Landlord’s View of the Brick and Mortar Meltdown

“We are faced with weekly tenant bankruptcies, defaults, and requests for rent or space reductions.”

By John E. McNellis, Principal at McNellis Partners, for The Registry:

I received an invitation to attend a cocktail party in Los Angeles at next week’s International Council of Shopping Center (ICSC) meeting. In declining, I explained that we would not be attending the ICSC, our first absence in decades. Somewhat forlornly, our host replied he was hearing that a lot.

Why the shopping center industry’s premier West Coast event may go lightly attended is worth considering. One answer is simple: Pizzazz is in short supply at an event where the chalk talks will be about playing defense and even the biggest liars you ever met will admit to challenges facing their portfolios.

The writing may not be on the wall, but it’s sitting every afternoon on our front porch. A cardboard box waits outside almost daily. These boxes contain everything from hair products to prescriptions to pillows. While hard-put to tell a tweet from a text, the household’s reigning monarch can nevertheless shoot the e-commerce rapids blindfolded, ordering any item in a trice.

When the first few raindrops splash you after a long drought, you don’t necessarily think monsoon. When one package a month arrives at your door, and it’s a pair of shoes that are being returned the next day, you’re unlikely to worry about the future of traditional retail. But when that occasional delivery becomes a reliable year-round stream, it’s time to scope the bricks and mortar. If half a dozen friends confirm that they too receive a daily box, you might – if you’re a retail developer – begin to consider your business in a new light, possibly wondering what the ratio is between doorstep deliveries and skipped trips to your mall.

We have been in the retail development business for thirty-five years, developing a couple projects a year. Through more luck than strategy, we focused on smaller, supermarket-anchored, service-oriented neighborhood centers in towns with high barriers to entry.

That is, we just happened to pick the most internet-resistant strain of retail long before the net began its march to the sea. And because our best properties are in smug towns that encourage new development about as much as high school smoking, we have a bulwark against retail’s far greater problem, its staggering over-building from coast to coast. But even with this tight portfolio, we are faced with weekly tenant bankruptcies, defaults, and requests for rent or space reductions. In short, our retail is no fun.

Yet despite the Wall Street Journal’s almost daily pronouncements, traditional retail is not dead. But it is so badly overweight, so bloated with unwanted shopping centers, that it has Type 2 diabetes. America was choking from a vast oversupply of empty storefronts long before the internet and changing buying patterns rendered tens of millions of additional square footage redundant. But unlike most dieters, retail will ultimately – painfully – shed its excess weight.


Retailers will do it the same way the savviest brick tenants are thriving today: by selling at the same price one can get anywhere on the net (never being undersold), by having great customer service, and by absorbing on-line ordering as an in-store service – you try on one shirt in the store, buy it, and then order five more on the spot from the retailer’s web site.

Having successfully executed this playbook, Best Buy’s stock is up 44% over the past year. This means of course that the next generation of brickers will be shrinking their store sizes, creating even more vacancies for landlords.  And many tenants will be unable to compete in this new razor-margined, twin-river world and will fall by the curbside, further jamming landlords.

As discussed previously, the best centers – whether lowly strips or glamorous malls – have nothing to fear from the net or overbuilding or even the economy itself. If one has the best tenants on the best corner at the best intersection in a growing town, one need only keep her property in first-class condition to weather all economic storms. Most owners are less fortunate, however, and are faced with the overriding challenge of reverse musical chairs: Each time the Muzak stops, there is one more empty chair.

The big-picture fix from the landlord’s standpoint is, like so much in life, easy to prescribe, hard to swallow: repurposing or flat-out razing thousands of economically-obsolescent shopping centers. But rather than talk about generic fixes, it may be more useful to describe our company’s approach to retail’s climate change.

Because we believe too much of it exists everywhere, we are reducing our exposure to retail, to the point of selling a number of quality assets. This summer we sold our interest in our flagship community center, we have two more first-rate properties listed for sale and will add a third late this fall. And we are about to convert one of our larger free-standing boxes into a non-retail use.

While we have never been buyers of finished retail properties, we have decided to forego retail development projects unless the property is in a superior location and largely pre-leased to tenants we consider to be net-proof.

Four of the last six deals we have done have been residential, one has been automotive service, and just one – a project on which the jury is deadlocked – was retail. In a word, we are diversifying.

For the keepers in our portfolio, we are directing our leasing efforts to service tenants – spas, nail salons, opticians, insurance brokers and the like. And, finally, we are paying down the debt on our properties, it being our goal to own our best assets free and clear.

All of this said, I have little doubt that, as the horrible expression goes, the baby will be thrown out with the bath and that canny investors will soon be picking off solid retail properties – centers that have always fit well within retail’s fighting weight – for fifty cents on the dollar, leaving the rest of us wondering why we couldn’t have been just a bit bolder. By John E. McNellis, McNellis Partners, author of Making It in Real Estate: Starting Out as a Developer. The article was first published on The Registry.

