Category Archives: Business and Economy

Inflation also affects infrastructure projects

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Rising inflation in the United States is impacting large-scale infrastructure projects:

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The price of a foot of water pipe in Tucson, Arizona: up 19%. The cost of a ton of asphalt in a small Massachusetts town: up 37%. The estimate to build a new airport terminal in Des Moines, Iowa: 69% higher, with a several year delay.

Inflation is taking a toll on infrastructure projects across the U.S., driving up costs so much that state and local officials are postponing projects, scaling back others and reprioritizing their needs.

The price hikes already are diminishing the value of a $1 trillion infrastructure plan President Joe Biden signed into law just seven months ago. That law had included, among other things, a roughly 25% increase in regular highway program funding for states.

“Those dollars are essentially evaporating,” said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials. “The cost of those projects is going up by 20%, by 30%, and just wiping out that increase from the federal government that they were so excited about earlier in the year.”

Because a number of these projects have to get done, it sounds like the primary effect of inflation is to delay projects. This has a cascading effect on getting better infrastructure in place, jobs, construction and its consequences, and more.

I wonder if there are any brewing stories where inflation plus cost overruns, which can happen on large complicated projects, lead to big price tags.

The billions in sales generated in a big suburban edge city

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Joel Garreau defined an edge city as a suburban place with lots of office and retail space. Just how much retail activity takes place? A recent report found the edge city of Naperville, Illinois generated billions in sales in 2021:

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Naperville continues to reign as the top suburb in retail sales for the fifth year in a row, a recent report shows.

The city in 2021 recorded sales of $4.3 billion, $540 million more than No. 2 Schaumburg, according to the annual report from Chicago real estate and retail consultants Melaniphy & Associates…

For Naperville, 2021 restaurant and bar sales climbed to a record $443 million, up 34% from 2020′s pandemic plummet to $330 million after hitting $431 million in 2019…

By far the largest contributor to retail sales in Naperville is under the automobile dealership and gasoline category.

In 2021, Naperville figures rose by 33% over the previous year to $1.7 billion, which was the highest percentage increase throughout the Chicago metropolitan area, according to the report.

Some of the lead for Naperville could be tied to their large population and land area. Many suburban communities are not this big. For example, Schaumburg has roughly a little more than half the population of Naperville and about half of the land area.

But, I am more interested in the absolute figures. One suburb had over $4 billion in sales. This is a lot of money in one community. And hundreds of millions were spent in numerous categories, including restaurants, groceries, cars, and lumber, hardware, and building supplies.

Naperville has several areas that help generate these sales. In northeast Naperville, Ogden Avenue and Diehl Road (and adjacent areas) have retailers, restaurants, automobile related businesses, and more. Downtown Naperville is a vibrant food and retail scene. The Naperville area adjacent and near the Fox Valley Mall has a lot of activity. Business activity in southwest Naperville is a more recent addition.

In short, Naperville is not just a bedroom suburb with a high quality of life: it is full of retail activity even as it contains thousands of homes and dozens of subdivisions.

Oakland, do not give in to the A’s ask for tax payer money for a new stadium

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As the 2022 baseball season is underway, so is the quest by owners to get public money to fund a new stadium. From Oakland, California:

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By 2020, the A’s were the only team left. But they made it clear they were prepared to leave, too. Last May, majority owner John Fisher and team president Dave Kaval—resident cartoon villains of what remains of the Oakland sports scene—began threatening to follow in the Raiders’ footsteps and relocate Oakland’s last pro team to Las Vegas … unless the Oakland City Council voted to help them build a $12 billion stadium “district”—replete with condos, hotels, and apartment buildings—on a wedge of waterfront property operated by the Port of Oakland just west of Jack London Square. If approved, the project would constitute one of the largest and most transformative development deals in California state history. It would likewise require hundreds of millions of dollars in public funding to complete. Fisher, who is heir to the Gap Inc. fortune and has a net worth north of $2 billion, has committed to privately finance the construction of the stadium itself, but the project isn’t viable without a suite of infrastructure improvements to the surrounding area. These improvements are what the A’s asked the city to find ways to pay for.

