most cases, it’s a method or medium for doing retail, not a product. And mediums that are exciting work.
Fundamentally speaking, Starbucks is coffee in a cup delivered by a person. But we’ve seen that company make the product and delivery more exciting. First, coffee servers became known as baristas to put some pizzazz into the delivery system with a fancy word. Then they renamed the cup sizes, which we had to learn as well.
Starbucks exposed the medium of coffee delivery. Instead of asking if a customer wants cream with his coffee, Starbucks provides a flourish of cream that looks like a flower. It makes the consumer feel cool and delighted — “isn’t that fun, that’s my coffee!” So I do think we’ve exposed old, unpopular ways of delivering retail through this new medium.
REBO: What’s the next step in the evolution of retail?
McLain: The technology and techniques behind delivery of retail goods and services continue to blow us away. We’ve created a monster in some senses that is this new medium of delivery. It’s about showing people what they want even if they don’t know they want it. This model will continue to be a threat to retailers with mundane deliveries.
Necessity products and services will not end. But how we acquire those goods and services is changing as this great technological intellect that we have in our world perceives new ways to do that. This will prompt new delivery methods that delight people, satisfy the need for excitement and phase out old methods of delivery.
REBO: Tom McGee, president and CEO of the International Council of Shopping Centers (ICSC), has gone on record saying that the actual percentage of online sales relative to total retail sales is lower than what’s often referenced in the media. Should it surprise us that the organization is somewhat defensive with regard to the impact of online retailers?
McLain: I don’t think so. We have to consider Tom McGee’s position, which is the head of an industry organization with 70,000 members. Those 70,000 members are either nervous or aware of this great change and the potential level of siege.
People don’t want to get bad news, and they do want to get facts. So McGee’s position as head of this organization is to help discern the facts and present them in a way that supports the organization. I don’t think this is a meltdown. We’re going to continue to shop and crave interactions because that’s human nature. The way that entertainment is delivered to you will change, but your craving for entertainment won’t.
So, McGee is trying to counter a press that sometimes does give heavy coverage to the store closures. And the store closures are phenomenal, and they’re disturbing and they’re large, so it’s big news. But he wants to call attention to the fact that there are also a lot of new stores opening. Old, big-box chains are closing and more creative, homespun concepts are opening. But those concepts don’t compare to the big closures of these large, debt-ridden organizations.
REBO: What is your biggest concern about the state of the retail real estate market as we speak?
McLain: I’m highly concerned about labor. To my understanding, we have about 95 million people in America who don’t work, whether that’s because they’re retired, in jail or unable to pass a drug test or whatever. We’ve got about 1.5 million readily employable people in the United States and we’re adding more than 150,000 jobs per month. It’s been my feeling since January that by October we’re really going to be screaming about labor.
We have a serious labor problem in our country. We are starting to recognize it — the administration is issuing more work visas and newspapers are reporting on it — but the scariest thing going on in our economy is that we don’t have enough people to work. National retailers that are expanding seem to be less aware of this situation, which is happening all across the country, but even they have some challenges with employment.
REBO: In your 34 years in the business, has the retail real estate market ever faced issues of this magnitude — specifically with regard to the labor shortage and oversupply concerns?
McLain: Those problems are serious, but the state of the retail market is unquestionably better than in 2008-2009, or in the 1980s when interest rates were in the 20 percent range. There is still a great deal of money seeking placement in today’s market, and a great deal of energy that is committed to solving the problems at hand.
We’re fortunate that our general economy is better, and that creates optimism. And getting back to what we discussed earlier about human nature, people want to be optimistic, particularly those who have been downtrodden like the real estate industry coming out of the recession.
So, the industry is trying to be very forward-thinking. But without question, business moves more slowly and is harder to come by. A lot of major retailers, including big grocery chains and traditional big box tenants, are sort of frozen right now. Everybody’s trying to figure out the new landscape.
REBO: In your role as a broker in today’s market, what kinds of advice and counseling do your clients seek from you?
McLain: Buyers seek wise counsel on why a given opportunity is a good investment. Buyers look for brokers to be able to understand the market — as well as their needs, concerns and limitations. They want brokers to show them how a particular investment satisfies them and will protect them.
Sellers are looking for success, professionalism and efficiency. They also want their brokers to understand their needs, timing and strategy, as well as how to use the market to meet their goals. It’s really all about being a problem solver.
— Matt Valley and Taylor Williams