As long as local officials strangle housing starts, the mirage of affordability will be pushed further toward the distant horizon. Read…  “Full-Fledged Housing Crisis” in Silicon Valley, Insider View

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  99 comments for “Landlord’s View of the Brick and Mortar Meltdown

  1. mvojy says:

    Border’s Books died because they didn’t honor their online prices in their stores. If brick and mortar want to survive they need to match ANY price on the internet before the drone deliveries put them under for good.

    • Stevedcfc72 says:

      Hi mvoyj,

      Totally agree ref pricing but the problem is Bricks and Mortar are paying huge overheads in the form of rent-local taxes etc etc.

      As for the landlords going forward they need to change their business model, similar to this message above, reduce their debts and offer to businesses a more sensible rent deal.

      • RoseN says:

        Online sellers have been using brick-and-mortar stores as their showrooms without bearing any of the costs. When I shop at a brick-and-mortar store, I would like to purchase from the company. But if I can find the item for significantly less just by googling on my phone, I’m probably going to buy it online. Brick-and-mortar retailers will have to adapt.

        I like the idea of retailers having a small store for people to view and try on (in the case of clothes) merchandise and then place an order if they choose to buy. The retailer would have to guarantee the current lowest online price.

        I hope that brick-and-mortar shops stay around. I don’t understand how people buy some things such as big, bulky items that are hard to return. I’ve been looking for a full-length tri-fold mirror, and I can only find them online. I don’t understand how people can pay $600 or more for a sight-unseen purchase. Whether I like it or not when it arrives, it’s unlikely I’ll return it because it’s such a hassle, and I’ll have to pay shipping charges.

    • TJ Martin says:

      You only have half the story about the demise of Borders . The main half being the multiple lawsuits levied against them by distributors etc for lack of payment along with ASCAP and BMI suing them for copyright infringement which I ma or may not of been a part of

    • Wilbur58 says:

      Um, what about sales tax?

      Amazon didn’t charge sales tax for 14 years. At the Borders store, they had no choice.

      • Keith says:

        For a lot of things, they still don’t. It is where the item is located creates the sales tax (I think). That has become a deciding factor when I make a purchase, as Costco and Walmart can actually beat their prices, but cannot avoid sales tax.

    • Ethan in NoVA says:

      I went to buy the book “The Art of Atari” from Barnes and Nobles, but the price in store was quite a bit more than online. Store won’t match online price as the two “are separate companies.” So competitor got the business.

      So odd.

    • Gosh says:

      No, Borders died because they allowed Amazon to sell their books online.

      This was one of the worst debacles in the history of retail. They stopped it, but far too late.

    • Chris R says:

      My view of drone delivery is that of the assessment in the comments on this site of the likely success of driverless cars, multiplied by air travel issues.

      On top of that where I live drones carrying retail mystery prizes would become targets of ensuing hilarity. I think we’re looking at an increase in delivery drivers for the foreseeable future.

  2. I went to the local auto parts place my check engine light was on. I was going to take it to a mechanic. The clerk ran the computer on my vehicle told me what was wrong and priced the part for me, two tier pricing depending on my budget. Its not all internet. You can get certain med tests and treatment at Walmart. Its a brave new world all around

    • Emanon says:

      You can buy your own computer scanners (OBD II) for an automobile for as little as $25 if you order from overseas. The cheap ones are called ‘code readers’.

      I got one from Hong Kong (China) for Volkwagens.

      It’s quite useful to see if you have a *real* problem or something that’s just annoying, such as a warning light for a secondary air pump that operates fro three minutes when you idle the car after start (a smog pump).

      Make sure that you get one for your specific vehicle, the codes vary from one manufacturer to another. Some codes can be found in online databases, some are given in the little books that come with the code readers.

      You can also clear codes , to see if a problem recurs or is some flaky one-shot deal.

      • Dogstar says:

        I’ve had an obd reader for a couple of years. Not model specific, links to an app on my $30, reconditioned, smartphone. It works great with my 2003 Nissan. Two times I’ve been able to diagnose problems and use YouTube/an online parts store to fix the problem myself for very little money. So many other repairs and fixes around the house that YouTube has walked me through. Many of my friends do the same.

        • dos tacos mas says:

          “So many other repairs and fixes around the house that YouTube has walked me through.”

          Have done quite a few simple car fixes with instructions from Youtube and saved a boatload of $$$! And not just cars – most recently the evaporator fan on the fridge (part=$35 and saved a $135 service call!) and heat coil connections on an electric stove. The times, they are a’ changin’…

  3. mick says:

    Online sales make up 9% of total retail, yet somehow that is devastating the retail industry. Sure, it’s having an effect, but let’s be honest, way too many stores combined with an economy in decline have far more to do with it than online.

    Online has been with us a long time, and had no effect at 5%, 6%, and 7%, but suddenly at 9% it’s a world destroyer.

    No, that’s a narrative.

    • marty says:

      Probably the focus on online is
      1. it’s an easy and futuristic answer,
      2. it distracts from private equity, zero interest rates and rapacious local govts with bloated budgets looking for that new shopping center to save their idiotic pension plans, the REAL problems.