It was a familiar ploy. As journalists Neil deMause and Joanna Cagan write in Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, since roughly 1984, when the Colts left Baltimore for Indianapolis, team owners across the country have worked systematically to “supplement profits by extorting money from their hometowns,” usually “under threat of moving.” Starting around last summer, Fisher and Kaval began to expand upon their means of municipal extortion. In the run-up to a series of contentious City Council meetings, Kaval took to posting videos of himself on Twitter jubilantly attending Las Vegas Knights games, as if to spur the city into supporting his proposal out of jealous insecurity. Fisher, meanwhile, enlisted MLB commissioner Rob Manfred to act as muscle. “Thinking about this as a bluff is a mistake,” Manfred told the BWAA in July 2021. “This is the decision point for Oakland as to whether they want Major League Baseball going forward.”

Oakland has been struggling to make that decision ever since. Some, like Marcus Thompson, an East Oakland native, 2021 California Sportswriter of the Year, and author of Golden: The Miraculous Rise of Steph Curry,resent Fisher and Kaval’s tactics, and say that Oakland’s political leaders “should not be caving to an owner” worth over $2 billion who has “shown zero desire to be a meaningful member of our community unless it is profitable.” Certain Oakland political leaders, such as Councilmember Carroll Fife, who represents the district in West Oakland where the A’s stadium would be built, agree. “There are so many dire issues in Oakland right now,” Fife told me in February—citing, among other things, Oakland’s crises of gentrification, affordability, and homelessness, which the United Nations has singled out as “cruel.” Fife said she doesn’t believe “a sports team is going to address” any of them. “We should use public resources toward addressing residents’ immediate needs.”

Others believe the economic benefits of a new stadium are worth pursuing in and of themselves. “Building the new A’s ballpark would be a blessing,” Mitchell Schwarzer, historian, professor, and author of Hella Town: Oakland’s History of Development and Disruption, told me in an email. It would “bring crowds to adjacent Jack London Square,” and fill “its vacant spaces with places to eat, drink and shop.” Oakland’s mayor, Libby Schaaf, agrees, calling the A’s stadium project “a world-class waterfront ballpark district” with the potential to “benefit Bay Area residents for generations to come.”

No major city or leader wants to lose a major sports team. And the Oakland case is unique with multiple teams leaving in recent years.

However, the price that is often paid to keep a team is not worth it. The costs are too big, taxpayers lose other opportunities, the money would be spent elsewhere in the city if not at sporting events, and the owners are the ones who truly win with the increasing value of their team.

The Oakland case is also different because of the way the Athletics are run. The team has a Billy Beane approach that suggests an excellent team can be created with a limited payroll and an ability to exploit market inefficiencies. The A’s have done this a few times in the last two decades…and then they sell off all of their good players and start again. They just did this going into the 2022 season and have a minimal payroll of just under $50 million, second-lowest in baseball and roughly one-fifth of the biggest spenders in the sport. In addition to the economic case for taxpayers, is this a team worth supporting?

The Chicago region has a lot of human capital…and the workers have a stronger work ethic?

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A recent article discusses the potential workers in the Chicago region and how hard they work:

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“Probably the strongest work ethic of laborers is the folks in the Midwest,” the Houston-based founder of SparrowHawk Real Estate Strategists said, definitely not rhyming. “They’re just, I don’t know what they put in the water there, but they’re hard workers. And so you’ve got a good labor force.”…

Illinois Manufacturing Association president and CEO Mark Denzler recalls a businesswoman who recently moved her small manufacturing operations of about 50-70 workers to Mississippi with the goal of saving on costs. She regrets the decision, he said…

“When I’m around the warehouse workers in the Midwest — Chicago and all these other Midwestern cities — they’re different than the folks in the southeast and the folks in the West Coast. They just have a different work ethic,” he said…

“It would be really hard. I’d be suspicious of anybody who said they can do it,” Bruno said. “But there is this strong experience with work in the Midwest that it’s part of your development. It’s connected to your health and well-being.”

Contrary to the final paragraph above, I bet this could be measured. But, what would it show? And how would workers in Boston or New York City or Atlanta or San Francisco respond to the argument that Chicago workers have a stronger work ethic? Or, within the Midwest and Rust Belt, how about workers in Milwaukee, Cleveland, or Pittsburgh?

This is part of a bigger narrative about Chicago. it is part of its character. Even as it is a global city with an important finance sector and many professional and white-collar workers, it imagines itself as a blue-collar city relying on manufacturing. The loss of manufacturing jobs in the last sixty years hit Chicago hard, as it did many cities, yet the narrative continues.

I would be interested in a more recent study that looks at how residents of the Chicago area think about the purported work ethic. Does the narrative hold across locations, groups, and occupations? Does the idea of “the city that works” extend throughout the region and different kinds of workers?

