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  • What Will be the Fate of Brick & Mortar Retail?

    Posted by David Foster on November 24th, 2018 (All posts by )

    The traditional retail industry, and the real-estate operations that provide space for it, are not, for the most part, doing too well these days.  Billions of dollars that would once–not long ago–have been purchased in a local physical space are now purchased online and shipped from a warehouse that may be hundreds or thousands of miles away.  Many services, too, that would formerly have been obtained in a local location are now obtained online…travel agencies, for example, have been largely supplanted by online services.

    So, here’s a question to think about:  What kinds of businesses are likely to continue to require local presence, and perhaps even to increase in their local presence needs?

    And what kind of businesses are currently major users of local space, but are likely to need a lot less in the future?

    An example in the first category would surely be restaurants/bars.

    An example in the second category would be, IMO, branch banks.

    Your thoughts?

     

    72 Responses to “What Will be the Fate of Brick & Mortar Retail?”

    1. Gavin Longmuir Says:

      Interesting question! It seems that things like gyms and workout centers have started to move into now-cheap spaces in malls vacated by retailers.

      One line of business likely to grow along with on-line retailing is parcel acceptance shops. All those young women entering the workforce with oppressive student debt are likely to be major on-line shoppers, but will be stuck at work and not be at home to receive parcels. It would be better for them to pick up parcels at a designated location. Delivery by the on-line retailer to a parcel acceptance shop would add efficiency as well as security. That kind of business would need space and parking — lots of it at peak pick-up times.

      But we should be careful about projecting current trends into the future. The government debt bomb and the government unfunded social security bomb and the underfunded pensions bomb are all ticking away. It is difficult to predict the consequences of the inevitable explosions — beyond the fact that there will be severe pain. Will this result in a return to localization (good for retailers) or a flight from the cities (bad for retailers and cities all round)?

    2. David Foster Says:

      Quick-care medical clinics, in or adjacent to retail space, are now a thing. I’ve also seen quite a few tutoring businesses in shopping centers.

    3. Mike K Says:

      a parcel acceptance shop

      There are a couple of Amazon drop off and pickup sites in Tucson but they are outside 711s in at least one case.

      Not really shops. We use a PakMail shop that is busy. Not for Amazon, though although I did ship a couple of returns. I wonder if Amazon is getting sloppy? I ordered a book, “Blueprint” and got three copies. Two returned.

      It is difficult to predict the consequences of the inevitable explosions — beyond the fact that there will be severe pain.

      I agree this is almost inevitable. There is not much good about being old but one thing is the fact that I won’t (unless I live as long as my mother did) have to live through it.

      Local businesses, such as plumbing and NVAC will continue to do well. Both do a lot out of a truck. I’m not sure how much brick and mortar is needed.

      The Urgent Care places are a growing trend, I think. Tucson is sure filled with them.

      My son and his family use an Urgent Care as a primary doc.

    4. James the lesser Says:

      Repair. This, and parts depots, should become more prominent as the economy crumbles. Putting back together the supply chains for B&M places will take longer than standing up a local junk dealer.

    5. David Foster Says:

      Art galleries, possibly combined with pricey picture-book sales, seem like a possibility for expansion.

      Although this interesting French startup:

      https://www.daylighted.com

      offers an alternative approach, with artworks displayed on screens (in restaurants, hotels, etc) and sold online (with potentially a much higher % of the take for the artist)

    6. Bill Robbins Says:

      After the 2008 financial crisis, bank branches profilterated even more. The same monster banks occupy branches on every street corner, and in-between street corners. Chase. Citi. BofA. Wells-Fargo. Who needs all these bank branches?

    7. Brian Says:

      I’ve always thought that there’s an opportunity for “show room” stores that only have one clothing item in each of a range of sizes, so you can try on what will fit you, and they will send you your order from a regional/national warehouse to get there in a day or two. This eliminates the need to keep tons of stuff in stock in the local store. This would mostly target women, since men and kids are in general much easier to shop for. The problem is that you still need additional stores to make the trip worthwhile for your customers.

      I suspect we’ll see more indoor agriculture as one use for abandoned warehouses and big-box stores. Unfortunately I think the main crop grown will be marijuana.

      One would think that the rise of the internet would be a boon for small towns, but it’s been the opposite–online retail, even more than big-box stores, kills small businesses, so that towns not big enough to attract Lowes, Walmart, etc., have nothing left.

    8. Bill Brandt Says:

      Amazon has not gotten into their own delivery. They are using the Mercedes Sprinter vans – I saw 7-10 of them together getting diesel fuel.

      If you think about it, darned few may survive. Trouble is, people like to look at things physically before buying (online). The bane, I am sure, of many retailers.

      Dept stores – at least the remnant left after Macys destroyed a bunch (by acquisition). I think their will always be a Nordstroms – as clothing retailers. Try getting that on amazon.

    9. Bill Brandt Says:

      not = now of course. Wish we had an edit function ;-)

    10. Mike K Says:

      Who needs all these bank branches?

      I suspect that ATMs are more in need but where to put them? We have a safe deposit box in the Chase Bank in Tucson near our house. We may decide to move its contents back to Mission Viejo because we almost never open it and I want my son to be able to access it if something happens to me. To do so, he has to sign the card in our presence. I think we will just move it back to MV at Christmas so it is close to him. Life insurance policies, etc are in there.

