Globalization 2.0: Implications for Consumers, Big Box Retail, eCommerce Leaders and City Planners

If one were to jump into a time machine to travel back to 1995 or thereabouts, what would the publishers of newspapers and magazines have to say about the “Internet”? One might assume, at first glance, that the Internet would be a publisher’s dream: unprecedented reach beyond the usual regional scope, access to new readership, more advertising opportunities and expanded market share. But that’s not what happened. Hundreds of publishers, both regional and national, found themselves struggling, instead, to make sense of how to translate the digital venue into an improved bottom line.

It didn’t help that this digital medium spawned a paradox: more readers, less circulation; more ad potential, less ad revenue. The very same readership who could be reached at unlimited distance through the Internet now enjoyed a smorgasbord of competing blogs, news and social media outlets from which to gather information. It proved too much, too fast, leaving print media to quibble over an increasingly fragmented market. That the print industry is struggling to remain afloat is widely appreciated now. But what’s only beginning to be appreciated is that much of the economy — bricks-and-mortar retailers, in particular — will face the same paradox: greater sales reach in the face of diminishing returns.

The axe is now poised over the traditional retail space. But are retailers any better prepared than their print news counterparts?

Retail as We Know It — but for How Long?

Until just a few years ago, Americans enjoyed a more diverse retail landscape.

Borders/Walden Books
Barnes & Noble/B. Dalton

One by one, national booksellers dropped like flies, leaving Barnes & Noble and Amazon to duke it out.


This time, it’s not only Amazon cutting into the sale of such goods. Office supply chains, too, are slipping thanks to the digital sphere: As more and more businesses and individuals go “paperless” demand decreases. In time, Staples may remain the last bricks & mortar survivor.

Circuit City
Best Buy

For a time, the big three electronics/computer chains coexisted side-by-side. Now only Best Buy predominates on the bricks & mortar side with Amazon all but crushing local retail outlets from the Internet side.

Anna’s Linens
Bed, Bath & Beyond
Linens ‘N Things

Today, Bed, Bath & Beyond is the “last man standing” in the B&M retail segment — even as Wayfair makes rapid inroads on the e-commerce side.

Home Depot
Ace Hardware
True Value

Although there have been some mergers in this segment in years past, a comparatively wide array of home/garden centers seem to be hanging in there. The same can be said for the likes of AutoZone, Kragen, Pep Boys, Napa and other auto supply B&M retailers. Despite the fact that relatively few Americans change their own oil or repair their own cars, there’s a greater level of diversity in the auto retail segment as compared to the previously mentioned retail segments. Perhaps there’s something to be said for the immediacy of being able to replace a burnt-out taillight — or tap a local hardware store employee’s knowledge to repair a leaky pipe — that helps account for the difference. But that hasn’t stopped Internet-only retailers such as Rock Auto — and the infamous Amazon — from making inroads into this market, too.


At present, Kohl’s, JC Penney and Sears comprise the last of the mid-market “anchor stores”. JC Penney is struggling against Kohl’s, while Sears struggles to avert the same fate as Montgomery Ward. The usual Internet pressures apply here, too, but what’s questioned far less is the level of price competitiveness low-end and mid-range B&M retail will offer once the bulk of their B&M competitors are gone. As cost-effective as shopping on the Internet has been through the late 1990s to the present, that, too, has begun to change: Many e-commerce sites now charge sales tax and e-commerce leaders, such as Amazon, are raising minimum purchase amounts to qualify for free shipping.

Serious Questions

As big-box retailers shutter low performance locations in attempt to remain profitable, Internet retailers have less incentive to compete. Let’s not forget that e-commerce gained its appeal by undercutting B&M retail pricing. Without the overhead of showrooms nor the need for physical retail space, e-commerce businesses could afford to pass along a savings. But will that savings continue to land in consumers’ pockets once consumers, by their own pocketbook “vote”, snuff out much of the traditional retail landscape?

