The Death of Retail and What It Might Mean

A few years ago I had the conversation, with business leaders in Davis, that the Davis community had opted against the peripheral mall route as a way to generate revenue.  That was part of the early push for an innovation park on the edge of town as a way to translate university backed and funded research into private sector innovation – a process known as technology transfer.

Last summer, in a series of articles, we pointed out that Davis greatly lags in per capita retail sales and thus sales tax revenue.  But, in a way, Davis may end up fortunate to have avoided the urban wasteland of “greyfields.”  Still, Davis has not resolved its revenue problem and it now has its own share of vacant store fronts in the downtown.

A fascinating article in Atlantic CityLab gives us some food for thought.

As they point out, “The proliferation of half-vacant shopping centers and abandoned malls on the fringes of cities has become such a pervasive problem that we have a new word for it: greyfields.”

The article points out that the retail sector has lost around 30,000 jobs just in March, “with thousands of store closings projected through 2017. At this pace, store closings in 2017 are likely to surpass the Great Recession year of 2008.”

The meltdown has claimed both small independently owned businesses and once-powerful retail titans like Macy’s, JC Penney and Sears – which are all in the process of closing hundreds of locations.  “As these big anchor stores lose their grip, so go the smaller ones. Without big names to bring in customers, mall and shopping center owners are finding their business model slipping away,” they write.

This appears to be an massive economic shift which threatens to upend local economies reliant on retail sales tax.  The article notes, “E-commerce is booming, with a startling 50 percent of American households having an Amazon Prime membership. It’s the stores you have to drive to that are in trouble, reflected in rising retail vacancy rates in many metro areas.”

The article notes, “Some may find pleasure in the aesthetics of dead-and-dying malls, but they pose big challenges for the communities around them: Besides functioning as ugly, life-sucking border vacuums, defunct shopping centers represent lost tax dollars for cash-strapped municipalities.”

The article offers three ways that cities “could fend off the retail meltdowns in their midst.”

First, they suggest easing land-use restrictions, arguing, “In many cases, the greatest barrier to the redevelopment of these greyfields is self-imposed: The zoning simply won’t allow much beyond conventional big box retail.”

This likely doesn’t apply in a place like Davis that has, with one exception, avoided big-box retail.  They note, “In many cases, you will find that arterial roads—those most likely to host greyfields—are zoned exclusively for suburban-style big box and strip-mall developments. These districts often require an ocean of parking and massive setbacks from the road while prohibiting common non-retail uses, including residential, light industrial, and occasionally even office space.

“The perverse result is that developers can’t turn these greyfields into the denser mixed-use developments that residents and city managers alike yearn for. Even without new development or rehabilitation, it is often difficult to repurpose old retail developments.”

Second, they argue to rethink economic incentives.

They note that, for decades, “economic development often meant using tax incentives and public resources to lure in large national retail chains, whatever the cost.”

At the time, at least for some communities, this made for a political perspective where the politicians could bring in a massive new mall or a Walmart, have a huge ceremony and signal to the voters that jobs were on their way.

But the downside is that “cities and towns gave out millions of dollars in tax breaks and free land, while building out roads and utilities on the edge of town. Given the massive amounts of public infrastructure needed for many of these developments, conventional suburban retail developments are often a drain on tax coffers in the long-term.”

They write, “Contrary to what many city officials may think, the lesson of the retail meltdown is not that we should switch from subsidizing brick and mortar retail to subsidizing e-commerce with the same old mixture of property tax abatement and free infrastructure. Rather, the lesson is that cities should be very cautious about plowing public resources into attracting specific firms. Today’s Amazon distribution center could easily be tomorrow’s dead mall.”

Finally, think corner stores, not big boxes.

They write, “For many city planners, the enormous size and stability of large-scale suburban retail developments were seen as strengths. After all, if everything goes according to plan, they make tax collection and regulatory enforcement easy.

“As the retail meltdown reveals, however,” they write, “these developments are far more fragile than previously anticipated. In dynamic urban economies, smallness, accessibility, and a high-quality experience are more important.”

Instead, they argue, “Unlike rows of interchangeable national chains on the edge of town, a more diverse ecosystem of small locally owned businesses can rapidly respond to consumer need while offering experiences that can’t be replicated through e-commerce. Policymakers should make life easier for entrepreneurs by keeping regulatory compliance as easy as possible.”

They conclude: “For cities that bought heavily into subsidizing large suburban shopping centers, this transformation of American retail will be painful. But the silver lining is that the meltdown might provide the impetus for city leaders to make desperately needed policy reforms. Keeping greyfields zoned for malls and strip developments isn’t helping anyone.

“Time has tested the subsidization of large retail developments in the name of economic development, and the results aren’t encouraging. More than ever, cities need to take the challenges that face small entrepreneurs and developers seriously. Easing the restrictions that city officials built around the status quo of suburban retail would be a great start. That half-vacant mall on the edge of town isn’t coming back. But if we get the policy right, it might be replaced by something far more valuable,” they write.

The nice thing is that Davis has avoided this meltdown just as it avoided the catastrophic housing market collapse and foreclosure crisis by smart planning.  Now the city needs to take advantage of its positioning with the university to go to the next step and head into the next section of the economic model – economic development, technology transfer, knowledge-based economy, and the high-tech market.

—David M. Greenwald reporting