Category Archives: Business and Economy

Schwinn once an important Chicago company but the industry and the world changed

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A look at a new documentary on the bicycle company Schwinn tells of how it was once a Chicago company and then it was not:

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The story starts in 1895, when German immigrants Ignaz Schwinn and Adolph Arnold founded Arnold, Schwinn & Co. in Chicago. Schwinn would subsequently buy out his partner and build an enduring family business that would reign over the bicycle industry for generations, surviving the rise of the automobile, the Depression and two world wars.

In fact, the original six-story Schwinn factory at Lake and Peoria streets in Fulton Market still stands as a monument to Chicago’s erstwhile bike company, with plans to redevelop the now-vacant building into office space…

As market share dwindled, Schwinn began outsourcing production. By 1983, Schwinn ceased its Chicago manufacturing, laying off 1,800 employees and moving most of its production overseas to Taiwan.

In 1992, struggling with debt, the storied Chicago company filed for Chapter 11 bankruptcy under fourth-generation owner Ed Schwinn…

The bike company has rolled on under a succession of new owners and is now part of Dutch conglomerate Pon, with Schwinn based in Madison, Wisconsin. But the movie focuses on the Chicago glory years, when the Schwinn brand ruled the sidewalks, schoolyards and bike lanes.

This might be the story of a number of companies over the years. They had success with lots of work and new ideas. They rose to become a known and popular brand. But then industries and places changed. People no longer wanted the product in the same way. They moved manufacturing overseas. They hit hard financial times and even though the brand name lives on, it has done so under the ownership of different companies and the company is now based in another city.

And this could also be the story of places. Chicago, like a number of American cities, particularly in the Northeast and Midwest, were centers for manufacturing. American companies produced a lot for decades. And much of that went elsewhere by the end of the twentieth century. Sociologist William Julius Wilson describes these shifts and their effects on neighborhoods in When Work Disappears. The loss of tens of thousands of manufacturing jobs was a hard blow to many cities who struggled to pursue or grow other businesses or industries in subsequent years.

In the big picture, both companies and places go through cycles and lifespans. They do not necessarily continue as they have been, even when they are successful. We tend to like the stories of their rise and it can be harder to wrestle with their falls. But both are part of the human experience.

A railroad merger that would stop Chicago area practice of freight handoffs between railroads

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A proposed merger between Union Pacific and Norfolk Southern railroads would end a long practice of railroads meeting in Chicago and then moving their freight from one provider to another:

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Starting in 1848, railroads raced to make Chicago the preeminent commercial and financial crossroads between booming factories on the East Coast and voracious markets and vast natural resources in the West.

But they always found it easier and cheaper to hand their freight off to each other in and around the city than to build transcontinental railroads that actually passed through Chicago. In some yards, including near McKinley Park 4 miles southwest of downtown, Union Pacific and Norfolk Southern exchange groups of railcars. Elsewhere, they hand off individual shipping containers to each other and to different railroads.

By running a single transcontinental railroad, Union Pacific says it can shave one or two days off the full week that 40-foot shipping containers now spend traveling from Los Angeles to Chicago and then on to, say, the western suburbs of New York City…

With a unified rail network, Union Pacific hopes to eliminate hundreds of rubber-tire container moves each day in and around Chicago, and hundreds more between Chicago and surrounding Midwest cities like Detroit; Columbus, Ohio; and Louisville, Kentucky.

There must be more to this story. How much of this has to do with the history of when railroads were founded and which areas they serviced? How much of this is about the railroad industry and companies working together and/or competing? How much of this is due to policies about railroad mergers?

In many industries, the trend over time does seem to be consolidation among the more powerful actors. This might appear to occur for good reasons, such as being able to ship goods through Chicago from coast to coast on one railroad system. But, as the article notes, this then affects markets, prices, and consumers with fewer companies.

