At our 2nd annual Location is Everything Summit, speakers from Caleres, Loblaw Companies, and EY participated in a roundtable about the changing face of brick and mortar strategy.
Access the full summit on-demand:
At our 2nd annual Location is Everything Summit, speakers from Caleres, Loblaw Companies, and EY participated in a roundtable about the changing face of brick and mortar strategy.
Access the full summit on-demand:
We have a great panel, real estate experts here and retail experts. I’ve learned long ago, not to attempt to do introductions myself, because I tend to somehow mess something up. So why don’t we just go left to right, maybe Matt start with you, you can give us a little background on the company, your role and the portfolio.
My name is Matt Rose, I’m the Director of Corporate Real Estate for Caleres. We rebranded about five or so years ago, we used to be Brown Shoe Group. We’re about a $2 billion wholesaler retailer, and as far as Brick and Mortar goes, we operate under four banners, naturalized or famous footwear, Allen Edmonds and Sam Edelman.
We’ve got about 1,000 stores strong right now, and looking to expand. So, what me and my team do we focus on a variety of things, we obviously do the demographics, the new site selection, the analytics, we also do a little bit of FP&A, so we’re always doing P&L work, market optimization work. And then we have the lease admin, lease audit team, so we actually pay the landlords all the bills.
So, there’s always a lot going on and it’s exciting and every day there’s new adventure and it keeps us on his toes and we like it. And we’re really thriving right now post pandemic and hope to continue to do so.
And nothing like a pandemic to mix things up. All right, Bruce, why don’t you fill us in on Loblaws, your role and everything else.
Similar to what Matt just mentioned with respect to the responsibilities and the roles. So, my name is Bruce Mooney VP at Loblaw companies and the real estate department. Loblaw companies is Canada’s largest retailer with over $50 billion in sales, we have 2,350 stores, we have supermarkets, drug stores and an Apparel business, a little bit of a liquor business as well.
We are constantly challenged with network optimization. We work very closely with our real estate investment trust, our partners over at Choice Properties, or our key to our growth and sustainability of our business. And really as we’ve gone through this and I think similar to what Doug and Matt will find in their experiences, just managing consumer change and the desire for people to, how are they shopping moving forward, what they’re shopping for in the basket. So, I look forward to the conversation today. Thanks for asking me to join Bart.
Yeah. Thanks Bruce. And Doug.
So I lie awake at night, wondering what Matt and Bruce are lying awake at night thinking about. So, I’m the consultant, the service provider, and just trying to help clients crack the code on what the future looks like. And that has many different layers, a re-imagined footprint. We’re hearing about re-imagined workplace on the office side, well, retail has been thinking about this for several years now with really the online shift happening more and more aggressively.
So, what does that look like and how do I go from point A to point B? I’ve got a background in architecture, licensed real estate broker. But I think the most important thing to bring to our clients is helping them evaluate scenarios and make a decision. And ultimately that’s what we try and bring to folks like Matt and Bruce. Thank you.
Makes perfect sense. Okay. I’m going to stop sharing and we’ll go to the real deal. Stop share, should be able to figure that out, and the audience can see what they’re here for, which is you guys. All right. So, thanks for the background. I think I’d like to dive a little bit deeper to start out, to talk about some of the themes that are going on in respect to businesses, I know that the industry segments are different.
I think in some of our discussions prior to the round table here, that came out, so I think that’ll be a very interesting counterpoint between the both Bruce and Matt, as it relates to both geography and industry segment things such as that. And Doug, obviously you’ve got a broad perspective across a number of clients. So why don’t we first start, Bruce, give us a little bit more detailed on some of the main themes in the grocery and drug business that you guys are dealing with.
I think the first theme to call out in our business, Bart is, is that we’re a non-discretionary spend. So when you look at consumer behavior, people have to eat and have to get their health care products. So when we’ve spoken, Matt and I in the past, and we’ve said that it’s a different realm, so I’m super curious about his observations and where his business is gone and been challenged by COVID.
But our themes are to make sure that… COVID has been a tremendous amount of time for the entire supermarket business and the drugstore business because of a surge in sales, due to the closure of restaurants. And basically the closure of amenities and people have gone back to basics, so many people have gone to obviously to cook more at home, scratch cooking, and some trends that emerged at the start of the pandemic and many people walked down the paste aisle, for example, in any supermarket anywhere in the world, and suddenly there’s no as much pasta billable anymore. People tend to get on those trends.
