Every city is confronted with dying malls and vacancy-pocked shopping districts. Is there a cure? No. The failing retailers were already on their way to the morgue. Is there a vaccine that will help? Yes.
By John E. McNellis, Principal at McNellis Partners, for WOLF STREET:
Retail has the virus. Just as with people, different retailers are reacting to this infection very differently. Ailing merchants with comorbidities are suffering — or dying — while those without long-term illnesses are asymptomatic, even healthy.
Excess capacity — too many stores — has been American retail’s primary chronic condition for decades. In 2017, Forbes noted, “Since 1995, the number of shopping centers in the U.S. has grown by more than 23% and the total gross leasable area by almost 30%, while the population has grown by less than 14%.”
According to Forbes, America has roughly 50 square feet of retail space per capita while Europe has just 2.5 square feet. We have too many retailers selling the same — let’s call it stuff — in every city in the country.
Where are we today? First, those retailers that you thought died years ago — notably, Sears, J.C. Penney and Kmart — will finally give up the ghost. Then, others with bad management or too much debt or overwhelming competition will also disappear.
As a result, every city in the country will be confronted with dying malls and vacancy-pocked shopping districts. As this recession grinds on over the next several years, retail’s pulse will falter. Is there a cure? No. The failing retailers were already on their way to the morgue; the virus merely hastened their demise. Is there a vaccine that will help? Yes, and not to flog the medical metaphor, but there is a cocktail of civic remedies that, if implemented, would help stabilize retail.
Stop zoning more retail.
“First, do no harm” is a catchy medical phrase that should serve as a shibboleth for planners and city councils. In this context it means stop zoning more retail.
The last thing struggling merchants need is more competition. And, given the headwinds, it would be optimistic to assume that retail will return any time soon, if ever, to even a zero-sum game (that is, vacancies offset by new tenants). Cities zoning more retail are in danger of creating instant blight, storefronts that will never fill. To get healthy, retail needs to shrink to a sustainable size — somewhere between us and Europe’s size zero — then stabilize.
In particular, trendy cities must abandon their mixed-use fantasies. Too much bad retail — space that will never lease — has already been constructed by reluctant office and apartment developers. Why? They were forced to by starry-eyed urban planners dreaming of turning their towns into Manhattan’s west side. For retail to have a fighting chance, it needs three things: great access, visibility and traffic (whether vehicular or pedestrian). Few mixed-use projects offer even one of these prerequisites.
Loosen up the zoning for traditional “retail.”
“Second, loosen up the zoning” isn’t as catchy as do no harm, but it’s as important. Traditional retail zoning requires that a merchant actually sells stuff, hard goods like books or soft like clothing. Cities need to face the reality that those are the types of businesses on the double-secret endangered list, the uses most vulnerable to e-commerce; once they go, they’re gone.
Mandating only “true retailers” in a shopping district is like building a bird house for passenger pigeons. Won’t matter how pretty it is, they’re still extinct.
How do you loosen up the zoning? Easy: First you shrink the retail districts themselves, then you allow in any business that has a customer, a patient, a client, a student, or any sort of visitor at all. You drop your prohibition against banks and financial services, you permit dentists, travel agents, gyms, yoga studios, doctors — even lawyers and palm readers — every personal service imaginable to occupy those otherwise unfillable retail storefronts.
Also, if you truly wish to help your retail districts, you drop the prohibitions against chain stores. Every chain store in America started as a single store. Prohibiting chains is simply redlining success in the hope of keeping a given neighborhood unique. If you wish to have a not-so-unique collection of empty storefronts, you maintain the prohibition against stores at which people actually want to shop.
“When can you break ground?”
“Third, cut the regulations” is less catchy still, but the fancy cities should take a page from the provincial towns that go all-out to spark development. A few years ago, we approached a small town on Interstate 5 about a supermarket we wanted to build. “When can you break ground?” was the city manager’s only question.
And, true to his word, the town approved our plans as fast as we could submit them. National retailers have choices about where to locate, where to expend their efforts. Often, a given city is no more appealing than 20 others. And retailers have feelings (most of them, anyway); they want to go where they feel welcomed. Hence, the great appeal of Texas. There is no panacea, but with effort and more understanding on the part of cities, retail need not circle the drain. By John E. McNellis, Principal at McNellis Partners, for WOLF STREET
We’ve lost half-dozen retailers — restaurants, clothing, massage… Tenants who in effect said, sue me, I’m taking a hike. And replacement shop tenants are just behind spotted owls on the endangered species list. Read… Plagued Retail: My View from the Trenches
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I agree.
This will take time to happen.
We are currently in the era of govt. Knows best.
We will soon be bombarded by state and local pleas for tax increases. Just as the private sector is getting downsized, this will eventually happen in the public sector. This will hopefully bring about the streamlining and simplification in regs.
Streamlining and simplifying regulations have nothing to do with the income position* of local government. It is even likely that they will see regulations an income stream
* Except if it is near zero but you don’t want to life in a place where the local government has no money
we have 3 OUT OF CITY(ie county) areas that city is chomping on
each has at least 50,000 residents that don’t want to be city
but city has eyes on all tax revenue
That is normal behavior of the city and the (often richer) residents that live in a tax-haven suburb. Running a city is expensive, all those extra costs that suburbs don’t have like the costs for CBD, public transport, city centers, courts, poor etc.
Interesting article. Now, even stores like Nordstrom and Neiman Marcus are closing locations…once considered “iconic”. In this country of ours, where we have so many people who are not only physically obese, but mentally and spiritually obese as well, these folks would rather sit on their proverbial ass*s and give their money to Amazon – even though Amazon is no longer the cheapest in town. Meanwhile, the creep from Amazon uses this money to buy things like the WA Post and then lobby against the people who butter his bread…the creep is all about restricting your rights. This is happening with the likes of FB, Goog and others. It’s one thing to lose some retail, but at this rate, loosing the country is not far behind. Just this morning, I was looking for a hat for sun protection for hiking. The first 3 or 4 things that came up were Amazon….you don’t think this is rigged…. I took a few more minutes and found it at REI. I will use REI. I have never, repeat never purchased anything from Amazon- simply on principle -as I could see where this company was going and, the detrimental effect is would have on the USA. Well, my life is just fine – especially with no debt and owning gold and silver. Wise up folks, get rid of that obesity between the ears, or you won’t know what hit you!!!! That’s one way (of many) to gird your loins!!!
Trinacria,
Blaming the “obese” for the success of ecommerce? Did you microwave your brain this morning by chance?
Like many lean and fit people, I stopped going to malls years ago. Why waste my time in that manner?
Nordstrom has a very successful ecommerce presence and even before the pandemic already did 1/3 of its revenues online while its brick-and-mortar revenues were dropping. Macy’s and many others are in the group. If you equate ecommerce with Amazon, you don’t understand ecommerce.
I believe Amazon has around 50% of e-commerce market share. It will be fun to see how companies evolve their physical stores to better mesh with their e-commerce and delivery/pick-up operations.
Amazon- I thought they might go under in 2000 or even 2008, but the stock market (+ raising capital from several sources).
A real problem will occur if and when big web-based businesses that use their web services start to go belly up. Then we might see some kind of too big to fail criteria- an Amazon bailout.
If 5-10 of their web service customers went belly up and the Amazon share price got cut in half- I think Amazon will be in trouble.
The FTC is now investigating their acquisition behavior- which is usually anti-competition when a new technology is building out.
All the big tech firms did this. And it’s been going on for >100 years (today’s “tech boom” is pretty much like other “tech booms”). Example- USSteel buys Carnegie, and then I think a railroad company bought a bunch of steel companies so they could control rail production.
The technology evolves faster than the regulators can understand.
Jeremy Wolff,
Amazon has 38.7% of US ecommerce sales currently, according to eMarketer estimates.
But this includes the sales on the Amazon platform by other retailers and manufacturers. Amazon gets a cut of those revenues, but you’re doing business with another company. This includes anything from manufacturers in India selling directly to US consumers to mom-and-pop operations in Tulsa, OK. Amazon provides the technology and fulfillment (if the retailer wants that), and charges for that service.
There are many retailers that have higher ecommerce growth rates than Amazon. For example, Best Buy announced on July 21 that its Q2 ecommerce sales exploded by +255% year-over-year. This is what ecommerce is all about: retailers that get serious about ecommerce, can do it.
“Amazon”!
“I’m gonna bust you up”!
That’s what’s needed……should’a happened long time ago……..
E-commerce will continue to grow.
No question about it.
“Shopping malls” are D.O.A.
Only those in affluent areas will survive.
What’s not to understand?
This is the era of the, “Great Reset”…
Enjoy!
Good morning Wolf: I am truly honored that you – the head honcho- commented on my comment. My wife has often that my “microwaved” brain works so fast and that I go many steps down the road and makes connections that most people simply don’t understand how or why I got there or would even do that!!! So, in the immortal words of Cool Hand Luke “what we have here is a failure to communicate”.