    • gary says:

      I could not have said it better myself :)

    • Kent says:

      I think you have to define “devastation”. If the CEO’s compensation package is based upon ever increasing same store sales, new store openings, increasing prices, and increasing stock prices, then the current environment is probably devastating.

    • Wolf Richter says:

      You don’t buy autos at the mall. So take out auto sales (=21% of total retail) and food & beverages (=13% of total retail), and suddenly online sales as a proportion of what people buy at the mall is much higher. For example, online toy sales are 31% of total toy sales… and they’re soaring. Same thing with clothing and shoes and things like that.

      This argument that online sales are too small to make any difference has been debunked by retailers’ brick-and-mortar sales declines for years. Department stores are getting killed by online sales. Department store sales industry-wide have plunged since 2001.

      • Marty says:

        I don’t think it’s valid to argue that food & bev should be excluded, esp since Amazon bot whole paycheck. There’s plenty of web stores selling food & bev–pkg foods, tea, coffee, etc.

        • Wolf Richter says:

          If you want to know what’s under attack from online sales and to what extent it’s under attack, you have to remove from the numbers those sectors that are still not under all-out attack.

          However, I agree with you that groceries will eventually go the online route too – it’s just a lot tougher and will take a lot longer. A lot of nonfood stuff people used to buy at the supermarket (toilet paper, diapers, shampoo, razors, etc.) have already migrated online, but people still buy groceries at the store.

          But as you said, the Amazon deal shows that someone is working very hard on developing a formula that US consumers like.

      • economicminor says:

        isn’t fuel also considered as retail sales?

        • Wolf Richter says:

          Indeed. 8% of total retail. Once we start thinking about it item by item, we’ll come up with a pretty good list of online-proof retail segments.

      • Keith says:

        I am not sure if this gets play, but I think there is the additional effect that online sales do not lead to the impulse sales that people make when wondering through a store.

    • lee says:

      IMO it really depends on the type of product.

      For example, the hobby of stamp collecting has seen the local bricks and mortar stamp shop disappear from many cities.

      Here in Melbourne there used to be a huge number of them. Now there are only a few left.

      eBay started the trend, the Internet, and the aging of the population helped out as well.

      Now I can see stamps from sellers all over the world, see a huge selection, and don’t have to rely on that one shop an hour away by car that charges ridiculous prices because of rent, utilities, and wages.

      I can ‘shop’ 24 hours a day and take my time looking at what is offered. I don’t have to put up with grumpy, smart*** that has poor customer service either.

      The items can easily be shipped as well.

      So in fact ‘online shopping’ has completely changed the marketplace for the stamp hobby/business.

      • Jeff says:

        I must agree that online has had a huge effect on all brick and mortar collectable businesses including stamps stores. It is my opinion that death came to the stamp businesses because it is a dying hobby. For every ten collectors who pass away it appears that only one collector is taking their place. Without demand the prices for stamps crashed and grading demands changed (Mint never hinged and well centered held up in value much better than canceled and mint hinged.) Without any customers and prices plunging, brick and mortar (high overhead) couldn’t stay in business. Also a lot of brick and mortar stamps stores were old guys who wanted something to do and making money wasn’t a big deal until overhead ate them up.

    • kevin says:

      mick, you could be right. I’ve seen similar reports showing the still somewhat small proportion of absolute dollar online sales revenue compared to traditional retail. Online sales growth rates are much higher though, so they may still eventually catch-up and displace bricks-&-mortar if they keep up their current growth rates.

      The stretched consumer is one part responsible for the retail malaise, since its easier and cheaper to go online and click-compare global prices rather than drive to multiple malls.

      Perhaps, it is also the retailers and chain stores themselves that realizes the impending sea-change and are reducing their floor space requirements in reaction, BEFORE they get hit. Where I’m from, retail chains often negotiate leases for 3 ~ 5 years or more in order to get a lower rental rate. Part of the problem is that retailers are now more wary of such long-term commitments too. So, it becomes a self-fulfilling prophecy where retailers fear the demand shift, so they get less space, or actively reduce it, which in turn moves more of their sales online by default.

      Furthermore, most of such reports do not sufficiently breakdown the categories of products for which consumers prefer online platforms versus which categories they are mostly buying in-store.

      My suspicions is that once the categories are known, then you may see that certain standardized product categories with clear specs (e.g. IT products, watches, fashion accessories etc.) or cheaper goods (e.g. T-shirts, office consumables etc.) might be dominated by online channels; while other larger or bulkier, more expensive or customized product categories (e.g. furniture, home-fix machinery, eye-glasses, diamonds etc.) might still require in-store retail advice and/or hands-on touch and feel before buyers commit.
      I doubt anyone will buy their diamonds online no matter how cheap or rather you’ll actually avoid online for such upscale categories ESPECIALLY when they are cheap. lol.