Our big question like everybody’s in retail industry would be, so how much of this sticks? Will people rebound back entirely to the pre pandemic behavior, retail behavior that they had in our sector? Or could there be a rebound as people want to get out to restaurants more? And that could have a positive impact to business. Or well, how much of it will stick that, “Oh, you know what? We seem to have a little more money.” Some people do with respect to eating at home more often. So, that’s been a nice little thing to have, and so how will those behaviors stick?
And the reason why that’s super important to us is, it obviously impacts our performance of our retail offerings, and if we’re going to remain at the current levels, that impacts supply chain and impacts all of those things that retailers try to optimize when our year over year growth has always been 1%, 2%, suddenly you go to 15 and there’s all kinds of adjustments you need to make to do that. But then, what will it return to?
So, I’m super curious and there’s a lot of research out there about K recovery and there’s all kinds of different ideas about how we will come out of all of this, we’re watching them all, and we do have the real-time data to see what’s going on. So.
And you’ve experienced the larger business in particular bear the boomerang effect now anywhere but home now, so the people eat in the restaurants, they’re now working on the home improvement and other things like that. So I think you’ve been through a lot more ups and downs maybe than some of the other sectors out there.
Certainly the up when others went down and now the reverse appears to be happening in certain markets. So let’s keep it going from there.
Matt, how about you? What’s the driving factors now that you guys are focused on?
I think a lot of it is focused on omni-channel, the good key buzzword, if you will. We’re initially about 1,000 store, portfolio, we were pruning it, looking at some of our deals, looking at our markets again, trying to optimize saying, “Hey, maybe it’s a five store market. We can knock it down to four.” But since the pandemic, we essentially shut down business for upwards to two months for all 1000 stores.
And unfortunately, upwards of three months for probably a majority of our stores. And one thing that we realized, we always knew that online was a big piece, but once our store started becoming somewhat of many fulfillment centers, if you will, curbside pick up, that business has really skyrocketed since the pandemic, so it’s forced us to rethink, “Hey, maybe 1,000 stores or whatever the suite number is, is the way to go.”
Another thing similar to what Bruce said, we’re obviously we’re in the footwear business, so it’s not as important as nutrition, but most people need shoes on their feet for the most part. And we feel like this is a product that she likes to feel touch, try it on. And so, we’re really, again, thinking more strongly of expansion or if not, at least I’m staying in place relocating in the centers we’re at, I’m sorry, in the cities that we’re at.
And just to have a overall better customer experience for her. And then lastly, unfortunately, with the pandemic, I had mentioned our four brands and it’s had us… if I can reevaluate our product offering, because no longer as much anymore are there people wearing dress shoes to go to work, or everybody’s wearing workout shoes, athleisure, things of that nature. So, it’s got our sourcing team and our buying teams almost reevaluating their entire process.
And may or may not have flip-flops on right now, just saying. All right. Yeah, no, that makes a lot of sense. And Doug, you obviously have a broader perspective. What are you seeing driving most of your clients right now in this environment?
Well, I mean, the first ask is help us get out of that lease, or help us, how can we save money? And you probe into that a little bit further to some of these points around Bruce talking about behaviors and not talking about this change and what the store really is about fulfillment centers.
So, when a client says, “Help me save rent or help me get out of some of these stores.” We’re not going to be very successful, just bringing a machete to a gunfight and going after it one by one with landlords. And it’s building that vision of what the business needs to be, as corny as that sounds, the business requirements, the vision, the future, once our clients have that, they can start to see a five-year plan and then play with the real estate incrementally on how to get there. That’s when we’re informed.
The most important, powerful weapon in that negotiation is you knowing what you’re going to do, but unfortunately it does feel like we have to unglue some of this, one at a time lease behavior types of asks. It’s classic bundling really, but it’s doing that armed with a lot more insight about what the customer is going to be in the future.
And then frankly, even the richness of data available, econometrics and forecasting and predicting, and even the competitor landscape, the availability of that data, when you can pull that in, then you’ve got a really good negotiation strategy that you can implement. So that’s what we’re helping our clients with quite a bit.
That makes sense. And I assume that for all of you, to varying degrees, the store location, urban, rural, suburban, is having an impact on your businesses. So, what can you say about that change, obviously, central business districts and the return to work. We just had a summit last month about that, a lot of companies are targeting a hybrid environment where you don’t have to come in everyday, likely after the labor day holiday here in the states.
