Category Archives: Business and Economy

What if the best single display of America is Walmart?

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In making several trips to Walmart in advance of Christmas, I found myself marveling several times at the store. Here are some reasons why this retail giant may be the best single illustration of America today:

  1. Consumerism rules. Each Walmart has so much stuff, from groceries to auto parts to Christmas trees to dinnerware. And Americans like this stuff even more if it is reasonably priced.
  2. On the flip side of consumerism, how can one company coordinate all that manufacturing and shipping to get items to each store? Walmart’s rise is due in part to their logistical abilities.
  3. Walmart is a great place to find stuff with which to go overboard for whatever holiday is coming up. Americans love Christmas, Halloween, Fourth of July, Easter…
  4. Walmarts generally require customers to drive there, often due to their locations in suburban or rural areas, the need for a good chunk of land, and helping shoppers to transport all the stuff they buy.
  5. Because of the prices and locations, Walmarts tend to attract a diverse set of shoppers.
  6. The company does not let workers unionize.
  7. The Sam Walton story is not exactly rags to riches but it does suggest that a hard worker with some new ideas can make something big of himself.
  8. Everyone has to eat and Walmart is the largest grocery chain in the United States.
  9. It is an iconic American brand though it hasn’t exactly caught on around the world like others (such as Coca Cola, McDonald’s, Nike).
  10. Everyone seems to have an opinion about its merits or flaws. Still, according to the company, “Every week more than 60 percent of Americans shop at Walmart.”
  11. It is convenient and ubiquitous for many: “About 90 percent of Americans live within 15 minutes of a Walmart store.“
  12. The company’s size is hard to fathom:

    “And Wal-Mart’s heft is not just financial, it’s physical too. Its 4,600+ U.S. stores occupied almost 700 million square feet. That’s roughly enough space for 11,800 football fields. That means the entire population of Buffalo, New York, could suit up, split into teams and play football against each other simultaneously in Wal-Marts across the country.

    The company’s total revenue for fiscal 2016 was $482.1 billion. That’s enough to buy a gallon of milk every day for every person in Brazil for two years, based on the $2.89 price per gallon at the North Bergen, New Jersey, Wal-Mart.

    Wal-Mart’s costs and expenses hit $458 billion for the year, which is bigger than the budgets of all but four U.S. government departments. Here’s what the rankings would be:

    1) Health and Human Services
    2) Social Security
    3) Treasury
    4) Defense
    5) Wal-Mart.”

For better or worse, is Walmart America?

Cities using ride-sharing services to supplement mass transit

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Several pilot programs in American cities take advantage of the rise of ride-sharing companies:

Transit agencies, perennially strapped for cash, have embraced these pilot programs as a way to save money and, potentially, provide better service. Outside Tampa, for example, the East Lake Connector bus cost the Pinellas Suncoast Transit Authority about $16 per person per ride. Riders paid $2.25 each. That route has since been discontinued. In its place, starting this month, riders will pay $1 for an Uber, Lyft, or cab ride from anywhere in the county to the nearest bus stop. The transit agency will achieve the low fare by providing a $5-a-head discount.

And here is some criticism for such efforts:

There are serious concerns with such programs: For starters, the savings are in part derived from trading public-sector employees like bus operators for low-wage stringers like Uber drivers. For the most part, though, the partnerships have made bad service a little better. In Pinellas, for example, the program emerged in response to a 2014 referendum in which local voters declined to adopt a 1 cent sales tax in support of transit.

But now that chain of cause and effect is being reversed. The rise of ride-hailing companies is increasingly viewed not as a fix for bad service but as its justification. It is invoked, as you might expect, in bad faith by conservatives who have advocated against public investment for decades. But even pro-transit politicians and officials have begun to see ride-hailing services as an acceptable substitute for public transit. As a result, cities across the country are making important decisions about transportation that treat 10-year-old companies as fixed variables for the decades to come…

We’ve known for a while that Uber is unprecedentedly unprofitable, its $60 billion-plus valuation notwithstanding. But as we begin to make policy decisions based on it and its competitors’ impact, we have to recognize that this state of affairs can’t last. It is not just the taxi cartel that makes conventional cab rides cost more than Uber rides. It’s the patience and optimism of Silicon Valley investors. Maybe Uber will continue its shift into shared rides, which (as a prior generation of transportation operators learned 150 years ago) are more profitable. Or robot cars will eliminate driver jobs, dropping the marginal cost of providing rides (though adding billions in capital expenditures). But in any case, whether it achieves its desired market share or not, the company will have to start raising prices.

