Retail Real Estate - Observations from the Edge

Observations from the Edge…….

By Forbes Rutherford, Rutherford International

          

 One of the distinct advantageous of an executive search professional is their ability to observe the interaction of a company across the breadth of ‘like’ companies within a given sector. A consultant with a high degree of organizational awareness is not only able to peel back the layers of a single organization to reveal its internal strengths, weakness, threats and potentiality but is able to aggregate this same information across multiple organizations to uncover sectoral trends and unseen market opportunities.

One example of this lateral view of an industry is our published behavioral analysis suggesting the caliber of retail leasing professionals in Canada will significantly weaken as the ‘fifty-something’ generation begins to retire. In brief, the study bench-marked the key performance traits that one would typically find in a retail leasing professional employed with an owner/developer. The results are quite provocative indicating that the behavioral traits possessed by significant number of retail leasing managers in relation to what constitutes “high performing” leasing traits translates into their being average performers with respect to leasing stabilized retail assets, and irreversibly poor performers in green field or repositioning leasing.

Considering retail leasing is highly relationship based, the benchmarking study considered the demographic realities of the aging high performing leasing professional. We’ve determined that the “mean age” of retail leasing intermediaries is increasing and will continue to increase for five or so more years as “down-sized” and “semi-retired” retail executives re-invent themselves by leveraging their industry relationships and pursuing careers as consultants advising small to medium size retailers on network strategy and lease transactions.

Competition is good; the value proposition of an ex-retailer in this consultative role as network strategist is their intimate understanding of operating margins. But how will the tenant representative brokerages respond to this increasing incursion on their client relationships? There was a time when the tenant representative brokerages would leave each other clients alone; it was feared that the cost of cracking a relationship would commoditize fees and ultimately cost too much. This professional consideration not to poach has been set aside – all retailers are open-game.

The status quo no longer works. This transactional business model based on the singularity of a relationship is difficult to sustain with so many retail agents and consultants boasting a similar relationship with a single tenant. Too many transaction intermediaries are chasing a semi-elastic market share of lease deals. This fracturing of the market is pressuring the bottom-lines of dedicated retail tenant representation brokerages; which means they will need to evolve and place less faith in achieving their gross revenues solely on transactional activity. As this sector of the industry ages, it’s becoming ripe for consolidation through merger and acquisition. Unfortunately a considerable number of the leasing agents have shown little interest or perhaps are unable to evolve behaviorally from a transactional to a consultative sales approach and will be of little use to these merged entities.

This leads me to another industry trend which seems to be taking shape – the evolution of tenant representation from pure transaction to multidimensional services. The rise of the retail advisory shop that offers one-stop access to a variety of back-office store network services including transaction is the likely evolution of tenant representation. There are several examples of this globally; in Canada we will observe an increase in full-service platforms for retailers as the larger corporate real estate services companies seek to increase market share by supporting large retailers’ efforts to ratchet down their real estate costs.

We’ve already seen and will continue to observe private stakeholders in large format retailers tap the equity markets by securitizing their assets. The penchant of the financial market to penalize operating errant behavior will further drive efficiencies down to the property level thus requiring a more comprehensive service provider.

I suspect however, that it will take five years for this one-stop retail property services platform to achieve its own momentum as it’ll take Canadian retailers this long to interpret trans-nationally the benefits of out-sourcing property services. This rise to prominence of one-stop retail services shop is inversely timed to the demographic erosion of old-line but retiring relationships; and further enhanced if the consumer economy softens and pushes large store network retailers to increase their efforts to uncover operational efficiencies.

Relative to other assorted global markets, Canadian retail has had an amazing run these past few years. However if I was a retailer, facing a weakening economy, Amazon’s offspring and a Baby Boomer customer base that is rapidly shifting its purchasing patterns, I think I would be far more content with a ‘trusted adviser’ that can offer me solutions to reduce operational expenditures in my store network. Certainly I would be far more content, than placing my company’s welfare in the hands of a transaction specialist that might be inclined to swap me out of a ‘home plate’ location for another client in their roster.

Forbes Rutherford (855-256-5778) is a twenty-five year veteran in international real estate executive search. He began his career in 1986 recruiting GM’s for retail developers such as Markborough, Campeau, Marathon, Cadillac Fairview, Cambridge and Trilea. He’s survived multiple real estate cycles, has sufficient scars to prove it; and is able to recognize a frothy market when he sees it. He currently has particular interest in speaking with real estate professionals that are highly resilient to change, understand financial restructuring and are able to manage and lease assets in an under-performing economy.

Part II: Targeting High Performers - Avoiding Confirmation Bias

Dear Reader,

The following is the second of a three part series detailing some simple steps one can take to identifying high performing executives and staff; along with improving the outcome of your hiring.

