Category Archives: Business and Economy

Is Walmart now a grocery store that sells some other items?

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Walmart might be the quintessential American big box store. Inside a customer can purchase many items from a variety of categories. Yet, a large percentage of its revenue involves groceries:

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Nearly one in four grocery dollars in the US is spent at Walmart, more than double the share that shoppers spend at Kroger or Costco, according to consumer analytics firm Numerator.

That all adds up to more than $264 billion spent on groceries at Walmart US locations in 2023, up from $247 billion and $219 billion in the preceding two years.

Not only are top-line sales growing, their percentage of total division revenues is ticking up from about 55% three years ago to roughly 60% last year. And these numbers don’t even include Walmart-owned Sam’s Club.

I remember the first Walmart that opened near us in the Chicago suburbs when I was a kid. It was not a Supercenter and it was not as big as today’s stores. There were some food items there but no fresh groceries. You could buy all sorts of stuff there, from CDs to clothes to auto care items. Buying groceries often required a trip to the major grocery chains in the Chicago area, Jewel and Dominick’s at the time.

The Walmart today is a different experience. One side of the store is devoted to groceries. There are many options available for all sorts of food items. A buyer could go just for groceries and make a choice about whether to add other items to their carts from the other parts of the store.

From these experiences and their revenue streams, it sounds like Walmart is a grocery store first. It is not a conventional grocery store but as the comparative numbers indicate, its grocery sales dwarf other competitors. For younger generations of Americans, they may see Walmart as the prototypical place to get groceries as opposed to supermarkets or neighborhood grocery stores.

“Wall Street landlords” don’t own a big percentage of residential properties though percentages are higher in some clusters

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An analysis of “Wall Street landlords,” big firms buying up residential properties, suggests they do not own a large percentage of residences overall but their property does tend to be in some clusters:

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Nationally, Wall Street landlords that have more than 1,000 units in their portfolios own just 1% of all of America’s family homes and 4% of all of the houses that are rented out. In most areas, their presence is still too small to have much effect on local housing dynamics. If current trends continue, though, their share of the market for single-family rentals could increase 10-fold by the end of the decade, MetLife Investment Management estimates. 

There are a handful of U.S. neighborhoods where investors are densely clustered, particularly in Georgia, North Carolina, Florida and Texas. They have bought more than 1,000 homes in 53 zip codes, putting their ownership of the local housing stock anywhere from 4% to 12%, according to data from real-estate analytics firm Parcl Labs. The data includes some houses temporarily owned by builders, as well as foreclosed properties on banks’ books, but most are held by institutional landlords. 

Wall Street housing investors tend to herd into the same neighborhoods because their algorithms spot the same opportunities. They screen the country for cities and towns with population growth and job openings—places where there is likely to be competition for homes. They prefer to own three-bedroom, suburban properties that are around 1,500 square feet in size and offer a convenient commute downtown. Young parents like these kinds of homes, and landlords like to rent to families because they become sticky tenants once their children enroll in local schools.  

Big landlords are also able to sift through reams of data to spot bargains. The 53 zip codes where they are most densely clustered offer cheap housing. The median single-family home price in these areas is $345,400, based on Redfin data—around a fifth below the national level. Rents, however, are only 3% below the national median. 

It sounds like they have bought more in places where there are deals and money to be made relatively quickly. If unchecked, would they then uncover more places that offer deals and just keep going until there are no deals left?

Or might conditions and the approach of landlords change in the future. Some communities might restrict who can purchase residences. The landlords might be willing to hold on to properties for longer, particularly if higher rents are sustainable. Or the broader housing market twists and turns (currently few sales) might affect how landlords and communities act.

At the moment, I am most intrigued by the numbers: 1% of single-family homes, 4% of rented homes. Are these large enough percentages to fundamentally alter housing? I could see how there would be effects in clusters of owned properties and these clusters could introduce spillover effects to nearby locations or the broader market.

Given the importance of jobs reports for policy and the economy, why are there so many later revisions to the data?

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The number of jobs gained in the United States is expected to be revised:

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Goldman Sachs Group Inc. and Wells Fargo & Co. economists expect the government’s preliminary benchmark revisions on Wednesday to show payrolls growth in the year through March was at least 600,000 weaker than currently estimated — about 50,000 a month.

While JPMorgan Chase & Co. forecasters see a decline of about 360,000, Goldman Sachs indicates it could be as large as a million.

These are not just numbers; this data has implications for policies and economic conditions. Why are they being revised?

