Hundreds of communities across America have paid out major bribes to Wal-Mart and similar big box retailers in a misguided pursuit of sales tax base and low-paying jobs. Most negative externalities big-box development introduce (greater congestion, infrastructure requirements from traffic lights to road expansions, decimation of non-subsidized competitors) are borne by the local and state taxpayers. I presume I can pause here since this story is already familiar to everyone?
Over the past decade we’ve learned that consumer preferences have shifted strongly to online purchases, local consumerism and (for some) buying less in general as they seek less fleeting experiences and more self-improvement/edification. Obviously this is bad for most retailers from Target to JC Penney’s.
Now we are learning the hollowing out of the great American middle has made its way into retailing with a bottoming out of much of the middlebrow fare. Sears, JC Penney’s, and now Wal-Mart face worsening conditions as their higher-income shoppers are poached and their lower-income shoppers find themselves less able to afford the fare at these stores along with the added challenge of being unable to drive.
Competition is more fierce than ever from below with Aldi, Marshalls, and the long litany of dollar store chains taking market share from the incumbents with a mix of better service, selection and prices. The dollar stores and their slightly more upscale pharmacy counterparts (Walgreens, CVS) merit special attention though.
Boasting smaller footprints and lower setup costs, they can afford to meet nearly every unmet market sector of a municipality. Where a municipality can support one Wal-Mart supercenter, these chains each can compete successfully with three to five stores. For the growing number of Americans without steady access to an automobile, the income to support and maintain auto insurance and maintenance costs, the health (vision, reflexes) to drive or the legal eligibility to drive, these chains offer a closer and similarly priced option.
These chains, especially the dollar stores, also usually feature superb location geography. They set up in more economically downscale areas, depressed street corners and strip malls with lower rents, and in areas with some degree of pedestrian infrastructure unlike the Wal-Marts and other big boxes that are adjacent to massive thruways much further away from residential areas.
In other words, Wal-Mart and many of its brethren expanded across America in the heyday of retail free lunch as communities foolishly competed in a race to the bottom they never understood or envisioned beyond increased sales tax receipts. They depended upon customers being able to drive to their locations built in greenfield development far away from most housing, a foundation that is now collapsing as more Americans are unable or do not desire to drive.
Its competitors building much smaller footprint stores more rapidly and cheaply are now meeting that demand while higher-income customers choose to upgrade. Wal-Mart tried for the past decade to be all things to as many people as possible. That is no longer feasible.
Bloomberg retail analyst Joseph Brusuelas says that in effect, their customer base is trending downward the economic ladder.
Think about that in terms of planning and economic development. Countless municipalities bet the farm on what amounts to a losing horse and are stuck with the long-term costs of that bad bet as big box stores empty out, consolidate to larger, more productive municipalities or get smaller (Wal-Mart’s neighborhood markets may end up replacing aging or underperforming main store locations, stores like Best Buy are shrinking, another economic recession is expected to eliminate another 5-7 major retailers).
These should be harsh times for bureaucrats betting like Vegas novices with precious taxpayer money. Yet there will be no accountability as many of them have left office, been promoted or already voted out. Only debts and legacy obligations….