Sample headline
Sample text (from 2020)
In a global ranking of real estate per person, the United States is No. 1, and not in a good way. The consultancy PwC did an analysis last year of per capita leasable shopping center space in countries around the world. For places like France, Germany, the United Kingdom and Japan, average retail space was less than 5 square feet per person. In the U.S., that number is more than 23.
“We are clearly overretailed in America,” says Byron Carlock, head of PwC’s U.S. real estate practice. “Suburban sprawl created a situation where we just believed that every time there was a new intersection with four corners we needed to put up four strip centers. Source
Fragmentation
We have entire stores in the US dedicated to selling baseball caps. We have stores that just sell sneakers. We have stores that sell tights, and only tights. We have stores that sell one brand of exclusive sweat-shirts. We have 60,000 square-foot stores selling mattresses and furniture.
In the United States people shop for recreation. Shopping scratches some kind of primal itch in people. Maybe it is the foraging gene. Maybe it is the delight in finding a novelty. We were once satisfied taking a walk in the closest city park. Constant stimulation now means that we need to go on an African safari to get the same gratification.
Throw in the stimulation of shopping on-line and consumer oriented broadcast channels like HGTV and HSN.
One of Kubota's friends had a girlfriend who ran up a $23k credit card bill in ONE NIGHT while watching Home Shopping Network.
Regression-to-the-mean
Regression-to-the-mean is a statistical concept. If you take a sample from a population and it happens to be an outlier...let's say we are measuring height and our dipper happens to collect Wilt Chamberlain...then our next sample is likely to be closer to the mean than the outlier was.
Ramifications of RttM are that as our sample size grows, the average will migrate toward the mean. This idea is captured Biblically in the directive to judge on the testimony of three sober men rather than just one. One man might have ulterior motives and give tainted testimony, or maybe their perspective did not allow them to see extenuating circumstances.
Building on the larger sample size ramification, longer periods of time resemble larger-sample-sizes and numbers like "Per capita retail square-footage" is likely to converge if there are not outside constraints separating them.
Regression-to-the-mean suggests that the US has too much retail space. The build-out of retail space was a bubble driven by property value speculation, low interest rates and optimism.
People between fifteen and thirty-five are struggling financially. The cost of everything they don't need drops and the cost of what they need to stay alive keeps going up. The margin between what they earn and what they have left after paying their insurance, rent, food, day-care and other essentials is rapidly shrinking. The engines that drove the bubble in retail-space ran out of gas.
If the business models of Furniture Row, Lululemon, Lids, Sportsmans Warehouse and Aeropostal crash-and-burn, it is a kindness to let them dissolve and to let local real-estate rents rationalize. It is not a mercy to amputate a leg one inch at a time.
So, Americans like to have roomy aisles and have the space to build such. Perhaps Europe and Japan are space-constrained and so are forced into denser stores.
ReplyDeleteAnother view is that the volume of shopping is simply moving online, with the impact of having UPS/FedEx/USPS driving down every neighborhood street 3 and 4 times a day doing deliveries.
The online shopping is running into its own limits. Disgruntled employees are shipping random merchandise to fill orders. The new nebulizer I ordered didn't show up from DeNile. Instead, I received a three-pack of toilet bowl cleaner. Fortunately, Mrs ERJ is smart enough to not let me squirt that up my nose.
DeleteA core driver of speculative excess is that competitors try to exclude competitors by filling-the-space, even if some of that business is a big money loser. Easy credit and enthusiastic investors eager to invest in "growthy" businesses push money into those enterprises. It can be difficult to determine if a company is making or losing money when so much money is being pumped into a business.
Japan: ~875–881 people per sq mile
ReplyDeleteUnited Kingdom: ~741–745 people per sq mile
Germany: ~619–625 people per sq mile
France: ~315–329 people per sq mile
United States: ~85–93 people per sq mile
The comparison nations all have a much higher population density. Each retail space can serve far more people on average.
I imagine if the study was done with a methodology that estimated retail space within x driving time the averages would balance.
We need more stores to reach saturation because people are more spread out. This obviously is less efficient and impacts economies of scale. With the rise of online shopping brick and mortar continues to decline.
If there was no internet there would be no bubble.
Nearly all of our population is packed into metro areas that surpass the population density of UK, France or Germany.
DeleteI an not saying you are wrong but the explosive growth seemed to be in areas with the perceived potential for extraordinary growth in property values.
The minor flaw in that amputation is that what you're saying is true BUT the financialization of everything to extract one more dime has put BONDS of these companies in you and my retirement funds, annuities and that affects stock prices also.
ReplyDeleteAs Hemmingway said it so well:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
“What brought it on?”
“Friends,” said Mike. “I had a lot of friends. False friends. Then I had creditors, too. Probably had more creditors than anybody in England.”
Advertisers use the "friends" approach, buy this and you'll be popular, sexy, younger and so on. Credit cards say, "buy now, and (quietly) pay later".
It's going to fall, history shows that. But what does a reasonably intelligent person do about it, aside from blaming others.
Responding to your concern about the risk to your retirement fund.
DeleteConsider The Tragedy of the Commons.
If you had two acres of pasture and had six cows on it, you would not get a drop of milk because every blade of grass would go toward those cow's maintenance requirements. Milk, or profit, comes from the nutrients beyond what it takes to keep them alive.
As the owner of this pasture you have a management decision to make. Do you slaughter four or five of the cows and sell the meat and hides so that the one-or-two that remain can make milk for you every day thereafter. Or do you watch the cows slowly starve to death?
RTTM: Yes it's something that should have killed "climate" change years ago.
ReplyDeleteHere deep in the middle of fly over country we have a Dollar General store 2.2 miles South of the driveway and one 2.5 miles North of it. (Don't drop those bags folks, they are SEEDS! If one hits the ground another store will spring up).
ReplyDeleteOn the other hand there is a flea market on the opposite side of the road of the Southern store. It has been there over 30 years and it shows. I have picked up some amazing deals from time to time, also beats having to drive into "town" if I need some fiddly bit to finish a project.
Neck