Once a year, the BLS benchmarks the March payrolls level to a more accurate but less timely data source called the Quarterly Census of Employment and Wages, which is based on state unemployment insurance tax records and covers nearly all US jobs. The release of the latest QCEW report in June already hinted at weaker payroll gains last year…

For most of the recent years, monthly payroll data have been stronger than the QCEW figures. Some economists attribute that in part to the so-called birth-death model — an adjustment the BLS makes to the data to account for the net number of businesses opening and closing, but that might be off in the post-pandemic world…

Ronnie Walker at Goldman Sachs says the QCEW figures are likely to overstate the moderation in employment growth because they will strip out up to half a million unauthorized immigrants that were included in the initial estimates.

In other words, this is a measurement issue. The first measure comes from a particular set of data and the revision utilizes a different set of data that takes more time to put together. There might also be discrepancies on what is included in each set of data, not just differences in the sources of data. This mismatch leads to later revisions.

Given our data and analysis abilities today, isn’t there some way to improve the system? Could we get (a) more complete data quicker or (b) better estimates in the first place or (c) even new data sources that could provide better information? To have an initial set of figures that people respond to and then a later set of figures that people respond to seems counterproductive given the stakes involved. .

Banks and “extend and pretend” for office properties

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With some companies and organizations falling behind on their commercial mortgages, some banks are waiting and looking for ways to get out of the loans:

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Some Wall Street banks, worried that landlords of vacant and struggling office buildings won’t be able to pay off their mortgages, have begun offloading their portfolios of commercial real estate loans hoping to cut their losses…

But these steps indicate a grudging acceptance by some lenders that the banking industry’s strategy of “extend and pretend” is running out of steam, and that many property owners — especially owners of office buildings — are going to default on mortgages. That means big losses for lenders are inevitable and bank earnings will suffer.

Banks regularly “extend” the time that struggling property owners have to find rent-paying tenants for their half-empty office buildings, and “pretend” that the extensions will allow landlords to get their finances in order. Lenders also have avoided pushing property owners to renegotiate expiring loans, given today’s much higher interest rates.

But banks are acting in self-interest rather than out of pity for borrowers. Once a bank forecloses on a delinquent borrower, it faces the prospect of a theoretical loss turning into a real loss. A similar thing happens when a bank sells a delinquent loan at a substantial discount to the balance owed. In the bank’s calculus, though, taking a loss now is still better than risking a deeper hit should the situation deteriorate in the future.

Four questions come to mind:

  1. How long will banks wait before aggressively working to drop these loans? It sounds like this is happening a little bit. Is there a possible tipping point? In other words, how much “extend and pretend” is doable?
  2. How much does this behavior toward commercial tenants reflect how the same lenders or other banks treat residential loan holders? If a homeowner is not making their mortgage payments, do they get treated the same? Is the issue more of the size of these loans and not necessarily what kinds of properties are involved?
  3. Given the foreclosure crisis of the late 2000s and the COVID-19 pandemic, is it safe to assume there are plans in place if banks need to move a lot of these loans at once? Who would benefit the most from aid to get out from under a lot of commercial property losses in a short amount of time?
  4. What happens to these vacant properties in the short and long-term? How quickly can they be filled by other uses? How do these vacancies affect the communities in which they are situated?

Trying to make the American “feeling economy” measurable and efficient

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Sociologist Allison Pugh suggests we are heading toward a “feeling economy” with measurement:

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Erin is one of millions, from teachers to therapists to managers to hairdressers, whose work relies on relationship. By some accounts, the U.S. is moving from a “thinking economy” to a “feeling economy,” as many deploy their emotional antennae to bear witness and reflect back what they understand so that clients, patients, and students feel seen. I’ve come to call this work “connective labor,” and the connections it forges matter. It can be profoundly meaningful for the people involved, and it has demonstrable effects: We know that doctor–patient relationships, for instance, are more effective than a daily aspirin to ward off heart attacks.

But this work is increasingly being subjected to new systems that try to render it more efficient, measurable, and reproducible. At best, firms implement these systems assuming that such interventions will not get in the way of workers and clients connecting. At worst, they ignore or dismiss those connections altogether. Even these complex interpersonal jobs are facing efforts to gather information and assessment data and to introduce technology. Moneyball has come for connective labor…

Connective labor is increasingly being subjected to new systems that try to make it more predictable, measurable, efficient—and reproducible. If we continue to prioritize efficiency over relationship, we degrade jobs that have the potential to forge profound meaning between people and, along the way, make them more susceptible to automation and A.I., creating a new kind of haves and have-nots: those divided by access to other people’s attention.

To quantify relationships could be difficult in itself. It requires attaching measurements to human connections. Some of these features are easier to capture than others. In today’s world, if a conversation or interaction or relationship happens without “proof,” is it real? This proof could come in many forms. A social media post. A digital picture taken. Activity recorded by a smart watch. An activity log written by hand or captured by a computer.