I completely understand the point of the article that these malls need to re purpose allowing for other types of business given the structural shift that has been taking place over the last 20 years. I have no issue with that as my wife and I use on line shopping as well. I ordered my hat from RCI (not Amazon) It’s a good thing if I can physically avoid going to a mall – a time savings for sure….but I’ve said for years that malls are appropriately name as one gets “mauled” when one goes there. Sad, because courtesy and consideration are hallmarks of a civil society. We don’t learn these things on line and, I’m not just talking about shopping here !!!
Also, I believe these malls are facing a similar problem to what many old down towns faced years ago and still face; which was and is how to utilize these iconic great old downtown buildings to effect some kind of revival which is good for the heart and soul a town/city and even preserve some history at the same time. Well, many old towns did so by differentiating themselves and creating a unique experience for customers. Wine tasting, restaurants, historic hotels, art galleries, unique crafts, etc. (Pandemic not withstanding).
I believe your site is excellent and full of so much not only good, but great information. But I can’t stop there. So, after reading a Wolf Street article, I ask myself, how this information related to our society as a whole and how can this information be used to bring about an increased awareness and hopefully a greater good. To my way of thinking, a civil society is the goal.
So, I use “obesity” as a metaphor; hence the term “spiritual” obesity. A non discerning consumer if you will. In fact a consumer who is in a coma as long as their need is satisfied. A consumer – again my opinion – that gives his/her money to companies who then use some of those resources to lobby against the very people that patronize them. This is the KEY. To me, this polarization is becoming more and more evident. Besides that fact that the debt will ultimately crush us all and cause many undesired consequences in the near future, I am simply suggesting that folks try to be more aware of how and where they spend their money – to spread it around. Otherwise, some very dominant, possibly oligarchical organizations are being created that I believe will NOT contribute to a civil society. In fact, the seem to be working at trying to curtail the rights of the public via their lobbying efforts and media they control.
Simply put, there is much going on behind the scenes, I hope that consumers wake up, or it will come back to haunt them as history has proven.
These are very difficult issues to discuss let alone explain as our society seems hangs in the balance.
I’ve always said that economic depressions are sociological and behavioral phenomenon that manifest themselves financially. I believe that is exactly where we are heading. One’s heart is truly where one’s treasures are…
I appreciate the opportunity to voice my concerns and take this great information and apply it to the society around us, from my viewpoint.
‘I hope that consumers wake up’
First they have get their neck out of DEBT based consumption. They earnestly should know to discern between NEED vs WANT but debt spending has been addiction in our society just like our Govt and Fed!
It has to get worse before it gets better!
2008 will like a walk in the park!
You’re right.
Malls have become, for the most part, irrelevant. The key to revitalization is not to make them into new retail havens. The key is to make them relevant. In Spain and Mexico and many other places, towns have Plazas, a place where people can go, mingle, chat, buy stuff, hawk stuff, do things that people do. If some mall giant would simply understand that people want to go somewhere they can hang out and simultaneously transact any sort of business like dining, child care, doctor visit, buy a dog license, hit some golf balls, etc they’ll hit it out of the park.
I am also thin (my wife says too thin!) and I hate going to malls, mainly because of the hassle of dealing with at best, uninterested, and at worst, rude and surly, employees. My main issue with Amazon is that their size allows them to bully suppliers and couriers, such that UPS/USPS gives a much better deal to them than other online retailers. That might need to be the focus of regulators in the near future. Also, without making this thread one of a political debate, if they get large enough that they’re the only game for some people, they might need to be treated as a “common carrier,” as they refuse to carry products that offend their sensibilities.
Only reason to go anywhere to shop is to try things on. Or anywhere supply/ selection is limited.
Yes, and I avoid Amazon if at all possible.
I will never again buy a tech product on Amazon because you have third-party sellers that are not authorized dealers, and then there is no warranty. Happened to me. You’ve got the issue of fakes. etc.
So I buy most of my stuff from other retailers — many of which have great sites — or direct from US manufacturers.
But I do use Amazon’s cookies to try to push down prices of retailers whose sites I will visit after having checked prices on Amazon. That works pretty well and has saved me quite a bit of money.
I also think Amazon needs to be broken up into several companies.
Wolf, I agree with all of that. For electronics, I’m quite fond of Newegg (been ordering from them for 20 years now) and B&H.
For clothes, I order directly from Brooks Brothers and Banana Republic.
I still do quite a bit of in-person shopping at Costco, although I’ve tried to limit it since COVID.
I also agree with splitting them up. They are far more disruptive to the rest of the economy, in my opinion, than AT&T ever was.
What do you mean by using Amazon cookies to lower prices elsewhere? This isn’t something I’m familiar with.
Ha, my cookie strategy. I explained this on occasion before. Here is one:
https://wolfstreet.com/2019/06/14/my-personal-dive-into-the-murk-of-official-retail-sales-inflation/#comment-190311
Speaking of tech purchases, we just bought a new TV from Best Buy. Excellent service and fast delivery.
I have been a customer of NewEgg since it “opened its doors”. Great place, and they are expanding their third party sellers.
We avoid Amazon and have found better service and pricing without too much looking.
BestBuy has cleaned up its act a lot over the past few years. I remember BestBuy used to be a joke. Like it would have prices 40-60% higher than what you could get from NewEgg or Mwave. And it wasn’t just brick & mortar versus online, because MicroCenter and Fry’s both had good service and competitive prices.
‘need to be the focus of regulators in the near future’
What regulators? Like FAA over BA?
Like Made off being ignored by SEC over 2 decades!
Good Luck!
I don’t feel sorry for UPS. Probably USPS has trouble competing because of many things. Therefore, I won’t comment on USPS.
AT&T was allowed to remain a monopoly for years attributed to their help to the US Government with watching specific citizens. Now you have Amazon’s AWS with it’s CIA Cloud and other projects. I doubt Amazon will get broken up any time soon.
I think Amazon takes about 12 to 15% when it comes to sales thru their platorm? Similar to eBay?
Also, USPS is pretty bad service wise.
The pandemic has brought to a resolution the problems with retail that already existed. If Amazon was not doing it, some other company would be trying to sell everything online.
Walmart and other companies also have online presence and would just grow if Amazon ceased to exist. However, we must recognize that malls were frequently “experiences” and social occasions more than shopping occasions.
Anyone who has relatives in their teens knows that they did not go shopping at malls for the goods but for the fun of walking around, seeing sights, and meeting members of the opposite sex. Even for me, going to a mall to see a movie or eat at a restaurant was fun.
This epidemic has cast a pall over that, so many do not go out to malls and parents discourage their kids from going to them. Thus, many malls and many retailers are going to fail more quickly than they would have failed normally.
That said, I am sure that some malls and large retailers will survive. If they do not, they will be re-started once the pandemic passes. Even the black death passed centuries ago, and people continued living after it destroyed their economy.
Thus, e-commerce is the growing industry now while this pandemic rages. However, after the pandemic, I would bet on movie theatres and other retainers coming back. I would definitely still go to a movie with my kids now if I thought they would be safe.
Nordstoms stock chart looks terrible. Rolling over and heading to march lows. 40% of the stock is short. 2 billion market cap versus 14 Billion in sales last year. Debt / Equity is 10.
Macy stock short is 50%
Crazy
Jeff Bezos is selling dollar bills for 99 cents to corner markets only because the Fed policy allows it to happen. They inflated Bezos+ex-wife worth to $200 Billion while printing money for “greater good”. Warren Buffet is a choir boy in comparison. Demagoges in Congress do nothing as a rule, except borrowing $Trillions with no end in sigh.
So yeah retail space is the problem.
#Defund Amazon.
First, Twitter, Facebook, and Google.
:P
I don’t use Twit and the Facebook but Google provides enormous benefit to my life with maps and email and search and Android (love the Pixel phone). I know this won’t be popular on this forum, but they make my life better. The other stuff I have no us for (social media, Amazon, Netflix).
And what is it everyone is buying on Amazon, is there that much stuff you need that isn’t groceries?
I try to avoid Amazon as much as I can but buy online usually
Principally I agree with you
Convenience trumps price for me. Unless the difference is > 20% or so. I need an SSD, Amazon or Ebay and it’s here in 2 days, need a new water softener, amazon, here in 3 days. Need a transmission jack, here in 3 days.
I’d rather mow the lawn or ride the treadmill than drive to the store.
I’m decently old. Not some young whipper-snapper. I like buying things online so I don’t waste my remaining life going to stores. The only local store I regularly visit is ACE hardware.
Retail is dead, it’ll never recover.
If Retail dies, your city and county services go with it planning according. Restive youths can be quit disruptive.
If you’re buying electronics, you should look up Tiger Direct or Micro Center or B&H Photo online. They usually have the same items as Amazon but at a better price.
For me it’s about return policy. Few can match the ease and flexibility, free return shipping and full refund that Amazon offers. They may all be close on price. That’s not where the difference lies.
