Service of Retail: A Bellwether of the Economy’s Health, Impact of Shifts in Purchasing Habits or What?

April 28th, 2016

Categories: Economy, Real Estate, Retail, Work

empty store in manhattan

On a recent weekday we walked down First Avenue from 70th to 53rd Street in Manhattan and were alarmed by the number of empty spaces where stores, restaurants, nail salons and other business once thrived in a neighborhood swarming with people.  The worst was an entire block with rental signs in all the street level windows.

The Mt. Kisco Daily Voice reported last week that the Poughkeepsie Kmart branch is one of 78 to close around the country in May. I’ve driven by it a few times a month for years. The times I dropped in I found that the supposed value priced store offered cheap fashion and home fashion with no flair and commodities at far from discount prices which, in part, may account for this news.

On to another retail scene. “Upscale Shopping Centers Nudge Out Down-Market Malls: Some retailers are closing stores in weaker-performing locations to focus on Web sales and more luxury spots,” was a Wall Street Journal headline for Suzanne Kapner’s article. She wrote “Once-solid regional ‘B’ malls that thrived for years are losing shoppers and tenants to the ‘A’ malls—those with sales per square foot in excess of $500, according to Green Street Advisors.

“The research firm estimates that about 44% of total U.S. mall value, which is based on sales, size empty store 2 ave 1and quality among other measures, resides with the top 100 properties, out of about 1,000 malls.” Kapner continued: “Mall owners disagree about whether the Internet is their main problem. They point to demographic changes that redirected population and income growth away from malls built years ago, along with a real estate glut that has left the U.S. with 24 square feet of retail space per person, compared with 15 for Canada, 10 for Australia and 5 for the U.K., according to the International Council of Shopping Centers.”

A few days later, also in The Wall Street Journal, Kapner wrote “Glut Plagues Department Stores,” where she reported that hundreds will close “to regain the productivity they had a decade ago.” Green Street Advisors was again her source. Some 800 are expected to close representing “a fifth of all anchor space in U.S. malls.”

The developers will figure out what to do with these properties and customers will find other places to buy what they need but what about all the employees–how will they make a living?

I wonder if these retail signals representing mom and pop enterprises to major brands reflect shifts in purchasing habits or a canary in the economic coalmine–or both? Politicians and their followers looking for easy answers and quick fixes will blame increased minimum wage laws and the greater cost of health insurance for employees under Obamacare. Others will fault the closings on the massive shift of disposable income from the middle class to the extremely rich, which has occurred over the last 35 years. What do you think?

empty store 2 ave 2

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13 Responses to “Service of Retail: A Bellwether of the Economy’s Health, Impact of Shifts in Purchasing Habits or What?”

  1. ASK Said:

    There are too many malls and too many stores, all seemingly selling the same merchandise and simply not enough buying going on to support all these retailers. If one is to believe the NYTimes, the luxury market is also feeling the pinch; the paper reported recently Burberry’s decline in earnings is part of an overall trend that’s hitting that market as well. And, yes, it’s probably more expensive to do business today, with all the paperwork and mandates from the federal, state and local governments, and rents that seem to spiral ever upward (the Upper East Side is not exactly a low-rent district…maybe why you saw so many availabilities on First Avenue)…Also, I think Internet buying also contributesto weaker retail sales. Not living or working next to my favorite department stories has made me turn frequently to their websites; and free shipping clinches the sale-sometimes even with no free shipping.

    And finally, no matter what the government officials and economic pundits may say, the economy appears to be too unsettled — the world! — to have people shopping as they once did.

  2. hb Said:

    No political or economic system is perfect, and one problem with free enterprise and “letting the people decide” democracy is that human beings are not perfect either.

    Inevitably, their behavior runs to excesses; too much consumption, or too little and too much saving; too much government, or not enough regulatory oversight; too high taxes, or too low; too much money in too few hands, or no incentives to work hard, and too much construction, or not enough housing, office and retail space to satisfy demand.

    For generations real estate has been a boom or bust business, especially in New York City. Thanks to considerable extent to foreign investment, there has been an exaggerated run up in property construction, as well as values and rents. This, combined with a political environment which favors the big over the small, has forced small retailers out of business and a rapidly growing inventory of vacant retail spaces–more, perhaps, in the city than elsewhere.