      I for one won’t buy a shoe if I don’t try It first to get a feel of how comfortable it is or not. I know my US or UK shoe sizing and shape well, but its just the product nature of shoes that I will unlikely buy them online before trying them first in a store.

      You could argue that people can go to the shoe store to test them out and then immediately buy online via their smartphones. My view is that I usually check the online prices and if the store is slightly pricier, I still just grab and go rather than pay for shipment and the hassle. Maybe, that’s just me and the overall market could be behaving differently.

      I also noticed many more heavy discounters and outlet malls and/or Pop-up storefronts “popping” up. Many of these outlet malls have selections even cheaper than online prices for the same goods. So, again, I just buy them in-store when I feel its a good deal and only after a quick check on my phone to confirm. So, again, these purchases would count as traditional retail sales but nevertheless they are certainly being indirectly pressured by online counterparts.

      Bricks & Mortar still have some categories where they will not be displaced by online sales no matter what. Such as most services like F&B, cafes, hair salons, spas, bars, gyms, karaoke pubs, etc. Most malls will have to eventually gravitate towards these service-based retailers where consumption is experiential and necessarily on-site.

      Until someone invents a Matrix-like online experience, retail malls will still have their place in the world albeit at a very much reduced level.

  4. Danae says:

    People with money to spend are buying online. People without money are not spending much money at retail stores, but our local second hand store / sheltered workshop / recycling center is so successful that they built a new facility several years ago, after the old one burned down, that was twice the size of the old place. Now they are out of room again!

    • How Now says:

      A few thoughts: Craig’s List’s impact is underestimated – not only did it make classifieds obsolete, but it made the recycling of no-longer-needed goods easily conveyed, locally. In fact, it created a bit of a treasure-hunt.

      Also, I think that the “glamour” of retail shopping – something my mother looked forward to – has diminished greatly. Malls present security issues nowadays, and, according to a report on NPR, a growing number of teenagers no longer consider it a “cool” place to be.

    • dos tacos mas says:

      “our local second hand store / sheltered workshop / recycling center is so successful …”

      We have a Summer cabin that was furnished almost exclusively with thrift store/flea market/Craigslist merchandise – in most cases for pennies on the dollar. One thing I’ve notice of late is that most of the stores we frequent have raised their prices substantially, especially on practical household items.

      Thrift stores used to be the domain of the older and less affluent but lately have also seen an increase in the number of what appear to be more prosperous shoppers which may account for the higher prices.

      One other thing of note, most of these stores were/are staffed by volunteers. Have seen several “we need your help” signs in stores and in some cases they are closed for donations as they don’t have staff to sort and prices stuff. Not sure what that means.

      And finally – I think we’re in the process of experiencing “the garage sale of the millenium” as all us old fart babyboomers downsize and our kids say “no, thanks” to all our treasures. Silverware, china, books, pianos, etc. are a drug on the market!

    • kevin says:

      Nope Danae, don’t think that is the correct angle. Like I said, even people with money will never buy diamonds online, and lots of poor people buy cheap IT products (e.g. USB drives or cables) online.

      It is the product category that differentiates what sells online and what doesn’t.

      Here’s one of the old links I had on mick’s point that online is still not that big in terms of overall sales volumes.

      Again, I suspect (I’m still looking for data points on this) that if analysis breaks out in terms of product types, then you may see the huge shifts in consumers towards online purchases for only certain types of products.

      Hence, traditional bricks-&-mortar malls still has their strength and relevance in the other more customized or experiential product categories and services.

  5. Lenny Logins says:

    Whenever I go to stores they often have poor stock selections so I buy online.

    Shops have become too generalised too, vs the internet where being a generalist or specialist has no impact if you’re renowned for what you do and one ‘store’ serves an entire country.

    I think a big issue is indeed rents/rates too.
    In the UK councils charge for parking and price customers away, then charge shops high rates, no doubt with high rents from landlords.
    I’ve no idea how anyone can even run a shop in the UK while vampires skim at every level for essentially offering increasingly worthless protectionism.

    But overall I find I’m buying less stuff, and what I do buy is very high quality to last decades or a lifetime, so not found in the generalised high street shops who mostly sell cheap high margin naff stuff.

  6. Mike R. says:

    I agree with Mick’s comments and add the following. On-line shoppping (thinking Amazon) is having an impact to certain retail but I suspect only around the margins. If I can order a hardware part and I know exactly what I need, why chase around town to find it. On the otherhand, I suspect that online ordering of clothes and shoes will start to get old once people deal with the hassle of returning via shipping. Also, people forget that alot of on-line sales are being done below cost to cannibalize traditional retail. I believe Amazon is only making money because of a cloud storage unit (could be wrong on this).

    And don’t get caught up in the hype…like buying groceries on line. Paaalease! It will never happen to any signficant degree.

    All that said, and like Mick, I believe the large issue is the economy and the growing population that is losing disposable income. Essentially for the huddled masses, stagflation is killing the ability to consume (and save?).

    • gary says:

      Yes, and I would also add: cost of fuel is low right now (artificially?). Once that changes, then goodbye to many online sales models.