How has that dynamic of daytime pop and other things and location from rural to suburban to downtown central business district affected your business through the pandemic, Bruce, we’ll start with you. I know you guys have the healthy CBD.
We do have a healthy CBD portfolio, especially with our drugstore business, the sharpest truck markets businesses in the downtown of every Canadian city. So, it’s certainly been impacted, and if we’re going to gauge our future economics on the current performance, then that would be a challenge and we would be seeking assistance out from third party, like Doug, to set the plan in place on what the future of the central business district is.
Right now we’re still in a wait and see mode. We were in lockdown longer in Canada than the United States has overall. So, just coming out of it now, we’re in the major markets, and we need to see where this all lands in the fall after you just mentioned labor day. It’s really the change point, if you will, no one wants to go downtown in the summer anyways, in Toronto or in Chicago, it’s not where you want to spend your time, even on a normal year, that we would certainly be watching then to start to make any strategic moves.
But on the flip of that though, our stores that are in, we call them satellite communities or those communities that are an hour or two hours away from the big cities, I’ve seen significant increases in sales, as the population has moved out. That’s been a common phenomenon across north America and across much of Europe as well.
And people have sold their residences and they’ve moved out there. That’s a permanent move in those cases. And som we do expect the growth to continue in those amenity driven locations where yeah, there’s a reason why you want to stay, there’s a lake, there is arts, there’s some other reason for you to go and stay and work there.
And we do already have assets in those locations that we have seen an increase in sales and we hope that a lot of that sticks. The one key thing, if you look at the big macro trends that are occurring in Canada, and the U.S, one is the urbanization will continue, especially here, and there will be a significant, and there are significant developments that have been announced during the course of the pandemic by major developers in all of the big cities.
And we need to make sure we still have a role in those developments. The footprints may be different to the points that Matt has made. What is our presence? What does it look like from a size wise in a banner? That’s going to be where we’re looking very closely at what our right offering is in those locations. But to answer your question, we do want to be there, in a physical retail form.
Doug, how about you with your clients, how are you seeing the rural, suburban CBD equation in working for companies that have a portfolio covering these areas of work? Maybe one that’s a little disproportionate in one versus the other.
I mean, it’s migrating… it’s funny we were talking before you got on, and just how rural homes are booming and yet the retail rural trend it’s lagged a little bit and I think it’s going to catch up suburban absolutely. But what I’ve seen is, it’s not driving by on your route to running an errand, there is a little bit more of a tendency to go to a place, even the mall, the outdoor especially is taking a little bit of benefit from what’s going on with opening up the town center concept that really blossomed six, seven, eight years ago and has continued.
I’m seeing that as being a home run for retail as well too. Urban people are getting ready but it’s still suffering and I think part of the reason is as people go into work they’ve gotten most of that accomplished when they’re at their home four days a week. So, it’s not as urgent because they’re just not spending as much time down there.
For me it’s inside the walls, that is the thing that is changing the most, almost more than location. I’m biased a little bit because I do love architecture and I think that has a profound impact on experience and process, even what the customer does within that and infusing of course, digital. So it’s that shift of… we’ll call it an agile format, to me that’s where I’m seeing the consumer shift to.
I do like… again the fulfillment concept. And I haven’t seen a lot of the architectural changes to support that necessarily, but this idea of agile and studying what people are actually doing, that’s where people want to go, retailers are having a hard time getting there because they’re stocking leases, and oh by the way, that costs a lot of capital to get to that.
But when we have done the studies, even before COVID, I mean, the shift to a more experiential and even more efficient layout where products are experienced and you don’t need necessarily the product on the floor, that’s what I’m seeing the shift inside the walls is really where I noticed the biggest difference.
And now I want in a minute drill into the change at the store format, what’s driving, and how are people reacting. Before we do that map, from a geographic perspective or from a real estate type, whether it’s inline mall-based freestanding, I don’t know if you guys have any freestanding, probably not, or geography urban, rural CBD. What nuances are you seeing across those dynamics?
It almost exactly what Bruce and Doug said on. The rural areas, they seem to be thriving right now. I mean, we’re actually seeing store for store pops, that are pretty phenomenal and again, some of the folks are probably staying at not going downtown shopping anymore. So they’re buying, to your point, locally.
Our downtown, our CBDs, they’re taking quite a hit, as one could probably imagine because a lot of folks are still yet to go back to work or go back to work full time. A lot of those locations are in a business districts obviously, and again, those shoes just aren’t selling for us. So, it’s tough a road to hold.
