Thursday, July 30, 2020

Coming soon to a business district near you - if it hasn't already arrived


Wolf Richter points out that the COVID-19 pandemic has greatly accelerated a trend in the business property market that began some years ago.

The process started years ago. Ecommerce, a structural shift in how Americans shop, has wiped out retailer after retailer, from big ones such as Sears Holdings and Toys ‘R’ Us, to smaller ones. It created a nightmare scenario for malls and landlords – including REITs – that own the malls, and for investors that hold the mortgages and the Commercial Mortgage-Backed Securities (CMBS) that these mortgages have been packaged into.

And now that the pandemic is compressing future years of brick-and-mortar meltdown into a few months, the whole schmear is coming apart.

. . .

Americans are spending their unemployment and stimulus money, and they’re buying lots of stuff, they’re just not buying it at the store. The ecommerce announcements by various retailers – those that have vibrant ecommerce businesses – have been stunning.

For example, Best Buy said in an update a few days ago that quarter-to-date through July 18, online sales have surged 255% (not a typo) compared to the same period last year. The Commerce Department will release second quarter ecommerce data in early August, and it will be stunning. But the business at malls is dead.

With thousands of stores being shuttered permanently, and with other stores that haven’t been shuttered yet unwilling or unable to pay rent, malls have been pushed to the brink.

. . .

Mall creditors are not amused. Mall properties have taken a huge hit in value – down 33% over the past 12 months and down nearly 50% over the past three years, according to the Green Street Property Price Index.

And no lender wants to end up with a bunch of zombie malls on their books. So they’re motivated to talk. But there is just no good way out.

There's more at the link.

Adding to the problem is the current urban unrest, which has seen many malls and retail districts attacked by mobs of looters.  For example, the top-of-the-line stores along Chicago's Magnificent Mile have mostly been boarded up, to protect their contents - not always successfully.  Similar events have occurred in many shopping districts in many cities.  Whether all of those stores will reopen is as yet unclear.  If I were the store owner, I'd certainly think long and hard before investing even more of my money in cities where the authorities pander to the mob and allow them to loot and burn unhindered.

Think about what this means for your day-to-day needs.  You may rely on shops in nearby malls and business districts.  What if they aren't there any longer?  You'll have to drive further, or order online and endure the wait until your purchases can be delivered.  (I've noticed a growing lag between ordering and delivery from many online outlets.  I daresay the average wait time for packages is now at least a week, if not ten days or more.  Amazon.com still offers its Prime service, but in many cases deliveries take longer than the previously advertised two business days.  I've had to wait up to a week or more recently.  I guess we can put that down to the vastly increased order workload, and the stress put on delivery systems to get a much larger volume of goods from vendor to customer.)

The business closures aren't limited to stores.  According to a recent report, 60% of restaurants that were forced to close during the pandemic have permanently shut down.  That's thrown a lot more people out of work, not just in those restaurants but in the supply chains they used.  It's also going to mean greater inconvenience for many consumers who relied on eating out rather than cooking at home.  They're likely to be cooking for themselves for rather longer than they'd intended.

Towns and cities are going to feel the pain even more than consumers.  Many municipalities depend on business taxes to fund many of their operations.  If shops are doing less business, they pay less turnover tax.  If malls shut down, the property tax owed on their property is unlikely to be paid.  The people left unemployed as a result no longer use their wages and salaries at other local businesses, to be taxed in their turn.  Many online transactions return no tax income at all to cities and states, despite laws that are supposed to compensate for that.  When so many people are so short of money, they're unlikely to feel obliged to report such purchases and pay estimated sales tax on them.

This also means that cities and towns will turn to alternate sources of income to compensate for what they're losing in business taxes.  For example, Nashville, TN recently announced a 34% increase in property tax.

Nashville Mayor John Cooper said he would not have considered an increase this large if Nashville was not facing record financial challenges.

But this is exactly why critics say they can’t afford to pay thousands in additional taxes.

Again, more at the link.

I note that most municipalities are not considering major cuts to their staff and services to cope with their financial challenges, even though many of the latter are far from essential.  No, they'd rather keep their armies of drone workers and charge residents more for the dubious privilege of having them.  In their opinion, taxpayers are clearly sheep to be sheared.  One hopes that those taxpayers would vote their fiscal oppressors out of office at the earliest opportunity, but sadly that never seems to happen.  Oh, well . . . some of them vote with their feet by leaving.  That's what Miss D. and I did, some years ago, and we've never looked back.

There's not a lot we can do about the businesses closing all around us, except to patronize those that are really important to us, spending our consumer dollars there in an effort to keep them open.  I think it's very important to have local resources such as pharmacies, vehicle repair shops and the like.  A local supermarket is also an important benefit, even if it offers only a limited selection, in case lockdowns or unrest prevent us getting to stores further away.

I guess all of us are going to have to use our dollars as wisely as possible, not only for our own needs, but to support our community.  What resources, what businesses, do we really need locally?  Let's patronize them, and help to make sure they don't go away.  If they do close their doors, we'll have to plan (and pay for) much deeper personal and family reserve supplies, so that we can cope for longer periods without shopping.