    • Jon says:

      If growing population is losing purchasing power, you’d see the GDP going down as 70% of US economy is driver by consumer spending.. I don’t see that happening yet . On the contrary, in general consumer confidence is quite high…

      • Wilbur58 says:

        GDP includes residential rents and other things it shouldn’t. I’m not sure if that’s the right barometer.

      • Rhodium says:

        Ha go look up imputed income and how the bea includes it in gdp stats. With housing prices skyrocketing in many cities and asset prices soaring the government thinks we’re renting our own housing to ourselves at a windfall profit, that is, our incomes are abstractly vastly inflated according to gdp data. You’ll note the discrepancy in noting that yes consumption in supposedly 70 percent of gdp which comes nowhere close to the cumulative income of Americans published by the social security administration based on census bureau data…

    • Chris R says:

      Amazon makes money from cloud storage & from fees charged its third party sellers. Without these incomes it’s Enron.

  7. Max Power says:

    I’ve noticed the big hit with developers right now seems to be self storage facilities. I’ve noticed a bunch of new ones popping up recently. People gotta’ have somewhere to store all that stuff they get off Amazon!

    • Frederick says:

      Storing junk you don’t need and paying monthly for doing it is insane and just plain dumb I know a crazy hoarder who nearly lost his home in 2009 and meanwhile he had two units full of junk that he just had to have paying nearly 300 dollars a month for the pleasure It’s a dead end Don’t buy into it

    • Wolf Richter says:

      Self-storage was super-hot for years (the idea was that millennials and others move to smaller urban apartments and don’t have room for a lot of stuff and will need storage). And there was a building boom in self-storage. But it’s cooling off. Too much supply.

      • Thunderstruck says:

        “But it’s cooling off. Too much supply.”

        That is until they figure a way to market it as “high density tiny housing”.

      • alex in san jose AKA digital Detroit says:

        I just got out of my storage a few days ago. I was supposed to have a “stream” of science/tech stuff coming my way and that never happened so I sold the batch I did get, and found ways to put the personal stuff I’d stashed in there into places where I live. $70 a month I’m no longer spending.

        However, I think a hidden driver, or one we don’t want to talk about, is when you lose your house or your job or become flat-out homeless, you get a storage unit. If you become homeless, one of the first things you should do is get a storage unit so you can own more than one set of clothes, keep medicines safe, etc. And you need to do it right away so you can use your “current” address and so on. Keep the credit card you use current, or after getting in, just pay ’em cash. $70 a month to keep my personal papers, clothing, medicines, shelf-stable foodstuffs, hell yeah. I can panhandle that up in two so-so days.

        And here in Silicon Valley, we have hordes of homeless people. I think it’s 7 or 8 thousand on the street at any given time, plus many more who are couch-surfing, moving from a house or an apartment to a rented room and can’t afford a good one so they rent from sketchy people and end up moving again soon. Or those who look OK, and live in their cars. There’s a huge portion of the population living this way here. And for them, a storage unit is a necessity.

        If storage is cooling off, maybe it’s because housing is cooling off but as long as a room is $1000 a month and 25 square feet to store your essentials is less than $100 a month, it’ll be a healthy industry here.

    • BrianC says:

      Storage units…

      So… 10,000 years from now archaeology students* will be digging these things up… Every so often they’ll find one with a dead guy in it. This guy was a King, and this was all of his stuff!

      The PHD thesis almost writes itself!

      *May not necessarily be human, maybe intelligent bugs will have risen to the top of the food chain by then…

      • marty says:

        Brian, I laughed out loud. Have you ever read A Canticle for Liebowitz? Great book, in which the author, Miller, pokes fun at archaeologists the way you do. Generations after the nuclear war that destroyed civilization, fallout shelters were found, but the archaeologists couldn’t identify what kind of animal fallouts were. ;-)

        Also reminded of a friend who pointed out that flip top cans–remember when that was an innovation?–would be used in the future as a dating method, saying that it will be much more accurate than carbon dating.

      • Ian says:

        Best laugh I’ve had in a great while!! Thanks Brian!

    • Wilbur58 says:

      Max, LA has an insane number of these places. I’m as baffled as you. “Who uses these at all? Why would anyone need it? How are there so many?”

      • Max Power says:

        I’m with you Wilbur, I don’t know either.

        I remember there was a wave of these things being built years ago then it died some but now I’ve noticed several new ones under construction.

        I guess if you are a landowner and have an empty plot of land in a reasonable location then although the upfront cost might be a bit high, setting up one of these things will probably provide you with the most amount of return with the smallest amount of headache afterwards. The new ones being built around here are multi-storey which means you can pack even more units into a piece of land.

        • Michael Fiorillo says:

          I’ve read that outside of the cities, self-storage sites are called “ground cover.” They’re a cheap placeholder and taxpayer, providing income/offsetting expenses while the underlying land appreciates in value.

