Week of January 28, 2019
By Garrick Brown
Connect the Dots
This time of year is all about looking backward and forward for analysts. In between watching snowflakes the size of chicken feathers fly by my window, I’ve been holed up doing nonstop webinars and conference calls for tenants, landlords, bankers and investors. I actually enjoy these and, usually in the question and answer portions of these presentations, I end up learning an amazing amount about what people are thinking, what they are up to and, of course, what they see as both their challenges and opportunities. But also, I get an insight into blind spots.
I was on a call the other day where an analyst asked me if winter apparel sales were through the roof in January. It was not lost on me that this analyst was based in Chicago and, on that particular day, the Weather Channel was reporting that wind chills in Chicago were in the -25 degree range. Granted, my analyst friend was well aware of the fact that her current experiences were coloring potential conclusions. She’s a smart cookie and laughed heartily when I pointed out the whole polar vortex point, but it reminded me of something else I keep seeing and that is the challenge of seeing the forest through the trees.
Now don’t get me wrong, this is not me throwing other analysts under the bus. The challenge, in retail particularly, is that the market is simply so sprawling that it is impossible for any single person, much less, any single group to fully grasp in its entirety. U.S. GDP is still 70% driven by consumer spending. But tracking overall economic growth is just a fraction of the picture. To understand retail real estate, you need to understand macro-economics, micro-economics, retail sector trends, individual retailer health, individual landlord health, eCommerce trends, consumer trends—economic and sociological—and a dozen others. And then, you must be able to put them all together—synthesize and process all of this information—and then come out with something of meaning. All within an atmosphere of often incomplete, faulty or deceptive data and in an environment where the changes and disruptions, accelerated by technology, are coming at you a million miles per minute.
Thus, in a sprawling marketplace, it makes sense that most of the analysts out there are specialists. Net lease specialists, retail investment specialists, retailer financial analysts, and so on. And most of these people are experts in their field. But are they getting the big picture?
I saw a recent blog from a friend of mine at a competitor that proclaimed, given 2018 holiday sales growth at 5.1% (according to MasterCard Advisors) and wage growth continuing to accelerate, that the worst of the retail bankruptcies was over. Makes sense on paper. Except, it might not.
We have already had three notable retail bankruptcies in the first four weeks of the year, none of which were the size or scope of what we saw last year… but there remain plenty of challenged retailers out there and there will surely be more ahead. Beyond the cyclical impacts of the economy, we still have structural issues impacting retail. That said, there are plenty of retailers that aren’t just doing fine, but are killing it. But many remain challenged by debt, a hyper competitive environment and encroachment from newCommerce.
There comes a point where we are simply overwhelmed by data. Not to veer into the political, but we are seeing this play out with the manipulation of social media, the rise of “fake news” and a 24/7 media/entertainment cycle that often makes social trends feel less like a slow moving pendulum and more like the frantic beat of a metronome. Beyond my mere concerns over accurate retail real estate market forecasting, the disorienting nature of drinking from data firehoses should be alarming to all of us who prize the freedoms and prosperity that has been afforded by the last 70 years plus of Westernized democracies, flaws and all. The Orwellian model of totalitarianism was true in its day and modeled after the real-time atrocities of despots like Hitler and Stalin. If we are doomed to repeat history, Big Brother will not come in the form of a black booted thug, but in the guise of a dweeb in a hoodie. Book burnings will be replaced by a constant stream of lies mixed with truth geared towards confusion, obfuscation and paralysis.
Yikes! How did I get here from trying to describe the challenges of market forecasting? Clearly I am feeling my own impacts from the arrival of the polar vortex in my new hometown of Buffalo, but my point is this… as much as we strive to be experts in our respective fields, not a lot makes sense unless we can pull back and look at the bigger picture. Understanding trends is critical, but so is understanding the trend behind the trend. And, the trend behind the trend behind the trend. For example, it is not enough to understand the impact of Millennial shopping patterns on a particular retailer, or for that matter, the emerging Gen Z consumer. It is not enough to understand the peculiarities of the Millennial (and increasingly Gen Z) consumer compared to past generations. It may not even be enough to fully understand the forces that have shaped those generations (as forces always do) to be significantly different than past generations.
As specialized as the endless firehose of new trends may seem to be, and as important as it is to get into the weeds to understand them, the real challenge for analysts today is not in zooming in even further, but I believe in zooming out a little more often. Every retail or REIT CEO I have ever talked to has shared their concerns over this challenge; the challenge of being a specialist or generalist, the challenge of white noise, the challenge of scope. We are lost in the details of a Georges Seurat painting… all dots up close. But can this army of pointillists pull back enough to see the forest through the trees?
I get it. So far, this may just sound like the diatribe of a whiny analyst, “Ooooh, my job is sooo hard!” That’s not actually my point. My point is that if we really want to understand where retail, and real estate in general, is going… we need to be both specialists and broader cultural generalists.
Let me give you an example. According to the Centers for Disease Control and Prevention (CDC), 2017 saw the lowest number of newborns (just under 3.9 million) in the United States since 1987. This number was down 2% from 2016 and seems to indicate we may have hit a lull in the slight uptick we had seen in previous years. That uptick was modest and mostly represented older Millennials (especially those approaching their late 30s) starting families, albeit on a delayed timeline from previous generations. If you just look at that piece of data, it would seem to paint a chilling impact for children’s and maternity apparel, toy stores and one of my favorite quasi-retail space users, childcare.
