Retail Podcast 412: Paco Underhill Reinventing the Retail Experience

May 22, 2020 2:00:00 PM

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Bob Phibbs interviewed Paco Underhill, CEO of Envirosell, Inc. and New York Times best selling author. In this episode Bob and Paco talked about rewriting the retail shopping experience.

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Bob: Well, I am thrilled to have Paco Underhill, who is the author of Why we Buy, and I'm trying to think what's your other one? It's Call of the Mall, isn't it?

Paco: I also have What Women Want here.

Bob: That's one of your newest ones is that it?

Paco: That's one of the newer ones. And I have one that's been bought by Simon and Schuster and is in the pipeline now, and that's called The Future of Eating and Drinking.

Bob: Are we going to eat and drink in the future my friend?

Paco: You know, I think that the body of the world of consumption is intact. It's just the face that's in transition.

Bob: I like that. Well, listen, I want to get back to, really quick, you wrote the Call of the Mall, and that was like 15 years ago, right? And the whole idea was that malls are important because of all the services they provide and what they do for community and all of that.

And you know, it seems like everybody and their uncle is wanting to put the death knell on the mall and you know, “It's going to be until there's a vaccine. No one's going to go to a mall.” I'm just curious what your thoughts are. I'm a little opinionated on this subject, but I want to hear the expert.

Paco: Well, first of all, at a recent Goldman Sachs conference, somebody got up and said Paco Underhill wrote that book about 10 years too early and that it is more relevant now than it's ever been before.

And that much of what was written about back then is extremely relevant now. And this is one of the basic issues - that the cutting edge of a shopping mall left North America 30 years ago, okay? That if we think about shopping malls in other parts of the world, they have reinvented themselves and reinvigorated themselves, and many of them are not malls, they’re alls.

They are comprehensive exercises in urban planning and not in get rich quick schemes by real estate investors. That the all has housing, it has offices, may have churches, libraries, schools. And the tenant mix is a complete selection of people's needs and not the narrow mix that historically we have seen here in the U.S.

Bob: I think this is going to be a chance for A-list malls that are going to be able to see that? I know when I went to Alaska probably 30 years ago I was shocked that there's a mall up there in Alaska in Anchorage, and it had the post office and had the library. I know Seattle has libraries in their malls.

But it would seem like you would think that medical offices seem like they should be in malls than other things. So, will it be the A malls, do you think? Or would it be the C and D malls where a Penney's is closed and now they're trying to be inventive? How would you see that playing out?

Paco: So, part of what the part of what the dilemma is, is that for U.S. malls, one of the least understood assets that they have is the crumbling parking lot that surrounds them.

But the problem is that the transformation of those properties, isn’t something that happens in a quarter, it isn't just a quick solution. It is probably a three-year process. To be able to file the plans, do the construction, do the reinvention. And for so many, particularly U.S. shopping malls, that are answerable to Wall Street for quarterly results, I think that the process here is going to be very difficult.

I thought it was very interesting that Westfield, the Australian shopping mall operator went private with a European shopping mall operator and at one of their properties in New Jersey, they are constructing an apartment building, right at the mall.

You know, if you think of it, there are many malls in Minnesota or wherever where people are going, “I can't live in a suburban home anymore, but I want to stay around my friends and my family. Wouldn't it be nice if I could be somewhere where I could walk or take the elevator to a Whole Foods.”

If you think of the Time Warner center here in New York City, in the back corner of the store is an elevator going up to the apartment complex above.

Bob: The Americana at Brand in Glendale, right? He was the first on the West Coast.

Paco: If you think of Tokyo Midtown, the value of the real estate is enhanced by the access to stores, restaurants, movie theaters, it’s convenience driven.

Bob: Do you think that Covid is going to affect that in any way? Are malls going to have a chief medical officer going forward? Is this something that we're all going to have to be facing, or is this a temp? What do you think?

Paco: Well, I think there are a number of issues here because first of all is the rethinking of the physical space, which is what we just went through. Second is a reconstruction of management and how these facilities are run. Part of what we're looking at is the tiredness of the retail brokerage industry where everybody was focused on getting the longest-term lease because that's how I got the biggest commission from the deal.

And yet if you think of a modern shopping mall, you should have a certain percentage of those spaces that are for rent on a monthly or a quarterly basis for people to come in and do seasonal businesses and do something different.

Bob: Not just a store has gone out and it's like, Oh, here, take over this failed space. You want to actually have it planned, almost like Story at Macy's or popup shops that this is what goes here. Not this is an afterthought.

Paco: It may be co-tenancies here where you have, you know, the Croc shoe store is open from April to September, and the Christmas tree store is open between, you know, November and whenever.

But those are all things that are eminently more creative uses of spaces and the fact that just from the standpoint of fixturing or whatever, that it is very doable in 2020 to be able to be eminently more flexible about how things work.