        • alex in san jose AKA digital Detroit says:

          Max Power – You hit it on the head. I just got out of my 25 square foot unit which I was paying about $70 a month for, that’s $3 a square foot. No need to provide running water, the most basic lighting, concrete floors, units themselves made of cheap steel, some basic motion sensors and cameras. Rules some would call draconian if anyone tries things like living in the unit, opening unlocked units, etc. When I moved into the unit 2 months ago they had exactly 2 open in the whole place. By far it’s got to be the best return vs. drama ratio.

      • AlphaDyke says:

        The problem is you have to find a buyer for the land. There’s a globe full of land where 95% of it goes undeveloped. Land is essentially worthless dirt.

        • Michael Fiorillo says:

          If you’re lucky, or prescient enough to foresee development patterns, then it’s not worthless dirt.

          Or, far more likely, if you’re part of a local “growth coalition” of bankers, builders, developers, etc., then you’ve got the political juice to insure the land appreciates.

  8. stan says:

    Labor is taxed. Get rid of the tax on labor (line #7 on the IRS 1040 form), and local stores hiring local people with good customer service will thrive. Keep taxing labor and everything will eventually be “self serve” (customer does the work to avoid the tax on labor).

    • truth always says:

      IMHO, “removing Labor tax” on stores might save traditional stores. Otherwise Amazon has a disproportionate advantage even if they do have labor as well but don’t have store fronts.

      And they really don’t make much or any money on retail. Their unstated goal is to kill all retail and then raise prices. For a few years, they didn’t even charge sales tax and were therefore around 9-10% cheaper in CA.

      That said, not all online stuff is cheaper. I frequently find better prices in stores (herbs and supplements) and can read expiry dates etc.

      • dos tacos mas says:

        “…Amazon has a disproportionate advantage even if they do have labor as well but don’t have store fronts.”

        No storefront also means less of a problem with “shrinkage” via shoplifting, transients eating/drinking unpaid for items, damaged/spoiled goods, etc. Very big problem for most retailers…

    • Wilbur58 says:

      Preach, Stan. Amen.

      Let’s get the taxes onto the land, the natural resources, the monopolists and oligarchs, and the wealthy.

      • George McDuffee says:

        When land was “the” measure and store of wealth, it made sense to base the tax system on land. As the Industrial Revolution unfolded, and the cash/wage economy developed it became necessary to also tax worker income and the new store and measure of wealth “stocks and bonds.” We have again had a significant socioeconomic shift, where the store and measure of wealth is increasingly abstract intellectual property [IP] which must now be included in the tax base.

    • Kreditanstalt says:

      Eliminating government rigging of the labour market – “minimum wages” – would be a good first step.

      Beyond that, if one buys few branded products or is looking for something unique, online shopping is unimaginative, likited and hopeless. Brickers should cater to individualistic shoppers by offering uniqueness.

  9. Deano says:

    If you want to increase your sales to move all this inventory you’re going to have to lower your price and lower it substantially.

  10. Tom Kauser says:

    The knife is no longer falling!!!

  11. Tom Kauser says:

    I am holding a two year treasury , call back in 21 months!

  12. Jon says:

    “”For the keepers in our portfolio, we are directing our leasing efforts to service tenants – spas, nail salons, opticians, insurance brokers and the like””
    The rents for these services place would go down when more and more retail space is available after more and more stores closing…

    • MikeL says:

      The typical small service tenant is in a neighborhood center which is built to accommodate the square footages they occupy. Malls have a different design and even the in-line mall stores are not made for that type of tenant. Plus, small service tenants don’t need the “attraction” of a mall (which is partly why the mall rents are higher than local retail rents). And they work best when their customers can park in front of their location – as opposed to the mall parking lots.

      Small to medium neighborhood centers, which traditionally are anchored by a grocery store or are near one, are not the ones -currently- subject to the woes besetting the retail industry as their tenants provide services or goods not easily obtained on-line or by app.

  13. c smith says:

    “While hard-put to tell a tweet from a text, the household’s reigning monarch can nevertheless shoot the e-commerce rapids blindfolded, ordering any item in a trice.”

    YES. THIS IS ABSOLUTE TRUTH. AMZN has made it so simple, even a tech-challenged, middle-aged matriarch can do it. Game over.

  14. gorbachov says:

    Just wanna say-great article -great comments


  15. Mark says:

    Older millennial here (b 1985). I’m sorry to break it to this guy, but really, brick and mortar retail is surely dead for the majority of items.

    Aside from groceries and a few high end items, I buy everything online, mostly through Amazon. (Even bought glasses online through Warby Parker, 3 pairs now, about $100 each – they’re great!).

    What we really need are shops with skilled tailors, cobblers, leather workers, etc. The tailor I use to dart my shirts looks to be about 90 years old and nobody’s in the wings to replace the guy.

    Nobody wants to go to Target or Walmart for soap or lightbulbs or Windex. Why would anyone waste their time or money fighting traffic and burning gas to buy things that can be at your doorstep in 1-2 days for free?