The legislative act that helped Disney build Disney World in Florida

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Corporations, sports teams, and developers ask for or make use of tax breaks or monies or land opportunities provided by governments. Walt Disney benefited from a 1967 act by the Florida legislature:

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The Reedy Creek Development Act can be traced back to 1967.

It was a pivotal negotiating factor in convincing Disney to locate his company in Florida and allows the company to do just about whatever it wants on its land.

“The ability, the power to build a nuclear power plant, an airport manufacturer, distill and distribute alcoholic beverages and lots of other things,” said Dr. Richard Foglesong, author of “Married to the Mouse” in an interview with WFTV in 2021.

Many would love to have this kind of freedom to do what they want with a large property. In contrast to what was possible through this act, many property owners would have to apply to local governments for uses of the property beyond what is allowed through the local zoning.

If leaders in Florida follow through with revoking this act and Disney wants to go elsewhere, does this shape up to be a second Amazon HQ #2 situation? Or, does Disney have a lot fewer possible locations to go to given its need for a lot of land and good weather?

Social class and the HelloFresh experience

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We recently tried HelloFresh when just needing to pay shipping for three meals. The food tasted good and the prep time was at or close to their projections. The experience also caused me to think about social class, food, and who exactly HelloFresh is aiming for as their customers. A few thoughts:

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  1. The food is delivered fresh and it is in exactly the correct proportions for the recipes. Yet, it requires prep time. This appeals to people who like the idea of fresh food and the work that puts the food together. What is really cut out is the planning for meals and shopping for food.
  2. Because of just needing to pay shipping on an introductory deal, we paid something like $5+ for each 4 person meal. That is a good price. Looking at their longer subscriptions or packages, the food turned to be more like $8-10 per portion. This is closer to the price of fast casual restaurants. This money toward fresh ingredients and still needing to put the meal together would add up.
  3. If we paid a little bit more than normal Hello Fresh rates, we could have full meals delivered from restaurants. The prep time would disappear. I would be out more money.

All of this requires a decent amount of money to start with. That money purchases ingredients, recipes, and time not having to plan or shop. But, if I paid a little more I could have full meals with no prep.

So how does HelloFresh connect to social class? I suspect they are aiming for middle to upper-middle class families that want to provide a more traditional meal time – healthier food! real labor! – at a certain price point. Given the aggressiveness of advertising, I would guess HelloFresh thinks it has a big enough market to really make some money. This is about market segmentation but also about particular food practices tied to social class in the United States.

“Dark stores” arrive on the urban landscape

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The brick and mortar retail establishment has a new member popping up across communities: “dark stores.”

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These ghost storefronts—often called “dark stores”—are warehouses in all but name, yet they look markedly different from the gargantuan spaces where older online grocery companies like FreshDirect store their goods. Traditional warehouses are zoned to regions outside of commercial districts, meaning they will be set apart from areas with lots of walking traffic. Dark stores are located in retail storefronts on main streets, near the heart of busy neighborhoods, but they serve only ecommerce customers. And they’ve gone from a niche phenomenon discussed largely in retail industry circles to a feature of major American cities.

The rise of dark stores directly parallels the acceleration of ecommerce as a whole, especially in the grocery industry. Online sales represented 13 percent of all grocery spending in 2021, a new high, and dark stores are designed to make the delivery process smoother…

Dark stores—sprouting up in former butcher shops, convenience stores, gyms, and mattress retailers—are taking up spaces once designed to be open to the public. That shift from far-flung warehouses to accessible retail storefronts has city planners on edge. Because dark stores sit at the confusing intersection of being technically occupied, but functionally empty, they risk entrenching the worst impacts that vacant real estate can have on a community.

The fear is that dark stores, like vacant storefronts, could puncture a hole in the social landscape of a neighborhood. Vacant storefronts are bad for cities. When there are a lot of them in a tight vicinity, they mean that fewer people will walk down the street, and fewer connections between neighbors will happen. “Having people out on the street increases public safety, because more people see things that are happening,” said Noel Hidalgo, executive director of BetaNYC. “That level of social engagement makes cities safer and makes places safer.” Accordingly, neighborhoods with high numbers of vacant storefronts see increased crime rates, fire risks, and rodent activity.