Tourists, the outlets again, obviously struggling. I mean, nobody is touring, well, they’re starting to, but they have been vacationing. And then as far as regional, just the south Southeast Sunbelt, if you will, we’re seeing pretty good growth down there as well, it seems like a lot of folks are migrating and living down there permanently as they’ve gotten away from the coasts or downtown’s and realizing, “Hey, we can work remotely and go somewhere where it’s nice, decent climate.” So, our stores down there are seeing some nice positive lifts.
And it’s interesting because yeah, if you were in the keynote, we had some data showing disparity or uneven nature of the rebound where the younger and more affluent are rebounding more than the lower income ones, and on the rural area, how that dynamic plays, but it’s being counterbalanced by the migration of more fluent to rural areas.
So, maybe it’s all going to be a wash at the end of the day. It is quite interesting. Okay. So let’s dig in a little bit more on omni-channel, it sounds like a big part of what’s going on with you Matt, and from the shoe business. And obviously Bruce, prepared foods and delivery and pickup has become a major thing. I know the problem that all retailers are facing is that the margins and some of those channels are not the same as what you get on an in store, but they’re a reality and a growing part of the business.
So, let’s maybe start on the grocery side Bruce, and take us through the dynamic of pickup curbside delivery in that on your business.
Absolutely. It’s exploded as you’d expect and every food retailer across the world has experienced a significant increase in their e-commerce penetration. And if they had something set up, it basically balloon to the point of breaking. If they hadn’t set up anything, they scrambled to get something done.
So, again, we went from penetration rates in Canada over an average of four or five, 6%, what showed us we’re behind where the U.S and UK are, to 14, 15% which puts a tripling of the e-commerce sales through, and you’re talking to a lot of volume here too, not just a percentage of increase, but also large dollar volumes and large product volumes moving through our digital channels.
People looked at that as a lifesaver in many ways, it’s a convenience time-saver safety factor, more than any other reason in the supermarket space because it was the one place people would go and see more than a couple of other people. And so, there is a bit of risk associated with that initially, especially now it’s settled down a lot.
The dynamics of having your staff doing something now that your customer used to do for free, is the one thing that impacts all retailers. So, you’ve got to either set up a major capital investment with a central fulfillment center, which can be huge capital investments on infrastructure and fleets, or the bit by bit labor investment infrastructure on a store pick.
And no one’s got it entirely figured out just yet. Do you do the fulfillment at store level and take advantage of say surplus or excess labor hours? Or do you do the big investment and have regional distribution centers for that? So, in every sector we’re seeing all methodologies applied. There’s no clear winner just yet, but when our sector, which lags behind, other e-commerce sectors, so obviously that impacted first, the less experiential type of retail are well ahead of the supermarket and drug space with respect to their e-commerce penetrations.
We’ve got the ability to watch that and learn from it, but what customers are looking for, but the challenges of delivering a triple temperature order to somebody creates another level of complexity, you can’t put the ice cream with the bread, those are the unique challenges to the sector that we’re in.
We’re all trying different things in all the retailers across the supermarket space in north America and in Western Europe. And so let’s see how this all lands. The P&L, there’s some good research that’s been done by IGD, which is an industry advisory consultancy that shows that there’s nothing creative about the e-commerce business in the supermarket space. It’s how less dilutive can you make your option be, that’s where we’re all focusing in on right now.
In some other sectors it is creative, you can see a bump in the e-commerce by the physical store and vice versa. That’s interesting.
The one thing I’d be curious from my colleagues here is, the presence of brand on the street. And what’s your opinions are on that with respect to, okay, we can’t just go into market necessarily within your commerce presence, some online pure play retailers do, but what are your perceptions of having a brick and mortar sign on main street, if you will, from my colleagues here.
Yeah. I’ll take that one if you don’t mind Doug, or I’ll lead off. We unfortunately had to make the unpleasant decision to actually shut or naturalize our stores, which they were over 100 year brand, pretty iconic, most folks knew who Naturalizer was.
Unfortunately that demographic started straying from us, So there had been talk for years to potentially wind it down and the pandemic pretty much made the decision for us. We thought that we could address some of those sales online and what we’re seeing initially early on is, it feels like as you no longer have those stores down the corner, you lose sight of the brand as well and our online sales have actually taken a turn for the worse, unfortunately.
