ICSC’s “incredibly tragic day” and rough year ahead

The trade group’s pillars — brick-and-mortar retail and industry conferences — have crumbled. But its problems preceded the pandemic.

National /
Sep.September 09, 2020 08:00 AM
Photo illustration of ICSC President Tom McGee (ICSC via YouTube, iStock)
Photo illustration of ICSC CEO Tom McGee (ICSC via YouTube, iStock)

UPDATED Sept. 9, 2020, 3:45 pm: Employees of the International Council of Shopping Centers woke up to an alarming message on June 3.

In an organization-wide email, more than 130 staffers were told they would soon receive calls about their employment status. The wait was agonizing, several former ICSC employees involved told The Real Deal.

The remaining 60 employees of the nonprofit — one of the leading trade groups for retail landlords and leasing agents — did not get a clear answer until they were informed in a virtual town hall that they had survived the bloodbath. For others, within half an hour of being told that they were no longer employed by ICSC, access to their work computers and cell phones had been shut off, they said.

An FAQ laid out that ICSC would ship all belongings to former employees. Any personal documents stranded on work computers would be retrieved by IT and sent back to their owners.

“It was an incredibly tragic day in the history of ICSC,” the trade group’s CEO Tom McGee said in an interview with TRD. “The only reason this took place was because of the pandemic.”

While countless other organizations have conducted layoffs in a similar way, the cuts at ICSC came as the influential trade group was plagued by internal strife and a rapidly changing retail landscape. The organization had been grappling with declining membership and revenue for years when Covid-19 undermined its main pillars — brick-and-mortar retail and industry conferences.

While e-commerce sales have soared during the pandemic, overall retail spending in the U.S. is expected to drop by more than 10 percent with in-store sales falling by 14 percent, according to a recent report by eMarketer. Though trends are expected to gradually moderate, the shockwaves sent to certain sectors, such as malls, have been devastating.

“We are undergoing a forced reimagination of retail,” said Andrew Lipsman, eMarketer’s principal analyst and the report’s author. “Now all of a sudden, there’s a gravitational force that’s pulling a lot of these anchor stores under, and then that cascades into taking the whole rest of them all with it.”

For malls in particular, he noted, “it’s not just the long slow decline that we’ve been experiencing for the last 15 to 20 years.”

The conference business, on the other hand, has been crushed solely by Covid. In a study of 1,776 industry professionals by PCMA, a network of business events strategists, more than 85 percent said their conferences had been called off because of the pandemic.

In interviews, a dozen former ICSC staffers — including five senior employees and a trustee — and five current members portrayed a workplace riddled with fear and an organization that lost touch with those it seeks to serve. The former staffers asked not to be named to avoid backlash or because they had signed non-disclosure agreements.

“It’s like watching a train wreck with so many people you love inside and hoping the train survives,” one said.

From root to fruit

On its website, ICSC describes itself as an organization built on humble beginnings.

The New York-based trade group started in 1957 with $500, seven people and a handshake. Over the next half-century it ballooned into a massive dealmaking network, connecting property owners and leasing agents with retailers and other industry professionals.

Revenue in recent years has been roughly $80 million, and its 2018 public filings show $100 million in net assets. And ICSC hosts some of the largest events in real estate, notably its annual RECon bash in Las Vegas, which reportedly drew about 30,000 attendees last year.

The extravagant conference, held at the Las Vegas Convention Center, brings together property owners, brokers, retailers and other industry players for days of networking, dealmaking and entertainment.

Exclusive after-parties hosted by real estate bigwigs have been known to feature stilt walkers, pool parties and concerts by Top 40 artists, like Imagine Dragons. The conference has also drawn criticism for alleged sexism and harassment among some ICSC members.