    • ilporcupine says:

      Have you honestly looked at the price for laundry products, paper goods, etc. at Amazon vs. grocery stores/Target/WM etc?
      Amazon easily double price.

    • George McDuffee says:

      RE: (Even bought glasses online through Warby Parker, 3 pairs now, about $100 each – they’re great!).

  16. Ethan in NoVA says:

    The landlords would rather have the spaces empty than mark-to-market their empty properties.

    A potential use is leasing the spaces to the creatives who will do weird —t and make society interesting. But it has to be affordable, because the creatives can’t afford to pay $35/sqft.

    I know right now I could get 200 to 240 arcade/pinball machines on a floor if we could get the space to do a flat rate vintage arcade, but it’s too expensive to rent without doing the whole bar / brew mess that is already crowded.

    Would love to do a live music venue with the goal of recording/streaming all performances as well, but once again cost is prohibitive. The hardware is cheap the rents are just too high.

    What we’re left with is a soulless copy-paste life filled with boring townhouses and Chipoltes.

    • alex in san jose AKA digital Detroit says:

      Ethan are you sure you’re in NoVA? You just described Silicon Valley exactly.

  17. raxadian says:

    Is there is one thing I am wary of ordering online is fresh food. A pizza is one thing, produce, veggies and fruit or whatever you wanna call it I prefer to buy in person.

    Of course I don’t order pizza online because there is a business two blocks from home that makes a pizza fresh and ready to just put in the oven. You just cook it at home and save about 50% of what you would pay for an already cooked pizza.

    Yes you can order by phone but since I live so close I just go five minutes before they open, order in person and take the pizza to cook it at my own oven.

    Produce? Three blocks from home I can get it easily.

    Ice-cream? Again not too far away from home.

    Of course not everyone has stuff so conveniently close by.

    What’s the safest web browser? No clue. I mean if you use android either use Chrome, spyware included, or maybe a variation of Firefox that’s regularly updated? Apple has Safari and in Linux I use Firefox. In Windows I use both Chrome and Firefox.

    The permissions in Android are ridiculous. Why is Firefox able to make calls by default?

    I just do not trust any of them for online transactions.

    I mean Chrome is somewhat sandboxed, but beware of the plugins.

    The Chrome store is unlike the Google Play store, quite unsafe.

    I remember Nokia charged stuff right to my cellphone chip and always asked for confirmation sms and sent me e-mail reports. Why does Google want a credit card instead? I just wanna buy an app why not charge money to my cellphone like Nokia did with Symbian dear Android?

    So yeah call me paranoid but no thank you.

    • mean chicken says:

      And today finally, in the aftermath of hurricanes, there are calls to Apple for enabling the FM radio receiver in iPhones.

  18. beadblonde says:

    Nobody mentions it but it’s anti-trust time. Nothing funnier than reading about Amazon taking over deal malls for distribution centers.

  19. bikeninja says:

    The problem with assuming that the entire brick and mortar meltdown is caused by online purchasing is that it cause you to make faulty decisions like those made by the author of the article. If it is in fact caused only by on-line shopping then his strategy of leaning towards small services like salons etc. might be a good one. But if it is only partially online shopping and the rest is caused by a tapped out consumer with too much debt and an economy sliding in to a visible recession ( as opposed to the stealth one most of the country is in now) then this approach is dangerous. In the event of a deep recession things like nail salons, yoga studios and tanning parlors are very fragile and the first things to be cut from the cash strapped consumers budget. Going this way to get away from failing hardware stores and clothing boutiques could be a box canyon with bandits at the end.

    • Jon says:

      Don’t really agree 100% with this. If consumers are so tapped out then it’d show up in other ways as us economy is 67% driven by consumer spending..

    • Wolf Richter says:

      Consumer spending has been growing since the bottom of the Financial Crisis, even when adjusted for inflation, between 1% and 3.6% annually every year.

      Retail sales, which are a part of consumer spending, NOT adjusted for inflation, have grown every year between 2.7% and 7% (7% in 2011 when there was 3.1% inflation… so real retail sales growth that year might have been below 4%).

      So there is growth in consumers and in retail sales. But consumers are spending less on stuff sold at malls. And they’re spending more online and on things that aren’t sold at the mall.

  20. ALister says:

    Only after 80% of retail space is mothballed will the sector be back in business with full shops and high revenues per sq foot. The problem is simple to understand…why too much retail space for the amount of money in consumers pockets.

  21. Kf6vci says:

    Have you been to Vietnam? Am working here and got a company motor scooter to ride an hour each way. Keep seeing some signs outside private homes selling food n stuff like meat on tables in the heat etc.

    Then there are the shops, some are narrower than 6 feet, but very long. How 90% survive, is a mystery to me. And on Sunday, my boss will have a grand opening in the building of a supermarket (underground parking only for motorcycles :o ). 670 m2. It will be intersting. (“May you live in interesting times” is a Chinese curse).

    I half expect to get fired when the cash flow projections won’t be met.

  22. Kf6vci says:

    P.S.: am delighted with the blog and appreciate this article in particular.

