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….

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Spare Parts

Crony capitalism receives more prominent attention via the Atlantic’s October issue. Gregg Easterbrook takes aim at one of the grandest corporate thieves, the tax-free NFL and its legions of public welfare needy owners.

Considering the public fiascoes in Miami over the Marlins stadium, Minnesota’s nearly half a billion dollar gift to the Vikings and other continued flagrant violations of public interest, I will not hold my breath for any actual progress.

I do love this proposal though:

The NFL’s nonprofit status should be revoked. And lawmakers—ideally in Congress, to level the national playing field, as it were—should require that television images created in publicly funded sports facilities cannot be privatized. The devil would be in the details of any such action. But Congress regulates health care, airspace, and other far-more-complex aspects of contemporary life; it can crack the whip on the NFL.

If football images created in places funded by taxpayers became public domain, the league would respond by paying the true cost of future stadiums—while negotiating to repay construction subsidies already received. To do otherwise would mean the loss of billions in television-rights fees. Pro football would remain just as exciting and popular, but would no longer take advantage of average people.

The ‘next big thing’ obsession of municipalities and regions is often central to these public treasury abuses, as they seek the next big thing that can restore, revamp or just further entrench their status among counterparts in America and the world. Nor rarely can the ‘white elephant’ complex  be far behind as governments chase the highly improbable.

Not for the last time, may I add that civic spirit does not exist in modern America?

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Meanwhile in my new home of Raleigh, we have a classic one-sided “woe be the inner urban poor” story.

So it’s clear to Johnson and her neighbors that someone wants them out – their apartments knocked down and replaced by something more profitable.

The potential sale of 245 apartments for lower-income people has reignited long-simmering fears that downtown Raleigh’s rebirth will crowd out poorer neighbors to the south and east, swallowing up blocks suddenly turned valuable.

For most communities, the obsession by some on the Left for housing equality access taking precedence over infill development is terribly misplaced.

Raleigh’s struggles to overcome its own underutilized urban core are only intensified by these theatrics which accomplish little and undermine much.

Maximizing the productivity of core areas with excellent development potential is an act of social justice in itself, improving countless vital metrics across the board from tax revenues to public service provisions (transit, policing, schools). Concerns that people will be pushed out are valid but ultimately far less consequential than the benefits that accrue from that process.

The brutal truth is that we are in a time where the government (federal, state or local) does not have the means nor the will to subsidize people to live in prime urban real estate at a great discount and at the expense of long-term societal improvement via revitalizing downtown cores in suburbs, cities and towns.

The valid concerns about this process can be addressed by (not a conclusive list):

  • improving transit service (including adding more flexibility into the system) in suburban areas,
  • reforming discriminatory zoning codes in suburban areas that tilt multi-family development away from broad appeal and greater income accessibility,
  • revitalizing and in some cases creating new foundations of non-profit support of the working poor and the fixed-income elderly

Certainly, I have much more to say about this, especially regarding that above list. That is for another time…

Forward the Future I (Updated!)

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

First…. fast food.

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(Wikimedia Commons)

Recent news coverage of the McDonald’s low-pay budget snafu and demands by some fast food workers for a $15/hr minimum wage has fueled conversations about living wages, profit margins and sustainable business practices. In response, fast food chain flacks have ominously touted the machines as the final outcome of such activism. This potential for automation in reducing some of these fast food jobs, as reported on by NPR, is very real in the near future.

Forces beyond labor cost may push automation forward*. Continued progress on eliminating corporate and first-in-line farmer subsidies along with increased global demand for beef, dairy and corn-based products will increase fast-food chain supply costs. Expansion of consumer preference for natural meat products (grass-fed, antibiotic free, etc.) into median and lower income brackets is likely.  While profits remain high for some (McDonald’s, YUM!), others are struggling in the face of increased competition and tighter consumer budgets.

*For a more extreme version of this hypothetical, imagine some degree of restrictive immigration reform passes in 2017-2020, removing a key labor constituency for fast food.

Something has to give.

While automation is over hyped at this point, it is viable in fast food. I ate often at Pepper Lunch and similar restaurants in Japan where I ordered my meal on a computer screen or vending machine. If the order was not automatically received by the cook, I would give the ticket to a worker who helped in the kitchen or with cleaning as well, and waited the same amount of time for my food as I would have if I had placed my order with a human.

Pepper Lunch franchises in Hong Kong and Singapore are notoriously slower in service and ordering, precisely because they lack this automated ordering system.

Installation would not be a prohibitively expensive proposition for most chains, though franchisee concerns would drag adoption notably in the beginning. Not only inside restaurants but in drive-thru lanes & via mobile apps, this ordering scheme would reduce labor costs and uncertainty.

Would the varying popularity of certain chains at different times of day be altered by the absence of a front-end person? I doubt it. The elderly would still congregate for conversation and gossip in the morning, workers on lunch breaks would still line up for a quick bite, and high schoolers and families with young children in the afternoon would still need an odd timed bite to eat. Ditto for the evening services.

What would change then?

For one, there would be less demand for low-paying jobs. Automation of fast food could be a bellwether for automation of retail and other services, leading either to the chance for a Las Vegas compromise between management and labor or the more likely continued under-compensation of skilled service workers .

While the idea of 75-80% of fast-food jobs being automated is dubious, a 25-35% reduction is not unfeasible. As we suffer through a critical skills abyss at the bottom of the labor pool (math and reading comprehension, writing ability, self-discipline, etc.), this would not be a good outcome since we already have so many more workers in this labor cohort who lack viable jobs.

That however is a conversation for another day.

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Update: McDonald’s in the EU region has already begun its automation process.

“The hiring picture doesn’t look quite so rosy for Europe, where the fast food chain is drafting 7,000 touch-screen kiosks to handle cashiering duties.”