At this point, the railroad industry in the United States is nearing 200 years old (1826 might be the first year of commercial operation). This is a long history compared to numerous other commercial or industrial sectors in the United States. What would it take to truly transform the railroad industry at this point as it operates in a much different context than it did when the first companies were founded? Railroads are an important part of the infrastructure of the United States and making it 200 more years might require foresight and adaptation.

An airport as an economic engine, Pittsburgh edition

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Reflecting on the opening of a new terminal at Pittsburgh International Airport, one writer looks back at what the city and region expected the airport to be:

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The airport was to be a driver and symbol of the whole region’s evolution. “Planners hope the terminal, with its vaulted ceilings and driverless underground trains, will complete an image transformation begun decades ago,” the Times story said. “Once known as a gritty old steel town of blue-collar workers, Pittsburgh has become a commercial center of office towers and high-technology industries.” That reinvention has continued apace in the 33 years since the terminal opened. But even as a tech, robotics, and health care hub, the area has three-fourths the population that it did in 1970. And no place was a worse reminder of what Pittsburgh had lost than this airport 20 minutes west of downtown…

As a major airline’s biggest hub, Pittsburgh would be taking a piece out of millions of travelers who weren’t even staying in Pittsburgh, and it would also get a tourist boom from people who suddenly had an ultra-easy way of visiting. Before Sept. 11, 2001, the Pittsburgh Post-Gazette reported, USAir was running 542 daily flights in or out of Pittsburgh. As airline-airport relationships go, this was a huge one. (Today, for example, Delta peaks with about 330 daily flights leaving Minneapolis, its No. 2 city.)…

But the oversized airport was a bleak metaphor for a city that was once more bustling and then got let down—first by the shriveling of the steel business, then by USAir itself. The cavernous, quiet terminal created a bad feeling upon landing at home, like you had just entered a place that wasn’t what it used to be. It wasn’t a good way to be welcomed to a city, whether you lived there or not.

It can’t be overstated how much the point of the new airport is to simply move Pittsburgh past this corporate pantsing by US Airways. Yeah, there are practical logistics reasons for an update. As the airport authority chairman said in announcing the project back in 2017, airlines would face lower costs, and the facility would be “very efficient and modern.” But then he got to the point: “And, finally, this is most important for me, the people of Pittsburgh finally get an airport that is built for them, and not USAir.”…

A major city needs a decent airport. It offers travel opportunities to residents and businesses. It connects a place to other places. It is what people see when they arrive in or leave a city.

Can an airport be an economic engine on its own? Pittsburgh is a smaller big city. According to Wikipedia, it is the 67th largest city in the United States with over 307,000 residents and it is the 28th largest metropolitan area. How much air traffic can be expected to go through an airport in such a city?

The story of this airport seems tied up with the fate of the city. It once thought it could be an airline hub. It has a proud history of industry. But the world changed: industry jobs went elsewhere, the airline industry changed, and the large airport did not live up to its potential.

Having effective and inspiring infrastructure is helpful in many ways. It enables other important activity. Pittsburgh may not have a large airline hub or a standalone economic powerhouse but perhaps it now has an airport that serves the region well for decades.

Many don’t seem to like a 50 year mortgage; some lenders already offer a 40 year mortgage

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As people reacted – mostly negatively, from what I saw – to the possibilities of 50 year mortgages in the United States, one article noted that 40 year mortgages has a history and can be obtained now:

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I remember a time when a 40-year mortgage — and a 50-year adjustable rate mortgage — built some buzz back around 2006 and 2007 for people who were struggling to buy a home. It didn’t work out well if you had to sell when home prices collapsed.

The 40-year mortgage has a history going back to the early 1980s, according to an earlier report in the Detroit Free Press, part of the USA TODAY Network, when 18% fixed-interest rates were squeezing consumers out of buying homes. It never proved to be the most popular product…

If you shop around, some lenders are offering 40-year mortgages now.