This criticism makes sense: mass transit is all about economies of scale and having large numbers of people following more fixed routes. Failing to build infrastructure now means there will be reduced mass transit options in the future.

But, I think there may be a larger issue that undercuts this criticism: what if large numbers of Americans don’t want to use mass transit, either when given other opportunities or they have enough resources on their own to get where they want or they don’t want to pay for it through taxes and municipal funds? Even with plateauing driving in recent years, this doesn’t necessarily mean Americans want to sacrifice their mobility or personal space to use mass transit more. If this is true, perhaps driverless cars are the true answer for individualized mass transit – not ride-sharing – as they would offer personal space and mobility but without the hassle of driving oneself. Of course, this could also destroy mass transit as we currently know it…

Investing in foreclosed homes goes public

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Here is a new business model: buy a lot of foreclosed homes after a housing bubble bursts, plan to rent out many of the properties, and watch the money flow in.

Though Blackstone is unlikely to sell much or even any of its stake in an IPO, the stock market debut will test investors’ interest in the idea that the rental-home business can be institutionalized as apartments, shopping centers and office towers were before.

Blackstone and others investors believed that the housing collapse presented a rare opportunity to acquire homes for less than it cost to build them. Millions of foreclosures created a market large enough to justify investing in large systems to manage and maintain sprawling portfolios of rental homes…

To generate the revenue growth that shareholders will demand, they must pace rent hikes to avoid spooking tenants into becoming home buyers themselves. And now that foreclosure rates have returned to normal levels and prices have rebounded, they could find it difficult to add new houses at attractive prices.

They also must convince investors that huge home-rental companies are viable long-term businesses, not just massive portfolios of properties that need to be sold off.

I imagine there will be some particular parties (not just investors) interested in how this works out:

  1. Nearby residents. What happens if this leads to significantly more renters of homes in certain places? Americans tend to view renters more negatively than homeowners – though this might change in the future if the country shifts to fewer homeowners. How well will Blackstone do with having quality renters and following up with issues?
  2. Communities. Having renters is probably preferable to having vacant homes. But, they might have similar concerns as nearby residents as well as other interests in how Blackstone uses the properties.
  3. Advocates for affordable housing. There was some concern a few years ago that having large firms like this purchase cheap homes could limit lower priced housing. The lower end of the housing market could use more stock but investors may need to pursue higher rents in order to generate profits.
  4. Renters and homebuyers. What kind of rents will Blackstone charge? Will they eventually sell these properties and at what price? What kind of landlords will they be.

Additionally, I wonder what would happen if this does not prove to be a viable business plan. Are there others who would be interested in purchasing these properties? What if foreclosure proceedings begin with an institutional investor?

The suburban mall of today is an entertainment center

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Stores alone are not enough to attract people to malls; they are now full of additional entertainment options including restaurants and movie theaters.

“The traditional mall with four department stores as their primary traffic driver is no longer the best model,” said Joe Parrott, a senior vice president with the Chicago offices of CBRE, a commercial real estate company…

“A lot of these big entertainment players are coming,” Parrott said. “And the malls are interested in bringing tenants that are more experiential and broaden the appeal of the mall beyond just department stores.”…

Stratford Square Mall in Bloomingdale is a perfect example of the changing dynamic. The mall is launching a multimillion-dollar renovation and tenant improvement project that features both interior and exterior improvements at the 1.3 million-square-foot center. It’s a continuation of an earlier renovation that included the 2014 opening of Round One, a 40,000-square-foot entertainment center that features bowling, billiards, numerous video games and karaoke…

Experts with California-based Green Street Advisors have predicted that 15 percent of malls nationwide will close or be repurposed over the next decade. But that doesn’t apply to successful malls listed in the “A” and “B” category.

On one hand, the major changes in retail – big box stores, online shopping – mean malls have to adjust as do a lack of public spaces in many suburbs – which can be approximated by private entertainment spaces at the mall.

One expert cited in this article says, “Bad malls disappear.” Within the next decade or two, we might expect to see fewer shopping areas in the suburbs overall but the ones that do survive becoming behemoths. This could have some interesting consequences for communities that are home to these entertainment complexes as well as for those who lost out on the chance to have a mall decades ago.