If I could interject before Doug goes, I mean, I don’t know if you saw that it’s the gap that announced they’re closing all their UK locations? That’s a significant change, it’ll likely see the same impact you’re talking about though Matt.
And they believe, then this is me reading not sharing intimate details, but they believe that they’ll be okay for awhile. It’s eating farm raised trout, it feels good eventually, the nutrition may just not be there for their consumer and they’ll lose out on those sales, but belief is with a brand already with presence, you’ll be okay for awhile. It’s like starting a job virtually, it’s really hard to get started to build your brand and collaborate and learn those working ways together.
For what I see, it’s still having that presence, it’s just how do you shift that, is it signage, physical signage? Is it billboards maybe, but it’s probably getting those eyeballs through other means social media and that type of thing that at least have that brand presence in one way or another, but it is very tough.
Matt, I keep going back to you, it’s a place to go for fulfillment, for picking up stuff and for returning three times more than you need, that’s what we’re seeing too, as this trend and now back to omni-channel a little bit, but the trend of buy a bunch of stuff online and intend on returning three out of four, you’re going to keep the one that you want, which has a huge, huge cost.
And frankly, we’re not seeing a lot of… but some, let me say it differently. Some retailers are figuring out how to crack the code on making the physical in store experience, an encouragement to then buy things online. Frankly you go into a grocery store, you go into a clothing store and it is really hard, it’s almost discouraged to then make that purchase online, even within your brand same purchase, it’s not made easier.
So, there are retailers that are saying, “Hey, let’s…” even though they’re in the store, “Let’s make it super easy for them to order something online, rather than just here in-person.” That’s what companies are focused on, and vice versa, when they’re online, figuring out ways to then encourage them to go back into the store. An avatar is a perfect example.
And there are some clothing companies, again, who have figured out what is the physical avatar of this persons, and they need to go in the store and maybe get measured this way when they go and they go online, they’re going to have a much higher degree of confidence that they should get the medium, not the small, medium, and large, and figuring out once it gets there as well, too.
That makes sense. And Matt, you had said that the Omni-channel has been boom for you, I guess it’s a box of shoes, so you’re going to have three temperature, but that said, it sounds simple, but it’s an odd, almost everyone I talk to is struggling with the operations of this mix and handling all the uptick and pickup and in deliberating. So, what are some of the challenges you’re facing is that it’s become a bigger part of your business.
Yeah. I mean, obviously the margins that’s, unfortunately one of the first things that we look at, or maybe not, unfortunately, it’s got us reevaluating our staffing models because we have our staff in store and first and foremost, they’re worried about addressing that customer– [lost audio]
This is the reason why we’re willing to go back in the office. We can hear you now.
Okay. Sorry about that guys. Now we’re having a lot of, not a lot, but we’re reevaluating our staffing models because when we have a customer in our store, that’s our first and foremost– [lost audio]
It might help Matt, if you maybe kill video for a little bit, and that will save you some bandwidth. And while you’re doing that, I’ll transition over to Bruce. Bruce, if you could just talk a little bit about operationally, logistically, how has the pickup and delivery business thrown a curve ball your way?
A couple of things, one of them is to labor, we had to hire a lot of people right off the bat to fulfill orders. And everybody did that. So, and then to reshape our stores to be able to meet the demand of fulfillment. And so we’ve done a couple of pilots in various stores where we’ve closed off some of the retail footage and made it into a manual film and centers on the retail floor with a makeshift wall set up between our core retail area with our customers and our staff and colleagues who are fulfilling the orders to try to minimize the conflict.
Because, one of the things that, those of us who do in store pickup, and that being Target is a great example of that in the U.S, you have to be very cognizant with the conflict of your staff, your colleagues, fulfilling orders, while your own customers, as Matt was talking about, your customers in the store are your number one priority, and you have to do your best to make sure they’re taken care of, that does mean making sure that your own operations don’t interfere with our retail shop.
So that’s first and foremost. We’ve expanded the parking spots in front of the stores for the click and collect pickups to meet the demand hours, the website, the windows of a pickup we’re able to narrow it down so people have more precise time window. So those are all operational changes.
That makes sense. And Doug, what are you seeing with your clients for adapting to the operational logistical realities of a pickup and delivery?
Well, I mean, it’s competing with you know who, for online and having that at least matched experience in costs, free shipping, figure that out. And I think within the store, again, there’s a training element that is required for the staff that maybe aren’t used to getting those returns or deliveries and taking that to the customer.
