Gen Z wants to 'shop with brands that are consistent with their values', says ICSC CEO

Many retailers are trying to lure Gen Z consumers. According to a new survey from the International Council of Shopping Centers, Gen Z is price conscious, but is also looking to buy from brands whose values are consistent with their own. In an interview with Yahoo Finance Live, ICSC CEO Tom McGee also discusses the state of commercial real estate, saying the demand for suburban retail space is "exceptionally strong."

Video Transcript

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- Despite a mixed earning season for many retailers, the International Council of Shopping Centers forecasting steady growth within the sector. With more than 90% of shopping mall real estate occupied, the marketplace industry is seeing openings outpacing closures. Here to tell us a little bit more about that is ICSC's CEO, Tom McGee.

Tom, it's great to have you here on set. So just give us a better perspective about what you're seeing within your sector of commercial real estate, and how much that trend has changed, if at all.

TOM MCGEE: Well, suburban-- obviously, with the work-from-home, the demand for suburban retail space, particularly in the open air grocery-anchored shopping center, or a Walmart, Target-anchored shopping center, it's exceptionally strong. It's the strongest that I've seen it in my time.

The use of physical space has evolved. And so retailers are using it, yes, for traditional shopping, but also to fulfill online orders. Whether that's Click and Collect, people coming into the store to pick it up, or shipping from stores.

And so the demand for space, and the vast majority of retail real estate space is in the suburbs. And so with people working from home, they also have more time to shop. And so that's been exceptionally positive for the industry.

Central business districts are more challenged because of the challenges in the office space. That's a small part of the industry, a small part of the square footage. But it's a visible part when those retail establishments and restaurants that are dependent upon office traffic are more challenged.

- I mean, let's talk a bit more about that. Because we've heard over and over, especially in central business districts, the expectation is that some of these spaces just won't be filled by previous tenants, sort of the standard office and the company. What are some of the creative ways we're starting to see, through retail space, taking shape right now?

TOM MCGEE: Well, that issue is more office-centric than retail-centric. I think the challenge for retail there is that there's a number of retail establishments that were established to serve a office population of a certain amount. If you're only having folks going to the office three days a week or two days a week or 50%, you're not going to need as much retail, you're not going to need as much restaurant.

The broader office opportunity that's been talked about is conversion of that space into multifamily or other uses. That's complicated. I mean, you can walk around New York and just imagine the challenge around a conversion of significant office space into multifamily. I think the hope and the expectation would be that, over time, you'll see some transition to a more steady state of people coming back into the office.

- There is some, though, mixed use, so that we are seeing more so come up within shopping centers, even within suburban areas too, right. What does a foot traffic look like at those shopping centers compared to those that have not been converted to mixed use yet?

TOM MCGEE: Yeah, I couldn't give you a specific comparison between the two. But mixed use-- well-built mixed use with a good mix of retail-- retail really brings the life to that mixed use community. It's the glue of it. And then residential or hospitality. Obviously office, because suburban office isn't as challenged as the central business district office is super popular. People like that live, work, play concept, and that's super positive for the retail in that too because you have a captive group of customers, right.

So, again, I think the whole retail space, the consumer has been resilient. You mentioned that we're-- we believe this will be a solid retail sales year. I mean, you have inflation of 4 and 1/2, 5%, that's kind of where we expect sales to land, retail sales growth this year.

Consumer has been resilient. They are, obviously, sensitive to inflation. But so far, they've been willing to continue to spend. You are seeing consumers becoming increasingly price conscious. And so you're seeing a move towards more discounts or off-brand products, but they're still spending.

- I'm thinking back to what the conversation was around retail pre-pandemic. So much of it was about the experience. And I wonder, to what extent that has shifted? I mean, you were just talking about more and more people shopping online, shopping from home. If we're talking about the suburbs, has that shifted the entire usage of retail space?

TOM MCGEE: I still think experience is super important. I mean, there was concern around the focus upon experience when you're in the middle of a pandemic, obviously, because that creates crowds and so forth. I think that we've moved beyond that. And I think having a-- curating a mix of good retail space that provides products as well as services is still really important.

And we recently did a survey of Gen Zs, which we focused upon folks between the ages of 16 and 26. And it's fascinating just to learn a whole host of things around that generation that I think is quite positive, you know, holistically. But one of them is they really value going to physical stores and having that experience.

It's the digitally native, obviously, generation. They clearly shop online. They clearly use social media. But perhaps because they're so immersed in that, they really value that experience of going to the store as well.

I'm super bullish on that generation. I think it's a real positive-- our findings, which I think are consistent with my experience, I have two Gen Z kids, they're very hard working, career driven, financially responsible. They grew up in the shadow of the financial crisis, as well as the pandemic. And so I think that lends well for the future of the US economy, but also for the future of retail. I mean, they're very pragmatic and responsible.

- And to that point there, Tom, I guess, in terms of the brands that they are favoring, what's the common thread among that, and how do you think that then shapes really how brands evolve and develop from here?

TOM MCGEE: Well, clearly, that generation, probably even more than even the millennials, they want to shop with brands that are consistent with their values, socially conscious brands. They're very focused upon price consciousness, and part of that's the age. I think for a brand to build credibility and a relationship, they need to have a social media presence. And quite frankly, be on TikTok and Instagram, and so forth, beyond just traditional digital mediums.

But what's interesting about that generation is that despite how focused they are upon the use of social media, the biggest influence in their life is still their family and friends, in regards to where they shop, what they buy, what brands they're loyal to, and so forth. So that timeless nature of just having relationships and leaning on the people you trust is not dissimilar in that generation of any generation.

- That's very reassuring to hear. Because as having little kids, I get a little worried about how much time some of the kids are spending on technology these days. That Tom McGee, ICSC CEO. Thanks so much for joining us here.

TOM MCGEE: Thank you.