      There are a couple of local banks near us in Tucson but they don’t have ATMs, especially ATMs elsewhere if we need one.

    11. David Foster Says:

      Mattress stores, of which there are a lot (many of which don’t seem to last very long.) Casper, the venture-backed mattress startup which initially sold online, is now also building out 200 retail stores.

      https://www.fastcompany.com/90216464/the-29-billion-battle-to-own-how-america-sleeps

    12. David Foster Says:

      At Home Group is a fairly recent IPO that is focused on brick-and-mortar stores (Barrons calls it the anti-Amazon)

      https://www.barrons.com/articles/at-home-group-1540589894

    13. Jonathan Says:

      Outdoor-recreation outfitters, tour companies and similar could supplant main-street retailers in scenic rural areas that become popular tourism destinations.

    14. Mike K Says:

      Jonathan, there is just such a retailer in Sandpoint ID, where I bought my daughter a chain saw as a gift.

      It’;s called “North 40” and has everything from venison sausage grinders to guns to clothing.

      We went to the store just north of Lake Pend Oreille and Sandpoint.

      It’s enormous.

    15. Gavin Longmuir Says:

      Brian: “One would think that the rise of the internet would be a boon for small towns, but it’s been the opposite–online retail, even more than big-box stores, kills small businesses, so that towns not big enough to attract Lowes, Walmart, etc., have nothing left.”

      Indeed! Many of us expected to see growth in small towns as people use the internet to work from home, shop from home in more salubrious surroundings. Who wants to live in London and have to dodge knife fights and the general lack of civility? But that trend to small towns has not happened (except arguably in the case of suburbs of big cities). Some small towns in my area have even lost their grocery store, which suggests they are well on the way to ghost town status. Instead, the big cities have grown at the expense of the small towns. This is happening across the western world. I took a train ride from St Petersburg to Moscow last year, and the same trend was obvious in Russia — booming cities at each end of the line, and in-between, mostly sad little villages with not much left except the graveyards.

      The growth of cities in recent years has largely been because that is where the jobs are. Yet so many of these jobs are directly or indirectly dependent on government. What happens when unsustainable government over-spending comes to its inevitable end?

    16. David Foster Says:

      Gavin…much of the movement to cities has indeed been job-based, but I think social reasons are another key factor. Especially young people moving where they think the dating/mating pool will be deeper. Unfortunately, this often seems to wind them up in dating environments which are anonymous and ruthless.

    17. Frank Farmer Says:

      In some parts of the country, these large, mostly open, spaces would provide an excellent location for (relatively) long-range shoot1ng ranges. Most commercial ranges are under 50 yards, which is fine for pistols, but not really very good for long guns. And there a lot of ARs as well as bolt actions that people would like to practice with during Winter.

    18. Steve Korn Says:

      Generally agree. Number of restaurants and bars are correlated with affluence and will continue to increase with USA disposable income.

      Bank branches? We already seem to be over-banked. And becoming less relevant as cash is used less by millennials.

      Gyms and walk-in clinics appear to be new demand for local real estate. Based on my travel, the USA seems to have more retail real estate than other countries

      Local delivery is the new jobs engine along with Uber

    19. Steve Korn Says:

      Not all retail is dead: Took my UK colleague to a packed Cabelas store for a cultural experience not possible in New York City or San Francisco. He still talks about that visit to this day. Cabelas is largely Amazon-proof.

    20. Mike K Says:

      In some parts of the country, these large, mostly open, spaces would provide an excellent location for (relatively) long-range shoot1ng ranges.

      Tucson has several outdoor ranges, a couple run by the county. They are very well run by volunteers although they are only open on weekends (Thursday, Friday 8 to12 ). Weekends only in summer when it is hot.

      Tacoma WA used to have great shooting ranges but I suspect the leftist takeover of Washington state has had a bad effect.

      There still seem to be some.

    21. Assistant Village Idiot Says:

      Lake visitors need marinas and boat servicing and repair. I imagine it’s similar for snowmachines and scuba as well. You can bring skis, fishing equipment, hunting supplies and the like with you from the city, but people buy those things while they are at the destination as well.

      Despite the immense improvement in home entertainment systems, people still like movie theaters and going to concerts. I don’t, but others seem to. But even church models are changing with some groups having only house churches interspersed with larger festival gatherings a few times a year.

    22. Christopher B Says:

      According to my son who organizes the IT setups of branches for a major bank, the trend is going to be toward tellerless banking. I suspect the multitude of branches is to provide a secure location for transactions (easier for people to go to the money than vice versa) as well as office space for the bankers working with high-dollar clients who expect convenience.

    23. Sgt. Mom Says:

      I’d agree with Brian – that retail spaces could serve as a showroom for people who actually just want to try on or try out samples of the goods. I’ve often thought that Best Buy’s best hope is to do exactly that: let shoppers decide among the display models, and then order in store for home delivery.

    24. Mike K Says:

      Best Buy’s problem has been that electronics and utilities are a low margin business. I go back to “White Front,” which was probably the first big discount store for those items.

      In 1966, Interstate acquired the toy store chain Children’s Supermart, predecessor of Toys “R” Us, which is the only survivor of the company.[7][18] White Front was closed after Interstate filed for bankruptcy in 1974.[19] Some of the locations were changed to Two Guys, another discount chain. Two Guys soon failed as well, and the stores became relabeled as FedMart stores, which eventually were purchased by Target. The Target store in San Bernardino, California sported the archway across its facade for many years until a recent remodeling.

