Less restaurant and retail business, lower local sales tax revenue

The ongoing effects of COVID-19 on business activity, particularly restaurants, will impact communities:

Restaurant dining room closures resulting from the coronavirus pandemic are wreaking havoc on the industry’s bottom line and upending the lives of many working in the service industry. Those losses also will be felt by communities that rely on restaurant sales taxes and special food and beverage taxes to help fund municipal services. Some suburbs will feel the effects much more than others because of how heavily they rely on such taxes.

Sales taxes at restaurants and bars contributed more than $2 million a week to 83 suburbs, a Daily Herald analysis of 2019 tax records on the Illinois Department of Revenue’s website shows.

In a dozen suburbs, sales taxes from restaurants and bars represented more than 20% of all their sales tax revenue last year…

“It’s not just restaurants and bars, though,” said Rob Karr, president and CEO of the Illinois Retail Merchants Association, pointing out many sources of sales tax have had sharp drops. “Everybody in the retail sector has been negatively impacted, aside from groceries.”

With more Americans eating out in general, the ability of restaurants to draw visitors from other communities, and connections between eating and other recreational and cultural activities, eateries can be important sources of revenue.

Communities can aspire to have a diverse tax base where they draw tax revenues from a variety of sources, including sales taxes and property taxes. At the same time, some communities develop niches where they focus on one business sector or they have a historic strength. Diversification may be difficult to achieve and depend on a variety of forces including actions by local officials and leaders, the demographics of the community, historic patterns, and actions by business owners and larger economic forces. In other words, the character of a community’s tax base develops over time, can change, and at least in part depends on outside actions and forces beyond a community’s control.

It will also be interesting to see where the budget issues that municipalities face fall among the other economic concerns. Sales tax revenues are part of the picture but so might be property values if businesses need to close and there are not other businesses to take their place. If the federal government and states are also facing big hits to revenue, what might happen to municipal budgets?

Looking deeper at Wheaton, Illinois in Walmart’s “United Towns” ad

During the Super Bowl, Walmart ran an ad titled “United Towns.” From roughly 0:10-0:12, there is a a shot of Wheaton, Illinois looking south on Main Street. Here is the view:

WheatonWalmart2020

Four things of note from this short appearance of Wheaton in a national ad:

  1. As a number of Wheaton residents noted online, there is no Walmart in Wheaton. This is true but it obscures the larger story. One, how many Wheaton residents shop at Walmart (there are two within several miles of the town’s borders) as opposed to other big box stores (such as the Target in Wheaton or the several within a few miles)? Or, how many Walmart employees live in Wheaton? Two, there may be reasons Wheaton has no Walmart: it might not have wanted one. The busy stretch along Roosevelt Road is carefully controlled by the city – no big box stores. The largest shopping area, Danada, does not have any big box stores (though it now has three sizable grocery stores). Wheaton had one of the first Target stores in the area but it is located right on the edge of town and a proposed Home Depot across the street did not get approval and is now just past Wheaton’s northern border.
  2. The image captures a feature of Wheaton life: the passing of trains through the downtown and the community. Without the train line, there is no Wheaton (at least the one officially founded in the 1850s). The train may be a fact of life in Wheaton and numerous other American communities but it is not necessarily a welcome one since these trains can delay traffic.
  3. The ad on the whole promotes the ideas of small towns and community life. There are lots of shots of houses and older downtown buildings. But, is Walmart both a rural/small town as well as a suburban phenomenon? Without suburban stores – meaning Walmart locations along main roads, within sprawl, and dependent on driving – Walmart is not the company it is today. Like many Americans, Walmart might promote the ideal of small towns but not really live in that world.
  4. Connected to #3, the shot of a cute or quaint suburban downtown is an interesting contrast to the effect of Walmart in the American economy plus the larger changes in which they participated. Wheaton’s downtown is in okay shape but imagine what it could be without big box stores. More broadly, downtowns across the country pursued different options to counter the changes in retail and shopping in the postwar era (starting with shopping malls and strip malls and later extending to big box stores).

Millions of dollars flying out of the King of Prussia Mall

Recently walking through the King of Prussia Mall at Christmas time, I was struck by multiple sights: the variety of shoppers, the Christmas cheer and decoration, and the number of possible activities in and around the mall. Yet, none of these could compete with my biggest realization that day: just how much money was flowing in and out of the mall.