But, did you also know that single female households are now accounting for just over 40% of all live births? Yes, it is true that a significant portion of this comes from lower income households and it’s a simple fact that for working Americans, households with two earners have an economic edge. One could look at these two bits of data and assume they negate each other in terms of childcare demand. “Well, the birth rate is lower and, yes, there are more single parent households that need childcare services… but it sure seems to me like what is happening is the development of a two-tier society where affluent couples are having fewer children and much of the population growth is occurring in lower socioeconomic circles that struggle to afford childcare.”
That actually may be true on some level and would support the growth of affordable childcare space users. But is it really true, or is that merely a preconceived notion that doesn’t actually gel with the data? It actually might not be as clear cut as a few random bits of data would suggest.
In January of this year, the Pew Research Study crunched U.S. Census Bureau numbers and found that 86% of women aged 40 to 44 were mothers in 2016, compared to 80% in 2006. Further, 55% of never-married women between the ages of 40 and 44 had at least one child by 2014. This number stood at 31% in 1994.
Most strikingly, this shift to delayed motherhood was evident across all races and ethnicities. Today’s median age for mothers is 26. It was 23 in 1994.
But here is the kicker; 80% of women with a Ph.D. or advanced degrees in 2014 were mothers. Only 65% were in 1994. True, women with a high school diploma or less were still most likely to be moms and to have children at a younger age, but clearly there is a surge in educated, professional (and generally more affluent women) having kids outside of marriage.
One more thing, while the birth rate for now may be down, on average women who do have children have 2.07 children, up from 1.86 children in 2006.
And one more thing, according to the Council of Graduate Schools, in 2017 women earned the majority of doctoral degrees for the ninth consecutive year. They now outnumber men in grad school by a rate of 137 to 100. For the last decade, women have been outperforming men in terms of higher education to the point where just over 60% of all higher education degrees now go to women.
So what’s this all mean? From the numbers I think it is safe to say that there are two macro-trends happening here. Yes, there are plenty of younger, unskilled (and typically poorer) women having kids in single family households where the ability to pay for childcare will be a challenge. But the big surge is, and will continue to be, in professional women who are skilled and affluent having children at a later age than in the past, but not only having kids but potentially having more of them.
So what’s your take on the viability of childcare tenants now?
But I am not done. There are still more dots to connect. Remember we have 3.7% unemployment rate. Employers are desperate for skilled labor. Every major tech company and Fortune 500 employer we deal with is in an amenities arms race to bolster their ability to attract and retain the best talent. From an education perspective, it is clear. The best talent is increasingly going to be female in the future, even in the STEM categories that have been traditionally male dominated.
Let me ask you a question, if you were a major tech company looking for the best talent in a field that is increasingly dominated by degreed women, would offering onsite childcare (or vouchered childcare via licensing agreements with third party providers) give you a competitive edge? If you are a single professional woman with a child, what would it be worth to you to have onsite childcare at your place of work? If childcare is costing you $20,000 a year and creates all sorts of hassles because it is offsite, would you accept a salary that is $10,000 a year less if it included this amenity? If you are an employer and you are looking for a well-rounded, happy and productive workforce where people don’t feel disconnected from their families, burnt-out or stressed by the demands of racing to and from childcare centers before and after work… would you not see an immense benefit to your bottom line in either providing these services directly, or better yet, contracting with an experienced, top notch, third-party childcare provider to be onsite to provide these services at your corporate campus or on the ground floor of your urban high-rise?
But I’m still not done. In urban, high traffic areas, what if that third-party childcare provider had a safe and secure area for the children away from incoming foot traffic, but also offered in their front drop off/pick up zone, a selection of children’s and parenting books, toys, or even a snack or coffee bar where parents could pick up treats for themselves or their children on their way to or from the office?
Still think the future is bleak for childcare? By the way, you private equity guys can call me any time.
Connect the dots people. That’s what all too little of our analysis today does. This is why real research isn’t just about specialized numbers, it is also about general application and thought leadership.
And one last thing that really bugs me, while I am on this rant… In this era of endless data, overwhelming content and unmanageable amounts of information, accountability has become a casualty. We have an endless army of talking heads on all fronts, making predictions left and right, that many of us listen to religiously. But how often do you have the time to go back and check those predictions against what actually transpired?
This is why, on this first Newsline of 2019, I have decided to do something that I see far too few analysts doing. In our next edition, I am going to share with you my 2018 Predictions and I am going to give you my report card. And, I am going to share with you my top predictions for the coming twelve months. In the meantime, my advice to all… don’t lose sight of the bigger picture. In retail, it is one both of challenges and opportunities. It is a sprawling epic, not a short story. And while the small stuff matters, the biggest stuff matters even more.
Oh… and one last thing before I go… estimates are sketchy, but some surveys of single 20-somethings have indicated that as many as 80% of them regularly use dating apps to meet prospective partners. Tinder boasts that their system on a daily basis has 1.8 billion swipes. Connect the dots. Invest in retail counseling centers now.
This post is commentary from the latest edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Garrick Brown serves as Vice President, Retail Intelligence for Cushman & Wakefield throughout the Americas. He is one of the leading retail real estate analysts in the United States; speaking frequently at industry events and regularly quoted on retail matters by the Wall Street Journal, the CBS Evening News, NBC News, CNBC, National Public Radio, Women’s Wear Daily and dozens of Business Journals and other industry publications.