      The White Front store on California Avenue in Bakersfield, California, was taken over by Zody’s, also with a store in Long Beach, California. Later it was purchased and remodeled by Mervyns, which soon went out of business.

      I also remember Fedco stores, which began the membership trend.

      The chain was unusual in that it was a nonprofit consumers’ cooperative. It was founded by 800 U.S. Post Office employees who wanted to leverage their buying power by purchasing goods directly from wholesalers, and eliminate the additional markup of a retail store. The Board of Directors, headed by Robert Kee, established the first store on Slauson Avenue in Los Angeles.

      I’ve been in that Slauson store and the La Cienega store that replaced it. Costco has replaced them.

    25. ColoComment Says:

      Related:

      https://www.city-journal.org/future-of-retail

    26. Gringo Says:

      This discussion on the loss of retail space reminds me of a time my Manhattan-dwelling cousin visited me in Texas. We drove by a Half Price Books store. I impulsively asked her if she wanted to check out Half Price Books. Her answer surprised me. She replied that as so many bookstores in NYC had closed, she wanted to check out Half Price Books. She purchased several books. I purchased Thomas Sowell’s Vision of the Anointed in hardback for $2.

      Back in the day, when I visited NYC, I spent a lot of time perusing the used book stores around 4th Avenue. 4th Avenue: The History of NYC’s Lost “Book Row.”

      I know of a defunct mall that became community college property.

    27. CapitalistRoader Says:

      Big stuff that’s hard to ship to consumer addresses. In my town Macy’s just converted a Safeway adjacent to their mall store into a furniture store.

    28. Gavin Longmuir Says:

      “Number of restaurants and bars are correlated with affluence and will continue to increase with USA disposable income.”

      There is a key assumption there — the assumption of increasing disposable income. Yet we hear frequently of the plight of recent college graduates so burdened with student debt that they cannot afford to get married, buy a house, have children. Given the media’s class bias, we do not hear much about the worse plight of the non-college graduates, for whom opportunities to earn a good income have been lost due to the foolish offshoring of the country’s manufacturing sector.

      The people who do have steadily increasing disposable income tend to be government employees or those who are indirectly dependent on government (eg attorneys). But we know that governments have been spending money they don’t have for decades, and the bill will eventually come due, one way or another. See, for example, the current riots in France against increasing fuel taxes.

      What happens when disposable income declines? As it must when the debt bombs explode. There could be a scenario in which the convenience of on-line shopping and delivery to the individual turns out to be more expensive than local provision of a limited range of items. Maybe brick & mortar retail will have a resurgence of sorts — not that we are necessarily going to like it.

    29. STEVE KORN Says:

      Gavin, I think the Blue Collar prospects are actually better than the college graduate with $50-100k debt and degree in Transgender and other victim coursework. This coursework is nothing more than adolescence extended by 4-5 years at enormous cost. Degrees in STEM are of course different. Few students are willing to make the sacrifice to study STEM.

      Though I have 10 years of university and regret none of it, not the path I’d recommend for most students. College is over-prescribed in my view. Acquire a post-HS blue collar skill that can’t be readily offshored. It is one reason many IT jobs, traditionally solid middle class jobs, have disappeared. It is my job to make them disappear!

      Most useful advice I give young Millennials: Seek jobs with customer contact, the more direct the better.

    30. Bill Brandt Says:

      “Gavin, I think the Blue Collar prospects are actually better than the college graduate with $50-100k debt and degree in Transgender and other victim coursework. This coursework is nothing more than adolescence extended by 4-5 years at enormous cost. Degrees in STEM are of course different. Few students are willing to make the sacrifice to study STEM.

      Though I have 10 years of university and regret none of it, not the path I’d recommend for most students. College is over-prescribed in my view. Acquire a post-HS blue collar skill that can’t be readily off shored. It is one reason many IT jobs, traditionally solid middle class jobs, have disappeared. It is my job to make them disappear!

      Most useful advice I give young Millennials: Seek jobs with customer contact, the more direct the better.”

      I think a liberal arts degree is almost worthless. Electrical Engineering? A problem with my generation (baby boom) is that at the beginning of college you’d hear of a shortage in X – by the time you finished 4 years later studying for “X” there was a glut of them.

      It almost seems for a college degree to make sense, you have to combine it with a meaningful master’s degree. My niece had a math major then went on to get an MBA.

      You are right about the trades. I joke with a childhood friend who became a plumber – and worked self-employed for 20 years ot so. I’ll bet his income was easily 2x mine (I was a computer programmer).

    31. Gavin Longmuir Says:

      We are wandering a little beyond the future of brick & mortar retailing — but that topic is simply one aspect of the future of our society.

      Young people today are going to live through “interesting times”, as the Chinese would say. Who would have guessed hardly 25 years ago that China would go from a backwards bunch of rice-growing peasants to being the premier manufacturers in the world? What will America look like in 25 years, given the offshoring of industry and the development of a worthless Political Class and an intrusive unaffordable bureaucracy?

      Yes, the prime necessity for a young person today is to get a marketable physical skill — learn how to fix trucks, install plumbing, run water treatment plants. The usual suspects have rendered college almost worthless from an educational standpoint, and horribly burdensome financially. Unfortunately, the same usual suspects have also degraded the utility of the obvious alternative — a skill-building hitch in the military — by making the military a hot-bed of political correctness. Even so, the Marines might still be worth consideration, for those few young men who meet the standards.