A working life hints at the connections between sociology and marketing

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An obituary for a pioneering female in the advertising industry provides a reminder of how sociology and marketing can be related:

A sociologist with a knack for market research, Ms. Ziff, who died on Nov. 11 at 92 in Jupiter, Fla., spent nearly four decades working her way up the ranks at big ad agencies.

Her work contributed to one of the most famous campaigns of the 20th century, the “Please don’t squeeze the Charmin” toilet paper commercials of the 1960s featuring the fictional supermarket manager Mr. Whipple.

Ms. Ziff, then a vice president at Benton & Bowles, conducted research suggesting that consumers were more likely to buy toilet paper if they could touch it. Using her insights, her colleague John Chervokas developed the Mr. Whipple campaign…

Ms. Ziff earned a Ph.D. in sociology from the City University of New York, while continuing to work at Benton & Bowles.

Is the primary difference between these two fields that one aims to sell more products while the other hopes to better understand and explain social life? The two fields can use similar research methods and both want to know how people and groups operate.

I’m guessing it would be frowned upon in many sociology departments to make this suggestion but a number of students might be interested to know that training in sociology could be a great background for going into marketing.

Suburbs ask grocery chain to fill vacant stores rather than leaving them empty

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The leaders of eleven suburbs held a press conference yesterday intended to prompt Albertsons to allow former Dominick’s sites to be used:

The damaging effects of keeping these spaces vacant is very difficult for a lot of these communities,” Naperville Mayor Steve Chirico said. “We need to do a better job working together and putting the community first, and right now the communities are not being put first. We’re asking for their help. We need to see some participation.”…

However, leases on 15 vacant Dominick’s continue to be paid for by Albertsons. On Thursday, municipal officials said they want the practice of extending those leases to cease.

“When you’re leasing a space that doesn’t have a tenant and you’re renewing that lease for five years purposely so you can control whatever goes in there, that’s where we’re having an issue,” Bartlett Village President Kevin Wallace said.

Romeoville Mayor John Noak said there is interest in the vacant spaces and willingness from suburban leaders to work with Albertsons to get them filled, but the company is not cooperating.

Two quick thoughts:

  1. It is interesting to see under what circumstances suburban leaders are willing to cooperate. Common economic matters could be at the top of this list.
  2. The worst outcome for many suburbs would be that the abandoned properties are not maintained and whoever owns it is doing nothing or the bare minimum. Such buildings are not just empty; they are an eyesore and many suburbanites would say it reflects poorly on their community. This isn’t exactly the case here: Albertson’s has the leases, is paying for the property, and the sites themselves aren’t in terrible shape – they are just empty. But, large grocery stores often occupy prime retail space at busy intersections and it makes sense that communities would eventually want to see the space put back into the retail market both for appearances and sales tax dollars.

See earlier posts on this subject here and here.

Social networks of corporate elites have become less dense

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Two researchers suggest that the board members of major American corporations are now less connected to each other:

The dense web of connections allowed the inner circle to police the corporate ranks and present a unified, middle-of-the-road message to policymakers. Our own research, forthcoming in the American Journal of Sociology, finds that board ties are now too sparse to provide a means for business executives to forge common ground.

CEOs today rarely serve on two or more boards, and, as a result, they no longer have monthly opportunities to hear what peers who support another point of view might think. Those board connections turned out to be a force for political moderation, and annual gatherings in Davos are not enough to replace them.

These researchers argue this weaker network is not necessarily good:

When a single network connected corporate America, executives were forced to listen to opinions from a range of peers. And although the group skewed Republican on average, individual directors held a range of political opinions.

The most well-connected leaders converged on a preference for more moderate candidates and policies and often ended up donating to both parties’ candidates, not just one. The support of this group was useful, if not absolutely essential, for potential presidential candidates, and it is hard to imagine that a putative anti-establishment candidate like Trump would have passed muster.

