April 21, 2017--Dead Malls

I knew the culture had shifted when I needed AAA batteries, and rather than walking over to Kmart, which is less than two blocks from here, I ordered them on line from Amazon.

I wasn't looking to save money. The 8-pack of Energizers on-line cost all of $5.82 plus tax. And the weather was pleasant enough for the short walk and I wasn't being lazy. But, one-two-three, on semi-automatic pilot, I placed the order. They would be delivered the next day.

When I realized what I had done so reflexively, I thought it is no wonder that Amazon's founder and CEO Jeff Bezos is now the third richest man in the world as the result of selling AAA batteries, underwear, consumer electronics, and millions of other items. Of course, his success also comes from providing cloud-computing services.

If I had walked to Kmart, on Broadway, pulled up to the curb, I would have seen a truck and about half a dozen men unloading large plastic containers in which there were Amazon products for delivery to neighborhood apartment buildings. The next day, one of those containers would have my batteries and one of the Amazon workers would bring it to my building along with at least 50 other packages for residents.

So from the Amazon Website, to a huge fulfillment warehouse somewhere in central New Jersey, to lower Broadway, to East 9th Street, to my building's overflowing package room, my AAAs would find their way to me via Amazon's supply chain and Bezos would be a penny or two wealthier.

And in the process, aggregating this millions of times a week, the nature of retail business is shifting dramatically as more and more brick-and-mortar stores go out of business, including Radio Shack and, soon I am sure, my local Kmart. They cannot any longer do enough business to justify what it costs them in rent. I can see a bank or drug store moving in as they and restaurants are pretty much what Manhattan street-level commercial real estate is evolving toward.

The Department of Commerce projects that up to 100,000 retail workers will be laid off this year. Since October 89,000 already have been. Some of these, as economists put it, shifted from one sort of relatively higher-paying in-store retail employment to much lower-wage warehouse work, much of it part-time. And with fulfillment centers increasingly automated, the net number of retail workers of all kinds (including the delivery guys on Broadway) is falling at a significant enough rate to be of macroeconomic concern.

As Mark Cohen, director of retail sales studies at Columbia University's School of Business, says we are seeing a "slow-rolling crisis" rippling through the U.S. economy.

And then the malls themselves are dying. Macy's and Sears are going bankrupt. As they close their anchor stores in hundreds of malls around the country, shortly thereafter other shops that have depended on Macy's foot traffic are walking away from their leases and as a result the physical malls themselves are turning into ghost or dead malls.

On the other hand, as more people are leaving the suburbs to live in large and small cities, in many places downtowns are bouncing back. Small retailers, coffee shops, and restaurants are taking leases in recently boarded-up stores along Main Street.

But the bottom line still is a structural shift in the economics of retail as one in ten U.S. workers are retail workers. Along with traditional forms of manufacturing this is one more problem we need to address as it is yet another blow to the struggling middle class.