Bob: I didn't mean to interrupt. There’s so much I want to talk to you about, you're just such a font of knowledge. You know the other thing I seem to be reading about is how a lot of these malls also are consortiums of various investors, so they don't really have one person necessarily. They're answering to a lot of interests, which also probably stops innovation as well, right? Because you're trying to build consensus and that's got to be pretty hard when some people are saying, “We might have to close down for a couple of years and retool,” like, “No, not on your life.”

Paco: Yeah. I need my return on investment. Look, La Gran Plaza. Are you familiar with property? It's a shopping mall in Fort Worth, Texas. Okay? It is themed for a Hispanic audience and people will drive an hour, 90 minutes, to get there. It was a failed mall that somebody did a very nice job of reinventing.

I was just talking to the operator of that mall who said that he is still getting 80% of his rent simply because he has the broad cross section of tenants within the context of the mall. And there's a grocery store, there's legal offices, there's medical offices.

There's a reason for people to be there. But I think probably what is even more important is that the mall operator isn't in the background.

Bob: And what does that mean?

Paco: The mall operator is right up front running the mall. And if you think of it, most of U.S. malls, we have no idea of what the management structure is, or no idea of the presence of the landlord on the floor. There is no doorman to the building. There's nobody asking questions.

Bob: There’s no we. You're on your own.

Paco: Yeah.

Bob: Which of course makes it easier for me to say I'm not paying rent, faceless individual.

 Well, you've been gracious with your time. I have to be very careful I don't overstep, but, so the new consumer, you know, I am hearing from the doom and gloomers that we're always changed, we'll never go back to malls, it'll always be like this. And I tend to think we are creatures of habit.

Are we creatures of habit or are we fundamentally altered to be using Instacart for grocery forever. What are your thoughts?

Paco: I think here, part of what we have to recognize is that retail is the dipstick of social change. And just as we recognize that what made a good store in 2000 and what made a good store in 2020 are different and they’re a reflection of the changes in us.

And that one of the challenges of the shopping mall is that the shopping mall has been stuck in 1985 and hasn't evolved with us. Are we creatures of habit? The issue is we love our children. We still eat and drink. We still need to furnish our homes. We also know that about 30% of Americans cannot accept an online purchase at their home during the working day or at the office because they are nurses, doctors, construction supervisors. It's an array of blue, pink, and white-collar jobs.

Therefore, the idea of order online - pickup at the store, order online - pickup at the mall, I think are eminently viable. But part of what we're looking at is a better sense of what is the connection between the trucking bay in the back and the front door upfront. And how is the process of being able to put stuff in the back of your car going to be facilitated in our modern tech enabled world.

And sure. I think, yes, we are going to still want to go out on occasion. Yes. A certain amount of our purchases are going to be done via subscription. We recognize Bob that once we reach age 40, 80% of our weekly purchases are the same thing.

Bob: I thought that was just me.

Paco: We know the kind of dog food we like. We know that a mustard we like and yes. Are there some changes that are a reflection of who's coming to visit or something that we want to try, but yeah, there's a basic model here that is very ripe for reinvention and to point at whether it's the mall or the grocery store, all of those things are in the process of being reinvented and in the lee of what we're going on. Yeah. We're going to see a lot of fertilizer out there because as I told you before, retail is about birth, life, death, and fertilizer, and compost. And there's a lot of compost out there.

Bob: You know, two years ago, I think we would hear over and over, it's all about experiential retail. We have to experiential retail. People have to be able to be like, take it out of it. I think that's all changed.

How does an orchestra perform going forward? If we don't get past this, how do we go back to Broadway? How do we have concerts? How do we do conferences? I know we will, but it's that time in between now that, it's got a lot of question marks on it.

So, to your point, I think a lot of people are going to try to figure it out. But the danger for me is if we go into this, that this has fundamentally altered who we are and I'm not sure it has, do you think it has?

Paco: Well, first of all, in terms of that experiential question, I was talking to a shopping mall operator in Moscow operating Moscow's largest mall, and she was telling me what a major headache TikTok has been. The teenagers are gathering in the mall and are misbehaving, and 97% of them, you know, they're just doing dance numbers and whatever, but 3% of them are, you know, hanging off the balconies and doing dangerous stuff. So, I think there are some experiential issues here.

I can remember working on the board of a Brazilian shopping mall company, and we had teenagers gathering in our parking lots that were misbehaving, and we had two solutions. One was to call the cops, and the other was to pipe, Mantovani music out into the parking lot, which was an eminently more effective way of driving them out.

Bob: And a certain consumer said, well, that's a great welcoming way for me to go to the mall. Thanks. Never thinking. Exactly.

Paco: So yes, I think there are a number of things that are going to change. I mean, first of all, that the issue of digital literacy, which is something we just have gone through, is going to become much and much less ad hoc and more something that is learned and trained.