Part II: Targeting High Performers -  Avoiding Confirmation Bias

It’s been suggested by pundits that the talent acquisition and employment interview process is an exercise in mitigating hiring risk.  Some argue that the odds of success are no different than playing craps in a casino. While this view might be considered as a little cynical, studies have determined that the average CEO’s tenure is a mere four years, with his or her lieutenants not remaining unscathed either.  In fact, 40% of all senior hires fail within 18 months. So perhaps the cynicism is well placed.

Taken in this context, clearly the hard and soft cost of hiring and/or firing (regardless of tenure) has become inordinately expensive to the firm’s bottom-line; and would (or should) directly impact the hiring manager’s annual performance bonus.

How does one improve the odds for a successful hire?

Reality Test Your Interview Biases

“We have chemistry” “Let’s spitball this” “Seems like a fit” “I have a gut feeling” “I knew in 30 seconds” “I’ll know the right person when I see them.” “So tell me about your life” …. so I can glean enough information to support my pre-determined opinion.

We have all heard the above phrases in and around the interview process….and unfortunately, the reliance on chemistry and gut has contributed a great deal with dismal results. The root problem is confirmation bias. 

In other words, regardless of the decision to be made, individuals are two times more likely to focus on specific information about a candidate that supports their opinion, while actively filtering out information that does not confirm their opinion.

Case studies used so frequently in management schools are designed to foster critical thinking and creative solutions to previously existing reality-based scenarios. You’ll achieve better hiring results if you frame a real life situation into the interview assessment. It’s a simple process. Take a critical decision your company arrived at within the last five years, then provide the candidate with the relevant details. Ask them to deliberate on the problem and offer a solution. Give a sufficient amount of time for them to respond with a reasoned answer.

I had a Chief Investment Officer client ask three VP Acquisition candidates to analyze two commercial assets he was contemplating to acquire. Not only was he getting some very effective acquisition analysis for free, he was also learning how the prospective colleague went about analyzing and responding to the scenario.

As a result of his association with the client, the successful candidate went on to become a senior acquisition executive acquiring trophy office assets throughout the Eastern Sea Board of the United States; the runner-up became the Real Estate Country Head for active off-shore bank. The third candidate – who resented the exercise – has over the years, managed to achieve some success but much less than than the first two who enthusiastically rose to the task at hand. The first two candidates understood the client’s effort to mitigate the potential for “confirmation bias” by reality testing his assumptions.

A simple method to improve the outcome of a hire is to guard against confirmation bias by reality testing your assumptions about how the candidate thinks and approaches problems. Real-world scenario based questioning can uncover more accurate and revealing information about a candidate than abstract or generic interview questions for which candidates may have stock answers ready-made.

I invite you to join me on LinkedIn at http://www.linkedin.com/in/rutherfordintl or follow my Blog at http://rutherfordinternational.blogspot.ca so we may notify you when we publish the final installment of the series.

A brief outline of my recruiting companies and their related services is listed below. We would welcome an opportunity to assist you with the growth of your firm.

Sincerely,

Forbes J. Rutherford

Vertical Offering of Recruitment Services

The Rutherford Group of Companies consists of a vertical of specialized recruiting firms that complement each other at various stages along the recruiting value chain. Each firm offers clients a varied approach to talent acquisition at a different cost per hire. The pricing varies from ‘Least’ to ‘Most’ and is subject to the urgency of your hiring need.

By adapting your point of entry onto the “recruiting value chain,” our methods let you ‘test the waters’ before jumping completely into the talent pool. Depending upon urgency, your first point of entry can be the insertion of an ad on our international job board (www.rejobnet.com) at a very low cost of entry.

Alternatively, you can engage our ‘job ad agency’ (www.retalentselect.com) to implement a job marketing and employer brand management strategy to target market your position to relevant candidates.This service can be an adjunct to your internal corporate recruiting department.

If your need requires immediate resolution, your third option is to engage our team of experienced recruiters who will pro-actively seek talent within your targeted talent market (www.nextalent.ca).

Properly employed, the cost savings are significant; a job advertising and employer brand marketing campaign through REtalentSelect.com is equal to the cost of an average career ad in the Wall Street Journal.