Another question that remains to be seen is how long consumers will continue to perceive Internet shopping as a convenience. Immediate gratification has long been within reach of all but the most far-flung rural shoppers. And yet the Internet, much like catalog shopping before it, entails placing an order and waiting upwards of a week to receive an order (with exceptions for a price). Just as consumers have been drawn in by the cost savings or the convenience of shopping at the click of a mouse, it’s also likely that consumers will increasingly appreciate that it’s nearly impossible to ascertain product quality or even judge with accuracy more basic characteristics, such as color, without tangible contact with the product. A significant question going forward is whether consumers will continue to view online shopping as a significant cost-saver or convenience in view of order-to-receipt lag times and the effort it takes to return damaged, defective or unsatisfactory products. If novelty — not merely cost or convenience — is at all a factor, in time the appeal of placing online orders may fade much like big-book catalog shopping through Sears and JC Penney fell out of favor. To be sure, Internet retail is here to stay. But how much more demand exists on the world wide web for the next Amazon?

An important question that regional planners, municipalities and developers should ask at this juncture is whether traditional development projects should go forward under assumptions that prevailed in the past. Until we, as a society, begin to get a better handle on how the Internet will continue to shape economic activity, is it reasonable to break ground on large-scale commercial retail development projects with the expectation of attracting, let alone retaining, big-box anchors? When we hear news of “weak consumer demand” juxtaposed against news of “economic recovery” are we prepared for the fact that e-commerce may perpetuate these seemingly divergent patterns for the foreseeable future — namely, increased commercial real estate vacancies, still more mergers among big-box competitors and the possibility that even in periods of presumed growth big-box retailers may see fit to pull up stake in a given community in order to keep their remaining locations profitable? Are developers and city planners prepared for the fact that it may become increasingly difficult to attract or retain even high-performance anchor stores even in the best of times?

Made In China becomes Sold In China

Walmart made headlines in recent years when an executive email leaked out that asked “Where the hell are the customers?” (or words to such effect). There are only so many Walmarts, Targets, Kohl’s and the like that can enter a given area before the market becomes over-saturated. Many small towns in the 1980s saw their Mom & Pop stores go under when Walmart came to town. What’s lesser appreciated by the public at large is that many of those same Walmarts have pulled up stake upon concluding that revenues do not justify continued operation in such communities. Today, Amazon threatens to do to Walmart what Walmart did to the Mom & Pop stores 20-some years ago. Going forward, commercial retail vacancies may be just as much a fact of life in cities and suburbs as they are in small town America.

It has been said that consumer spending drives about 70 percent of economic activity. And yet, despite the reported recovery, retail returns have remained flat. If decreases in consumer spending were merely a function of economic downturn, it would be reasonable to anticipate a rebound as unemployment rates decline. Economic recovery or not, retail is in the midst of a transformation that regional planners and land developers seemingly appreciate about as well as the print media industry anticipated, in the 1990s, that the Internet may decapitate print. But what lies around the bend is scarier still: Just as the Internet has allowed consumers to bypass their local newspaper in pursuit of free or alternative news sources, the Internet has opened the floodgates to direct commerce with Chinese and Indian manufacturers and wholesalers, among others. In search of better deals, consumers will eventually realize that Amazon, itself, is a “middleman”. (Complicating matters, third-party sellers on Amazon may themselves be Chinese or Indian owned/operated — which would make it that much more difficult for consumers to ask “Who benefits?”) If and when nations with a strong manufacturing base bypass the likes of Walmart to sell direct to the consumer, all bets will be off and most of the profits to be had in the retail sphere will head offshore. Are we ready for globalization 2.0?