      After a few years military service or other real world experience, the optimists among young people might want to consider university for a very few disciplines. Eventually, the crisis brought on by the blindness of our Political Class will arrive. China will cease sending real goods to the US consumer in exchange for IOUs that will never be redeemed. If we can avoid the Argentina/Venezuela fate, there will have to be a painful rebuilding of US industry — which means jobs for chemists, metallurgists, and such like. A real optimist would study nuclear engineering — because the worst thing the usual suspects have done is to shut down progress on that future essential source of safe plentiful energy.

    32. Russtovich Says:

      “a parcel acceptance shop”

      My brother has been living in France now for over 25 years and those are quite popular over there, especially in the smaller villages. Online grocery ordering and pickup is becoming popular as well (order at work and stop off on the way home to have them load the groceries into your car).

      And their banks, at least in the smaller villages, have been without tellers for years (I went with my brother to his local bank back in 2008). It’s all ATMs and one person available to help you use the ATM if necessary.

      Cheers

    33. Anonymous Says:

      “It’;s called “North 40” and has everything from venison sausage grinders to guns to clothing.”

      I was in Cabela’s two miles north from here Sunday (and bought several thousand rounds of handgun ammunition). They have probably more hunting stuff than North 40. I would suggest that Cabelas is a sports outfitter, while North 40 might be characterized as a western or rural outfitters. Yes, it has hunting stuff, but it also has saddles, ropes, tanks for weed control, barbed wire, outdoor work clothing, etc. And out in the parking lot they have livestock fencing, all sorts of trailers, small tractors, etc. Almost everything you need if you are farming or ranching, plus, of course, the hunting and fishing stuff that Mike mentioned. We tend to stay at the motel just north of North 40 whenever we stay in Sandpoint, partially because I love shopping there. Making it even better, there is a Home Depot just east of North 40, and Walmart across the street to the south.

      I think that North 40 survives because it provides one stop shopping for the rural western lifestyle, and esp if you are a farmer or rancher. I also think that Home Depot has a decent chance. Both of them sell large heavy items that don’t ship well in small quantities. Instead the efficiency comes by shipping in large volumes of such large or heavy items, having a good inventory, and the ability to satisfy needs immediately, instead of a week or two later, as would be the best case scenario for shipping those fences and trailers found at North 40, or 2x4s or sheets of plywood at Home Depot.

      I represented Cabelas almost 30 years ago in a patent infringement case, when they had one store, and were mostly a mail order business. They (and Bass Pro that owns them now) have some boats, and an ATV or so, but otherwise, most of what they sell (with the obvious exception of firearms) could probably be more efficiently sold online. Their stores are kinda neat, but how much are their customers willing to pay to see all their stuffed wildlife? I wouldn’t be the least bit surprised if the end up retrenching to their mailorder roots, only over the Internet now. At least they continue to have a good selection of firearms, that include a good inventory of Modern Sporting Rifles (such as AR-15s). The sporting goods stores that have dumped MSRs from their firearm inventory are sinking fast. Cabelas also sells used firearms, and the ones for sale there tend to be fairly interesting. Being able to pick them up and handle them is a good way of selling the guns.

      I think that I would vote against Amazon, when it comes to food. Fresh produce, meat, and dairy are the sorts of foods that a lot of people want to pick out themselves, or are unwilling to trust a company like Amazon to properly ship them and keep them properly refrigerated, or even frozen. For example, we are always looking for good avacados. Too hard, and they won’t be ready to eat for awhile. Too soft, and they are starting to go bad. Or, so I am told by my picky wife. The Walmart next to the house here in AZ never has good ones. Safeway is problematic. So is the closest Fry’s (Kroger’s). Drive an extra half mile in the other direction, and that Fry’s usually has good ones. Still, I will usually test at least a half dozen before picking a couple. Sometimes I will squeeze 20-30 just to find one or two acceptable ones. I just cannot see buying avacados, for example, online, at least for the foreseeable future.

    34. OBloodyHell Says:

      Groceries.

      This has always been a largely touchy-feely kind of thing, and an opportunity for the house-person to get out and socialized outside of parental duties.

      There’ve been many attempts to distance-tail this sort of thing, but they inevitably fail in the end. Some success can be had to automate the drudgery part of it (Milk… AGAIN?!?!) but it will always be about the housekeeper doing the face to face and hands-on stuff.

    35. Anonymous Says:

      Who would have guessed hardly 25 years ago that China would go from a backwards bunch of rice-growing peasants to being the premier manufacturers in the world? What will America look like in 25 years, given the offshoring of industry and the development of a worthless Political Class and an intrusive unaffordable bureaucracy?

      Gavin, you overestimate the importance of the industrial base.

      Actually, China’s and India’s development along this direction was inevitable, and is singularly responsible for the shift from 35% of people in the world in “extreme poverty” to less than 10%, between 1990 and 2015. Even the poorest of this world are better off than ever in human history.

      As for the USA, we are well on our way along the trek into an IP & Services Economy, the first nation to do so.

      In 1880, 85% of the US labor force was involved in Agriculture. By 1980, only 2-5% was so invested in farm labor. What happened? Mechanization.

      Since about 1965 or so, we have been entering into a “post-industrial” economy, which we now understand is an IP & Services economy. This means for a steady shift of people from the industrial sector to the IP&S sector, with a decrease in the industrial group.