    OT: Macron’s call for “a world government”. Has the NWO arrived?

  23. michael Engel says:

    Just saw an interview from PR : in some areas the situation is dire : no cell, no ATM, no diapers, no on line stuff, a shortage of cash… forget Amazon.
    During hurricanes Harvey and Irma similar problems : you cannot get
    your food or a bottle of water from Amazon. If you gave them an order the price was inflated. Drones cannot dive into under water front doors.
    Fl, Tx and PR are over 10% of the US economy.
    Some damage cannot be fixed overnight. Wait until the government will be honest enough to inform us about the real damage to retail, shopping centers and the rest of the economy.
    Shopping on line annus mirabilis is over. On line, in the future, will be gap, by all kind of hurricanes and storms, formed an act of god and good spirit men .

  24. michael Engel says:

    Center areas in malls will be filled by car dealers instead of jewelry

  25. QQQBall says:

    I go to staples to buy a case of legal paper. A case is typically $60+… they dont have cases, but I can buy a package for like $10 – way overpriced. I go back home and go online. Staples had a 2-fer on legal paper and free delivery. Crazy

  26. Begbie says:

    We go to the mall once a year-between Thanksgiving and Christmas-to try to get ourselves in the holiday spirit- corny as that sounds. If I see something interesting, I go home and research it and then buy it online.

  27. Craig says:

    The category killer for food stores is Aldi which sells its high-quality, private-label products at a 20% – 30% discount from WalMart. The stroes are smaller than most grocery stores so they are perfectly sized for in-fill locations.

  28. R Davis says:

    * Can’t someone figure out how to Tax Deduct – Rent Reduction ?

    * Aren’t the empty malls being converted into FEMA Holding Camps for peoples in crisis ?
    Surely the government pays for this = rent after a fashion.

    The homeless of Salt lake City are vanishing.
    Where have 200.000 homeless vanished to ????
    These links are all over the internet .

    We are limited by our lack of imagination – only.
    In any community there are a multitude of activities that require space.
    With ample parking.
    How good is it that you can drop off the children to music class – dance class – taekwondo class – go do your shopping in the mean time – have dinner at the mall after – shoot some pool – catch a movie – take a typing class yourself – get a manicure – a haircut – a swim – sauna massage – a checkup at the doctors – the dentist – cosmetic wrinkle removal –
    charge up the electric car in the car park & go home to bed.
    Beggars can’t be choosers – hey.

    In my time in the workforce I have encountered some hopeless employers / business people – of whom it defy’s belief that their business didn’t fold on day 1.

  29. Frisco Mall Shopper says:

    You might think this is inconsequential, but I don’t. Going to the mall has become a third world experience. They have rented space in the middle of the walkways to all these people who hawk their services. This is depressing and irritating. It would be bad enough if they just sat there, but they do not. They yell at you and harass you when you walk by.

    As a woman, I do not like this. I want to go to the mall and not be harassed. At this point, even regular stores are having their employees stand in the doorways and harass you as you walk by. I carefully avoid eye contact, but they yell at me anyway. They always want to grab you and rub cream on you, or spray something in your hair. Gross.

    If you go to the mall when it is busy, you deal with other shoppers and the sellers leave you alone a bit more. If you go when it is empty, the sellers have fewer to harass, so you are it. I would love to go to the mall regularly, but I hate being harassed by these sellers. They have driven people away with this. Going to the mall is stressful.

    I am finding a lot better deals on than Amazon. Walmart has decided to compete. It is a weird day when Walmart seems the lesser of two evils.

  30. ML says:

    In UK, USA I assume the same?, shopping malls are privately owned single landlord products. A few landlords know how to run a mall successfully, most do not. Those that don’t think that all they need do is sit back and collect the rents, leaving the generation of trade to the retailers to do. Some retailers are conscientous and community-minded, but mist are not. So what you get is a mixture of professionalism and crap.

    I agree with the comment about being put off from shopping in malls because of harrassment.

    But truth is people with money to spend don’t want to have to mix and mingle with all and sundry when they go shopping. Which is why shopping on line is where the discerning and profitable customer hangs out. And why some malls are on the no-no list.

  31. Jeff says:

    Maybe with our garages full and needing to rent storage units, we baby boomers finally have enough stuff. Na, more is always better.

  32. MaryR says:

    I do not enjoy shopping at Walmart. More than half the time you cannot find the item you want, after walking through miles of aisles. It is easier to compare models, brands, prices online, than in the stores. Then there are the crowded parking lots and the long lines to check out…not a fun day.

    In contrast, I find is a fabulous resource with packages delivered or before the expected date and free delivery. Large items (like a bed/mattress) come right to your door. Prices are better than Amazon for the same or similar items. Customer reviews are extensive.

    I am as shocked as anyone that Walmart is turning out to have a good online model! I have also ordered this way from Target. Maybe it is not the end of retail, just a divergence…

  33. says:

    Why the shopping center industry’s premier West Coast event may go lightly attended is worth considering

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