Rocket Mortgage notes online that the Detroit-based giant offers a 40-year mortgage with the first 10 years being interest-only payments. These mortgages can be available for loan amounts between $125,000 to $2 million.

I wonder how many people apply for and receive 40 year mortgages.

Reading the reactions to the idea of a 50 year mortgage, I was struck by how much of the conversation was dominated by financial details. How much equity would a homeowner have after 20 years? When would the interest parts of the payment taper off compared to paying down principal? How would interest rates be different for a 50 year loan? I should not be surprised given how much homeownership is now seen in the United States as a financial investment. It is a tool to build wealth, perhaps the biggest tool most people will have.

But homes are about more than that. Americans have ideas about the virtues of owning a home compared to being a renter. A homeowner might feel differently and act differently regarding their property if they have a mortgage. Numerous neighborhoods and communities are structured around homeownership (such as many suburbs). Having a stable and affordable residence can help contribute to numerous positive outcomes.

Are we at a stage when public discussions about housing then are exclusively or are primarily about the finances of owning a home – which are certainly important – and not any influential factors that might encourage or discourage people from owning homes in the United States?

The amount of building going on in the US to support AI

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Perhaps contrary to those who argue the United States struggles to build, an AI construction boom is underway:

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Many people believe that growth will only continue. “We’re gonna need stadiums full of electricians, heavy equipment operators, ironworkers, HVAC technicians,” Dwarkesh Patel and Romeo Dean, AI-industry analysts, wrote recently. Large-scale data-center build-outs may already be reshaping America’s energy systems. OpenAI has announced that it intends to build at least 30 gigawatts’ worth of data centers—more power than all of New England requires on even the hottest day—and CEO Sam Altman has said he’d eventually like to build a gigawatt of AI infrastructure every week. Other major tech firms have similar ambitions.

Listen to the AI crowd talk enough, and you’ll get a sense that we may be on the cusp of an infrastructure boom.

Throughout American history, growth is good. Construction is a sign of growth and provides jobs. A new industry is underway. Society is progressing. Data centers are all over the place (and will end up somewhere even if some communities do not all them). Americans are used to booming construction as this happened across housing and numerous industries throughout the country’s history.

What that growth might lead to is another matter. How do these data centers contribute to communities and landscapes? Do all the data centers in suburbs transform suburban life? When the growth slows, what happens then? Will the data centers still be there in 50 or 100 years or will they be vacant properties?

All this is a reminder that while many Americans will encounter AI through devices and data going through the air, it has a significant physical footprint. To power real-time AI responses to whatever we as users need requires buildings, land, resources.

Starbucks as a symbol of neighborhood or community success, closing locations edition

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Starbucks recently announced they will close some locations:

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While Starbucks has yet to disclose the total number of closings or the specific locations, Niccol said in his open letter that the company would end the fiscal year with nearly 18,300 stores in North America, which is down from 18,734 at the end of the third quarter, according to financial filings.

This is national news but it also has local ramifications. For several decades, having a Starbucks in a neighborhood or community signals some level of local success. Starbucks does not locate just anywhere – even with over 18,000 locations in North America – and each location hints at the potential local customers who purchase coffee and other goods. And closing locations also involves local jobs.

Workers rallied Thursday at the Starbuck’s store at Clark Street and Ridge Avenue in Chicago’s Edgewater neighborhood, one of the locations targeted for closure, according to the union. The store is set to work its coffee grinders and espresso machines for the last time Saturday…

On a crisp and sunny fall Saturday morning, a few customers filtered into the Glencoe Starbucks to get their last coffee at their local shop, and to say their goodbyes to the baristas. The store was set to close for good that evening. The store employees will find out Sunday if they’ve been transferred to another store or laid off, a barista said while whipping up a coffee.