This seems like a counterintuitive finding: even as academics like C. Wright Mills worried about the power elite, breaking up these networks can also have negative consequences. Many may not like the image of a good old boys network but that group could get things done. This reminds me of some of the research on term limits: many might want more turnover in political offices in order to limit corruption but such efforts can also limit effectiveness of politicians who no longer have the deep knowledge or connections built up over years. What if it turns out that neither outcome – dense corporate board networks or weaker networks – is particularly good? It is probably going too far to suggest that corporate boards should go all together…

A zoning paradox: sacred residential spaces are dependent on their market values

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The last page of Sonia Hirt’s book Zoned in the USA lays out a key paradox in the American zoning system:

Isn’t it ironic that American residential space is so sacredly residential (so protected from intrusion through land-use law, that is) only because it is so commercial (because it is an object of trade rather than an object of our sentiments)?

Perhaps this another piece of evidence that single-family homes are one of the biggest objects of American consumption as well as key pieces in the American economic system.

GE moved to Boston to be near big ideas, disruption, competition

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Big companies moving back to big cities is a trendy thing and here the CEO of General Electric describes their recent move back to Boston:

Immelt: You know, we wanted to get to a city. At the end of the day, I think for the company we wanted to get into a place where there was more of an every day where you could get up and be part of an academic setting. So I think it was important to get to a city...

I have to say it’s real. I thought it was a little bit of B.S. initially, I wasn’t sure. And when I looked out the window—when I was in Connecticut, it was beautiful, awesome, great office—but when I looked out my window, I saw nothing, there was nothing going on. I could watch cars go on the highway, things like that.

I’ve been Boston now six weeks and you just walk out the door. You’re in the middle of an ecosystem that quite honestly for a big company, it makes you afraid. You’re where the ideas are. You get more paranoid when you’re doing that and that’s a good thing. So I thought it was—

Isaacson: Only the paranoid survive!?

Immelt: No, no. It’s a good thing. When you’re a big company, it can get hidden but it’s important that you’re in touch with what the next idea is or what the next disruption is. And so I’m kind of a big believer that that’s the wave of the future.

The summary suggests this echoes Richard Florida’s approach to cities. Yet, when people talk about Florida, they often refer to his ideas about employees and the workforce: a talented, diverse, and tolerant workforce that is attracted to thriving cultural and entertainment scenes. Immelt is suggesting something else is also important: competition between ideas. In the suburbs, it is easy to become comfortable and become insulated from cutting edge thinking (and technologies?).

It seems like it wouldn’t be too hard to test this idea: cities produce more innovation and competition than suburban areas. Off the top of my head, it seems like Bell Labs did okay for decades in largely suburban office and R&D facilities. Are the various companies in Silicon Valley hampered by being in more suburban settings (or to put it another way, could they have been even more successful)? Is being in the metropolitan area enough to help spur innovation or does a physical location in an urban core (even opposed to being within city limits but not near thriving areas) near other firms and employees doing these things matter?

How many suburban entertainment centers can one region have?

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Schaumburg is looking into creating a new entertainment district out of underused properties:

Schaumburg trustees Tuesday approved a $6.58 million offer to buy the two single-story office buildings just north of the village’s convention center and Renaissance Hotel to help develop a new entertainment district and reconfigure Thoreau Drive.

The 110,000-square-foot Woodfield Green Executive Centre lies on the north side of Thoreau Drive and just across Meacham Road from Zurich North America’s new headquarters…

The long-term plan is to hold the property to sell to one or more developers interested in building more restaurant and other entertainment venues near the southeast corner of Meacham and Algonquin roads.

This sounds like a typical suburban strategy today: take properties that are not doing well or even abandoned (see efforts to utilize closed grocery stores) and start generating revenues through new entertainment use. Stores come and go but theaters and restaurants can come together to create a vibrant distract that will generate property and sales tax revenues for years to come.

This did lead me to a question: within the Chicago metropolitan region, how many entertainment districts can the region support? If many suburbs are trying to pursue these goals, can most of them sustain successful districts? There are already a number of successful or established districts: Evanston, Arlington Heights, Schaumburg and Woodfield, Rosemont, Gurnee Mills, the Oak Brook-Yorktown corridor, Naperville, plenty of other downtowns with lively scenes and regular festivals and events (Geneva, Aurora, Elmhurst, etc.) and countless shopping centers that are transitioning to lifestyle centers. I assume there is a saturation point where these districts start losing people to each other. Of course, this might be mitigated by two factors: (1) continued population growth so that everyone can share from a growing spending pie and (2) specialization among entertainment districts that could help each remain competitive.

Another thought: how often do entertainment districts simply reproduce existing patterns of wealth and the distribution of higher-end commercial properties?