Seeing the real America at the ER Saturday at 10 PM and Walmart Sunday at 8 PM

I visited both of these locations in recent weeks and was intrigued to see the mix of people at each. I’ll make a quick case for why these locations could provide as good cross-section of America as any other location:

  1. Limited options. For the emergency room on a Saturday night, there are few other medical options available at that time. If anyone has a medical issue, they will end up here. As for Walmart on Sunday evening, there are limited brick and mortar shopping options and the work week is about to start.
  2. People need medical care and grocery/home items. Both locations have people trying to meet basic human needs. Even as online shopping may allow people to avoid other shoppers and online medical consultations are now available, there are inevitably moments where running out to a store or medical professional is necessary. It is hard to imagine either of these facilities disappearing completely (even if the number of retailers is severely reduced).
  3. Connected to #1 and #2 above, people of differences races, ethnicities, and social classes are at both locations. In many other locations, whether due to residential location, the location of jobs, ill will toward others, or access to resources, not all groups are represented. Sociologist Elijah Anderson wrote a book about such rare urban locations.

While these may not be the best locations in which to conduct research, they could offer insights into typical American life.

Thinking through “architecturally ambitious” shopping malls

One writer suggests the shopping malls of the future will need to offer a unique architectural experience:

My version of the mall game would offer more aggressive architectural interventions. Pop the top, and change the air-conditioned, enclosed food court into an open courtyard with a creek running through it. Cover the tan stucco with silvery panels to give it that au courant “industrial” look. Turn one section of the parking lot into a food truck rodeo, local vendors only. Replace the Dillards with a Spa Castle, or a Nitehawk Cinema. The mall of the future is architecturally ambitious, includes plants and water features, judiciously sprinkled with local retailers and food options, and surrounded not by a donut of surface parking lot but with housing, hotels, even educational facilities.

Don’t get me wrong: Malls are still dying. Credit Suisse estimated that 220 to 275 shopping centers, 20 to 25 percent of the current stock, would close within the next five years. We built too many, too cheaply. And it would cost too much to make many of them a worthy destination in 2018.

But even in the age of Amazon, people still leave the house, still shop, still eat. Malls have generated their own version of industrial ruin porn, including video. But when I talked to Erik Pierson, the man behind YouTube channel Retail Archaeology, he freely shared that, while his video of Mesa’s defunct Fiesta Mall may have gone viral, SanTan Village in Gilbert is doing just fine.

In an experience based society, going to the mall needs to be an exciting or satisfying experience compared to shopping at a big box store or purchasing items online.

Three thoughts about this suggestion:

  1. Only certain malls (and in certain areas) will have the resources to try to be architecturally ambitious and not all of them will get it right. My guess is that shopping malls in less well off communities will die off while those in wealthier areas will continue and will be the ones that take more architectural risks.
  2. Shopping malls have been criticized over the decades for their crass commercialism and their fakeness (acting like public spaces when they are really not, simulating other environments). Would more ambitious architecture make them more or less acceptable to critics? Take water features: they may be interesting to patrons but are they authentic design elements or just another symbol of the artificiality of the setting?
  3. What about creating malls that have flexible or changing architecture? Designing malls so that they have regularly changing features – as cited above, the “silvery panels” that provide an industrial look could be swapped out every 6 months with different kinds of panels – could help provide an element of novelty and excitement.

As is suggested in the article, perhaps the real secret is to better embed these ambitious malls in already interesting architectural settings. Instead of having to build a destination in the middle of a suburban parking lot, take advantage of already lively spaces and put an interesting and unique mall there.

Shopping malls continue to be less about shopping

Shopping malls across the United States continue to evolve in order to bring in customers:

Many mall owners are spending billions to add more upscale restaurants and bars, premium movie theaters with dine-in options, bowling alleys and similar amenities. Some have turned swaths of space that previously housed department stores over to health clubs and grocery stores. Others are undergoing no less than a ground-up transformation to make room for office space, hotels and apartments.