The King of Prussia Mall is one of the biggest in the United States , is in the top 10 of malls by sales, and it helps anchor an edge city roughly twenty miles northwest of Philadelphia. It is a site to behold, particularly after an addition a few years ago that connected the two halves of the mall and added a new row of upscale retailers.

But, the biggest goal of the mall is to generate sales and profit. And it looked like the mall was doing just fine on the day I visited. Many shoppers had bags on their arms or strollers. Multiple stores I went into, ranging from smaller retailers to large department stores, had people perusing the racks and shelves. The type of stores at the mall and the people aiming to go into them also hint at the money consumers were willing to spend. With each American estimated to spend a little over $900 on Christmas gifts, the King of Prussia is a good place to spread that cash around.

The commercial activity around Christmas at this mall also hints at the future of shopping malls in the United States. Some malls might last longer than people think, particularly those located in wealthier areas and with a concentration of wealthier stores and a variety of opportunities (retail ranging from Dick’s Sporting Goods to Nordstrom’s to Primark and including restaurants and entertainment). The King of Prussia Mall is a destination mall, likely drawing visitors from a wider region than most malls.

And with all that money flowing around the mall that day, most people looked happy to be spending and enjoying the sights. I suppose those with fewer resources or anti-capitalists might not go to such an upscale mall in the first place but the whole scene looked like an advertisement for capitalism: spend freely in an impressive mall at Christmas time. What could be more American than that?

Beleaguered shopping malls face more closing stores

Shopping malls face multiple challenges, including more and more store closings:

It’s only April, but already this year more store closures — nearly 6,000 — have been announced than in all of 2018…

U.S. retailers so far have announced they will shut 5,994 stores, while opening 2,641, according to real estate tracking done by Coresight Research. That’s more locations slated to go dark than during last year. In 2018, there were 5,864 closures announced and 3,239 openings, Coresight said.

The planned closures include more than 2,000 from Payless ShoeSource, which filed for bankruptcy, hundreds from clothing retailers like Gymboree, Charlotte Russe, Victoria’s Secret and Gap, and discount chain Fred’s. Meantime, chains like Aldi, Dollar Tree, Ollie’s Bargain Outlet, Five Below and Levi’s are planning to open more stores…

With more store closures likely on the horizon, consumers can expect to start seeing hotels, gyms, apartment complexes, more food halls and grocery stores at traditional malls, turning them into more like city centers. The new Hudson Yards mall, which opened in New York last month, is the perfect example of this mixed-use model.

Before long, shopping malls may morph more into entertainment and public spaces than shopping spaces. In today’s world, it is not enough to cluster a bunch of national retailers together in an indoor or outdoor setting surrounded by plenty of free parking. The era of teenagers hanging out at the mall (and efforts to counter those gatherings) may be over. And it may not be only shopping malls that are in trouble; this may not be an issue of too much suburban sprawl. Rather, shopping districts all over the place, even in Manhattan, may be threatened. Some of these shopping areas will continue, particularly those surrounded by wealth or those that offer unique “cosmopolitan canopies.” Others will be transformed to the point that it will be very difficult to discern they were once shopping malls.

Furthermore, it will be interesting to see how these retailer brands disappear into the night or return in new forms or with new emphases or new money. Will Payless come back? Is Gap in its death throes and will its lessons be absorbed by companies taking up that same business space? Can Sears hang on another decade or even make a comeback?

 

American battle: weirdness vs. wealth

In a closer look at what is happening to retailers in New York City, Derek Thompson suggests two contrary forces are at work in urban America:

A war is playing out in American cities between wealth and weirdness. The former encourages the pursuit of national trends and national brands—high-end fitness studios adjoining Sweetgreen franchises—for the purpose of maximizing profit on a per-lease basis. That spirit runs counter to the desire for diversity and experimentation, which requires policies that actively promote the survival of small companies in an economy that would otherwise eat them up.

I would suggest this goes further than just big cities. One could argue this is a larger battle fought since at least the end of World War Two involving revered ideals in American culture.

On one side are the powers of standardization, efficiency, predictability, and national chains. Think the rise of McDonald’s, Walmart, and Google. These companies came to represent whole sectors of business and their actions helped lead to predictable user experiences and outcomes across different geographic contexts. They are good at efficiency, offering customers a cheap service while turning out billions in profit.