If You Build It, They May Not Come

There’s a Perfect Storm inherent in these seemingly unrelated trends. American households have been losing buying power to wage stagnation for many years now. So-called fixed expenses are higher, which erodes disposable incomes further. In many parts of the country — Los Angeles, Seattle, San Francisco, New York, Miami — housing, childcare, energy, food and healthcare costs have gone up ~100 percent over what they were a decade or two earlier. On paper, for example, the median income level in Southern California is far above federal poverty standards, at ~$55K. In reality, however, California has the highest rate of poverty in the nation in part because median wages are considerably lower than they are in other high-cost areas. In some areas of the state, it takes a six-figure income to live modestly. By federal standards, however, a mid six-figure income qualifies as among the proverbial “one percent”. The irony is that SoCal families in the $50-$80K income ranges are taxed as if they’re in a middle class income bracket when, in reality, these families may live paycheck-to-paycheck much the same as their low-income counterparts elsewhere in the country.

City, county and regional planners need to keep broader trends in mind. Housing developers, too, should rethink “business as usual”. The usual set of assumptions about growth and demand may no longer hold true going forward. The situation in over-developed, built-out Southern California may be illustrative of what lies ahead for many areas of the country that attempt to spur economic growth through development. Southern California has an undisputed housing shortage yet an over-supply of vacant retail space. Building still more over-priced housing to correspond to over-priced land values — alongside the usual retail development patterns — may backfire in the years to come. With B&M retail on the decline, existing retail centers alongside new shopping districts are likely cut into one another’s growth. This is to say nothing, of course, on how such trends will shift consumer behavior. Over the coming 15-25 years will suburban consumers, much like their rural counterparts, come to expect that shopping trips, much like jobs, may entail a significant commute? And will this, in turn, export the “car culture” — worsening congestion — elsewhere in the country where urban sprawl has occurred?

Globalization 2.0

For years it was assumed that demand for housing would yield a correspondent retail (and employment) growth pattern. The assumptions and the facts don’t always line up, however. The housing boom in Southern California’s Inland Empire over the past ~25 years has proven, for example, that living-wage jobs don’t always accompany economic development. Now that the Internet competitors are here to stay, spreading “growth” through development becomes an even weaker proposition. Consequently, regional planners in Southern California and beyond should brace for the fact that new housing developments may not correlate to a thriving retail landscape. It has proven challenging enough to attract high-quality jobs to outlying portions of Southern California and beyond in years past. But what these trends suggest going forward is that even low-skill, low-wage job growth — let alone major economic development strides — are far from sure bet.

We are beyond the point of turning back the clock on globalization and the role technology has played in creating some jobs while eliminating many others through increased automation. But perhaps it’s not too late to ask ourselves “What should Globalization 2.0 look like?” After all, if we don’t envision the kind of future that sustains both jobs and environmental objectives, we will exercise little control over either. Positive outcomes aren’t merely a product of free market forces — but the vision to steer the kind of future in which the transformation, instead of threatening the American Dream, extends that opportunity to another generation.


The Rent Bubble: Coming to a Neighborhood Near You

Among the lesser-reported impacts of the Great Recession, during which time millions of Americans lost their homes to foreclosure, is the continuing surge in rental housing demand. Demand has inflated rental rates in already costly markets throughout the country. But rental price inflation is not just a problem hitting high cost of living regions in California and New York — it has hit 90 cities nationwide with no end in sight. Rental costs between 2011 and 2012, alone, increased 4 percent nationally, whereas rents in some markets during a broader period — between 2000 and 2012 — have inflated nearly 25 percent, a study by the Joint Center for Housing Studies of Harvard University reports.

High demand and short supply means one thing: higher prices. But housing isn’t merely a luxury people can forgo. Increased demand for rental housing post recession does not merely reflect the fact that mortgage lending standards are more stringent, but the reality that many Americans are still attempting to rebound from a downwardly mobile spiral. Just because rents are rising doesn’t mean renters are in a position to absorb the price hikes. To the extent rental property demand is an outgrowth of the economic meltdown and stagnant wages — in spite of job growth in more recent years — it would appear housing reform is a topic seriously overdue for national attention.