The trend has been gaining traction as the companies that operate malls look for ways to keep people coming in at a time when Macy’s, Sears and other big department store chains have shuttered hundreds of stores and consumers increasingly opt to shop online…

Carving out space for movie theaters, videogame arcades and food courts isn’t a new strategy. What’s noteworthy is the degree to which mall owners are now counting on tenants that sell experiences, rather than physical goods. The share of space occupied by non-retail tenants at regional shopping malls reached nearly 13 percent last year, according to commercial real estate tracker CoStar. It was 10.5 percent in 2012.

Since 2014, about 90 large U.S. malls have invested more than $8 billion in major renovations, according to a study by commercial real estate firm JLL. Some 41 percent of the malls in the study spruced up their food and beverage offerings with an emphasis on restaurants that serve more varied fare and, in some cases, alcohol.

With these changes, I wonder if at some point the term “shopping mall” will become defunct. We already have one term in the running from recent years: “lifestyle centers.” Could a new term arise that invokes downtowns or community centers or activity nodes?

If this indeed continues the shift away from traditional retail stores, it is worth pondering how many of these centers based on experiences can exist. How much can Americans spend on eating out? (Apparently now more than grocery store purchases.) How many regional centers like this can there be?

Losing sales and property tax revenue as stores close

The difficulties facing retail stores also have an effect on local governments who rely on sales tax and property tax revenue:

Nationwide, sales taxes comprise nearly one-third of the taxes that state governments collect and about 12 percent of what local governments collect, according to Lucy Dadayan, a senior researcher at the Nelson A. Rockefeller Institute of Government, a New York-based research group. “The epic closures of the brick-and-mortar stores is troubling news for state and local government sales-tax collections,” she said. They’re already feeling the hit: States’ tax revenues grew just 1.9 percent between 2014 and 2015, after growing 5.8 percent in the previous four quarters, according to the Rockefeller Institute. Local-government sales-tax collections grew just 1.7 percent, after growing 7.5 percent in the previous four quarters. In Ohio, state tax revenues grew just 0.1 percent, when adjusted for inflation, between 2015 and 2016, according to Dadayan. When revenues don’t continue to grow, governments have to slow down spending and can’t readily invest in long-term projects…

Clark County is not alone. In the southeastern part of Ohio, near the border with West Virginia, Belmont County gets $17 million of its $22 million budget from sales-tax revenues, Mark Thomas, a county supervisor, told me. The county has lost a bevy of retailers of late, including Elder-Beerman, Hhgregg, MC Sports, and Radio Shack. A Kmart in St. Clairsville is expected to close soon, according to the company. The decline in sales tax isn’t the only thing that hurts revenues—abandoned malls mean less revenue from commercial property taxes too. Local governments also see lower income taxes and, when retail workers are unemployed, they spend less, creating a vicious cycle of less and less revenue. “That trickle-down effect is huge,” Thomas said…

States that have seen manufacturing companies depart are bearing much of the brunt of the retail closures, according to Dadayan’s research. She tabulated where Macys, Kmart, and Sears have announced in the past year that they are planning to close stores, and found that Pennsylvania will have the most of those total store closings, at 16. Ohio and Michigan have the second-highest number, at 15 each, alongside Florida. Other states that have bigger populations have much lower combined closings. California, for example, only has eight.

The closures raise the question of what state and local governments will do if retail continues to evaporate. Already, many local governments are attempting to raise taxes to make up for budget shortfalls. Springfield asked voters to approve an income tax in November; the measure failed. The sales-tax rate at both the local and state levels has been creeping up in Ohio as governments try to raise taxes to make up for declines, according to Jon Honeck, the acting director of the Greater Ohio Policy Center, a local think tank. Ohio has also cut back on revenue-sharing between states and local governments since the election of Governor John Kasich in 2010, making it more difficult for local governments to make ends meet. “Some have just cut services, since the state is not going to help them out,” Honeck said.

Two quick thoughts:

  1. Communities have competed for decades over shopping malls and retail establishments. This competition could only increase though it may be less about the opening of new stories (everyone wants replacements for old establishments – for example, see the fate of Dominick’s grocery stores in the Chicago region) and more about retaining existing stores and asking companies to close stores elsewhere.
  2. It is interesting to see which areas are experiencing closures. Not all malls or stores are doing poorly but the successful ones are likely in wealthier areas that will do even better comparatively with the ongoing tax revenues. It is very difficult to convince businesses to locate in communities with less income.