Then to scale relationships is another matter. A one to one connection multiplied dozens of time throughout a day or hundreds or thousands of times across a longer span presents other difficulties. How many relationships can one have? How much time should each interaction take? Are there regular metrics to meet? What if the relationship or interaction goes a less predictable direction, particularly when it might require more time and care?

Given what we can measure and track now and the scale of society today, the urge to measure relationships will likely continue. Whether people and employees push back more strongly against the quest to quantify and be efficient remains to be seen.

The International Car Wash Association, the American Beefalo Association, and the purpose of business associations

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I recently drove by the headquarters of the International Car Wash Association. I did not know this group existed and I wanted to learn more. According to their website, here is what this group does:

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International Carwash Association (ICA) is the nonprofit organization representing the car wash industry in the United States, and uniting it around the world. Its members own, operate or support nearly every car wash business in dozens of countries. ICA offers the world’s largest car wash events and exhibitions, the leading online manager training program (LEAD™), news and inspiration through CAR WASH Magazine™ and a variety of industry research products (Pulse™).

Why did this catch my eye? In graduate school, I made a very small contribution to a research project by sociologist Lyn Spillman that involved me going through a multi-volume set of American business associations and coding basic information from the entries. I read a lot of entries about organizations that I never knew existed. Only the name of one group stuck with me from that work: the American Beefalo Association. From their website, here is more information about beefalo and the group:

Beefalo was developed in the early 1970’s by a Californian producer who successfully interbreed American Bison with domesticated cattle. After nearly 150 years of selective breeding, the perfect balance was found in 3/8th’s Bison and 5/8th’s domestic cattle. This new cross had high fertility success and a superior balance of traits for modern-day uses and needs. With this cross, the hardiness of the bison was retained but was melded the easy temperament, superior carcass structure and meat quality of domesticated cattle. In 1975 the American Beefalo Association was formed as the breeds popularity sky-rocketed. By 1985, USDA meat testing had concluded substantial differences in Beefalo’s nutrition profile when compared with traditional beef warranting beefalo it’s own meat label and regulations. Today beefalo is experiencing a resurgence in the health food market as consumers are actively becoming more conscious about where their foods come from, invested in animal welfare and engaged in sustainability efforts.

Spillman went on to write a book – Solidarity in Strategy: Making Business Meaningful in American Trade Associations – explaining how these organizations bring meaning to business activity. Spillman writes, “Associations often dwell on shared identity, admire technical excellence, highlight contributions to the group, and express occupational camaraderie, with little attention to strategic economic purposes.” (13) In other words, the International Car Wash Association and the American Beefalo Association might be assumed to be about generating revenues but they may be more about bringing people across an industry together and creating solidarity.

Naperville as “the second largest economic engine (in Illinois)”

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The last paragraph of a story about NCTV in Naperville hints at the economic activity in the suburb:

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Spencer said she views additional city funding for NCTV17 as an investment into what the station does for the community.

“We think we’re more important and more relevant than ever to Naperville as the fourth largest city and the second largest economic engine (in Illinois),” she said. “We think we provide a really big service. … With a little support from our friends at the city, (we think) we can weather this storm and arrive at port bigger and better than ever.”

What features of Naperville would mark it as such a large economic engine? Its population puts it in the top four communities in Illinois, following Chicago, Aurora, and Joliet. But population alone does not tell the full story. Some more features of Naperville

–Lots of human capital and economic resources among residents: “The region has a civilian labor force of 79,726 with a participation rate of 69.2%. Of individuals 25 to 64 in the Naperville city, IL, 74.0% have a bachelor’s degree or higher which compares with 34.3% in the nation. The median household income in the Naperville city, IL is $127,648 and the median house value is $424,800.”

–Nearly 80,000 jobs in the suburb.

–Certain job sectors well represented: “The largest sector in the Naperville city, IL is Health Care and Social Assistance, employing 12,989 workers. The next largest sectors in the region are Professional, Scientific, and Technical Services (12,897 workers) and Retail Trade (8,375). High location quotients (LQs) indicate sectors in which a region has high concentrations of employment compared to the national average. The sectors with the largest LQs in the region are Professional, Scientific, and Technical Services (LQ = 2.22), Utilities (2.08), and Management of Companies and Enterprises (2.05).”

–Lots of office space available: “The office market in Naperville, IL incorporates 10,451,396 square feet of office space across 56 buildings that are at least 25,000 square feet in size.”

-A vibrant downtown.

–Lots of awards from different outlets.

–Billions of dollars each year in retail sales.

-Multiple corporate headquarters in the city.

-Part of the I-88 corporate corridor, access to multiple major highways, and close to two major airports and Chicago.

As I put together this list, Naperville indeed sounds like an edge city.