Trinacria
Please continue to consider yourself to be one of the few remains “spiritually pure” retail consumers.
However, your hectoring comes across as a judgmental, intolerant, self-selected drama queen with no qualification or authority (moral or otherwise) to claim superiority or leadership over anybody else.
You are certainly free to shop anywhere you wish; so are the hundreds of millions of others.
agreed will not buy a thing from A ma zon ever again
“the double-secret endangered list” LOL
“n particular, trendy cities must abandon their mixed-use fantasies. Too much bad retail — space that will never lease”
But then where will all the wine moms spend $17 for organic croissants and $12 for GMO free handpicked Guatemalan coffee?
WeWork will have a division called WeWine.
How about WeWhine?
They are whining now.:)
I am nervous about my downtown in St. Petersburg, FL.
It’s mixed-use fantasy has been just that, a fantasy, for many many years. It was almost thriving before covid19, just as it was almost thriving before the RE debacle. Had its first installment of commerce chic during dotcom, when it finally decided to revive the decades-long moribund downtown… and almost succeeded.
It always looked like it would work, but even at its best, the last 5 or 6 years particularly, ’twas but an illusion. The activity never grew much beyond a 6 block area: a very attractive area I should add, with waterfront, historic/preserved architectures, an excellent and home grown theater (American Stage), several decent museums (Dali being the most noted – franco’s friend is not my cup ‘o tea) and several quality performance venues.
Interestingly, the most successful part is the art scene with many galleries by local and intl. visual artists. And good music too, lot’s of it. Still it was mostly a bar and restaurant scene, much aided by the growing student body of the adjacent and expanding University of South Florida satellite campus.
It’s too bad, actually… downtown St. Petersburg has charm and I can’t really fault the effort made (except for The Pier” fiascoes over the years).
But “struggling merchants” were always struggling there and new merchants will be hard to find for the new, empty retail spaces recently built or zoned for. If one considers the history of it’s most obvious failure, an outdoor mall currently called The Sundial, it’s hard to miss: the only constant there has been a multi-plex cinema, which has a been dying industry everywhere.
I see trouble ahead…
Maybe SO, maybe NO urb:
The vertical residential construction taking place currently alone will be sufficient to support tons more “food sources” to go with the good to excellent ones already there and continuing, plus many more, including ”boutique” types that have just started appearing, and will likely be at least a wave of future. Although we agree the new pier is a dud so far, there is a possibility that too will be improved with time and more attractive tenants.
Also, given the current push to do something better with the Trop, IMO there is a good chance that the ”central district” will expand to include that area, albeit will take a long time, (especially if the graves reputed to be there are confirmed,) and thus, with the other attractive walkable areas quite pleasant fall through spring will/might make a walk from bay to 16th St welcoming for families during the day and an interesting night scene for all folks.
BTW, I have been pleasantly impressed so far by the professionalism of the city employees I have seen the last 5 years or so, from the cops to the public works folks who I have watched replace and repair streets, sidewalks, curbs, etc., a good foundation for any city..
I hope your wrong. My daughter until a few months ago lived in St Pete for 8 years. The progress in their redevelopment has been slow but steady. Every time we visited there were new restaurants and bars to explore. Young great chefs willing to give their food ideas a try. Young tech developers were moving in bringIng a new life to old neighborhoods. Many of my daughters millennial friends have bought homes they are putting down roots. You are right about the great museums and waterfront. We considered moving their for it’s culture, vibrancy and walk ability. It is so much more exciting than Florida’s east coast cities but the flooding has put us off. Don’t give up hope. St Pete has it’s ups and downs but it is cool place to live for young and old.
“The last thing struggling merchants need is more competition.”
Don’t know about this. We already have less competition because of Amazon and Walmart.
Let’s say we are now 10 years in the future, and every shop/retail has closed with the exception of Amazon and Walmart. One day someone decides to open a retail shop. In theory he/she only has 2 competitors. In practice though the chance of the shop succeeding is zero.
What merchants don’t need is competition from other states, other countries, international conglomerates, etc. If competition is more local, having more competition is probably fine. You want to prevent the local firm from being a monopoly? Then just introduce a progressive tax.
It’s not just merchants. Labor, etc are also faced with the same dilemma. US labor is pitted against low cost labors in other countries.
Brick and mortar stores are dying because consumers don’t buy there anymore, and instead buy online. That’s a structural shift in how Americans shop that started over two decades ago. You cannot reverse that shift. So now the question is: how do you avoid the blight of zombie malls and closed shops along shopping streets? How can you create an environment where at least some b&m retailers can exist and thrive?
The future of retail will be selling services instead of selling stuff. I can buy stuff from Amazon, I can’t get a haircut from Amazon.
Yes, that’s what the article points out.
Although there has been growth in online matches for lawyers, designers, bankers, etc. Seems that people want to do less services in person either.
Eventually, it may just be personal services (haircut, massage) in retail fronts as opposed to professional services.
Seems like retail and professional services would have an opportunity to reshape operations and improve customer service with cheaper retail spaces available.
Then there are the tech companies and banks opening and closing store fronts constantly. I.E. Microsoft store / Capital One Cafe
Yes, that is an issue. Then there is the additional issue of people discovering that they don’t actually need – or no longer want – that service in a brick-and-mortar location, now that they had to live without it for months. We won’t know for a while. But I can see all kinds of previously unthinkable shifts.
..yet
Well, you Can get a haircut at the Amazon Barber Shop in San Fran, on Geneva Avenue. ???
You somehow imagine they cannot get into services?
Yes, this is also a good point. Around me (South Florida) the restaurants that seem to be thriving are ones that people consider “take out” type food, like Thai, Chinese, pizza, fast casual, etc. My favorite pan-Asian restaurant was smart in that they operate out of a cheap storefront in a low rent neighborhood, such that they aren’t saddled with an enormous lease while in-person dining is non-existent.
It’s all about keeping overhead down, which is what more and more people are realizing. I also think shared office space will take off as well (but not with WeWork, as the owners realized they can do it themselves and cut out the middle man).
My wife does my hair cut. Quite happy about it.
Voluntary shift down and minimalism is way of the future.
How many apparel or shoes one needs Every year? Common!
People need to differentiate between NEED vs WANT or else go into deep debt and no one to blame your self!
And yet as of Oct 1st, 2019, Amazon has around 526 stores and they also purchased Whole Foods. The other thing that Amazon does not quite solve yet is immediacy i.e. if you need a medicine or other things RIGHT NOW, you still need to go to a store.
Look, no one is denying the convenience of shopping online for many things. But if we look closer at the details, a lot of things seem off, for example: Amazon’s profit margin with the exception of AWS is pathetic. Why would you throw so much brainpower and money creating a ton of complicated infrastructure just to obtain a single digit profit margin or worse. The only possible explanation is the same one why people continue to support Uber: because they think the business will become a monopoly and we know what happens after that.
Reinvestment of profits is what has grown Amazon to its current size. Lack of reinvestment is the reason other retailers have fallen off the cliff. Customers notice good business practices and services, as well as bad ones.
Reinvestment of profits? That’s unclear. Amazon was unprofitable for quite a long time. I am sure most pundits will argue that “well, that’s why they were unprofitable!!!”
Sure, but AWS didn’t start becoming a factor till this decade, meaning they were unprofitable for a REALLY LONG TIME. It’s nice to have good backers. I mean they didn’t even give Webvan the benefit of the doubt.
MB,
Most pundits are idiots. Amazon’s scale didn’t happen by accident. They chose to spend their margins on growing the business and not on showing a profit.
The AWS side is interesting because there, they might not have the option of being unprofitable. These are govt contracts and many require companies to prove solvency. Some govt contracts pay for time and materials plus a standard profit margin. These requirements could be impacting the numbers Amazon has to maintain.
Petunia, it’s clear you ate that line “Reinvestment of profits” hook line and sinker.
Wall St’s focus on quarterly profits punished other companies that tried to reinvest profits. But for Amazon, they were willing to bend over backwards.
Seems like it’s not just pundits that can’t think.
MonkeyBusiness,
People misinterpret what that means. Amazon has for years been trying to get into the grocery business because it’s such a huge part of retail and because in the US it has resisted ecommerce – and thus Amazon’s reach. Very few consumers bought groceries online. Safeway has offered online grocery sales and delivery since the 1990s. All of Amazon’s prior efforts to get into groceries had more or less failed until it bought Wholefoods. So now it owns traditional grocery stores.
And then the Pandemic comes, and now a lot more Americans buy groceries online, but from the classic grocery stores that have offered online grocery sales for two decades. For example, Albertsons Cos. (which includes Albertsons, Safeway, and other brands) announced that in Q2, its ecommerce sales skyrocketed 276% year-over-year.
Just a comment on AWS, it’s origins went back years to when Amazon was trying to solve the problem of scaling and surging during Christmas so that their website wouldn’t crash. I remember seeing an article in businessweek around late 2000s about that business and it’s expansion into the cloud business. The thing about Amazon is they are ruthless about stamping out their own problems.