Making money by betting on dying malls

Some are hoping to make a lot of money with the decline of shopping malls:

It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago.

Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing…

Many of the malls are anchored by the same struggling tenants, like Sears, J.C. Penney and Macy’s, and large-scale closures could be “disastrous” for the mortgage-backed securities. In the worst-case scenario, the BBB- tranche could incur losses of as much as 50 percent, while the BB portion might lose 70 percent.

I’d love to see some analysis of whether this is a good development: it doesn’t sound like this will break the mortgage industry in the same way as the subprime mortgage crisis, clearly some investors have learned something from the past, yet the default of shopping malls can have a big effect on the local economy and community.

There is an interesting summary of the fate of the American shopping mall in the final paragraph of the article:

“When a mall starts to falter, the end result is typically binary in nature,” said Matt Tortorello, a senior analyst at Kroll Bond Rating Agency. “It’s either the mall is going to survive or it’s going take a substantial loss.”

This can’t be good in the short term, particularly if the retail money vanishes into the Internet ether. In the long run, it does hint at a very bifurcated retail experience in coming decades: wealthier places where shopping malls still thrive and are popular and other places where there is nothing but big box stores, the occasional strip mall, and online shopping.

Deadmalls.com

The site has not been updated for a year or so but there is a lot of interesting retail information at Deadmalls.com. You can even purchase your own memorabilia (though I was hoping for something more ghastly)!

Four quick thoughts:

  1. The shopping mall was a marvel of the post-World War II suburban era. Today, there are still thriving malls – even in urban locations as they figured out that they needed to play in this game – but plenty of dead ones (27 listed in Illinois alone). The wonder of having all of those stores in one location that is easy to reach by car.
  2. Have the shopping malls been replaced by anything? Shopping online is not the same visceral experience. Perhaps it is big box stores: occasionally when I wander into a Home Depot or Costco or Walmart, I am astounded by the vast size, the number of products, and the relatively low prices.
  3. There are a lot of efforts to renovate or revitalize shopping malls including turning them into lifestyle centers, adding housing, and incorporating new features like skating rinks. Such efforts will probably succeed in a number of malls..
  4. I’m reminded of the portrayal of a dead mall in the book Gone Girl which portrayed it as a suburban wasteland (along with the McMansions). It would be worthwhile to go back to these dead malls sites in a decade or two to see what has become of them. Urban/suburban ruins? New uses?

In economic terms, 1 baseball team = 1 midsized department store

Following up on the academic consensus that sports do not economically benefit communities, one economist notes the economic impact of sports teams:

“If every sports team in Chicago were to suddenly disappear, the impact on the Chicago economy would be a fraction of 1 percent,” Leeds says. “A baseball team has about the same impact on a community as a midsize department store.”

The reason?

Economists say the biggest reason sports teams don’t have much impact is that they don’t tend to spur new spending.  Most people have a limited entertainment budget, so the dollars they are spending when they go to a game is money they would have spent elsewhere, maybe even at a restaurant or small businesses where more money would have stayed in the community. Plus, Matheson says, rather than draw people to a neighborhood, games can actually repel them.

Don’t underestimate the money generated by large retail stores. When I worked a short stint at a local Target at the end of high school, I remember seeing the board in our office that listed daily sales. The figure was typically around $100,000. That generates a lot of tax revenue through sales taxes and property taxes.

This is more evidence that the more important feature of sports teams in major cities is their social and cultural value. Teams provide something for a city to rally around and contribute to the city’s collective identify. In major cities with millions of people, it is difficult to find features or events that can bring large numbers of people together. Sports teams also provide opportunities for leisure, whether through enjoying the stadium experience or experiencing the game from afar. Now, if only we could find politicians that would admit the taxpayer money going to stadiums or teams was due to the interest in having a common sports identity and leisure experience rather than some grand economic impact…