In a state dominated by Chicago, it is noteworthy to be second in line as an economic engine. I wonder what other Illinois communities are trumpeting their economic prowess and how many of them are suburbs.

The symbiotic relationship between online shopping and brick and mortar stores

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Can online shopping and brick and mortar stores benefit each other?

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“There was a narrative that as online grew, stores would become less relevant. But it hasn’t worked out that way,” said Neil Saunders, managing director at GlobalData. “In many ways, the store is still the heart or hub of retail.”

It is another example of how online-only retail has its limits, and why physical stores are making a comeback. After years of overbuilding that lead to a sharp contraction, retailers are on track to open more stores than they close in 2024 for the third consecutive year, according to advisory and research firm Coresight Research.

Many retailers have found that it is too expensive and difficult to attract and retain customers without physical stores. And using stores as pickup and drop-off points helps lower the labor, packaging and shipping costs involved in online orders…

Kohl’s now fulfills more than a third of its online orders in stores, Walmart more than half, and Target nearly all its sales from its network of roughly 2,000 locations, according to the companies.

Americans like shopping. This story makes me think that shopping can even be more pervasive. You can be shopping online and in person. You can shop from anywhere and everywhere. It can happen in the online and offline worlds. It is a self-reinforcing system.

Oh yeah, there is still that pesky problem of people not feeling financially comfortable. Is the all-encompassing shopping realm able to overcome this? Is it just a matter of finding good deals or working with some credit or debt to make purchases?

And if shopping is everywhere, there will likely be more need for companies to differentiate their products and services. What will make someone click on that email or that Instagram ad? What will drive people to that location as opposed to making the purchase online?

An American right to a good deal?

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Amid inflation and high prices, the Chicago Tribune editorial board ended an editorial on prices at Starbucks this way:

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It’s no sin to offer good value. Americans are practical people. We’re betting most of those who duck into a Starbucks would be pleased to see some special deals on the menu.

What American does not like a good deal? At the same time, Americans tend to say that the market sets prices. So what happens if prices seem unfair or unreasonable?

Two recent phenomena highlight this tension:

  1. Higher levels of inflation coupled with higher set prices. Is this fair? Sure, Americans keep buying during this time but they are spending more money on goods that used to be cheaper.
  2. High housing costs. Americans want to benefit as homeowners from rising property values but do not like paying high housing prices.

At what point do Americans deserve a good deal? Or when should non-market forces jump in to change conditions? This could depend on the particular context, leaders and influential actors, and what the public wants. Regarding the second example above, Americans have worked over decades to back up mortgages so that more people could pursue homeownership while not providing much public housing.

Even as Americans do not have a right to good deals, they tend to have at least some companies willing to offer goods or services at prices lower than others. This does not always occur and there are situations – such as with monopolies – where the government will step in. Without intervention, individual consumers are left trying to find a bargain or going without in a country devoted to consumerism.

Suburbs buying vacant malls to try to simplify redevelopment process

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Two Chicago suburbs are purchasing mostly empty malls with the goal of redeveloping the properties:

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West Dundee and Bloomingdale officials have similar visions for the mall properties in their towns.

West Dundee sees a mixed-use development with residential, office, retail and entertainment. Bloomingdale’s consultants have drawn up conceptual plans showing residential, commercial and recreational development in place of the mall’s former retail buildings and parking lots.

Typically, villages stay out of the real estate business and leave redevelopment of retail centers to developers. But for West Dundee and Bloomingdale, taking ownership of their malls and clearing some obstacles, such as multiple property owners or restrictive covenants, were deemed essential for future redevelopment.

“Almost uniformly, every developer with whom we spoke stated that the site has too many complications ­— too many owners, too many covenants, too many uncertainties,” Nelson said last year. “The village’s aim is to bring simplicity to the process so reliable developers with established track records will be interested in partnering to reformat the area. Without municipal intervention, that simply won’t happen.”

Two thoughts come to mind:

  1. It is not too surprising that suburban communities want to guide the redevelopment. Suburban residents and suburban community leaders are often picky about what they might want to replace a shopping mall. By purchasing the property, the suburb can choose the developer and the zoning while also setting a vision.
  2. I wonder if this is an instance where a large property owner – the owners of these malls – can afford to sit on these properties for a while to see if there will be a bigger financial return later. I remember reading in the past about parking lots in downtown areas; they are not flashing and they are not the preferred land use but the company who owns that lot can wait until there is significant demand for the property and then make a lot of money on selling the parking lot. Compared to these suburbs, the property owners may be less interested in moving quickly on a redevelopment plan. (This could also apply to recent conversations about suburban office parks and downtown office buildings: even vacant buildings might not need to be sold or redeveloped if an owner can afford to hang on to them.)