    However, at least in New York, this may soon radically change. Between oversupply because of new product coming on the market, the weakening of consumer demand because of wealth inequality and the potential panicking of foreign investors as they begin to realize how dismal our choices for our next President really are, I think we are in a real, rapid fall in both property values and maybe even in the economy itself.

  3. Jeanne Byington Said:

    ASK,

    I searched out the source of something I heard on the radio this morning. The title of Neal Gabler’s piece in The Atlantic says a lot: “The Secret Shame of Middle-Class Americans: Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them.” http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/. These Americans live paycheck to paycheck. They may save their credit card to pay for essentials. Match the high retail rents you refer to with fewer customers and you get empty retail spaces. And for all I know, the upper eastsiders who live in the neighborhoods we passed might opt for $250 pp dinners at highly rated restaurants leaving the local pub or deli in the lurch.

    I didn’t think of taking photos of First Avenue between 70th and 53rd. I shot the ones in this post on Third Avenue and 72nd Street [the one at the top] and the other two are across the street from each other on First between 49th and 50th Streets, a stone’s throw from the UN and a block or two from one of the buildings with Trump’s name on it. [I don’t know if he sold his name in a licensing deal to the developer or if he owns the building. The places for flowers around it are chronically neglected with half dead flowers even in summer so I would guess the former.] My point: Empty retail spaces are all over the city, however the impact of that short walk inspired the post.

  4. Jeanne Byington Said:

    hb,

    I’m no economist or forecaster but while my kneejerk reaction to your prediction about real estate in NYC was to agree, as I started to comment I changed my mind.

    One of the frontrunners is already invested in real estate in NYC. Don’t think for a minute he is going to let his investments tank any more than VP Cheney forgot about his former employer, Halliburton, when it came to doling out government contracts abroad. The other one’s comfort zone is to take care of the hand–domestic or foreign–that feeds her and her “Foundation” royally. We won’t soon again see a time similar to when President Ford refused to bail out a sinking NYC in the 1970s. The Daily News’ headline that he told the city to “Drop Dead” were not his words–they were those of the headline writer, but his message was clear. And she’s a New Yorker, a Yankees fan by adoption, and a huge supporter of big businesses that still call NYC home such as Goldman Sachs–isn’t she?

  5. Martha Takayama Said:

    The realities and trends you discuss reflect various changes in the way we live. If you start with your observation about Kmart and its offerings: A “supposed value priced store offered cheap fashion and home fashion with no flair and commodities at far from discount prices” it should be the major reason for closings, like a “Chronicle of a Death Foretold.” Customers should have recognized long ago that aesthetic appeal and style do not necessarily have to be very expensive. There are new chains today, like Target, Uniqlo, H&M (labor practices aside) and Zara, to name just a few, which offer a wide range of classic to cutting edge design that is presentable, attractive and chic at very modest prices for a range of ages, sizes and taste. Despite the lack of discernment in our social and political behavior recently, we have to assume that our customers are more discerning in their spending.

    There is no question that we have an enormous glut of malls no matter what their level or price points are. Excess building and the idea that you need one of every brand name in an unnecessarily oversize store on every few blocks or every15 minutes drive away from one another is foolish. It’s unusual, special, not for everyone. Before long their stores were almost within walking distance of one another. Then they disappeared. The resurrected “mid-century” market for the furniture, is not daily retail.

    Urban planning or lack thereof has saddled us with malls which don’t take into account the complex function of city centers, restoration, and social exchange. Malls protect from the environment and can be used also, as in Latin America, to control the level of the visitors, via security.

    Purchasing online does not satisfy the desires of all customers at all price points. Human contact, the ability to touch, feel and try on without computer snafus are more important to them than others. Is it possible that shuffling of social classes does not only reflect a larger affluent class, but an increased cost of living with a declining level of quality production. We do not consider ourselves superior to so many countries that have national health care. We should be able to figure out how to make it work.

  6. Jeanne Byington Said:

    Martha,

    I’m told prices for commodities at Target are competitive and fair and that fashion can be superlative–I saw that Marimekko introduced a line. I haven’t seen the quality of what I hope is cotton but always liked cheery Marimekko designs. TJ Maax doesn’t sell detergent and other than gourmet food/chocolate, no food or paper towels as Target does but has great home fashion, stationery and fashion.