So, training even the amount of space that’s required, not in the backroom, but in the front, how do you accommodate that and how do you not make it look like it’s a yard sale in the front when a lot of people want to go up there and pick up their product be in and out, and then two days later come and return it again.
So that’s the challenge, and frankly, I mean the lockers were all set up years ago with a lot of these retailers, but I don’t know, it’s a challenge and that’s a consumer expectation, that’s not going to go away.
And Bruce, do you guys have a locker concept that you utilize?
Yes, we do actually, in some of our lower volume stores we do have the free temperature lockers that we allow customers to go and pick up their orders from. So that’s been decent to get to some e-commerce penetration in some of those lower volume stores, for sure. The problem occurred though, and here’s an interesting problem, I’m not sure if Matt saw this way, he might not have.
So, to buy lockers during the pandemic, especially refrigerated units was brutal because all of the supermarket retailers around the road decided they needed a bunch more of these. And there were not that many manufacturers of these units. And so, we ended up with these bottlenecks of supply of equipment that… and even today shelving for example from major producers in the U.S is very difficult to come by for any retailer.
And so you’ve got this dichotomy going on of, we’ve got people doing more e-commerce yet a lot of retailers are reconfiguring their stores and there are replacing the equipment that’s within them so much so that the vendors can’t provide the equipment in a timely fashion.
Matt, I think you’re back. So we’re talking about the impact of omni-channel, and it’s been a boom for you guys. How has that operationally been a challenge?
It’s been somewhat of a challenge. I mean, our store teams are constantly looking at their staffing model. What I was trying to allude to earlier is typically if you’re in the store and you’re an associate, the first thing you want to do is when you have someone walk in the store, meet them, greet them, see how you can help them out.
And our footprint is pretty small, we’re a 6,000 square foot box selling shoes around 5,000 square foot. We very generally, we have two or three folks on the floor. And so, if it’s a busy time and we’ve got online orders coming in, those online orders can sometimes fall the wayside. And again, these associates who might be commission-based or bonus based, they don’t want to worry about that sale on the floor while she’s there, help her compliment her cart, get some more goods in there.
So, it’s just another challenge again, as you spoke of, or Bruce spoke of earlier the eroding margins for online pickup and all that. So, it’s nothing that we’ve got figured out, but something that we’ve got a lot of smart people, a lot smarter than me looking at daily, if not hourly, trying to figure it out.
And one thing we talked about in the keynote, and I’ve heard a couple of times at BOPIS may be a ray of hope, buy online, pickup at the door because the last mile is taken care of by the customer, the chance of a third-party message, the delivery or stuff like that is mitigated and also they’re in the store and potentially it could increase the basket of things they buy. Are you seeing a ray of hope there with BOPIS from a margin perspective in your business?
Yeah, we are. Another key initiative for us, and I think it’s probably the same with every retailer now, customer rewards data, customer rewards members. So, we try to, once she’s in the store to pick it up, we try to get her signed up into that program, those folks are… I don’t know the stats, but customer rewards members make up 80% of our sales.
And again, their baskets have a lot higher pricing, they shop a lot more often, so that’s giving up making up for any lost sales or returns or margins or logistical costs over time, it’s just not upfront and immediate.
And there’s nothing like a good display? Whether it’s on an end cap to go after that ad-hoc purchase when the customer maybe just browsing a little bit, they didn’t think about that product when they were on the computer doing their online order. But when they’re in the store they see a great setup and then, “Oh, okay, there we go.”
I mean, every retailer wants that to happen. And that’s a challenge in the e-commerce space, because as much as you can get targeted ads and targeted products, you don’t see a store, you don’t really see richness of store. And I talked about the experience within a store and it’s a very visually rich thing that is in three dimensions that has in our business has smells and sounds and all kinds of very immersive things to it that we think Brick and Mortar we’re going to see an impact of 15%, maybe 20% in our business areas.
But people still want to experience that, and we just need to make sure all of us that we’re in the right spot with the right sized store and the offering can be… as long as we’re talking about with that interaction of e-commerce with the physical store.
How has all the trends and everything we’ve talked about begun to influence or not influence your location strategy. Are you looking for a different type of real estate? Are you looking at trade areas differently where it’s a super set of delivery pickup and an in store? How has the calculus been evolving for you as you think about real estate go forward? To anybody.