“It’s no secret that this pandemic has had a pretty significant impact upon our industry and ICSC is a byproduct of what’s taking place in the industry.” Tom McGee, ICSC

But Covid has canceled RECon and all other in-person ICSC events for the rest of 2020 — a huge hit that resulted in the recent layoffs. It has sparked fears of a sharp decline in membership, which had already been shrinking for several years.

As recently as February, ICSC’s website boasted 70,000 members around the world. But internal documents shared with TRD show the total had fallen to 64,200 in 2018 from 70,400 two years earlier. They projected — before the pandemic — a further decline to 52,700 by 2023.

But an Aug. 17 screenshot of ICSC’s member directory shows fewer than 45,000 active members.

Additionally, after years of slowly moving away from its international efforts, ICSC closed all of is foreign offices in the past two years. The China office went first. Europe, Mexico and Singapore followed last year and the Toronto office in June, when the layoffs in New York happened. Prior to the closures, ICSC had more than 170 employees globally, according to its 2018 filing.

Yet, McGee instructed employees to continue counting the more than 20,000 departed members, though their affiliation agreements had ended and they had stopped paying dues, according to internal communications and interviews with former senior employees.

McGee would not comment on the membership count discrepancies but acknowledged that the records reflect the termination of agreements.

“It’s no secret that this pandemic has had a pretty significant impact upon our industry, and ICSC is a byproduct of what’s taking place in the industry,” he said.

“We continue to view ourselves as an international organization,” McGee added.

A new captain

While McGee pointed to forces beyond his organization’s control, many former employees attribute the drop in membership to him.

McGee came on board in September 2015 after 26 years at Deloitte, where he had held several leadership roles. His hiring represented a sea change for the organization. Unlike his predecessor, Michael Kercheval, whose background in real estate dates back to the early 1980s, McGee had spent his entire professional career in accounting.

Still, on his arrival at ICSC, employees were excited by the thought of an outsider reinventing the organization. In a sense, he did.

A month into his tenure, McGee fired several executives, some of whom had been with the trade group for decades. Each was told to leave immediately or they would be escorted by security, according to former employees.

More employees and volunteers were sent packing every few months, seemingly at random, according to all of the former ICSC staffers who spoke to TRD. Many described a palpable tension throughout the trade group as they awaited emails about “organizational updates.” Some asked their bosses or IT for advance notice if their names were going to be on one of the dreaded messages.

New leadership “sometimes comes in with that ‘new sheriff in town’ mentality — very aggressive in their changes — and sometimes it’s not rolled out softly,” said Bran Noonan, a partner at the law firm FordHarrison who specializes in employment litigation.

“It’s like watching a train wreck with so many people you love inside and hoping the train survives.” Former employee, ICSC

In 2016, McGee brought in two former Deloitte colleagues to take over as head of communications and chief financial officer. It changed the office’s dynamic, according to former employees and others.

“Before, it was a club of friends. [Then, it became] more like a club of Wall Street people,” the former trustee said. “It’s like the difference between a family-owned business and a public company.”

McGee made attempts to smooth things over. He introduced regular town halls, which staff appreciated until realizing the meetings were less about transparency than about silencing discontent. Employees say questions were strategically dismissed with vague answers or assurances that they would later be addressed in an email.

At times, McGee would parade down an office corridor, saying hi to everyone. Other times employees were unsure whether to even make eye contact. “It was almost like theater,” one former ICSC staffer said.

One former employee said that staff would complain about having to endure bullying by the leadership or risk being fired.

“I’m not surprised that folks express concern around the changes that I made because I did make a lot of changes,” McGee said. “But those changes needed to be made.”

At the same time, e-commerce began to dominate the conversation among ICSC members and the retail world at large.

Turbulent times

The retail industry has been rocked to its core by the seemingly inexorable rise of internet shopping.

Americans spent $523 billion on online purchases in 2018, accounting for just under 10 percent of retail sales, according to eMarketer. This year that number is projected to reach $709 billion, or nearly 15 percent of sales.