For example when they realized that their warehouse needed automation. They went and bought Kiva Robotics for a huge sum, and then they stopped selling those warehouse robots to anyone else, today a whole plethora of warehouse automation companies are out there chasing Amazon competitors, just consider Six River robotics for example, bought last year by Shopify, an Amazon competitor.
Whole Foods acquisition is another one of those. They aren’t out to get the mom and pop in particular, the corner store just happens to be collateral damage.
Monkey Business:
Alexa is laughing her butt off in the background!
It’s all about information now.
And, being tied into the Military Industrial Information Complex!
Two sure winners that Congress can’t control because they are part of the problem!
This will be the “Age of the Great Reset”.
There is no, “Magic Bullet”…….
It will not resolve itself overnight.
Gonna be like entering the games in the Roman Coliseum!
“I mean they didn’t even give Webvan the benefit of the doubt.”
Geez, shows your ‘age’……………Webvan……….one company I really thought about shorting, but never did………
Monkey Business
Your comment: “…Amazon was unprofitable for quite a long time….”.
Please define what you mean by “unprofitable” (speaking as a retired CFO, yes, there are several current ways of defining profitability) and document the “quite a ling time” of Amazon profitability.
To preemptively answer your question: yes, I’ve looked at 20+ years past Amazon GAAP income statements (AMZN went public in 1997), and I only find a coupe unprofitable years.
Bottom line: Amazon literally invests what would otherwise be profits back into it’s very successful & growing business.
In Houston, we have never had zoning. This makes for malls in areas and shopping centers in others. But it has also seen freeways built everywhere with easy access to mails. Now people are starting to build high rising apartment buildings with walk across a bridge access to a mall or even more like stores on the bottom floors, offices for 10 levels and then apartments on the top levels, I expect malls to adapt and change from pure commercial to residential commercial places.
The “new urbanists” complained decades ago about the evils of zoning in the U.S. Segregating residential, retail, commercial, and industrial never made sense, and it makes even less now. I am unconvinced that personal delivery of everything is sustainable. Ultimately the “last mile” portion should be done by walking and biking. We need to lose the compulsion that motor vehicles are necessary for every movement. So, B&M retail has a future, just intermixed with residential and everything else, and scaled to match the neighborhood.
Re “Segregating residential, retail, commercial, and industrial never made sense,”
Yes it does, at least for industrial. Unless you want to be next door – or upstairs – when Houston has another massive industrial explosion?
Around our neck o’ the woods, NW Los Angeles County, Palmdale and Lancaster, some abandoned large storefronts have been converted into dialysis centers. Since this region is also home to buku meth labs (the stretch N. of hwy 138 up to the Kern County line is w/o power and known as “the twilight zone” and basically lawless) the new enterprises are the new convenience centers.
You create URBAN and SOCIAL CONNECTIONS or EXPERIENCES, that could include commerce, f and b, services, recreation, etc. The key is diversity of “typologies” or “species” of programs, or streetscape, to reconceive the urban neighborhood as a complex evolving and changing part of one’s life, even enabled or complemented by social media. I am a passionate architect-urban planner and it has been my hopes to recreate urbanism this way. If you know of anyone or any organization who is interested in exploring such projects for reviving Main Street do let me know.
Again, there needs to be a paradigm shift – Main Street should return to its role of creating a lively urban centre for people, and not about selling – selling goods, selling food, selling services, etc. it needs to complement modern lives, providing an exciting companion to the way of living today, including online commerce, social media etc. It needs to conceive itself as the Real life partner to our Online life, offering much needed Real life interactions and experiences that are impossible to find online. To do that real life commerce needs to change in its model of earning profits. It could be a much more exciting change to the boring seller-customer relationship that is bankrupting Main St. Some of these are happening in Asia where street life thrives. I am interested to explore further in detail if there are like-minded professionals keen to delve deeper.
For example, the old Mall might resemble more of the old fashion Themed World or Glocal Expo, where small and big businesses set up booths to give out free products, test new ideas, introduce new flavors and tastes, sell at a huge discount products or services that can later be bought online if successful. Instead of selling boring repetitive merchandise there are always surprises, something unusual, a new business idea, free samples, etc. that would entice visitors.
This is just ONE example to make Main Street come alive again by introducing different and new “species” or “typologies” of commerce.
It’s really innovate, relate back to new trends and habits, or go bust. This greatly concerns us all because the city mustn’t die like it did in derelict Detroit. Act before it’s too late.
Agreed, but there are several other factors that made the situation worse pre COVID. Amazon cost of capital was low because for years investors have been willing to Buy the stock based on a model that assumes they will turn the margin engines on once they have the scale. Compare amazon multiples to Walmart for years. They also had advantage of lower sales tax burden for many years, and while this has been corrected somewhat over the last few years it is still there for affiliate sales. At the same time the worst thing that happened to traditional retailers was the private equity buyers, they over leveraged the companies and took their equity back through financing and have not reinvested in those companies. They really were pirates for many of them.
Final note, we will see how government responds to these changes as they get a look at their budgets, sales tax is a big deal and this changes the equation dramatically on who receives the proceeds.
The interesting thing is that the guys at Best Buy figured it out. I think others can too.
You need to do what Amazon can’t, Best Buy is still profitable long after it should have died. Mainly because they were able to switch up their focus.
The downside of course is that there are just too many retailers that do not have this ability.
Staying on the brick & mortar theme….how far is off the blight of zombie schools and government buildings? State Capitals..DC…
Why concentrate the lobbyists? Concerned about virus? Let your children go to school online & be taught by the best that AI has to offer. This will be part of the stream lining. Interesting times ahead.
You can reverse that shift, but there must be a willingness to do so.
Given the power to do so,I could reverse it tomorrow. All it takes is to admit that internet sales at their current level are detrimental to our local communities and curb them. You do that by instituting internet sales taxes that remove all price advantages to purchasing online and make it cheaper to get off your butt and go down and make the purchase at your local brick and mortar retailer. All it takes is the political will to do so.
I would willingly pay more in order to avoid the waste of time and hassles involved in going to the mall and chasing down stuff they don’t have. Ecommerce is a godsend for busy people like me.
Around NC Dollar General has been building brick and mortar at a furious pace. Looked up growth rate 14% per year last five years and projected 12% next five. It’s convenience store segment so the category is either expanding or they are gobbling up market share.
Old School
Exactly right. And the “Dollar” segment is literally ripping huge chunks of market share from WalMart.
I think that’s only partially true. Take clothes for example.
The quality and selection of clothes has been declining for decades at the average brick and mortar store. Let’s not forget the training, treatment, and availability of employees has also been in decline because it is always cut, cut, cut everything to make a profit. Add that the wages of most people have been flat or declining as well.
Who wants to try to buy increasingly poor quality clothing that won’t fit well, and is likely not in stock anyways from under trained, overworked, and underpaid employees especially when it is getting harder to be able to afford any clothing, never mind good quality clothes?
One might as well get the missized, ill fitting, poorly made, overpriced junk online from the cheapest seller possible. Why go to a store?
To bring back brick and mortar clothing stores, one would need to the do the following:
1) Properly made, quality clothing.
2) Clothing being in stock at the store.
3) Well trained, well paid and treated, readily available sales clerks.
4) Finally, a serious increase in the income of the average American
I don’t see this happening soon, but if it did, I think buying things in the real world would start happening again. Of course, the entire neoliberal regime we all live under would have to go and die, first.
JBird4049
I’m 73; you’re daydreaming of a never-existing retail era if you really think #1, #2, and #3 really existed on a reasonable scale in “the good ‘ole days”.
Of course it did JC:
BB in NYC and SF was all of the above; Cable Car Clothiers also in SF. Many places in the city of the angels area, Buffums for one, in the late 60s when I was usually running around there in my leathers on my MC, but on occasion had to show up to weddings, etc., ”dressed properly.” There were also many smaller local men’s clothing stores catering to the rich and famous there at that time, and I believe today.
There were also excellent men’s clothing stores with excellent helpful employees in every college town in every state I visited in that era, as well as at least one in every small town I have lived in on both coasts and even ”flyover” country since.
Last time I needed ”dress clothes” I tried a very large Dillard’s, don’t remember where, but, was professionally measured and outfitted by a well dressed gentleman who promised and delivered on time the very nice 3 piece suit, appropriately altered to fit well. Been a while since that time, but last small town in CA in 16-17 had a small store with quality clothes, appeared to be doing well.
Good clothes are expensive, always have been, no doubt about that; but, if I ever need more, somewhat unlikely since the good ones I bought years ago when the ‘ol bod stabilized are still just fine, I will be going to such a place, certainly not buying on line to save even 50%, with no idea what I would be receiving.
@Wolf
Why fight the wind?
Why look for solutions for b&m?