For Caleres, for us I definitely say it’s a wait and see, but it is unfortunately what we’ve been doing with a lot of our leases when they come up as a, we’ll do something short term, try to do something friendly if possible, it has a sales volume kick out and there’re certain areas and again, the Sun Belt area seems to be really nice, the rural areas which historically have been really good to us anyway, lower staffing, salaries, lower rents. But right now, more than anything just pulled from trying to see how we get probably post labor day, I mean, everything you read it should continue to see improvement.
I guess, getting back and again, I apologize for the technical issues, the in-store experience is something that we’ve really been focusing on a lot, we have some new leadership, some new folks in leadership, some of our stores have gotten tired and worn and one of the things that we are trying to do is for the stores that are thriving and have always been thrivers and we know they will continue to be, we’re really reinvested a lot of the monies that we’re seeing trying to get less clutter, trying to keep our eye on the ball closer with regards to product offering, maybe not have 10,000 pairs of size nine for every skew, things of that nature.
And again, the whole customer experience, our CML that’s, I think Doug alluded to it earlier experiential, we hear that word probably at least 10 times every time we get together and meet. So, just to make it feel like an inviting place that they want to come in and say again, good customer experience, good offering, and that’s where we’re at right now.
Makes sense. Doug or Bruce?
Well, if I recall, if I feel like I’m having a senior moment, but the question around location, is that where we’re–
I think it’s cart you were giving a couple of delivery and pick up as a bigger part of the business and that changing the calculus at all for sales, forecasting, market optimization, store location strategy, those types of things. Or in Doug’s case, is it… excuse me, Matt’s case, is it more of a wait and see, we don’t know yet, we’re now ready to make any.
Yeah, I mean, my simple answer is I don’t think that’s driving what I’m generalizing as the ASP, which is less, we just need the less stores, less rants, less size, maybe different locations. And again, that’s the exercise, is what if, what if I have these 10 or what if I had eight, what if I had six? What does that mean?
And running the regression and predicting sales, it’s, if less, maybe it’s different locations, but it’s generally not right. And that was there even before this COVID and change in behavior and consumer demand or expectations, I should say around ordering and fulfillment, less stores and it’s not driven by this new behavior or this new requirement.
I would modify it from our perspective here in that we’ll still have the store maybe of a smaller size however, that’s where our strategy has been driven by the impact of e-commerce. And we also run a general merchandise business and apparel business at home, goods business as well within our superstores, and those are the areas that we’ve seen the impact from the online retailers and those are the areas that we’re moving our own online experience to in a major way as well.
There’s no need the same number of items within the store for those GM type purchases. So, our stores will continue to evolve, we’ve been on this journey for about five or six years, continue to decrease in average size as they go into to the mark, but we do need to be with people and as communities grow, be they urban, suburban, or rural, we will be there with the people as they migrate to those parts of the country.
It’s worth bringing up drones or autonomous driving too. And so, yes, the last mile is fulfilled by the customer, but we’re probably not quite there at the tipping point where those gadgets and altered universe stuff it’s close though. And once that happens now, you’ve put this, you have a network, you need the network in order to fulfill that, and if I’m a landlord and all of a sudden my retail stores can also be viewed as warehouses and the warehouse sector is so hot, it’s something like that, that I think is just going to snap it all back and do a different requirement.
And this agility and us real estate people, I mean, leases used to be 15 years, and so it’s not necessarily as much knowing what the future is as much, I think by putting processes and governance that allow for flexibility and agility.
An area I did want to jump into is a landlord side of things. I think as you mentioned in your opening comments, Doug, everybody and their brother was looking for a way to enact alternative rents with stores being closed, how can I close my underperforming stores? And the dynamic between landlord and tenant has changed over the last year and a half, where do you see it now? Whether it’s things like altering existing stores to be able to handle more of omni-channel or whether it be renewals or lease terms, what’s the dynamic going on for you in each of those areas?
I mean, we’re all jumping for joy as occupiers and saying, “Okay, now that the pendulum is swung and I’m going to kick my landlords butt.” And if you’re a new retailer or you’re looking to get into a new market, congratulations, that’s true, but that very same thing has created panic and that panic means your existing landlords are going to hang on to you even more aggressively.
Our clients that succeed in beating that out is again, it’s those ones that have really gone beyond the one-off ask of the brokerage teams or us real estate folks to be told what to do site by site when there’s someone and it doesn’t have to be the real estate department, could be market planning, could be corporate development who have crystallized a longer term vision, that’s when we can start to go to the landlord with confidence and say, “Well, I need to get out of these three, but I’m going to give you two, and here’s what it is.”