While that growth has been expedited by the pandemic, the consensus is that e-commerce will continue to gain steam in the years ahead. For that reason, the Blackstone Group, one of the world’s largest alternative asset managers, and even Simon Property Group, the country’s largest shopping mall operator, have been pivoting to industrial e-commerce space.

An internal survey last year of more than 3,000 ICSC members, a copy of which was provided to TRD, showed that more than 70 percent see retailers with both online and physical stores as a valuable tenant class. Yet, retail tenants make up less than 10 percent of ICSC’s membership, and it’s unclear how many of them have an online focus. More than half of members are brokers and developers with 34.8 percent and 22.3 percent, respectively.

But some of the posts shared on ICSC’s website include such headlines as “Retail experience trumps e-commerce,” while interviews with members and other industry sources suggest a long-running dissatisfaction with the trade group’s core mission.

“I will renew because I’m loyal, not because it’s necessarily a good dollars-and-cents value for me right now,” said David Lobaugh, president of a geofencing research firm August Partners and a longtime ICSC member. “Historically, it has been extremely valuable. So, out of faith and out of continuity, I’ll go ahead and pay my dues.”

David Perlmutter, president of real estate brokerage Perlmutter Properties and an ICSC member for more than 30 years, compared the trade group’s e-commerce strategy to “warm beer.” He said ICSC was “slow out of the gate” in helping members adapt to the shift in consumer habits over the past decade.

Even when those inside the organization moved to embrace change, ICSC’s top brass fought back, according to several people with close ties to the organization.

Nick Egelanian, president of the consulting firm SiteWorks and an adjunct professor at the University of Maryland, said he has tried to advise ICSC on its outlook on retail.

In speeches at ICSC events, Egelanian has emphasized the importance of e-commerce as
mall owners and other retail landlords look to reinvent their business models. And despite speaking to ICSC on several occasions about how the organization could update its strategy, he said he’s been told to “be more positive.”

“I’m not making positive or negative statements. I’m making factual statements,” said Egelanian, who wrote a chapter on the retail market in the Urban Land Institute’s “The Investor’s Guide to Commercial Real Estate.”

Rick Caruso, CEO of development firm Caruso Management Company, served on ICSC’s board between 2012 and 2014. After giving a speech suggesting that the traditional shopping mall is “dead,” Caruso was asked to step down, according to a lawsuit his company filed against ICSC in December 2018.

Caruso declined to comment.

“In a membership as large and as diverse as ICSC and with as much change that happens in the industry, people are going to have different viewpoints,” McGee said. “And that’s totally fine.”

But others are calling out ICSC for retaliating against those with different viewpoints.

“Part of an association is not having your own narrative,” one former senior employee said. “ICSC didn’t do that.”

Paying dues

Some of the younger players in real estate’s retail sector have struggled to understand ICSC’s mission.

A former employee who worked in a department at ICSC meant to recruit younger members said the organization has failed to evolve. The employee recalled being silenced in meetings, even for suggesting ideas like trivia night or changing marketing materials for recruitment.

“We were looking at members as dollar signs,” another former senior employee said.

Kearney, the consulting firm that was brought in to better understand members, attributes some of its recruiting and retention issues to high costs — especially compared to other industry trade groups, according to recommendations from the company obtained by TRD.

ICSC membership costs firms $800 per year plus $125 per employee. RECon 2020 tickets for members were priced at $680 for those who paid in advance.

Many small companies and younger brokers can’t afford the fees, Kearney found. Senior ICSC leaders warned McGee that the dues structure was limiting membership. ICSC is now providing a free membership year for anyone who has lost a job, as well as a 90-day membership extension and $125 event credit for all members.

In the organization’s own survey, 32 percent of its members rated the value they receive for paying dues as poor or adequate.

In response to the feedback, ICSC planned to cut entry costs for small companies. But McGee, shortly before he was to present the plan publicly, pulled the plug, according to former employees and internal communications. Instead, ICSC attempted to massage the membership numbers, even to staff and the executive board.