Peter

7 comments:

libertyman said...

I imagine the worst isn't over in many ways. I see that fourteen or more colleges in New York State are likely to close. With that, all the associated local businesses will take a hit. The shift to online purchasing is huge, as who wants to go to any store and be treated like you are Typhoid Mary, when with a few clicks, something is delivered to your door?

Amazon now takes whatever time they choose to deliver, you don't suppose that is saving them money, do you? They take your Prime membership money, which was predicated on two day delivery and keep it. There might be a class action suit right there to make a few lawyers wealthy.

No one has seen the unintended consequences of this virus, it will change almost everything.

STxAR said...

I work for a major shipping company. We have seen our Christmas level volume since the lock down. I was just at a major location 2 days ago, and packages were stacked everywhere. The volume on Monday was overwhelming.

We have a mom and pop hardware store in town, and I hesitate to buy anywhere else. They have a lot of what you need, and can order in if you don't. The truck comes mid week. I know I could probably get it cheaper online, but I haven't yet.

I started "networking" with folks I meet now... An electronics engineer that is on his pension and working as a security guard (terribly underutilized, he is brilliant), a welder that just started a business a few months ago.... I aim to help them find work to fill out their days, keep an out out for opportunities, as well as learn what I can from them and hopefully reciprocate.

I don't know if that even has a title... I'm working to facilitate as much as I can. At this stage of the game, it seems to be what I do best. I find things that others need and hook them up. Case in point: I wound up with a bunch of old western magazines from my dad, and found an author that could use them as background for his writing. I got such a charge from passing those on... it started a new chapter in my life. (no pun intended, but if you want it, it's yours, proof reading not included) I found some equipment that was about to be scrapped and got it to the welder as he needed it to do a project. His margin will be better with free material, and I traded for some welding lessons.

Tom said...

Side note: getting rid of government employees at any level--federal, state, or municipal--can be extraordinarily difficult, which is one of the attractions of government work. I rather suspect that a lot of these mayors would like to trim some deadwood rather than raise taxes (after all, they'd like to be re-elected, if nothing else) but they can't.

Rev. Paul said...

I note with some interest that a number of city-based malls have started converting all the unused/unwanted space into apartments and/or condos. It attracts a number of seniors who desire the enclosed (perceived) security, and the built-in walking track.

ADS said...

Malls, and suburban strip mall sprawl, are arifacts of a previous era of prosperity and homogeneity. When a working man's wage paid for a house and two cars and a stay at home mother to raise the kids, nice places to shop made sense. Now that the "9 to 5" has turned into the "7 to 5 with two hours commute on each end" and both parents have to work (dog parents, by the way. Who can afford to raise human babies when both partners owe $75,000 in student loans?) There's no time for mall shopping. Anything you need gets bought online from a smart phone on your lunch break.

There's no reason to go to the malls anyway. All the big stores like sears have been hollowed out by horrifically inept boomer management and offer goods on par with harbor freight or discount thrift stores. As Craftsman goes, the anchor store goes.
You don't want to even stroll through and browse because block-busting racial tactics and section 8 forced diversity have festooned the mall-shopping suburbs with hordes of violent, fatherless urban youfs who are paid to exist and paid to breed and have nothing better to do than loiter around the mall committing low level assaults, thefts, and property crimes whenever the impulse strikes them. "Diverse" "urban" "youths" are kryptonite to the middle class white shopping experience.
Malls are a dying boomer memory even without imported chinese pandemics.

Beans said...

The Covidiocracy was the perfect storm that could have yanked Sears or JC Pennys back from oblivion.

But both of them, and so many other store-chains, decided a long time ago to not do ecommerce. Even though both Seas and JCP were kept alive and thrived on catalog sales (anyone remember a Sears Catalog Store, where you go in with your order and Sears Main somewhere ships it to your podunk place?)

This covidiocracy has shown what stores and businesses are luxuries, and what are essential.

And, well, we have had too many darned restaurants, eateries, fast food places and food trucks. Many people I talk to in the store are all revelling in the new-found power of having all that money that they previously wasted on buying prepared foods.

It's what happens during recessions and troubled times. Non-essential businesses fall by the wayside. Workarounds for people getting what they need appear. Prosperous times return, and slowly people return to non-essential businesses. Really, who needs movie theaters these days? Who needs a choice of 100 different ways to make a mediocre hamburger or fries?

And, in all places except apartment complexes, I have seen a return of Victory Gardens and raising small meat animals.

Self-reliance, even partial self-reliance, is a good thing.

Unknown said...

Peter, it's been reported in many places that people are looking for property outside of cities: Cooper's tax grab has exacerbated that in Middle Tennessee. I live in rural Robertson county, north of Trashville, and was thinking of getting a little further out; at 55, I figured I'd pick my final place, sufficiently remote, and not have to move again, at least in this body.
It now appears that I'll be paying a bit more than I'd anticipated. Prices, already rising, show no signs of changing their acceleration. I do have one advantage, being a hermit at heart, in that I'm looking for places further out than most folks consider convenient, or even reasonable. I'm further blessed in that my lady agrees.
--Tennessee Budd