SLOW DEATH OF MALLS AND BIG BOX RETAILERS 

by Joe Wallace, CEO & Chief Innovation Officer
Coachella Valley Economic Partnership

Malls and big box stores have a serious problem. The comfort and price advantage of online shopping has taken market share from both big boxes and malls that are not dealing in unique products.  Some shopping is done out of need and other shopping is more about the experience of being catered to and finding unique items.

The big box stores that offer basic necessities or home improvement items for the most part have little differentiation at the product level.  They seldom offer a unique shopping experience or offer products that can’t be purchased online or elsewhere.  Often these days their online division competes directly with their big box stores.



Consumers who are internet savvy or who are pressed for time are migrating to online shopping for basics.  Just this week at the CVEP offices we received a shipment of everyday items such as toiletries, paper towels, and other non-perishable items.  The delivery took less than 24 hours and costed less than it was priced at the big box store 2 miles from our office.  It saved CVEP at least an hour of a productive employee’s time and we saved money by shopping online.  Households are no different, so I would submit to you that the long term trend will be toward an ever increasing percentage of purchases of non-perishable goods toward online shopping.  This is as natural in the progression of business models as the displacement of small mom and pop shops with big boxes was 30 years ago.

This migration to online shopping has more to do with innovations that provide better pricing and convenience than it does with the general state of the economy.

It is commonly asserted that there was overbuilding of big box stores in the years leading up to the Great Recession.  That is unlikely.  Large retail outlets use demographic analysis based on current conditions and future projections to select new locations.  The conditions in 2007 obviously fit the criteria for such decisions at that time.  What happened is that the business conditions changed making their decision process obsolete.  Their crystal ball was clouded by an economy that destabilized in the wake of the housing crisis.

During the Great Recession, households adapted to job losses and stagnant wages by spending less money.  As the economy improved, wages never recovered and online options became more attractive.  This was and continues to be a perfect storm to squeeze the top line and bottom line of big box retailers.  It is not widely known than the profit margins at big box retailers are only in the 3% range.  The fixed costs of operating do not decrease when the spending decreases making once successful stores cross the line into losing operations with small reductions in revenue.



Empty storefronts in areas that were formerly thriving is an even bigger problem.  The difficulties associated with starting a store are and have always been entrepreneur confidence and access to capital.  Before the Great Recession startup funding often came from the equity in entrepreneurs residences.  In my neighborhood, today’s prices are still 15% – 20% below the levels of 2008.  What this means to the capital formation process is that home equity loans as a source of startup funds are much more problematic than they were 10 years ago.

As any banker will tell you, without equity one is not eligible for an equity based loan, no matter how confident an entrepreneur may be.

As for downtowns, there needs to be a critical mass on which to build from.  In 2009 I attended a seminar on some steps that are necessary to revitalize struggling downtowns, art’s districts, and etcetera. The formula was very simple.  The minimum needs are ten different types of restaurants, ten retail stores that offer unique items with broad appeal and ten establishments that are open after dark.  Some cities have crossed this hurdle while others have not.  It is not as easy as it sounds to inspire and enable 30 entrepreneurs to fly in formation.

On the brighter side, CVEP held a reception this Thursday night for the members of the Palm Springs iHub and their enthusiasm has never been higher.  Three of our companies already have more bookings than they delivered in all of 2016 while another two have combined to raise over a million dollars in equity investment just in the past month.  Another one of our companies that is in the industrial solar space has large installations scheduled worldwide for 2017 and has been in hiring mode.  Of course these are not big box retailers, but they are customers so more profits for them will mean more revenue at the retail level.  Most of them do their shopping online.

If big boxes continue down the path toward obsolescence, these buildings with either have to be turned into small unique retail spaces, industrialized, or maybe even demolished to make the land available for more productive assets.  The best local adaptive reuse project in the works is to turn the former Palm Springs Mall on Tahquitz Canyon Way into the West Valley Campus of the College of the Desert.  That is making lemonade from lemons.  Similarly the Palm Springs Accelerator Campus utilized local funding to adapt a collection of seven vacated buildings into what is recognized as one of the most impactful manufacturing business incubators in California.

Innovation coupled with ambition and capital has always been the basis for prosperous adaptation.  The cities and towns of America that are successful in sowing the seeds of innovation will reap the harvests of the future.  Big box retailers will not be a long term problem for innovators.  That is why the big box retailers are all following their customers into the convenient world of online shopping as we speak.

FOOTNOTE: Written by 


Joe Wallace, CEO & Chief Innovation Officer
Coachella Valley Economic Partnership

Indiana Attorney General Curtis Hill has penned an op-ed expressing his enthusiastic support for Judge Neil Gorsuch, who was nominated this month to the U.S. Supreme Court.