For example, while some senior employees consider “active members” to be those who pay dues, McGee has given leeway to include members whose accounts expired within 30 days, according to interviews with former senior employees. McGee declined to comment on the differences and ICSC refused to comment on any plans to restructure its dues.

“We remain focused on supporting the industry and helping it evolve by providing resources for all of our members and building additional programs and services for new members, including students,” an ICSC spokesperson said in a statement.

Coming to a head

In June 2018, an anonymous email made its way into ICSC’s executive board’s mailboxes, CC’ing former trustees.

It alleged that employees’ jobs were advertised before they were fired, that workers were told to write positive Glassdoor reviews and that McGee referred to members as “customers,” encouraging his staff to turn a profit from them.

“ICSC staff can save ICSC from this bully,” the email read. “He has Zero Respect for you … or us. Ask us again in secret … we will tell you the full story.”

ICSC declined to comment on the email.

 “There are not a lot of deals being done because of the crisis and therefore commissions are few and far between. That frustration leads to [members] wanting to have as many tools as they can.” Rudy Milian, Woodcliff Realty Advisors

Internal powerpoints support the allegations. In a 2016 presentation, staffers were told to embrace a “client service culture.” In another presentation two years later, the organization compared itself to for-profit event companies to examine ways to drive revenue.

At times, employees felt they were prevented from objecting to the executive board.

Two former senior employees said McGee questioned them if they talked to board members, even after common events and meetings where such interactions were natural. The former employees said they felt the need to get McGee’s approval beforehand and that they would lose their jobs if they didn’t.

“At Deloitte he worked with Fortune 500 companies, where you keep everything secret,” one employee said. “But in a trade association, transparency is so important.”

McGee denied ever preventing an employee from talking to the board.

A fresh start?

Looking to the future, several members and former employees expressed confusion over ICSC’s focus. Many said they are grappling with why the trade group would lay off so many employees at once and what its plans for recovering from the pandemic are.

Conventions, conferences and member meetings brought ICSC $55 million in 2018, making up 69 percent of its revenue, according to the organization’s public filings. But McGee’s layoffs cost ICSC’s events team 18 of its 22 members, according to documents shared with TRD.

“To lose people that have the relationships with and the trust of members is scary,” Lobaugh said.

Some employees said they believe that ICSC could have afforded to keep them, but the pandemic and economic fallout presented an opportunity to clean house, as McGee’s arrival had five years before. With so many staff members gone, those remaining struggled for footing in a new virtual reality, according to former employees.

Barry Wolfe, senior managing director of investments at real estate brokerage Wolfe Retail Group, was said to have attempted to organize a virtual RECon convention after the live event was called off. Instead, he was served a cease-and-desist letter, Wolfe wrote on LinkedIn.

Wolfe did not respond to requests for comment.

Between mid-March and the beginning of August, ICSC said it hosted 38 webinars and its first virtual conference. “Our role right now really is to be an anchor in a storm,” McGee said.

But some fear that’s not enough.

“There are not a lot of deals being done because of the crisis and therefore commissions are few and far between,” said Rudy Milian, president and CEO of consulting firm Woodcliff Realty Advisors, who worked at ICSC for nearly 20 years and served as a senior vice president until 2015.

The trade group, he added, “is really not there for [members] right now because it is not offering the typical networking events that we have relied on for so many years from ICSC.”

Milian said he hopes the organization returns to its former glory.

Others said that even if ICSC gets through the pandemic, resumes its conferences and restores its balance sheet, the cataclysm in retail demands a lot more than networking events from such a major trade group.

“The industry as a whole and many of its leaders have simply never grasped how and why shopping has been evolving for over the last 40 years,” Egelanian said.





     

    Correction: This story was updated to clarify that RECon is hosted at the Las Vegas Convention Center, not the Wynn Las Vegas resort and casino. 


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