Even as the number of store closings appears to be relatively small – perhaps several hundred out of more than 18,000 – it will be interesting to see how local communities are affected. If a Starbucks closes in a city neighborhood or in a suburb, does this then mean a loss of status or hint at decline? Some of this might depend on what goes into where the Starbucks was located. Will another national chain move in? Could a local business fill the gap? Will whatever ends up there provide the same status and tax revenue?

On the other hand, some people have concerns about Starbucks. It is a national brand and some prefer to see local businesses do well. Starbucks can be viewed as part of gentrification, changes to communities that displace long-term residents in favor of new residents with more resources and new expectations. A closed Starbucks presents a new opportunity.

Five or ten years from now, following up on these closed locations could provide a look at the brand and communities. Where are they expanding, where are they leaving? If they continue to move to drive-thru locations, how does this affect places?

Birkenstock has 9 US stores. Here is how many are in the suburbs.

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Birkenstock announced the opening of their newest US store in Naperville:

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Birkenstock is continuing its U.S. retail expansion with its first Midwestern store in the Chicago suburb of Naperville, Ill.

According to the German footwear brand, the new store is located at 20 W. Jefferson Avenue and offers Birkenstock’s full footwear collection for men, woman and kids, along with the Care Essentials line of premium, all-natural foot care products.

David Kahan, president of Birkenstock Americas, told FN that the company decided to open this location after hosting a pop-up at local retailer Naperville Running Company a few years ago.

“[The pop-up] gave us our first glimpse into just how special the local community is,” Kahan said. “The passion and dedication of our fans, particularly around the post-run sport world was truly inspiring. It highlighted the opportunity to connect in a bigger way throughout the year, and we’re excited to return with a dedicated space to share the full Birkenstock collection with Naperville.”

Naperville has a vibrant suburban downtown with a mix of national and local stores and restaurants. It is also a wealthy suburb.

According to the Birkenstock store locator, they have many resellers: nearly 4,700 locations. But they operate only 9 of their own stores. Here are these locations and their urban/suburban status:

  1. Naperville, IL – suburban (outside Chicago)
  2. Nashville, TN – urban
  3. Sevierville, TN – suburban (smaller suburb outside Knoxville)
  4. New York, NY – urban (Soho neighborhood)
  5. Brooklyn, NY – urban
  6. Deer Park, NY – suburban (outside New York City)
  7. Larkspur, CA – suburban (outside San Francisco)
  8. Venice, CA – suburban (outside Los Angeles)
  9. Glendale, AZ – suburban (outside Phoenix)

From this list, six of the nine locations are suburban. Birkenstock stores are in the suburbs of the country’s three largest metropolitan areas – New York, LA, Chicago – and are also outside several other sizable cities – Phoenix, San Francisco, and Phoenix. Can we expect new locations outside Dallas, Miami, Washington, D.C., Atlanta, and Philadelphia soon (the remaining top 10 metropolitan areas by population)?

Additionally, Birkenstock has stores in two cities: two locations in New York City and one in Nashville.

Residents from all over the United States can access Birkenstock products online or through thousands of retailers. But the company has picked these largely suburban locations to put a company store and that tells us something about their intended market and their brand.

The inefficiency of the construction industry

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One issue that affects American housing is the lack of efficiency in the construction industry:

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Companies like Reframe are trying to solve a conundrum scholars call the construction crisis. Although most sectors of the economy have gotten more efficient over time, construction has moved in the opposite direction—construction sites are less productive today than they were 50 years ago. It’s a genuine mystery, and everyone has their own pet theory about what’s to blame.

Efficiency is the answer to numerous perceived social issues in the United States. Make government more efficient. Make the distribution of resources or services more efficient. Get things done faster and at lower cost. And in the business world, who would be opposed to more efficiency?

I also recall some of the concerns expressed by critics about efficient home building operations. Take the Levitts mentioned in this article. Amid the various concerns expressed by many was a concern about the quality and character of homes that were mass produced. Would such homes stand for a long time? What does it do to community life when there are so few models available?