RUTHERFORD GROUP OF COMPANIES

1. Rutherford International Executive Search Group Inc. - Executive/Board Search, Succession Planning & Team Analysis, Facilitate M&A opportunities, Match High Performing Executives and Capital Investors, Asset Stabilization & Platform Restructuring, Support Client Growth into New Markets by Identifying Platforms that are open to Acquisition or Strategic Alliance, Behavioral Research – High Performance www.rutherfordinternational.com;
2. NEXtalent Inc. – Paid on a success basis, this company supports recruitment assignments where base salary is under $150,000.00. We’re open to corporate volume contracts where there is an annualized human capital resource plan in place. Offices currently in Toronto and Calgary with planned expansion to Montreal, Edmonton and Vancouver by Q1-2014. Having access to Rutherford International’s research department, NEXtalent currently recruits throughout Canada in the following sectors: Lenders, Direct Investors, Advisory Firms, REIT’s, REOC’s, Property/Facility Managers, GC’s and Retailers/Hospitality – www.nextalent.ca;
3. REtalentSelect.com is an Interactive Real Estate Job Ad Agency that markets your employer brand including active job openings utilizing Web 2.0 & SEO technology, newsletters and targeted emails. The firm puts your opportunity directly in front of relevant candidates, our researchers process the response and experienced recruiters are on-hand to short-list the response for you on a time and material basis.  Depending upon the base salary, this process is approximately a quarter of a recruiter’s fee. In fact, one client was able to hire two individuals from the single ad campaign thereby achieving incredible savings over traditional recruiting methods. – www.retalentselect.com;
4. REjobnet.com - International Real Estate Job Board aggregates job opportunities from 53 countries. Clients are able to purchase a single ad or a package of postings at a volume rate. For larger volume clients, we host a micro-site for you that can be actively linked to the homepage of REjobnet.com and the Career section of your corporate web site. – www.rejobnet.com

Part 1: Targeting High Performers - Framing Your Needs and Making Better Hiring Decisions

Dear Reader,

The following is the first of a three part series detailing some simple steps one can take to identifying high performing executives and staff; along with improving the outcome of your hiring.

Part I: Targeting High Performers – Framing your Needs and Making Better Hiring Decisions

 

What keeps most CEOs up at night and is often framed in terms of a succession planning problem?

The quick answer is access to competent and motivated staff.  Scarcity is the root cause of the CEO’s insomnia because there are simply not enough high-performing employees with subject matter expertise available in today’s market. This talent scarcity is a systemic problem, impacting some regions more than others while affecting multiple levels of an organization. The term scarcity typically implies shortage, and given the demographic squeeze faced in both the public and private sectors, there is truth in this perspective.  Scarcity also, however, is a consequence of corporations’ and search consultants’ habit of narrow-framing the experiential requirements for a specific role.

 

How can you improve the probability of a successful hire?

Begin by more broadly framing your need and thereby increasing your options or selection ratio. For example, Chip Heath, a management professor at Stanford University, references the decision making process of his teenage son. His son “narrow frames” his choices or rather limits his options to A or nothing at all – “stay in or go out”. He won’t add a ‘B’ or a ‘C’ option into the decision process. He’ll apply this process to 60 plus percent of his decisions.

Heath’s studies have uncovered similar narrow-framing within the corporate world. In fact, 70% of the organizations studied limited their options by narrow-framing 71% of the time. That’s even worse performance than the average teenager. As a parent I am quite relieved; as a shareholder I’m concerned.

Whether teenager or corporation, one critical step in improving the outcome of a decision is simply to generate more options. In fact, adding just a single additional option to a given problem increased the likelihood of achieving a more successful outcome by six times.

See: http://www.youtube.com/watch?v=Rhs1rjLJqhw

In hiring, there is a tendency to narrow-frame need by arbitrarily requiring certain skills or years of experience not critical to the position. What empirical evidence exists that stipulates that a person with ten years of retail development experience is more likely to succeed than a person with five years? It’s an interesting question and one that should be asked if you want to avoid narrow-framing your needs. Opening your field of vision wider with respect to candidate requirements can increase your candidate pool and may yield surprisingly improved results. In addition, consider the role and value of transferable competencies rather than experiential check-marks to broaden your options further, without sacrificing focus in your search.

Avoidance of narrow-framing is equally pressing from a legal perspective. In the United States, the question above is increasingly being asked of corporations by human rights lawyers acting on behalf of clients who believe their skills relative to experience were improperly assessed. This question is not necessarily limited to candidate experience but can also be applied to education. Corporations are struggling to definitively answer this question and are increasingly finding themselves on the losing end of an action.

There are ways to buttress your defense in this regard, which I’ll address in the third part of this series. The second article in the series speaks to reality testing your biases when assessing candidates. By carefully implementing this methodology in your hiring process, you should realize a significant improvement in your overall hiring track-record.

I invite you to join me on LinkedIn at http://www.linkedin.com/in/rutherfordintl or follow my blog at http://rutherfordinternational.blogspot.ca . Parts 2 and 3 of the series are now available on the Blog.

Sincerely

Forbes J. Rutherford