Laura Bliss is CityLab’s West Coast bureau chief. She also writes MapLab, a biweekly newsletter about maps (subscribe here). Her work has appeared in The New York Times, The Atlantic, Sierra, GOOD, Los Angeles, and elsewhere, including in the book The Future of Transportation.
Lightning-speed deliveries and autonomous cars could accelerate the current big-box implosion.
Thanks largely to the rise of e-commerce, chains like Macy’s, Toys “R” US, and Best Buy are shuttering faster than analysts predicted even one year ago, with at least 24 major retailers planning store closures in 2018.
According to some forecasters, an even larger retail apocalypse sits on the horizon. As overbuilt malls, corporate mergers, and autonomous vehicles converge as trendlines, “the ingredients are in place for major disruption,” said Rick Stein, the founder of Urban Decision Group, a Columbus, Ohio-based planning consulting firm.
Speaking on a panel in Portland, Oregon, on Monday, Stein made the case for which commercial areas will suffer most from new consumer habits mingling with technology: car-oriented suburban retail.
Already, American retail is overbuilt by about 50 percent, according to Stein. With about 24 square feet per capita, the U.S. has by far the most retail space of any country in the world, with about 25 percent more than the next closest country, Canada. (That data comes from the publicly traded real-estate group GGP and the financial blog Zero Hedge.)
While megamalls and luxury shopping centers in more affluent areas have fared better, mid-sized to large “regional” retail centers and strip malls, of which there are about 7,500 across the U.S., are struggling most with vacancies and declining profit. States like Nevada, Arizona, Virginia, Ohio, and New Jersey have some of the most overabundant big box and strip mall properties. They are increasingly overexposed as more Americans shop online and take advantage of rapid delivery speeds.
Package drop-offs are getting faster. Already, Amazon offers Prime subscribers a two-hour “Prime Now” delivery service for about 25,000 retail items in more than 30 U.S. cities. In some of them, including Columbus, customers can pay for delivery speeds of one hour and faster. “One-hour delivery, for every U.S. market, is inevitable,” said Stein, and possibly within a few short years.
Which online retailer will be the first to standardize blink-of-an-eye delivery? First to mind is Amazon, especially with its recent acquisition of Whole Foods giving it a real-estate presence in nearly 500 locations near affluent households. It could also be Walmart, with its 5,000 locations and heavy foothold in rural communities. “Their reach is absolutely insane,” said Stein, speaking at Urbanism Next, a conference about autonomous vehicles, e-commerce, and the sharing economy hosted by the University of Oregon.
Or perhaps it’s CVS. Some 82 percent of the U.S. population lives within a 15-minute drive of its 11,000 locations. With the trend for corporate mergers and acquisitions, companies like these (and many others) are gaining larger real-estate footholds at a rapid clip. What if, for example, Amazon absorbed CVS as its widely anticipated move into the pharmacy business? Such a prize would also set the company up with a convenient “hub and spoke” network for snap-of-the-finger deliveries in virtually every U.S. urban market. Stein illustrated that idea with a slide of the Columbus region.
This is all theoretical. But regardless of which corporate giant flips the one-hour switch first, brick-and-mortar retail is likely to suffer a major blow once it’s that much easier to shop from home. Working with Jason Sudy and Justin Robbins, two other Columbus-based planning consultants at Side Street Planning and OHM Advisors respectively, Stein developed a working model that predicts the developed commercial properties most vulnerable to revenue loss and closures. Using data from InfoGroup, Price Waterhouse Coopers, and Forbes, the model weighs several factors, including location, the mix of retail in the area, population density, homeownership rates, income, the age of the structure, amount of parking, and household expenditures in metros around the U.S.
Certain development patterns are more susceptible to vacancies and flipping than others, the model shows, especially when layering on the eventual arrival of autonomous vehicles. Self-driving technology stands to drastically reduce parking needs, cheapen delivery costs, and easily convey shoppers to locations they actually find desirable, such as walkable downtown areas where shopping feels like more of an “experience.” Those are the types of commercial areas that will fare better amid the coming retail storm, according to the model. Worse off are car-oriented suburban strip malls and big-box stores, with huge swaths of these properties devoted to parking.
“In markets like Columbus, which are already ready to deliver tons of stuff fast, overbuilt retail space might not die out in a slow atrophy,” said Sudy, who co-presented at the panel. “It could be a calamitous collapse.”
That could result in a lot of retail blight along suburban highway corridors. The model also paints a worrying financial picture for communities that rely on retail for badly needed tax dollars—that fiscal base could collapse with the loss of stores themselves as well as the likely devaluation of surrounding properties. In the Columbus metro region, for example, Stein, Sudy, and Robbins estimated that roughly four percent of gross leasable area is in the “most vulnerable” category—i.e., the easiest to flip to vacant (or something else). In their maps, shown below, red is most susceptible, and green is least. If all of those properties flooded the real estate market at once, land values would be flipped on their heads, they said. “Already, we don’t collect enough taxes to pay for fire service, the infrastructure, and all the stuff we have to do,” said Sudy. To take an even worse-off city, in Atlanta, six percent of GLA could be ripe to flip.
Stein, Sudy, and Robbins’ presentation focused mostly on Columbus, where they are all based. Their model is based on an imperfect mix of data, and a number of assumptions about the future—for example, that driverless technology will be widely adopted by delivery vehicles. (Drone delivery could be an equally disruptive force.) Also, one-hour drop-offs may not be as close as Stein believes. “We don’t really know what the next five years will look like,” said Kelly Rula, a panel co-presenter who recently took a job at the Seattle Department of Transportation to work on new mobility, climate, and urban freight issues, after working on last-mile delivery for Amazon Prime.
Even in the absence of autonomous vehicles, though, it’s clear that a storm is brewing. Already, shopping habits are transforming, deliveries are getting faster, and urban land is already over-allocated to retail and parking. Self-driving cars are likely to accelerate what’s already happening. Communities aren’t necessarily prepared for what’s here, let alone what’s ahead: more empty buildings, a harder economic punch from the lost retail, and heavier road impacts of increased goods delivery.
At the very least, new developments should be future-proofed against blight and blows to tax revenues, said Robbins. “Don’t build any parking garages you can’t adapt to other uses,” he said. “Create internal grids and roadways on large new developments, so that you can fill in as things change.” To ease transportation impacts, Rula said, cities could follow Seattle’s lead by studying goods movements, testing dedicated loading zones and sensor-enabled curbs, and looking at road pricing to mitigate added deliveries, in addition to human trips.
Communities might also start considering how to reuse all that vacant retail space coming online. The sprawling malls of suburban America are turning into graveyards of its former retail kings—big grey boxes with ghostly logos etched onto the front. Could they be turned into housing? Data centers? Museums of a time before Amazon?
If nothing else, Stein said, cities anticipating and preparing for the future are more likely to come out as winners. Those who aren’t—perhaps by dint of their economic inability to plan ahead—could be choking on the fumes.
“Technology is like water,” said Stein. “If you don’t channel it to where you want it to go, it spills all over the place.”