On the other side are the powers of small businesses, entrepreneurs, diversity, and American individualism. Think the quirky and interesting shopping districts that attract visitors. Many of the establishments offer unique experiences that are difficult to replicate elsewhere. Think businesses that reflect the traits of their owners. These are people trying out ideas and participating in the local community. Non-conformity and cool are still sought after.

Both of these types of businesses reflect American ideals. Many of the national chains we know today started as the more unusual business options that became wildly successful. Some owners and founders want to remain small and others want to try for everything they can get. Obtaining a good balance of these approaches is likely hard to do from a policy level.

Fox Valley Mall “near Naperville” Part 1 – status

I recently heard a radio ad for a store located at Fox Valley Mall which was said to be “near Naperville.” The mall is officially located in Aurora so why would a store there claim to be in the next suburb over? One word: status.

In this particular location, Aurora and Naperville are separated by Illinois Route 59. On the east side, containing a number of stores just across the street from the mall, is Naperville. On the west side, including the mall plus additional stores, is Aurora. Aurora is the bigger community – roughly 200,000 people – but Naperville is the wealthier, higher status community. Some of the figures: Naperville has a median household income of over $110,000 and 4.9% of residents are in poverty. In contrast, Aurora has a median household income of almost $64,000 and 14.0% of residents are in poverty. The communities also differ in race and ethnicity: Aurora is significantly less white (over 30%) and more Latino (35% more) and Black (5% more).

So, when a store says they are “near Naperville,” what are they trying to hint at? They want to associate their store and the shopping experience with a wealthier community rather than Aurora. They want people to think of an upscale and safe place, rather than the diversity of incomes and races/ethnicities of Aurora. Ultimately, they want shoppers to come and spend money like they have Naperville resources.

If it is the case that the store wants to associate with Naperville, why is it located in Aurora? The bigger question: why is the mall in Aurora? To be answered tomorrow.

Archetypal American cities and “America has only three cities: New York, San Francisco, and New Orleans. Everywhere else is Cleveland.”

A story about the decline of retail establishments in Manhattan and the consequences for street life ends with this saying from Tennessee Williams:

“America has only three cities,” Tennessee Williams purportedly said. “New York, San Francisco, and New Orleans. Everywhere else is Cleveland.” That may have been true once. But New York’s evolution suggests that the future of cities is an experiment in mass commodification—the Clevelandification of urban America, where the city becomes the very uniform species that Williams abhorred. Paying seven figures to buy a place in Manhattan or San Francisco might have always been dubious. But what’s the point of paying New York prices to live in a neighborhood that’s just biding its time to become “everywhere else”?

These three cities are indeed unique with distinct cultures and geographies. But, I could imagine there would be some howls in response from a number of other big cities. What about Chicago and its distinct Midwest rise in the middle of a commodity empire? What about Los Angeles and its sprawling suburbs and highways between and across mountains and the ocean? What about Miami serving as a Caribbean capital? What about Portland’s unusual climate and approach to social issues? And the list could go on.

Perhaps a more basic question is this: how many archetypal American cities are there? One of the books I have used in urban sociology, The City, Revisited, argues for three main schools of urban theory: New York, Chicago, and Los Angeles. These happen to be the three largest cities in the United States and also have the advantage of having collections of urban scholars present in each. New York is marked by a strong core (Manhattan) and a unique colonial history (Dutch and then English) that helped kickstart a thriving economy and religious and cultural pluralism. Chicago is the American boom city of the 1800s and was home to the influential Chicago School at the University of Chicago in the 1920s and 1930s. Los Angeles is the prototypical twentieth-century American city built around highways and Hollywood with a rise of urban theorists in the late 1900s dubbing themselves the Los Angeles School. If these are the three main cities on which to compare and contrast, a place like Cleveland is more like Chicago (as is much of the Rust Belt), Houston is more like Los Angeles (as is much of the Sunbelt), and San Francisco is more like New York (and some other coastal cities might fit here).

But, these three biggest cities cannot cover all possible kinds of American cities. How many archetypal cities are too many before the categories become less helpful? Should the emphasis be on cultural feel or on how cities develop (New Orleans might simply be a unique outlier in all of this data)? Having these ideal type cities is only helpful so that they help describe and embody broad patterns across groups of cities.