The example given in the article of efficient housing is modular housing. Part of this involves logistics; can it be produced at particular quantities and price points that makes it viable. But there will also be architectural and community questions. Will neighbors want to live next to it? Do early residents find it comparable to housing built by other methods? How does it stand up over time?

It would be interesting to ask Americans if they want “an efficient house.” Is the opposite of this “an inefficient house”? I’m not sure many think about in terms of efficiency when thinking about their residence.

The rise in LLC property owners in Chicago

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A new analysis shows that LLCs now own more properties in Chicago compared to two decades ago:

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In the last two decades, LLCs have become an increasingly common way to own real estate in Chicago, according to a first-of-its-kind analysis of 26 million property records by WBEZ, Injustice Watch and the Mansueto Institute for Urban Innovation at the University of Chicago.

The share of multifamily rentals owned by LLCs increased from 3% in 2006 to 16% in 2022, the analysis shows. Their share of ownership among larger apartment buildings with seven or more units, like the one where Carter resides, increased from 9% in 2006 to 34% in 2022.

Why the increase?

But LLCs gained traction with real estate investors in the 1990s when they realized LLCs had very minimal disclosure requirements, Hamill said. In Illinois, for example, only the manager and agent of an LLC — neither of whom are necessarily owners — are required to be publicly disclosed…

“There’s two big advantages with LLCs. One is the tax advantage that you’re not taxed as a corporation. The other big one is the ability to isolate liability and isolate financial assets,” Immergluck said…

But experts say the issue with LLCs isn’t their protection against legal liability. They say the problem with LLCs is the lack of transparency.

This could be told as a story of how a change in bureaucratic structures – the ways a corporation could incorporate – led to unintended outcomes. A new option from the 1970s eventually proved useful for property owners. But that could prove problematic for renters who cannot easily find people who can address important property issues.

This is a similar but different concern that those expressed in recent years about institutional investors buying up housing. What is similar is that some hard to find or hidden or presumed-to-be self-motivated actor is buying up housing and not acting in the best interests of residents or the broader good. What is different is that the concerns in the article above are primarily about the lack of having a person to contact and hold responsible, not about the numbers of units that are less affordable or less accessible because an LLC or corporation is acting rather than an individual owner. So this may not be a question of whether corporations can buy residential properties; it is about whether residents can know who these corporations are and whether they can be counted on to fulfill the landlord’s duties.

It would be interesting to hear from landlords what they would think of changes that would reveal their ownership. Would landlords who want to do the right thing object to this? Would some still want to not have their ownership public but would respond to residents well through property managers?

Measuring Walmart’s reach by its geographic proximity to 90% of Americans

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How much does Walmart matter in the United States? The company uses this statistic to get at this:

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Walmart operates more than 5,200 stores across the country, and 90% of Americans live within 10 miles of a Walmart or Sam’s Club, the company estimates. 

In this story, this figure is cited regarding the rollout of electronic vehicle chargers. The implication is that many potential drivers could then access Walmart’s network.

Part of the Walmart percentage could be the sheer number of stores and it could also be about corporate decisions about where to locate. The company grew from its first store in Rogers, Arkansas to being in many communities across the United States. Do all retailers go for the same sort of locations as Walmart?

It would be interesting to compare to other kinds of business. Take fast food chains that have thousands of locations; would 90% of Americans live within 10 miles of a McDonald’s or a Domino’s? Or what about distances from dollar stores? (Or were once within 10 miles of a Blockbusters?)

Or we could consider other important places. How many Americans live within 10 miles of a park? A school? A police or fire department?

All that said, being close to roughly 300 million people in the United States is an achievement. This likely contributes to figures I’ve seen that suggest roughly 90% of Americans shop at a Walmart at least once a year. And a story from several months ago suggested 95% of Americans were within a 3 hour delivery of Walmart. Proximity has to help even if Walmart cannot be everywhere.