      For several decades, we offloaded a lot of it onto Japan, Germany, and then China and Indonesia. Since 2000, however, it’s been steadily returning to the USA (do a search on “reshoring”), though this has not led to a steady increase in industrial labor for much the same reason as we now have 2-5% of our labor as farm labor, but this time, it’s not mechanization but robotics doing the factory grunt work. Expect the manufactured goods needed by the USA to be produced, in the not too distant future, by 2-5% of the labor force, just as its food supply is.

      The 2002 movie, Minority Report, shows you the factory of the future:
      https://www.youtube.com/watch?v=7omoVzuynmE

    36. OBloodyHell Says:

      Whoop. That was me.

    37. OBloodyHell Says:

      BTW, in support of the above, realize that, in financial terms, the Manufacturing sector of the USA is tied for third with Germany’s. Only Japan and China make more money from manufacturing than the USA does.

      http://mjperry.blogspot.com/2011/06/us-manufactuing-germany-italy-france.html

      The other factor is the amount of money to be made from actually manufacturing things.

      In 2010, the iPhone 4 cost US$600 retail (while this was some time ago, I see nothing to suggest any change in what I’m about to discuss):

      Now, no matter what deal you made with your SP, all-told, SOMEONE provided a sum of $600 to Apple and others for the device.

      Now, the iP4 was “Made in China”.

      How much of that US$600 did China get for making the device?

      $100?
      Nope.

      $50?
      No.

      $25?!?
      No no no.

      $10!!!!?????
      *NO*.

      SIX BUCKS.

      Yes, I typed that right: Six Bucks.
      ONE PERCENT of the price went to China to make it.

      The rest went to Apple, a number of patent holders, and a number of sub-assembly makers.

      China may have gotten the capacity to make some more by making those sub-assemblies since 2009, but they didn’t get a lot of it… still under 10%.

      http://mjperry.blogspot.com/2010/07/iphone-designed-by-apple-in-us.html

      There just isn’t that much money to be made in “making things” any longer. That’s why it moved overseas, and why anything that’s coming back isn’t resulting in industrial jobs, just highly automated factories.

    38. David Foster Says:

      Apple employs, according to them, 4.8 million people in China. About a million of them work at Foxconn, some work in retail stores, etc. Probably safe to say that there are at least 2 million people in China involved in iPhone and subassembly manufacturing.

      https://247wallst.com/jobs/2017/03/17/apple-supports-4-8-million-jobs-in-china-more-than-double-us-total/

      Even if this work could be done 5X more productively in the US (more capex makes sense with higher wages), that would still be 200,000 US jobs and associated profits and indirect jobs.

      Also, a lot of the iPhone is made in Asian countries outside China, including Japan, Korea, Taiwan, Vietnam, and Malaysia.

      https://www.lifewire.com/where-is-the-iphone-made-1999503

    39. David Foster Says:

      400,000 US jobs, not 200,000….not enough coffee yet this morning.

    40. Jonathan Says:

      Agreed about Home Depot. It functions as a just-in-time warehouse for contractors and tradespeople, as well as a showroom for individuals who want to examine appliances and home decor before they buy it. There is not yet a good online substitute for the bundle of related services that Home Depot-type stores provide.

    41. Mike K Says:

      I think that I would vote against Amazon, when it comes to food. Fresh produce, meat, and dairy are the sorts of foods that a lot of people want to pick out themselves,

      The Whole Foods down the road from us is interesting. The only time I am in there is for sushi about once every two or three weeks. The customers look like upscale hippie types (I’m old) and heavily tattooed types who probably go there to be seen.

      They sell pizza slices and have a bar that seems busy.

      My wife is obsessive about dates on milk and other perishables. We go to a Fry’s about 5 miles west of our home. We miss Stater Brothers in CA but Fry’s is a decent replacement. We drive past a Safeway that has high prices, and probably as a result, outdated milk and cream. The only thing I buy in Safeway is wine, which is cheaper than buying it from the winery.

    42. Brian Says:

      On a slightly different economic topic, I heard a story on NPR this morning blaming Trump’s tariffs for the GM plant closures, and there was a quote from an economist saying that the tariffs make the losses from plants that are manufacturing unpopular cars more difficult to sustain, and I couldn’t help but laugh out loud.

    43. David Foster Says:

      Brian/tariffs…I haven’t read it yet, but here’s an analysis of who pays the cost of the increased tariffs. The conclusion is: mostly China.

      https://theconservativetreehouse.com/2018/11/24/u-s-vs-china-tariff-impact-report-chinese-producers-pay-for-most-of-tariff-u-s-consumers-see-minimal-impact/

    44. Grurray Says:

      There just isn’t that much money to be made in “making things” any longer. That’s why it moved overseas, and why anything that’s coming back isn’t resulting in industrial jobs, just highly automated factories.

      That first part certainly isn’t true. There were a confluence of financial, demographic, and cultural reasons for why so much outsourcing to China occurred, and those reasons are being reversed or changing under Trump. All kinds of things were still being made all the time all over America. Even more are going to get made now.

      It is true that some jobs from China will never come to America. A thousand American kids aren’t going to huddle at long tables assembling phones behind locked doors and barbed wire where they only get time off for the New Year.

      There will be different, better jobs making different, better products. That’s how it always works. Capital, like water, always finds a path.