The owners of b&m are better placed and certainly more motivated to decide what is the best solution.
I see b&m shrinking (not disappeareing!) as a part of larger trend where automation destroys jobs.
Best thinkers of ours times warn us about automation’s impact on jobs in the coming decades.
So that it is : b&m is one of the victims of the automation.
If we don’t like it, let’s tax the automation.
But robots never pay taxes – people do.
“Brick and mortar stores are dying because consumers don’t buy there anymore, and instead buy online.”
I wonder if we got rid of all taxes on wages and put the taxes on the machines, if things would be different.
That simply not true, well maybe in a rotted out city like San Francisco. I also live in an area terrorized by speeding delivery folks and people are becoming quite frustrated by it.
“You want to prevent the local firm from being a monopoly? Then just introduce a progressive tax.”
Actually, that’s how you create monopolies.
The “progressive” small town where I live was determined to maintain its small-town ambiance so it proactively established zoning laws that prohibited the chain stores as described in the article. Sensing an opportunity, a neighboring community that shares a border did the opposite and actively invited the big retailers. They got the Walmart, the Home Depot, some regional biggies, car dealerships, banks and the small mall. Not that this has been perfect, but they got the jobs and the taxes. Now they have new parks, a community sports facility, a new seniors center, etc.
Perfect? No. But they saw an opportunity and grabbed hold of it.
My town? Almost all the retail downtown is geared toward tourists. No one goes there except maybe for some dining. And lately, with covid-19, not so good.
Which town took on more debt to build public facilities on the projections of a continued stream of income from the retail sector? Which added more housing as part of their payment plan for new infrastructure? Which is more likely to go into the revenues dumpster if things change?
Reality is tough for many to accept but the world of “shopping” for entertainment is GONE. Most people have realized they can click and purchase which free’s up huge amounts of time for,,, LIVING. I would rather get out and do things than wander slack jawed around some stupid retail space. There are a million sports to play, places to see, people to socialize with, that are more important than wasting time shopping. (plus it allows one to avoid the filth that congregates at most malls).
You should please notify my wife about this.
??
During this downturn I see a rerun of what I observed in the downturn of the early Nineties. Companies were still building commercial office buildings when there were thousands of empty ones with no takers. Rents were/are very cheap and flexible.
Lemmings.
I worked in 2/3 empty office buiding in SF financial district since 2015. They built several more office towers just around, including the Salesforce phallus.
There is a difference between “unoccupied” and “unrented” office space. San Francisco is a strange environment for a variety of reasons, but it was common for fast-growing companies to rent space months (years?) before actually occupying it.
Maybe cities need to provide more areas for farmer’s market atmospheres where there are some individualism and creativity going on. That’s a lot more appealing to me than the overpriced Chinese products strip mall experiences.
I enjoyed my first visit to Santa Fe immensely last summer, you can buy about anything you want at the little markets and enjoy the art along the way. Just returning to basics is a good place to start. Bring down the rents in the malls, provide some booths to rent, get some people in with ideas instead of the blah franchise robot business model. If you get the crowds in, you can find a way to make the property work.
Well they could have been building affordable housing/apartments, so people do not spend half if their take-home on housing and can afford to shop without drowning in debt. Instead they built towers for egomaniac CEOs, which are now empty.
This is the point the entire economy misses.
“Well they could have been building affordable housing/apartments”
They could have. Except developers like to earn a profit. There is no money in affordable housing.
The real reason retail died: Saturday morning going to the mall was a competitive sporting event for women with the main competitions being attractiveness, taste, beautification/fashion execution and the all-important category: wealth. Women got dressed up in their best, and walked around in circles comparing themselves to each other and judging who was the bigger spender and who “wore it best”, to use a phrase from People magazine and the like. Much secondary purchases and secondary spending was connected to this ritual, keeping the whole local shopping ecosystem busy and thriving.
But then the competition moved online: Both the actual shopping and the “who wore it best”. And the trip to the mall was replaced by online shopping and online exhibitionism. Why go to the mall when there were better prices and bigger audiences from home? Plus you could limit the competition to your online “friends”, even better! And you could pose and display and do yoga at brand-name locations like Machu Picchu in Peru. Or Barcelona or Paris or whatever is the most recent flavor in your market segment. Always popular: Your new fancy overpriced over-remodeled house or other dwelling. Or a fancy restaurant. Anything that spells money. Hence the demand for “experiences”, of which we have heard much.
And now women can’t even compete at the office, because there is nobody there! Zoom videoconferencing does not quite do the trick. although it has spawned demand for attractive backgrounds, whether the fake green-screen type or real background accessories.
(Analysis is my own, not something I read. Although I had heard the “sporting event” analogy before, just minus what the actual competitions were.)
NARmageddon
You may have won today’s prize for the most unique view of women.
and palm readers (they usually live in the space too)
although its true let anyone lease.
— every personal service imaginable to occupy those otherwise unfillable retail storefronts.
Which leads me to NYC attempt to prevent keeping stores empty has lead to proposing legislation to turn vacant store fronts into affordable housing units.
I’m sure that will contribute to a pleasant shopping experience for the actual patrons of stores in business.
The strip of stores, free standing buildings without parking lots or just as bad parking lots in the rear of the building with exactly the same dozen shops everywhere cant compete with the malls and strip centers with parking lots in the front. The small store fronts are doomed. Like in the city that depened on foot traffic talk about doomed…
Maybe best at this point to ban sales tax for brick and mortar retail and introduce a ecommerce tax.
Companies like Amazon got away for years without collecting sales tax and built their empire and created a foundation off of not collecting sales tax in its todler years while defeating its competitors.
Only fair now to pass a ecommerce tax across the board.
Make up for loss time and pass a brick and mortar ban on having to collect sales tax. (Although few states have certain limitations on sales tax).
At this point it’s convenient reality shopping online. Going to the store requires physical movement and time. Although for many retail therapy is best served in person.
Ad ecommerce tax.
Ban sales tax on brick and mortar.
Malls with vacant Anchor stores: instead building new hotels that are shelters.
Convert into housing mass amount of people.
Mallstyle living!
The food courts can feed the masses. End caps can be turned into sports courts and schools. Other stores can be turned into storage spaces for the mallstyle living.
The parking lots can be turned into farm land and then sent to the food courts. Roof top gardening and solar energy. We can turn these sites into massive solutions for all that ales and haunts our largest cities.
It’s a pretty straight forward solution.
I think eliminating sales taxes is one of the smartest things a locality can do. I live in a high sales tax area. What I do is pass the burden of the sales tax back to the retailer, by waiting for a sale, or asking for a discount which covers the tax. I know I am not the only consumer doing this.
If the sales tax didn’t exist or was much lower, I would buy more and not delay purchases as often.
Petunia: I enjoy your posts and appreciate your perspective. I wanted to add something to your Amazon post above. My suggestion from my perspective is to not only consider Business 101 which is offered in all business curriculum, but to also incorporate a class that I took called “Business as an Institution” in society. Oligarchical companies like Amazon and others are not going to effect the continuation and maintenance of a civil society. In fact, they use profits to buy media and lobby against it. If we are not more careful with how we vote with our dollars, the old Joni Mitchell song pretty much covers it…. ” don’t it always seem to go that you don’t know what you’ve got till it’s gone”….
One of my degrees is in Economics, so I am familiar with how businesses operate at different scales.
What I found more helpful in evaluating retail was my experience as a consumer. In the end, the scale and marketing isn’t going to capture my dollars, if I don’t perceive the value. The value is not just the product, but the time and convenience of acquisition, and the contact experience.
There are amazing products I don’t buy because I don’t like how the business operates. And products I do buy because there is less friction in the transaction.
States that have no income tax are heavily dependent on sales tax to balance their budgets. Amazon and other online retailers who pioneered e-commerce got a boost from the fact that they did not have to charge sales tax to customers who lived in states where they had no facilities such as warehouses, under an earlier Supreme Court decision (the Quill decision?). More recently, the rules were changed. One out of state merchant told me that he had to collect sales tax because he did more than $100,000 of business in my state.
One of the biggest treats to traditional shopping malls is the discharge of fire arms in the mall or the mall parking lot by teenage gang members.
treats should read “threats”
So, I had a thought which which in my mind looks great from 30,000 ft but may suck at 500 ft. Regional malls are rapidly becoming the Mastodons of the retail landscape, while outparcel restaurants are dying off due to the fact that social distancing requirements preclude them from generating sufficient volume to cover the occupancy costs of the smaller, higher priced properties.
So, why not convert a vacant JC Penny’s, for example, to a subdivided, multi-tenant food court with say Red Robin, Chilis, Don Julio and PF Chang’s? The larger space would allow the restaurants to social distance and reach critical mass of table tops to achieve a sustainable gross income. Then, assuming that rentals would stay roughly the same as the vacant department store rent on a per square foot basis, a gross rent structure for the restaurants would be similar similar to their prior op rents just spread over greater GLA. Such a structure could provide cash flow for the Mall operator and allow for a revitalization of both a moribund format and a retail sector that is about to slip into the grave. Or am I missing something? Just a thought, as I had been working with some REITS pre pandemic to try and figure out what they were going to do with their dying malls.