The Shape of Crisis to Come

Today’s landlord isn’t simply a kindly gray-haired lady looking to rent out a room or an apartment. Housing inflation is driven more so by investors who hold millions of dollars of assets within a given community, if not nationwide. If large-scale property owners could be compelled by state or federal legislation to peg year-to-year rent increases to some combination of inflation and the prevailing median annual incomes of community members occupying similar housing, it might be possible to boost economic gains in other segments of the economy.

Nationally, support for raising minimum wage has gathered momentum. But what if we’re having the wrong conversation? Raising the minimum wage, when inflation is purportedly stable and interest rates remain at record lows, is nonsensical — unless one considers a leading reason why minimum wage earners are sorely in need of a pay increase in the first place: to keep a roof over their heads. Talk of increasing minimum wage is controversial, in part, because critics fear increased labor costs may slow job growth or push consumer prices higher, nullifying any initial advantage raising the minimum wage may impart.

Slapping a bandage on a hemorrhage begs the question: Why not tackle the problem at its core — housing inflation? In the wake of the housing bubble bust, the Harvard study released in June 2014 finds that an unprecedented number of renters in major markets from Miami to Los Angeles are allocating in excess of 30 percent of their monthly pay toward rent, with rents at a 30-year high a Zillow report concludes. And it’s not just young adults who comprise the ranks of the rental class, either. Increasingly, renters consist of families and middle-aged adults, too. Devoting increasing amounts of one’s pay to the cost of housing is likely to continue as rents, much like health care, continue to outpace and out-inflate the broader economy. But it’s the ripple effects of housing inflation that ought to have Republicans and Democrats alike worried.

Robbing Peter to Pay Paul

The elephant in the living room that few journalists, economists and politicians are talking about is the emergence of price gouging in major rental markets. If nothing is done to reform high-risk housing markets, it is likely that other parts of the country, where costs of living are significantly lower, will follow in the steps of overpriced markets in Seattle, San Francisco and elsewhere. Ignoring this economically-destabilizing trend is not an option. As renters, not unlike the sub-prime home buyers who preceded them, place higher percentages of their incomes toward rent, fewer households can be expected to save for a rainy day and more Americans will underfund their retirements. This is a disaster of grave future proportions because families that do not have adequate savings are at greater risk of filing for bankruptcy, and may become dependents of — or proponents of — prolonged unemployment benefits, taxpayer-funded welfare programs and the like.

During the Great Recession, demand for social safety nets grew to such an extent that beltway Republicans advocated cutting benefits to reign in costs. (To cite an example popularized during the recession, one in seven American families were said to be eligible for food stamp benefits.) And yet cutting entitlements, just when they are needed most, is a cruel if not superficial fix. Instead, legislators at the state and federal level should look at the underlying reason why so many Americans are living paycheck to paycheck in the first place. One can, of course, cite the usual suspects — decades worth of outsourcing jobs alongside losses brought about by automation — but second only to health care, housing is a segment of consumer spending that poorly reflects income growth or inflation at large. If we want to put the economy back on solid footing, reconciling the disconnect between the rate of inflation, wage growth and housing costs must become a national priority — before the next economic downturn.

No longer do rental price trends lie in the hands of small-time landlords. Demand isn’t the sole explanation, either. If, however, there are 10,000 rental units in a given city that are owned by the same firm, and that firm should push the limits of what the market can bear, Mom ‘n Pop property owners are likely to follow suit if only because heavyweight competitors have set the tone. In much the same way the bank bailouts paradoxically generated even bigger too-big-to-fail banks, the Great Recession set the stage for investors to scoop up real estate assets throughout the U.S. at fire sale prices. And that scarcely bodes well for price diversity in the years to come.

Affordable Housing, a National Security Issue?