    45. David Foster Says:

      I’m having trouble reconciling the $6/iPhone to China, which number is quoted all over the place.

      Foxconn is said to have 1.2 million employees in China, of which the vast majority is working on the iPhone. Say it’s 1 million out of the total.

      Average Chinese manufacturing wage is now something like $3.60/hour. At 2000 hours/year, that would be $7200/employee.

      Which multiplies out to $7.2 billion in labor costs alone.

      iPhone sales for 2017 were 216 million units, which shows a unit Chinese labor cost of $33.

      Can anyone provide any texture on this apparent disconnect?

    46. Brian Says:

      “Can anyone provide any texture on this apparent disconnect?”
      Sure. Don’t believe any number you ever read having anything to do with China. All they do is lie. Anyone who does business with them gets corrupted.

    47. Mik Says:

      The story, as I understand it on tariffs, is that prices will rise for consumers but wages will also rise.

      We have an unsafe situation where China, a possible enemy, is our sole source of a lot of manufactured goods.

      100 years ago, trade was thought to prevent war, as in Norman Angell’s “The Great Illusion, which predicted there could be no war between major trading partners like Germany and France.

      The first American edition was published four years before World War I.

    48. David Foster Says:

      Here’s another article on iPhone cost breakdown:

      https://theconversation.com/we-estimate-china-only-makes-8-46-from-an-iphone-and-thats-why-trumps-trade-war-is-futile-99258

      If you look at the non-China Asia cost (Japan, Taiwan, Korea, and “Unidentified”) and assume the same average labor cost as China (probably actually considerably higher in Japan, lower in “Unidentified”), it looks like 4.5 million people in those countries. Even if you assume that the cited costs *really* include materials which come from other, different countries…and those represent 50% of the cited costs…that’s still 2.2 million employees.

    49. newrouter Says:

      > We drive past a Safeway that has high prices, and probably as a result, outdated milk and cream. <

      Have you shopped at Aldi?

    50. Gavin Longmuir Says:

      “Since about 1965 or so, we have been entering into a “post-industrial” economy, which we now understand is an IP & Services economy. This means for a steady shift of people from the industrial sector to the IP&S sector, with a decrease in the industrial group.”

      That has indeed happened. The issue is whether that transition is sustainable? The joke about California used to be that it was full of realtors selling houses to attorneys who were suing doctors who had treated realtors. Could that kind of economy survive?

      What we see within the US is that a lot of the “services” are directly or indirectly government jobs of the type that are — at best — overhead, and all too commonly are actually destructive; it would be smarter to pay those people to try their hand writing at the Great American Novel. And what we see externally is an unsustainable balance of trade deficit. It is blindingly obvious that the demand from other countries for US Intellectual Property & Services is very much smaller than the demand from the US for material goods from those countries. Eventually, the Chinese are going to decide it is not good business practice to ship physical goods to the US in exchange for IOUs which will never be redeemed at anything close to face value … if at all.

      We should remember that Argentina was once a rich country — and now it is not. History proves that economic mismanagement carries a heavy price. The two biggest economic issues that the US faces are (1) the unsustainable Federal government deficit, and (2) the unsustainable balance of trade deficit. It is profoundly disturbing that neither of those critical issues was even a passing topic of discussion in the recent elections.

    51. Freddo Says:

      The value of iphone production in China is not the payments or jobs from Apple, it is in acquiring know-how, technology and investments to create a company like Huawei. You may argue that much of the value of Apple is in the appstore, but that too is vulnerable to government mandated open-access or data-location laws.

      Going back to the subject of brick&mortar. In premium locations there will always be demand for a mix of shopping/entertainment. However small shops are being ground to dust between real-estate moguls and taxes/regulations. There are probably no easy solutions for that (insert comic about asking a morbidly obese person in a mobility scooter to eat less).

    52. David Foster Says:

      “The joke about California used to be that it was full of realtors selling houses to attorneys who were suing doctors who had treated realtors”

      Never heard it before, nicely put!

    53. Mike K Says:

      Have you shopped at Aldi?

      Never heard of it. I did a quick search and found none in Tucson.

    54. David Foster Says:

      Here’s an interesting presentation on how one REIT (real estate investment trust) is attempting to cope with the changes in the market. They are focusing on what they call “lifestyle” tenants, which include dining, beverage, grocery, fitness, furniture, beauty, wellness, and entertainment.

      It’s the 11/7/18 NAREIT presentation:

      http://investor.washingtonprime.com/phoenix.zhtml?c=117334&p=irol-irhome

      I’m an investor (should probably say “speculator”) in this company; time will tell…

    55. Gavin Longmuir Says:

      “… small shops are being ground to dust between real-estate moguls and taxes/regulations.”

      In his writings about the decline of California, Victor Davis Hanson has repeatedly described how the intrusive California bureaucracy which makes life so difficult for small businesses resolutely looks the other way when illegal aliens set up roadside food stands which do not comply with local codes & regulations. There may be some bureaucratic logic in treating those whom California authorities permit to be in the country illegally as being above the law in other areas too — although most of us understand that the failure of California to enforce its laws evenly is merely reverse racism.

      This would not help brick & mortar retailing, but it suggests that abandoned malls and their parking lots could become sites for illegal trading of all kinds with the connivance of authorities who refuse to enforce their own regulations — as long as the traders are not US citizens.

    56. Mikie K Says:

      One problem with small business is the fact that so many small business people are incompetent.