    Like the leaves of a plant without water, when the kingpin store leaves a shopping center, the rest dries up. It is sad to see as the other businesses are usually small ones. I don’t live in an area with a ton of malls but believe what everyone here has written and I’ve read, that you’d see the same old stores 15 minutes apart, so what’s the point? You’re not going to visit three Restoration Hardware stores on a Saturday.

    As I love to shop, and to, as you note, feel the quality of the textile or leather I am buying [unless I have duplicates and know what I am getting], I do prefer to see and touch. The exception: When I have no time to get to a store. Some items, such as tights, are baffling no matter where I buy them. If they are long enough, or not, is always a surprise. The packaging makes it hard to tell and the size/weight charts are misleading so it doesn’t matter whether I order them online or not.

    It will be fascinating to see what will take the place of stores in empty malls–condos? [not enough windows] Health clubs? [how many of these do we need].

  7. hb Said:

    With reference to your comment above, candor is most certainly not a characteristic applicable to either leading candidate for the Presidency.

    As a former New York banker with some knowledge about how real estate developers really operate, I think, if you dig hard enough, you will find that Donald Trump has a minimal exposure to New York real estate risk. He uses other people’s money, not his own. Furthermore, I suspect that much of his true wealth is so deeply buried in places like Switzerland that you will never find it.

  8. Jeanne Byington Said:

    Golly, hb, did I get it wrong!

    Doesn’t Trump owe the money eventually? If he purchased a $100 million property, and borrowed $90 million and he lets NYC slip so it is worth $80 million, does he walk away and take the $10 million loss off his taxes?

    Glad to hear you think he buried the $ abroad. If he is the President, he will be polite to the heads of those countries, at least.

  9. hb Said:

    I am obviously not privy to any details, nor do I wish to suggest, in any way, that DT ever does anything that violates the letter of any law. (He hires exceptionally capable lawyers to make sure that does not happen.) However, as he says, he does know how to do deals.

    To take your example. Some say Trump borrows $110 million to finance a $100 million property, takes $10 million out up front, and then, in due course, the surplus cash flow it generates if it is successful. If it is not, it declares bankruptcy, and he moves on to the next deal. Do this often enough; you get very rich.

    As to his being polite to foreign leaders, he is far too smart to let anyone, including them, know where his money really is. However, if he wants something from them, he may be charming.

  10. JM Said:

    My feeling is that I read about so many employees being fired from established companies while recently in the headlines the CEO of Starbucks, CVS & another large company listed the outrageous salaries these executives got. After reading this I want to avoid CVS for which I have a tag on my keychain. I never buy anything in Starbucks because I learned how expensive their coffee is.

    I do not want to comment on this gong-show of the election process captivating the airwaves. I never before had such a dislike for politicians but each one calls the other a “liar” and so many are being prosecuted for corruption. When I grew up in the 30s & 50s, my parents talked about each running mate. Now no one wants to commit their favorite candidate. It’s not a world I like anymore. Sorry, Jeanne, that I’m feeling so negative tonight. Even my kids don’t want to talk about politics!

  11. Jeanne Byington Said:

    hb,

    Why didn’t I think of that scheme? In a far less lucrative way there are people in PR who do this. They promise a client the moon, don’t deliver because you can’t guarantee any placement in this business, then don’t deliver, lose the account but have six months to a year’s worth of unearned, but banked, fees and off to the next patsy. The problem, of course, is that they ruin it for legitimate PR people.

  12. Jeanne Byington Said:

    JM,

    The scene is discouraging. I know talented young people who work 80 hour weeks at giant corporations, generating spectacular results. They win every award and a promotion as well but are not rewarded in appropriate salary. They ask about the situation and are put off. Meanwhile, as you note, the execs walk away with multi-millions. And we wonder why many in their late 20s early 30s have what older folks call attitude problems? They arrive committed and soon realize that they can’t applaud with only one hand–theirs.

    You are not alone in your analysis of the political situation. The number of people who dislike the front runners is remarkable and yet they are the front runners. I have yet to figure out how this happens.

  13. Lucrezia Said:

    I’m no economist, and prefer to defer to those like Paul Krugman who see what’s happening and are able to make a valuable analysis.

    With that in mind, I see doing my part as supporting small businesses to the best of my and the pocketbook’s ability. In paying more, better and more cordial service usually results.

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