Bitter Legacies: Big-Box Bribes Meet The New Normal

Credit: Shannon Albert

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….

Gas Stations, Food Trucks and DIY Districts (FTF II)

This series, Forward the Future, will intermittently consider the future of commercial activity within U.S. municipalities.

Our food choices are expanding, not only with the accelerating globalization of American food culture and dining choices, but new delivery platforms. While the classic fast food industry faces immense labor challenges, new entrants are presenting unprecedented opportunities for municipalities to create, revitalize or enhance community and economic development in local neighborhoods. Most prominent among these are gas station eateries and food trucks.

The Washington Post profiles the booming business of fresh gas station cuisines (Thai, Korean and Mexican instead of three-day old hot dogs and stale donuts):

“The Gorees invested thousands of dollars in the restaurant, instead of the hundreds of thousands it would have taken for a standalone place. They have no debt. The tables and chairs are from Ikea. They buy local food. The flowers on the tables are from the farmer’s market.”

The ‘new normal’  assumes many forms and foremost among them is the creative use of existing, under-utilized space. So-called “ugly” spaces, whether a run-down strip mall or a corner gas station, are being transformed not by major government development initiatives or big banking schemes but local elements. These local forces include both expansion-minded entrepreneurs and cost-conscious civil society elements, only the former of whom I will discuss today.

The most unproductive spaces of all within many municipalities are government mandated, free market abridging parking spaces. Most of these spaces exist because of maximal parking requirements that are a major drag on municipal productivity. They drive up construction costs, waste infrastructure taxes, harm the environment via impervious surface runoff and inflict many other ills well-documented by Donald Shoup in “The High Cost of Free Parking“. Recently, some of these spaces have been smartly used by food trucks.

Food trucks though face enormous regulatory hostility from local governments.

Even as their popularity has spread from major urban centers (SF, Portland, Boston) to smaller municipalities (Cary, Everett), the barriers to entry and stability have been almost uniformly erected by local governments. Bureaucratic inertia (rules written in the 1980’s), protectionist cartel mobilization (restauranteurs unreasonably view food trucks as existential threats), and complex, even conflicting regulations from different departments (Transportation, Public Health) continue to exact a heavy price from food truck operators. While they have organized and even crafted inventive solutions to common problems such as renting a private lot and offering transparent food safety assurances, their efforts in every city will only be successful if common citizens unite with uniquely qualified individuals and organizations such as the Institute for Justice to uphold free market principles and consumer choice.

Nevertheless, unless they are strangled in most locales by a noxious mix of government and incumbent businesses, food trucks are part of a changing work culture that meets an emerging market need.

“We’re knee-deep in the era of 15-minute lunch breaks and work days that extend far past our dinner times. The reality of ever-longer hours has cut across class lines. “

In the best case for a municipality’s development, food trucks and gas station eateries can even be a part of a DIY district, where inventive repurposing of existing space revitalizes under-performing areas of a municipality. A common thread of these larger projects is the removal of onerous government regulations, such as parking requirements and strict Euclidian zoning separation of land-uses, that greatly raise the cost of startups and impede synergies that develop from multiple combinations of “live-work-play-meet” market demands.

Most intriguingly for local or smaller businesses competing with their often subsidized competitors in national and regional chains, this is part of a longer trend since the Recession of what UNC  entrepreneurship professor Ted Zoller describes as:

“People, craving a genuine product, are turning to homegrown businesses and moving toward destinations that provide a sense of belonging to a community and the opportunity to be part of the scene…”