Rather than advocate for rent control in the traditional sense — that is, cost-control provisions aimed at low-income tenants — lawmakers should reign in the market-inflating practices of housing price trendsetters across the board — and, in particular, limit the ability of foreign real estate investors to heavily influence domestic real estate markets. This might be accomplished by pegging year-to-year rental rate increases to a combination of local inflation and median incomes in a given area for like housing. This is not to say that reform ought to be so draconian as to mandate outright rental rate caps. Large-scale private equity groups may continue to increase rental rates to reflect supply and demand — but in so doing perhaps those who routinely test the upper limits of the non-luxury rental market ought to incur a residency requirement, forgo tax incentives and/or pay a penalty that can be used by state and federal authorities to shore up the safety nets savings-poor Americans are apt to turn to in the event of crisis or an unplanned retirement.

Affordable housing is the missing ingredient in the health and stability of the broader economy. Assuming it were possible to craft effective reform, households would be in a better position to fund their own savings, lessening the likelihood that illness, recession or job loss will propel families into bankruptcy or thrust them into the unenviable ranks of taxpayer dependents. If a housing reform bill were to incentivize large-scale property management owners to reconcile rental prices to inflation and local income levels, we might see an end to nonsensical situations in which demand for rental units reaches all-time highs precisely when the economy hits all-time lows. Moreover, if such legislation were to target large-scale investment groups — and foreign residential property investors in particular — it might also compel them to scale back their holdings and thus diversify real estate markets in ways that will contribute to improved market competition.

Media coverage on the state of the housing in California and other “harbinger markets” throughout the country warn of more price hikes to come, with double-digit percentile gains slamming rental markets from Las Vegas, Nevada to Southern California’s outlying Inland Empire — well into 2016. The fact that home ownership is the lowest it has been since 1995 — even as renters in some markets are now spending 40 to 50 percent of their monthly pay on housing — speaks for itself: This is an unsustainable trend, with unsavory social and demographic ramifications. As rents increase relative to lackluster wage growth, nontraditional living arrangements, recession or no recession, will become commonplace. Census Bureau reports in the years to come, for example, may find more midlife adults pairing up with roommates not unlike their college-age counterparts a generation ago. Homeownership, increasingly, may become the domain of the wealthy and multigenerational cohabitants. All the while, fewer “marrying age” Americans may tie the knot and take the homeownership leap, for the same economic reasons that came to light during the recession. Taken together, these trends may transform the U.S. into a “rentership society” in which putting down fewer roots — a far cry from the American Dream — becomes the new normal.

Some readers may recall when non-matinee movie tickets could be had for substantially less than $10-$14. But when New York City residents began ponying up nearly double the national average a number of years ago, ticket prices nationwide began to follow suit. Rental price trends, similarly, vary by region and demand. And yet the more rent payers are willing to bear, the more it is likely to push up the cost of renting — and living — far outside the likes of New York and California. If we don’t like the shape of things to come, now is the time to place a national spotlight on housing reform. The bottom line? If we want to stabilize the economy, increasing minimum wage and loosening mortgage lending standards are far from the only answers. It’s time to stabilize rental markets, too. And not just for the benefit of low-income tenants, either. Housing is an inescapable expense. And we’re all on the hook.



The Coming Nightmare of Wall Street-Controlled Rental Markets | Alternet

There’s Only One Way Rents Will Go: Sky High | The Fiscal Times

Wall Street’s Hot New Financial Instrument: Your Rent Check | Mother Jones

There Will be No Real Recovery Without the Middle Class | Forbes

In Many Cities Rent is Rising Out of Reach of Middle Class | New York Times

The Rent Bubble is Going to Blow Up Across the Country | The Daily Beast

Rents are Rising but People aren’t Making any more Money | ThinkProgress

Wall Street’s Rental Home Gamble: How worried should we be? | Al Jazeera American

The Five Biggest Benefits of Owning Real Estate | The Joint Center for Housing Studies at Harvard University