What you are missing is that subdividing the mall space won’t keep the rents from rising to the point it becomes unaffordable, even at a reduced footprint. The better solution is to co-op the malls, sell the space to retailers, which will control costs and give them equity they can borrow against.
When I lived in West Palm Beach, FL, a developer built a bunch of co-op professional offices. They looked like mini strip malls. The whole project sold out quickly.
my fantasy is to see and be a part of a multi-business building. i LOVE this idea even though i don’t play with others and am more of a loner.
there’s a cool old wooden floor building in northhampton mass that used to be full of old cool arty hippy shops and it smelled divine of incense… even in the shops that sold wool sweaters still full of lanolin.
over time it got plasticky and expensive like everything, but i remember lots of old interesting shops and stalls of artisans in big, rickety old buildings.
that’s what i wanna do..
san francisco has already begun to burn and Basul is already trying to coax me back into The Game and instead of renting forever, to eventually consider buying a building when prices crash in the future.
ha!
but i love this cooperative idea… especially if you had multiple buildings within a few blocks…
okay, to work for me on the here and now…
(smile)
x
KL,
I love books and bookstores. The best ones left survive because they own the building. Any small business that rents is doomed in this predatory economy. Best of luck, as always.
Petunia! yes- city lights books is a great example of owning and being solid, as people have gone after city lights for decades–i’d had NO idea. they won’t even take stanford or corporate money for that very reason. at first i thought it was paranoid but now i’m hip to how anything with sharp teeth is neutered/neutralized. / i don’t wanna own a whole thing because i don’t want the hassle of being a landlord and that whole dynamic, so i totally dig your coop idea like CRAZY and can’t imagine why it hasn’t happened more often. how fun would that be to have a studio with others and you share the maintenance! / i so want real life retail because i can’t imagine trying to make a real living online forEVER. yesterday, the guys (Wolf, included), had a come-to-jesus meeting with me about focusing because i’m all over the place with everything. / so today i got serious with plans, and was back working on a legit, focused specific website this time—for 6 hours of intense spiritual practice—and did the equivalent of moving a paperclip two inches. / in the future Wolf meets, we’ll need to configure video to bring you in. / i think you’re the future of so many things i want to talk about with you. i love that you love shopping and you must be talked to about how to do this in the future because it has to be an EVENT now. that’s why i like idea of multi-business building with cafe, music, theatre, bike biz, hair, etc. / and i’ll help you on your end however i can (promo art etc), if you find yourself starting a new underground on that side of the country. i’m already hearing from a handful of emerging superfreaks on my list who’re plotting and scheming about their next big moves and my toes curl with glee. / and also you really got me rethinking patriotism more than i EVER was. it was a passive thing before. now it’s an action movie /good night. sorry Wolf, tried to keep this from getting skinny and long. so tired. good night Petunia and Wolf. whenever i get to thinking the internet isn’t real, then there’s you two and RD and well.. it’s back to that old saw: strangers are just friends you haven’t met yet. buenos noches and sweet dreams. x
Seen a bit of this already in Orange County in smaller malls but with small restaurant stalls (e.g. fresh pasta) rather than chains in a large shared space.
Lou Scudere
Have you ever actually eaten food at a food court?
I like good food and I love to cook (without opening cans); however if I get hungry, I’ll eat a Big Mac or filet of fish.
BUT I WILL NEVER STOOP SO LOW AS TO EAT AT A FOOD COURT – I DON’T KNOW WHAT THEY DO DIFFERENTLY IN A MALL, BUT I’D RATHER EAT DAY-OLD ROAD KILL.
In this concept, as I visualize it, I am not thinking of a “Food Court” in a traditional sense. There would not be a common dining area, each entity would have its own space for both prep and dining with custom decor such that one would be dining in say a PF Changs. The subdividing of the space shouldn’t be much more than partition walls though splitting utilities I will acknowledge could get pricey. I like the co-op idea, hadn’t thought of that angle.
14% population growth? That’s actually a huge increase.
The Western model looks unsustainable when you consider how it requires infinitely expanding population. Just an observation.
You got a better model? Doubt it.
Seems like the article overlooks a pretty obvious way to at least partially fill some of that retail. In states that are not legalized, Cannabis dispensaries. Helps with local tax burden, helps fill retail space, supports local jobs.
If rezoning was allowed in certain retail centers to allow small dispensaries, and large growing ops in empty big box stores (think empty Kmart), then you would have a lively new paradigm.
However, this will never happen, because it makes far too much sense.
Washington state legalized weed a couple of years ago. But the retail business anticipated never happened, at least in Spokane. Thete are shops, but not many. Probably because it is overpriced and, hey, you can grow your own. It is a lot easier to grow your own pot plants than, say, brew your own beer.
I agree that different areas would benefit disproportionately from this.
For instance Spokane is a town of about 200k, while I am sure that retail is overbuilt there, Is it to the same extent as say Dallas Ft worth metroplex where I live?( metropolitan statistical area of almost 7 million). Probably not even close. Also, the zone changing I mentioned would be key for big grows. Warehouse space in Denver is something like 3× national average because its all utilized for grows.
And while yes you can grow it yourself, its not nearly the same as dispensary quality, unless you invest quite a lot of time and money. Most consumers aren’t going to do this en masse.
Most dispensary quality is B grade. For A grade you usually have to go private and have a connection. A mall would undoubtably have a lot of C grade. Canna-businesses all over are not doing so well- too many of them. It’s difficult to grow your own in Washington state.
Plus the first robbery that involves innocent crowds over canna at a mall and the game is about over.
I think mall rents just have to be reduced.
Recreational pot in CO has vacuumed large amounts of retail space in metro Denver, and grow houses have filled all the wharehouses.
As grow room warehouses- that might work short term. Till it’s overgrown.
As long as states run high sales taxes municipal government will overbuild retail. The otherside of Covid looks like more franchise outlets, since corporate America gets the biggest share of stimulus, there will be franchises where previously there were none, like Budweiser starting a chain of microbreweries. Local restaurants go under, while all the casual dining favorites survive. The key to their survival is bored people with plenty of discretionary income. As for capital formation fewer people going on Shark Tank, and the Sharks getting hungrier.
This is very true. In CO, property taxes are held lower by Gallagher Amendment, so municipalities have come to rely on sales tax, they all fight over annexing retail strips.
Repurpose the big malls into local e-commerce warehouses.
At the end of the day, a shop or mall is just a square building where you store stuff.
Do you mean warehouses where they put stuff on display?
I can totally see some stores (Best Buy?) stripping out the checkout stands and extra inventory. Just browse for what you want, scan it with an app, and its gets delivered (or maybe walked out up front if you really want it now). No need to pay a bunch of cashiers and shelf stockers, less shoplifting risk, simpler logistics, etc.
That’s essentially what the mattress and furniture stores are now, just big showrooms.
I realized about 10 years ago that only five types of retail stores would survive long term (with a few exceptions):
1) Big box hardware stores – their inventory doesn’t get dated or go bad, so, for example, a piece of sheet rock can sit there for many months. That isn’t true for clothes at the Gap, for example. Plus, contractors and other repair people need stuff immediately.
2) Costco/Sam’s Club – only they have the bargaining power to compete with Amazon on pricing from their suppliers
3) Grocery stores – outside of a COVID situation or places like NYC/SF where grocery shopping is difficult because of small spaces and lack of cars, most people seem to like picking out their own food
4) Walmart/Target – basically the same as 2), but without the membership. Plus, they serve the “I need something now” purpose much like Home Depot and Lowe’s do for hardware.
5) To a much smaller degree, drug stores – that’s not to say that there aren’t too many Walgreens and CVS already, but they serve a purpose that can’t really be replicated online.
I’d be very surprised if anything else existed in any significant form in 10 years.
I’ll add private clubs to your list. Places where like minded people can congregate without busybodies.
You mean like gyms? Or social clubs?
There are some niches elsewhere also. Thrift shops, tourist junk, services like hair cuts, and high fashion or high end sporting gear where expert advice is required.
Of course that leaves lots of empty retail space.
Here’s a concept. In 1979 I moved to a smallish coastal city called Powell River….for work. All retail stores were closed Sunday, and many if not most added on Monday closures as well so staff could have two days off with their families. This included hardware and building supply stores. People actually had to plan ahead with their buying. Saturdays were open days for the convenience of Mon-Fri industrial workers. Gas stations took turns being open after 6:00 pm, but certainly closed up by 9:00pm. You could get gas if you had to evenings, but only at one station. Everyone made a decent living with acceptable days off. Grocery stores had limited Sunday hours.