The piece was published today by The Hill, a Washington D.C.-based news outlet covering government and politics.

“As Indiana Attorney General, I work daily to ensure our state hits the proper marks established by federal law,”  Hill writes. “The U.S. Constitution stands as a stable and steadfast charter of our liberties, but activist federal judges too often contort its clear precepts based on their own ideological and philosophical whims. . . . In my own role, I welcome collaboration with partners at the federal level — be they in the executive, legislative or judicial branches – who recognize the proper roles of the states and the federal government.”

YESTERYEAR: Peerless Laundry by Pat Sides

The photograph was taken shortly after Peerless Laundry’s expanding business relocated from Main Street to a new facility at Eighth and Oak streets in 1914. The tedious chore of cleaning in washtubs at home was giving way to the modern, large-scale technology provided by such professional laundries as Peerless. In 1919, a newspaper reported that more than a hundred “girls” were employed at the laundry; some of them are pictured here on the second floor, which contained the drying, ironing, and finishing rooms. The building, later occupied by the Swanson-Nunn Electric Company, was recently razed.

Indiana House Democrats today unveiled a comprehensive road plan that would provide from $800-$900 million each year in new funding for state and local infrastructure each year without raising taxes or creating new tolls.

“Today, the people of Indiana find they have a choice in determining how we solve the crisis that is facing our state’s infrastructure,” said House Democratic Leader Scott Pelath from Michigan City. “House Republicans have advanced a proposal that increases the taxes you pay at the pump and at your local license branch, and raises the specter of new toll roads across our state. House Democrats believe we can do more — without raising new taxes or providing new tolls on roads — by ensuring that government lives within its means, and making sure that one class of taxpayers is not unfairly burdened with paying the freight for road repairs.”

The Democratic proposal contains five components:

n  Dedicating each year’s state agency budget reversions toward state and local road funding. Based on past precedent, this would generate around $300 million per year.  (Reversions over the past 10 years have averaged $496 million.)

n  Ensuring that all state sales taxes paid at the pump go toward state and local road funding. This would provide at least $305 million in FY 2018, $299 million in FY 2019, $331 million in FY 2020, and $361 million in FY 2021.

n  Ensuring that all revenue from the special fuels sales tax go to state and local roads. This would provide an additional $25 million in FY 2018, $27 million in FY 2019, $30 million in FY 2020, and $31 million in FY 2021.

n  Allowing the Next Generation Trust Fund to be used for local road loans, a move that would provide around $125 million each year in low interest loans to local communities.

n  Freezing the tax rates charged to corporations and financial institutions, and using the state funds that were to be used to finance future cuts toward state and local roads. This would provide an additional $27 million in FY 2018, $49 million in FY 2019, $77 million in FY 2020, and $105 million in FY 2021.

“Rather than shift the burden for infrastructure funding to the backs of people just trying to make ends meet, the Democratic plan uses existing resources,” said State Rep. Dan Forestal (D-Indianapolis), ranking Democrat on the House Roads and Transportation Committee. “I would invite everyone to compare our plan to that offered by the Republicans, which gives a huge tax cut to the connected 1 percent, and the largest tax hike in history to the rest of us. Our proposal also focuses on local roads, which make up 90 percent of such surfaces in our state. Our plan was crafted with hard-working Hoosiers in mind. Our Republican friends would be smart to listen to the voices of their constituents when they say they have been taxed enough.”

State Rep. Gregory W. Porter (D-Indianapolis), ranking Democrat on the House Ways and Means Committee, added, “I would note that this proposal injects some honesty into the state budget process by making sure that the Next Generation Trust Fund is used for the purpose for which it was originally intended and applying reversion dollars to the tangible good of infrastructure improvements that can be enjoyed by all, instead of placing those dollars back into a state treasury for the sole purpose of continuing to inflate a surplus that already has been swollen to a bloated size. The House Republican proposal does little more than ask the people of Indiana to fork over their hard-earned dollars and trust those in charge to do the right thing, even when it comes to turning some of our roadways into toll roads.”

The legislators noted that the bill also includes a provision that would prohibit “pay to play” campaign contributions from a public works contractor and other interested parties during the length of any roads contract and three years after its completion. The proposal is virtually the only campaign finance reform initiative that has been discussed this session.

Other provisions of the proposal call for placing a priority on hiring Hoosier workers for projects built with these road funds, prioritizing maintenance on existing roads first, the use of prevailing wage rates on the projects, and a renewed emphasis on projects being done by businesses owned by women, minorities, and veterans.

House Democrats expect to offer their proposal as an amendment to the House Republican roads plan contained in House Bill 1002 when it goes before the Ways and Means Committee later this week. They also said the plan would be offered when the measure reaches the full House for consideration later this session.