      I still remember a TV repair shop where I dropped off a TV for repair. That was 1973 but I remember it. The owner called me to tell me the TV was ready to pick up and then added that, if I did not pick it up within one week, he would sell it for the charges. I picked it up and never did any business with him again. Six months later the shop was gone.

      Yesterday, my wife and I went to an antiques shop. We had been there several weeks ago when my wife was looking for clip-on ear rings. We had sent a pair of ear rings to my sister, several months ago, forgetting that she does not have pierced ears. The clip-on are getting rare. The antiques shop lady had brought several pairs in and we stopped to look at them. My wife chose a pair that the seller wanted $48. for. That was OK but she insisted on cash plus the sales tax. Between us, we had $50 but that was a dollar short of the total. I suggested that she take $50 including tax. She refused. I walked out. Finally, she grudgingly allowed my wife to use a debit card. We will not be back.

      I have watched favorite restaurants be sold and then slowly decline as the new owners change things for the worse.

    57. Grurray Says:

      Mike, that’s the advantage of small businesses. They fail easily, so many others can take their place. The marketplace can evolve and grow. Restaurants are a great example.

      We get into trouble when there are only a few big businesses that we have to keep propping up, until one day we can’t anymore and everything collapses.

    58. Brian Says:

      Commercial real estate is a mystery to me. I recall seeing small businesses that had been around for decades in LA closing because their rent was increased, and the location then sitting vacant for years.

      Where I am we have a somewhat similar problem, of landlords not apparently caring if their properties are used or not, but the details are very different. Small town downtown business failures hit critical mass in the 80s or so, and then and in the 90s most buildings were sold in tax auctions for almost nothing, many to out-of-town contractors. Since they pay basically no property tax on it (these things can be assessed at like $20K), it costs them nothing to keep, they make sure not to get too far behind, and the building just rots, but unless it starts literally collapsing no one can do anything about it. You’d think they’d want to put ANYTHING in there, so it’s used, and so there might be some economic activity going on that might build the neighborhood up and start to lift property values and attract buyers, not they all seem to be convinced that someday someone is going to offer them a ton of money, because it’s a historic building after all!

    59. Grurray Says:

      There was a great program introduced in last year’s tax bill by Sen Tim Scott called Opportunity Zones. Tax deferments and partial exclusions on long term investments in rural or urban low income areas, so this will hopefully encourage some business activity. Scaramucci’s hedge fund just announced they’re raising $3 billion to set up a real estate investment trust for this. The list of eligible areas is on the IRS website. California has around 900 sites.

    60. Mike K Says:

      We get into trouble when there are only a few big businesses that we have to keep propping up, until one day we can’t anymore and everything collapses.

      Oh, I agree. And incompetence is not rare, especially in government. California comes to mind immediately.

      I have been fond of Sears since I was a child. I worked there for a few months when I was in college. The people who funded my scholarship were mostly Sears people and I was allowed to work part time in a management training program. I was impressed with several managers I met but the administration was atrocious, even then. I worked at the Boyle Street Store in LA, which at the time was the biggest Sears retail store in the country and the largest building west of the Mississippi at the time. The Board Chairman came through on a tour of the stores. His name was C.H./ Kellstadt and, as he walked through the Mens’s Department, he saw a tie that was hideous. It had dyed feathers on it. He said, “Get rid of that tie.” Nobody mentioned that it was the best selling tie for the store, which was in east LA.

      In 1995, I was in New Hampshire when Sears closed its catalogue operation, just as Amazon.com was starting to sell books online. Sears had all the infrastructure Amazon has now. But their inventory system was years behind. A favorite book is “Once an Eagle,” which is about a career army officer. One summer he takes leave and works for a relative in a business in Ohio. His wife would like him to quit the army as it is in the 1920s and the pay is poor and promotion slow. The business he works at has an inventory system that is a mess and he straightens it out. Sears in LA was like that when I worked there. Nobody knew what was in the warehouse.

    61. Jonathan Says:

      You’d think they’d want to put ANYTHING in there

      There’s less risk in holding the property without improving it. The biggest returns probably come from increased land values if the area improves.

    62. Brian Says:

      Yes, that’s clearly the calculation the property owners are making. The question is how to change the math. My thought is to say that any retail spot with <~$0 revenue for a year has its property tax bill for the year increased by 10x or whatever level is necessary to make it prohibitively expensive to just leave them vacant. I don't know if there are barriers to this sort of "vacancy tax" but places shouldn't be held hostage to garbage owners like this. Unfortunately, my suspicion is that most of these towns fear that if the current deadbeat owners are forced to sell, no one will want these properties, even for nothing. Too many are too derelict at this point.

    63. Jonathan Says:

      Deadbeats, or making rational risk estimates based on the local market conditions? If business don’t want to move into an area there is probably a reason. Punishing the few people who are willing to risk their own money, even hesitantly, in such places won’t encourage other businesses to move in. Municipalities that want more business formation in stagnant areas should make sincere efforts to reduce crime and govt regulation and whatever else is making those areas unattractive.

    64. Anonymous Says:

      “I don’t know if there are barriers to this sort of “vacancy tax” but places shouldn’t be held hostage to garbage owners like this.”

      Sometime in the distant past, there was a movement to change the way in which downtown property is valued for tax purposes. The concept was that most of the tax value should be attributed to the land, and very little to the improvements (buildings) put on the land (which is the reverse of the way most tax valuations work). This was intended to encourage the owners of downtown property to put it to productive use, since vacant land or unoccupied buildings generating no income would have basically the same tax burden as active businesses. I don’t know if that concept has ever been put into practice — or what the consequences were if it was actually adopted.