But it just doesn’t seem that powerful horse trading is possible often enough. So, in summary, yes, it’s a good time to be an occupier but only tends to be what I’m seeing is the existing situations are really difficult to get out of, you have to give a lot in return, there’s no like, “Well, we’ve known you a long time, so we’re going to help you out here.” The landlords are not saying that, they’re even more desperate and they need something in return, they have shareholders and all of that. So, that’s what we’re seeing unfortunately.
I couldn’t say it better than you just said it. So as an anchor tenant, they’re going to hold on to the major retailers and in a big way, and there is nothing in the real estate industry that’s been engineered for a decline in rent, it just doesn’t work that way, there’s never been a decrease in NOI, there’s never been that contemplated in the real estate sector, in retail anyways.
So, there’s a lot of talk about the high street demand going down, and the only way you can do it is to close the store and to threaten to close the store that’s the only action that a landlord is going to see as being impactful. Again, I can’t say better than you just said Doug, in terms of it’s really sticky industry, and it’s not engineered to decline in value by the landlords.
And so, could there be some wins for tenants? Yeah, there’ll be small, but the overall pressure of the industry has always been for rent increases, and it may take more than this to change that.
In fact, just a couple of times hired by the tenant, but then got involved with the landlord to actually show them the financial impact of what we were proposing, so for a weird moment, we feel like we’re working for the landlord because that’s what it takes. They just don’t quite have the mathematics or the presentation to go back to their shareholders or constituents and colleagues and say, “Well, this is what’s being proposed, and this is why it’s good for us, for landlord.”
It helps, I mean, it’s not always a magic wand, but to go back and help them make the case, of course, that’s a good move.
And now with Caleres, you said you’d been grooming for a number of years. Matt, why don’t you give me your perspective.
I would file, I mean, with what both Doug and Bruce said very similar, we have leases, I mean, those can’t be broken. So, as much as you might want to plead with the landlord or whoever, if you owe an X amount of dollars for Y years, it’s very hard to break that lease. I will say, recently it seems more of a partnership than it’s ever seemed to be in the past.
We have multiple stores, multiple landlords, so maybe again, when you’re bartering and you get two for three, or what have you, but it doesn’t feel like it’s so one-sided anymore, it definitely feels like it’s more of a partnership and it just feels better than we have in the past. Unfortunately, I think Doug alluded to it, people who don’t deal with real estate transactions on a daily basis, and they just see the headlines in the New York times or whatever, you’ve got everybody running around our office, they think that landlords are going to basically pay us to operate.
And so, it’s tough, you got to have ease expectations and level set and let everybody know like, “We’re doing the best we can, but again, you have a lease, it’s hard to break.”
We’re about to wrap up here. I just want to have a round robin here of partying comments for your peers out there, of what are some of the things they should be focusing on first and foremost, there’s a lot going on. What are some of your thoughts on that? Doug, maybe we wrap up starting with you.
I said it before, I’ve mentioned decision-making governance. I mean, I can’t tell how many times that’s been the Achilles heel, I think this is an opportunity to spend a little bit of time engineering what that looks like, a little bit of policy shift and for right now, for the surge of work that we have to do, but then going forward, I mean, there’s so many stories of just we took too long, and I think I’ll plant that near seed as a process of decision-making is super important.
So if you thought it was important before, it’s even more important now, that’s the way I would look at it because we just jumped ahead three to five years with respect to the impact of e-commerce with respect to consumer change and demand. So that would be my takeaway for everybody.
Very similar to what Bruce just said, we only have, I mean, personally in my business, we only get 10 or so chances a year to open a new store. The information there’s so much out there, but at the end of the day knowing your core business, realizing how to perform pre and post pandemic, at the end of the day, it doesn’t seem like it’s too much different, there’s not a whole lot of differentiation other than for us, obviously the online, but I think the one thing we’ve learned is Brick and Mortar is not going away.
You’ve got all these online players coming on and they’re bringing on Brick and Mortar, so we’re going to be here to stay and there’s a lot of information out there and make sure you analyze it and use it wisely.
Fantastic. Well, thank you all for joining us, both on the panel and attendees. Doug, appreciate it, Bruce and Matt. Good luck with your businesses moving forward, it sounds like you’re well positioned to succeed. Thanks again.