I wonder how municipalities will respond to this because of the revenues such dark stores might generate. It is one thing if other retailers or businesses want to use these spaces. But, if dark stores are occupying commercial space and generating money through paying property taxes and sales taxes plus adding jobs, will they be as concerned about the social fabric? It can be difficult to fill vacant commercial properties, particularly spaces like grocery stores.

So out of the concerns expressed above, I could imagine cities limiting the number or density of dark stores within different kinds of zoning. Or, what if there was a whole block of dark stores and then none for a decent distance from there? If e-commerce is here to stay and needs to be close to those who order, perhaps warehouse districts need to be spread throughout communities at regular intervals or near transportation hubs.

From Taylorism to Fordism to Bezosism

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I recently finished the book Arriving Today: From Factory to Front Door – Why Everything has Changed about How and What We Buy. One argument the author makes is that Amazon and others practice a new kind of process, dubbed Bezosism:

Much of the rest of the book after this point considers the costs of this new system for workers. Even as technology enables new options – robots working in warehouses and distribution centers – humans still play a critical role but they work in difficult circumstances.

How far can Bezosism go? Amazon facilities and similar operations from other companies are one important sphere to consider. But, what about other areas? As automation increases and demands for productivity and profit increase, where does this leave workers in all sorts of industries?

Finding the mean, median, and modal Walmart shopper

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An analytics firm describes the “typical” Walmart shopper:

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Numerator found that Walmart’s typical shopper in the US is a white woman between 55 and 64 years old, who is married and living in the suburbs of the Southeast. She typically has an undergraduate degree and earns about $80,000 per year.

She visits Walmart at least once per week — about 63 trips per year — and picks up 13 products for a total cost of about $54 per trip. 13.5% of her spending takes place at Walmart, while she spends about 11% at Amazon.

Her primary shopping categories in-store are groceries, including chicken, fruit, snacks and sweets, but she also gets a lot of fast food. Her favorite five brands at Walmart are Turkey Knob, Cheetos, Betty Crocker, Dole, and Tyson.

I am always looking for examples to help illustrate the differences between the three primary measures of central tendency: mean, median, and mode. When an article or report says something is “typical,” what exactly do they mean? Here is my guess at which data above is which measure of central tendency:

-mean: age, education level, visits to Walmart, money spent per trip

-median: income

-mode: race/ethnicity, marital status, place of residence, what is purchased

Some of these are harder to guess or do not fit these three options well. For example, is the $54 per visit a mean or median? Or, the five favorite brands are not a singular mode and they may lead the list of brands but not actually comprise that much of the total percent of purchases.

Additionally, it would be interesting to add measures of variability. How much variation is there in the age and education level of Walmart shoppers? I would guess the company wants to know more about the $54 spent per trip; how many spend more and what could be done to increase the number of people who spend more? Throw in a standard deviation or some other measure of dispersion and the numbers above become much more interesting.

In the end, the report above does not mean that someone visiting a Walmart will find most shoppers fit that profile. The measures of central tendency here tell us something but using multiple measures plus some measures of variability would provide more in terms of revealing who is at Walmart.

How effective are religious and political billboards?

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On a recent long drive, I noticed two additional types of billboards compared to the typical ones selling good and/or services: religious billboards and political billboards. These do not comprise a majority of billboards in my observations – or even a significant minority – but there were at least a few. Such efforts raise several questions for me:

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  1. Do religious and political billboards reach a large audience compared to other forms of media advertising? Compared to some other forms of advertising, the audience along the road might be more known: traffic counts are known and drivers who use a particular road or go through a particular location are a particular group. This may be more targeted advertising with a known number of daily viewers.
  2. Do people seeing religious or political billboards respond to them similarly or differently compared to commercial billboards? The medium of a billboard requires a fairly simple message as people go by them at a high speed. An image or two and limited text are possible. People are used to commercial appeals. So, does anything change if a Bible verse is on a sign? I know there is a religious marketplace in the United States but does a billboard encourage more religiosity? Or, does an image of a politician and a short statement catch people’s attention? Are these just like other billboards, or, because religion and politics can be personal and contentious, do they provoke more engagement or more turning away?
  3. My bigger question about billboards and all forms of advertising: how much does it influence behavior? I saw these billboards, they caused me to think a little and I am blogging about the concept here, and any other ongoing influence is hard to ascertain. In my lifetime, I have seen thousands of billboards, just as I have likely seen hundreds of thousands of advertisements in other forms. I know they influence people but it is hard to connect the dots between billboards and change.

I will keep looking for and reading more unusual billboards. At the least, they help break up a long drive.