      On the other hand, personally I am not keen on the idea of using the tax code to force people to make politically-approved choices.

    65. Brian Says:

      Jonathan: These people aren’t “risk[ing] their own money”. I’m 100% not joking that in my town there are downtown buildings that the owners bought for $500 30 years ago, and in the meantime they pay their property taxes (3 years late, to avoid legal penalties), and have done absolutely nothing else (except of course in many cases to strip the interior), and shown zero interest in developing them into anything. These people need to be forced to either put some of their own money into improving the building and putting it to use, or to sell to someone who will.

    66. Mike K Says:

      These people need to be forced to either put some of their own money into improving the building and putting it to use, or to sell to someone who will.

      Eminent domain would allow the city to take property if there was a better use for it, I should think, but that assumes there is a better use.

      A friend of mine, who grew up in Cork, Ireland, wanted to buy a cottage that was vacant on the headland to Cork harbor. They wanted it as a summer home. They never could learn who owned it. It was some English aristocrat whose family had probably owned the cottage for hundreds of years.

      That apparently is a chronic problem in Ireland as the titles of property are not well recorded.

    67. Brian Says:

      Eminent domain is not a good solution, that would take years, if it’s even possible, and would put the property in the government’s hands, or some favored person’s. The question is how to put these buildings in the hands of someone who actually is willing to spend money on them. The first step is to change the calculus of the current owner, because they clearly are not, and have a delusional notion that someone will pay >$100-200k for them. You MIGHT be able to find someone willing to take the building for almost nothing and spend ~$40-50K on renovating it to make it usable, but not to spend $150-250k to buy AND renovate. Now, you may say, hey, that’s the property owner’s right, to just sit and wait until he gets an offer he wants, and if someone really wants the building, they should figure out something to do with it that will pay the price the current owner wants. But in the meantime these towns continue their death spiral.

      I’m not saying there’s an easy answer. These towns are dead. It’s sort of circular at this point–no one wants to put a business here because there’s no economic activity, but there’s no economic activity because there are no businesses (duh). It’s probably too late. I just think there must be things to try, because at this point the projected future is that in a decade or two the buildings collapse and the owners just completely walk away, and no one will even care because the town will have been effectively abandoned by then.

    68. Jonathan Says:

      Purchase price does not necessarily equal current value. If you paid $500 years ago for a building that’s worth $100k you have $100k at risk. The people with skin in the game might have a better understanding of what’s going on than do the pols and other outsiders who want to tell them what to do with their property. Perhaps the lack of development is a symptom of lack of demand that makes further investment a risky proposition. (Would you buy a store on Route 66?) Perhaps if that $100k valuation becomes $200k things will start to move. We agree that there may be no easy answer. In any case forcing property owners to do what third parties think they should do with their property is a bad idea. Even if your current prescription is right the pols may not follow it, and who knows what bad ideas would be forced on property owners in the future.

    69. Brian Says:

      Sigh. I’m actually not speaking theoretically here. I know whereof I speak. These building aren’t work $100k. How do I know? Because every year or two one of them is put up for sale for $100-200k. The listing sits there for a few months, then is pulled off the market. If value equals someone’s willingness to pay, they’re worth no more than the assessed value, with is usually ~$25K or so, and probably even a bit less.

    70. Sgt. Mom Says:

      We’ve been driving down through little towns in South Texas for a good few years now – and have observed the empty storefronts on various old Main streets. Sad – the old places are gloriously, fabulously old-style architectural – but if there is nothing going on in the town – then how is it they have any value?
      But once something kicks off, economically in one of those small towns, then the sky is the limit.
      A chicken and the egg conundrum, I suspect.

    71. Lexington Green Says:

      3D print-on-demand shops, probably co-located with parcel pickup. You order something, and it is either printed on site, or shipped in from somewhere. Of course, the option of a driverless vehicle or drone delivering it the last mile to the purchasers residence may even make this less common.

      An aging population may be especially eager for third spaces. Expect restaurants and coffee shops and bars to continue to thrive, since people will always need to ingest food and drink, and they like to do so linked to getting out of the house.

    72. OBloodyHell Says:

      }}} I’m having trouble reconciling the $6/iPhone to China, which number is quoted all over the place.

      Well, I would suggest you go to the source I cited, which is Carpe Diem, the blog of Economics professor (and no, not an idiot keynesian) Dr. Mark Perry.

      The link is to an older version of the site on blogspot (he’s since shifted to the AEI — Here: http://www.aei.org/scholar/mark-j-perry/ )

      When people hear “services”, they think all too much of McJobs. First off, it’s IP and services. Much of the “real” wealth for this country in the last four decades has ALL been in the form of IP — Software, music, movies — as well as knowledge (e.g., patents). It is patent owners, as well as Apple, who make off with the lions share of that 6 buck iPhone 4. The actual “hard parts” — screens, cases, batteries, processors — are probably only a third of the value created. And even some of that hard stuff is profitable because someone has a patent on how to make it.

      Moreover, Facebook is a service. Twitter is a service. eBay and Amazon are services.

      How do you think Jeff Bezos passed a half-dozen people, including Bill Gates, for the #1 richest man?

      By offering a service.

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