Exceptions started to be made. From the one drug store open on Sundays all were soon allowed to open. Then, grocery stores started to sell drugstore products, drugstores started selling more than chips and toilet paper and looked like grocery stores. Everyone competed against everyone else, to where now grocery stores sell clothing lines, limited hardware junk, even shoes. Malls were built and clamoured to stay open on Sundays as well. Books were then sold, everywhere. The mantra, “We have to compete or we lose customers to those with an unfair opening advantage”. Nowadays, no one makes a decent profit and retail workers exist in part time hours hell, with different shifts almost every day. (“psst, don’t ask for a day off or you’ll get your hours cut”).
Does anyone else remember when a Safeway grocery store job was a good union wage with benefits? It wasn’t that long ago. How about a department manager in a department store? Those were good family job supporting jobs.
Too many stores (yes), but too many opened hours and insane competition. The new online regime is convenience, cost, and availability taken to its logical conclusion. Where I now live the only day a grocery store is closed is Christmas Day. God forbid, someone may have forgotten to buy chips and need to replenish New Years day, or Easter. Whatever. And if you live is some suburban rabbit warren I’m sure drone delivery will actually happen.
Think re purpose because retail is done until the entire debt ridden economy crashes and hungry entrepreneurs start to open neighbourhood bodegas and repair centres. That is what a lack of regulation has brought us. Freedom to fail.
I’ve said for a long time that Americans will get the country they deserve. I’m just not convinced people are going to like what they see in 10-15 years.
10-15 years? We should be so lucky. Neal Stephenson got it right, in the future America will only do a couple of things well:
1. Software
2. Music/Movies
3. High speed pizza delivery.
The rest will go to hell.
Makes sense. That’s the logical conclusion to “Software will eat the world”.
You left out lawyers and lobbyists. Otherwise agree.
“Consumer capitalism” is self-destructive and self-devouring…………Trinkets and beads have blinded too many……
We ignore the “natural world” at our peril.
History shows that there is always a “pay-day” for empires; ours is coming……..
“Malls” are dead.
Long live Malls.
we already fail at all three of those things, so much for the future.
Music and movies? Seriously?
Oh, and useless military equipment….
There is literally no reason that retail clerical or managerial jobs should pay the same as higher level work, and the fact that they are now entry level work is totally appropriate and is a sign of a more efficient and better world for everyone. Retail workers ought to be a very small and declining part of our workforce, like agriculture, there is very little skill involved and the retail experience would benefit from automation.
Indeed Paulo. My father in law, after surviving Omaha Beach as a young man came back to Portland, Oregon. Like all good italian-americans, he was in the grocery business- working part time from age 10 along with going to school. He became a supervisor of 5 stores for Piggly Wiggly. He then got his own store….ah the american dream. My mother in law was a no nonsense, highly educated woman who during WW2 was with the french underground. They obviously experienced great hardhsip and even saw others killed around them during the war. They worked hard, but Sundays was for God and Family. My wife remembers as a little girl in the 1960’s , her mother commenting harshly that Fred Meyer, a large Northwest grocery and variety store decided to break with tradition so to speak and to open on Sundays. I am sure other stores in other areas of the country, as you Paulo report of your area, did the same and others followed suit so not to lose market share. I can say, that ruining the Sabbath at the altar of commerce has not been good for society. We see the fruits. Now with e commerce it’s 24/7. I see Amazon trucks driving around on Sunday all the time. Much of society now values all this garbage. It will come to a brutal end under the enormous weight of all the debt courtesy of the FED’s cheap and fake money programs as people, corporations and governments have been seduced by the siren song of dirt cheap debt. When a society starts believing in nothing, it will believe anything. Sorry, but I am on a roll today as this article really touched a nerve as to the root causes of all this nonsense going on around us.
One of the ingredients that is missing from this discussion is that thugs are attracted to large retail malls. The fights in the food courts, the roaming bands of unsupervised juveniles, people being accosted in the parking lots. Even Chicago’s Magnificent Mile – that used to be a safe place to go – is now, on occasion, overrun with “flash mobs” that arrange their attacks over social media.
When we lived in CA, one ploy was to follow a lone woman to her car, slide under the car as she loaded her packages…. then grab her ankle and pull her down from under the car. They then stole the car and or purse. Happened at several of the malls in Orange County (Cerritos and Westminster to name two).
As the economic situation further swirls the drain, more and more people will look for easy prey at shopping malls… and with places like CA that don’t prosecute petty crime (recent article about car thefts rising due to being released without bail) or using minors (who usually walk unless it’s an assault) in “victimless crimes” or property crimes below $1,000. One LA policeman stated something along the lines that people are stealing the cars to use – not sell. They need transportation, so they steal it, drive to their destination and abandon it. Sort of like “car sharing” but different.
A realistic discussion of the likely behaviour of the criminal sector of society in a sever Depression is missing from most economic discussions.
Even worse though is when it is treated for ideological or party political purposes as some form of ‘social protest’.
We can all expect crime of the most everyday and sordid kind to tick up remorselessly. So be prepared.
Will these junk food addicts ever come after our vegetables too? :)
I commented a while back that I no longer go to an indoor mall alone. I got a lot of push back about the crime issue, but the threat to women is real, and has been for years now.
The other unspoken issue is that the employees at the malls are often part of these criminal gangs who hang out at the mall. Most of the credit card frauds begin at malls or fast food places where your cards are swiped twice, once for the purchase, and again to resell to the gangs.
Landlords destroyed their own investments by overlooking these problems and cutting back on security.
The solution is simple. A Federal internet sales tax. That would theoretically make online purchases slightly more expensive than brick and mortar purchases, and help to even the playing field while at the same time serve to help the government service the massive debt they are accumulating giving money to people for not working. If you are too lazy to go out to shop, you pay for that convenience, and the people who do want to save, help generate jobs and business within their communities.
This is what India has done for internet sales (thro a platform like amazon/flipkrt(walmart) ir respective of where is the consumer (delivery address). Even offline sales tax (& online as well)now called GST (goods & services tax) is standardised according to commodity. Food is 5% , fresh vegges exempt, most manaufactured goods 12% , minority (luxury goods ) 18% , sin products (tobacco , alcohol etc ) 28% . I used to sell in all online platforms like amazon since 2013. From 2017 june this new GST tax for online sales came in to effect & amazon has to deduct 1% & remit to govt quoting vendor GST no. with out GST no , no body can sell online. Vendor has to file returns & pay the actual tax (less 1% deducted by amazon which will show as credit) . Nobody can sell online 1$ worth item with out tax. no courier like FEDEX/DHL will accept package with out gst no . one can do small online direct business via postal service w/o tax but can not sell thro a portal.
How about car dealers? According to the Arizona Auto Dealers Association there are 151 new car dealers in Metro Phoenix. Another website lists 228 used car dealers.
Auto malls are looking for customers. The main problem they’re facing right now is that Zoomers, who were born into the internet and social media, don’t seem to be interested in cars. Who needs a car if you can do all your shopping with an iPhone while sitting on a sofa?
The future doesn’t seem too bright for this segment of retail.
New vehicle dealers are protected by state franchise laws. So they’re going to be there until the laws change. But used vehicle sales are already wandering off to ecommerce.
Well reading the comments about retail in the USA from a person living in Australia…………
We suffer from the same disease of too many shops all over the place as well on streets, in strip malls, and of course shopping centres.
Go to any strip mall, mall or ‘shopping centre’ in Australia and you’ll see the same stores and the same restaurants all selling the same crap and the same menu at the usually the same high prices.
(Near the next suburb’s train station ‘shopping area’ there are no less than five small shops selling Indian foodstuffs – all the same products at the same prices!!
Domestic online retail here offers at least some good competition in terms of price and service.
We needed a new fridge and didn’t go to one physical retail outlet. All research and the purchase done online from an online only outfit. Next day delivery and removal of the old fridge included, if needed. (We kept to store the fruit and vegatables from our garden in the fridge part. Sorry neighbours no more free food this summer!!)
Buying from overseas online retail from Australia now has a few problems. One of them of course is that postal services between a lot of countries is now shut down. If they are still up, it takes forever to get stuff. Some places have stopped sending overseas even if the postal services are working. Add in the fall of A$ over the past couple of years along with the new 10% Goods and Services tax, if you buy something on eBay for example, and the prices have really gone up in A$ terms.
And as I have commented here before, the quality of the food at an average restaurant here sucks along with the high price. And supposed ‘high quality’ outfits are over rated and over prices too. (Sorry, the wife won’t go to Nobu’s anymore either even if they were open.).
Shopping and restaurants?
One of the things I miss most about not living in Japan. Retail and restaurants in Japan puts the rest of the world to shame.
“Supermarkets and pharmacies will remain open but almost all other retailing in Melbourne, including hardware stores such as Bunnings, will be closed to customers under stage four restrictions.
Announcing the new rules to fight Victoria’s coronavirus outbreak on Monday – which will also include restrictions on the meat processing and construction industries – Premier Daniel Andrews said people do not need to panic buy.”