That's one. Second is that our understanding and our appreciation of hygiene is going to be an eminently more conscious part of our decision making. And some of this is recognizing at what point in the design process do we consider keeping something clean.

Bob: Well, you got me to the next point I wanted to make sure we get to. How do you think this influences store design? You know, are we going to really be looking at one-way stores? Are we going to be looking at, I don't know, eight-foot aisles? And how does that work in a world of boutiques that are much, much smaller?

And you know, it's the same idea with restaurants. If you built it that the return only happens with 50 tables that turn over at a certain time, and now we're looking at maybe a third of those, you can do that for a little while maybe, but the economics don't play out. So, if that's what happens in retail design, is it just the bigger is going to get bigger and we're going to have much smaller stores?

Paco: Well, I think there are a couple of factors here, and these are things which certainly I'm not sure of, but first from 50,000 feet of retail, rents are going to have to come down.

And I think a lot of, particularly urban spaces, and I live here in New York City and stores that 15 years ago rented for $3,000 a month are now, the asking price is $40,000 so some of that is going to have to play up. Second, is that historically within grocery and mass retail, we, thought about the issue of adjacencies. What do I put next to what, and this resulted in there were aisles that got very little traffic and there were aisles that got a lot of traffic.

There were categories where people would come in, grab what they were looking for and leave, and there were categories that people wanted to stay and look at and be able to pick out something. I think what you're going to get to is somebody looking at the floor of the store, and going, let's do a better job of managing who goes where and where the carpet wear happens.

And can we even out the carpet wear in a way that makes the store easier to manage in terms of the number of people, easier to maintain social distancing? I think that's a very interesting question. You know, less than 10% of the people walking in the door of a grocery store walked down the carbonated beverage aisle. Less than 10%.

Bob: Think of how much space it takes up.

Paco: Think about all the space. Think about the, you know, bag and wrap section. Does anybody go browse in the bag and wrap section? No, they don't. But there are places where someone is looking at cookies or coffee or something else where somebody often takes a little time because there is some choice or some curatorial things put into it.

So certainly there's a degree of reinvention that's going to happen there.

Bob: Well, grocery stores, in general, people aren't going down the aisles like they used to. Right? Remember how people talked about no one's buying canned goods anymore and no one's buying those basics. That all kind of changed three months ago. You were the smart ones having cans.

Paco: Well, you know, I still haven't bought a can of vegetables yet, but I'm certainly aware that many of us don't know how to use our freezers.

Bob: Yeah, I'm a frozen guy. I'd rather buy frozen vegetables than cans myself.

Paco: Yeah, I mean, and this is one of the topics of the new book is how do we get to a better sense of the education? And certainly, one of the things that we're looking at is, you know, Walmart told me last week that one of the hottest categories in general merchandise now is kitchen stuff. You know, people are buying rice cookers and panini makers and whatever because our home cooking skills are getting jump started.

Bob: Elevated, yeah. And plus, I think I read the millennial generation grew up on the Food Network. That wasn't my experience. Julia Child was on in the afternoon. Who'd be watching Julia Child. But a lot of people certainly have rediscovered cooking and that sense of completion and doing something for yourself.

And there's a lot, I think, that makes that good. When is your book going to come out by the way?

Paco: Inquiring minds would love to know.

Bob: Okay, well I'm going to have to make sure to help promo that. But what do you think holiday looks like? You know, give me three ideas what you think that a holiday 2020 might look like, and I'm not going to hold you to it, but I'm already trying to think of it myself.

Paco: Well, first of all, I think that the idea of indulgent consumables, that people are going to be buying things to eat and drink that are special.

Bob: I think we’re on the cusp of new hedonism, myself.

Paco: I'm not going to buy Prada bags, but I might buy a stray bottle of Johnny Walker Blue.

Second is, that we are going to be looking at each other. And I think one of the things about this lockdown is that many of us are going through a recalibration of who we are and what our relationships are with people. And I think that's going to result in both any number of divorces, but any number of renewed marriages and contracts.

I thought the other thing that was interesting that Walmart was telling me is that board games and recreational stuff is also flying out the door.

Bob: Yeah, puzzles and those kinds of things.

Paco: Exactly. You know the degree to which we are learning to do things, and play things and be with each other. So, those are two holiday predictions for me.

Bob: I think that's good. Well, listen, I appreciate your time today. And anything that you'd like to say that I haven't brought up yet?

Paco: Oh, I don’t know. I'm unfortunately never at the loss for words here, but you know, thank you for paying attention. For a bald stuttering, aging nerd I have had more attention payed to me by figures in the media over the past 10 days than I've had in the past 10 months.

Bob: Well, you deserve it. You're the rock that a lot of us stand on knowing all the work that you've done ahead of time, my friend. So, I appreciate it and we'll have you on again. Again, always great speaking to you Paco.

Find out more about Paco here. 

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