Sure – went to the supermarket after these restrictions were announced. One was completely out of onions, potatoes, and low on almost all other veges, but had meat with purchases restricted to a total of two packs.
Needed onions so had to go to the other supermarket. The vege department was fuly stockedl, but very little meat (mostly high priced steaks) and the processed meats/ready-to-eat section was bare. Also no flour either.
Whatever.
Several commenters have alluded to the quantity of retail. The author cites 50 sf of retail per capita in the U.S. as compared to 2.5 sf in Europe. That is 20x the amount of retail as in Europe. Does anyone stop and think how they do it? Is Amazon ubiquitous? How on earth do they survive? Why do we need so much retail?
Then, the author proposes to limit retail districts and limit competition and allow anyone to open anything anywhere. Zero regulations, let the chain stores in. These arguments are incoherent. How did we get into a situation where we have 20x the retail as Europe? Malls and chain stores are the core of that mess. Mixed use, with mixed zoning is exactly the way out. No one lives anywhere in most European towns and cities without walkable access to markets, grocery stores, bodegas, cafes, bars, and train stations. This is not simply a business and economic problem. We can’t grow ourselves out of this problem. The more that we follow the author’s prescriptions, the more that we will simply propagate a lifestyle that is wholly unsustainable. We are addicts.
“How did we get into a situation where we have 20x the retail as Europe?”
Other factors not discussed:
1. The Fed.
2. American optimism. “Build them and they will come”
Free money and hopium don’t mix well in the end. Sweet at the beginning, but the aftertaste is horrible.
Europeans shop differently than Americans. They buy quality, don’t invest in fashion fads, and wear the hell out of their clothes and shoes.
Americans love fads, any new new thing. The Japanese are even worse, they take bad trends and escalate them.
The author is guilty of a massive error of omission. The materialistic nature of our society is suffocating us. He never mentions this poisonous aspect of American culture. The fact that his company is part and parcel of this situation needs to be acknowledged and dealt with.
Stuart,
If we followed your prescription, we’d have 100 million people claiming unemployment benefits instead of 32 million now. When people don’t buy stuff, the economy collapses. 70% of the economy is driven by consumer spending. Make sure you understand what the means.
On a lighter note..the economy may be collapsing but no one gets it yet. And since humans really suck at dealing with big problems, Covid might just escape control and 100 million unemployed could end up like yesterday’s news. The only thing the author would be guilty of is being human and believing something better might be implemented by wise minds that don’t run things. It’s all in the hands of monkeys reaching into tight jars to try and get that big banana out…they’ll just get their hands stuck while a truck comes down the road and hits ’em.
I agree. Materialism leads to debt and satiation, and that leads to family break down, divorce, drug addiction, crime and an eventual early death. Materialism is real if only because advertisers tap into this reprobate emotion to convert sales. Everything is about converting. It permeates everything we do, everything we see and what makes us who we are. It’s truly a crying shame, because the message is one that physical comforts take primacy over spiritual pursuits, family, honest work and cultivating integrity. The truth is, making physical comforts top priority makes a person weak, spoiled and entitled and not very much fun to be around. The roosters have come home.
The area I live in had a retail crash in the early 1990’s.
The strip malls and mega-malls had a lot of extra retail space.
When the rents dropped enough, the following moved in:
1) New churches
2) Childcare businesses.
3) The DMV
4) The local library.
4) The Persian rug merchants.
5) Large furniture stores
I suspect when the rents drop now we will see:
1) New churches
2) Pot growing facilities
3) Maker spaces (they were outpriced out of the trendy warehouses)
4) Rental company meeting areas. In-person meetings will not go away entirely when working from home.
5) Artist space
6) Apartments
Did I miss anything?
UPS shipping store?
“Did I miss anything?”
Liquor store? :)
Only one?
As an Amazon delivery driver my view is that Amazon’s delivery network is not focused on generating profit but on generating delivery volume.
I have routinely, driven 20-30+ miles to deliver a post card size envelope. I also, routinely deliver 90+ pound bags of cat litter, fertilizer, snow melt stuff. UPS/Fedex/USPS, would charge a fortune to delivery these products, yet I delivery them everyday, for free.
Amazon’s business model can seem overwhelming but it is far from perfect. Given enough time, innovative companies can capitalize on Amazon’s weaknesses.
Large companies like Walmart should seek to compete directly with Amazon. Smaller companies should seek to utilize Amazon’s delivery network not compete with Amazon.
An associated delivery network should be developed to complete directly with Amazon. Companies, like Best Buy, Target, Nordstrom etc, should attempt to build their own associated network.
Grocery is a different ballgame all together and I am not sure if Amazon really knows what they are doing in this space.
Amazon competes with Best Buy and Nordstrom’s on selling higher end products but its focus is on volume not profit. Amazon’s volume delivery approach likely means its largest competitors are actually Walmart and the Dollar Tree, not Nordstroms.
Develop a delivery network focused on selling higher end products and leave Amazon to its origin of selling Pezz dispensers and the like.
When the internet is turned off, people will frequent highstreet shops and local markets again so they will continue as risk management in case this scenario occurs. We live in a precarious between time. World Govs are dominated by digital giants. Who owns the nuclear button, global corporations or Govs. Highstreet and retail are a symptom of a larger issue which is being resolved over a period of time after much leader negotiation. But their reality is still what power do I have to influence and change my country compared to the global corporation and a few hundred inter-connected board members. More importantly what power do global corporations have over Govs and independent retailers to punish. Lewins change model occurs as unfreeze change refreeze. We are still in first phase. Retail must get to the back of the queue. We are all casualties of Gov indecision due to clinging onto past norms which just are not there anymore. Perhaps a Gov made up of 20 year olds might make more progress. Remember the days before cyberhacking – less turmoil and paranoia – a new normal where it does not happen again is ahead. Getting there is painful.
They need to do the reverse and give local mom and pop companies a break like when they allowed ecommerce to not pay sales tax.
That just allow the retail industry to be consolidated into the haves and have nots.
They need to allow mom and pop to not charge sales tax while making internet based sales pay sales taxes
This is the first time I recall genuinely disagreeing with much of one of your posts. Since I read you every day and respect your opinion, I will have to chew on your arguments.
Brick and mortar stores are dying because consumers don’t buy there anymore, and instead buy online.
But why? I don’t know if one could classify the shopping habits of the last decade a form of entertainment, but it certainly was an experience that was very much enjoyed by nearly everyone. I used to take my kids shopping and we made a fun day out of it that included lunch somewhere or ice cream. Then what REALLY killed the brick and mortar shopping experience? I believe a lot of things came together and made the once enjoyable experience intolerable: prioritizing sales over people, decline of quality of merchandise, consumer satiation, and more sinister things like public shooting massacres, opiates, debt, unemployment, and of course the great western financial crises of 07-08 that never really resolved.
Today I happened to catch Sen Chuck Schumer affirm and reaffirm that the only reason the economy is still alive is because of the $600 a week PUA stimulus and because of that, it needs to be extended. But if Congress is prepared to extend this helicopter fiat to the masses, it better be prepared to keep it coming indefinitely. In my opinion, this free money damages the labor force and the longer it languishes on $600 PUA helicopter fiat, the harder it’s going to be to pull the plug. there is no way there is ever going to be a seamless transition back to the way things used to be. It’s a sad testimony on the culture and identity of a nation of prideful Americans that we can’t manage through some really, truly difficult economic times and come out on the other side ok. Ask around- you’ll be hard pressed to find a single person under the age of 30 that knows how to cultivate a simple vegetable garden or knows which types of edible flora grow indigenous to their area.
The grocery workers who were hailed as ‘heroes’ for going to work during the height of the pandemic were usually paid less per week than the $600 bonus federal unemployment money.
For a 40 hour notional ‘workweek’, $600 equates to $15 an hour. The unemployed also received state unemployment on top of this, which is usually 50-70% of their previous salary.
People who are on a payroll pay payroll tax, those who are not do not pay such tax. That’s 7.65% for FICA. There are also often local per capita taxes, and other such nuisances, for the working class. Union members also must pay union dues. That all adds often up to ~10% or a paycheck.
The unemployed didn’t need to pay for bus fair or for gas in their car to drive to work, or car repairs for damage caused by the daily drive.
They didn’t have to wear gloves and masks and work clothes in the middle of the summer heat – the back rooms aren’t usually air conditioned.
They didn’t get exposed to hundreds of potentially infected customers every day they worked, or do someone else’s job after their coworkers caught the virus and were out of commission for weeks.
And I almost forgot – they also didn’t have to work, and had an extra 40 hours a week to enjoy life.
This went on for five months.
The people who endured this are not at all happy about the fact that the federal government is still trying to pay people more to do nothing than they get to actually keep food on the shelves.
Why are the ‘heroes’ getting rewarded less than the ‘zeroes’?
Brilliant article ..
Thank You !!
The great appeal of Texas? Really?