Re-Urbanizing America

Suburban Sprawl Gives Way to the Not-So-Mean Streets of the Big City

The Great American Dream isn’t dead, but it’s certainly on life support.

Shopping street Barfüßerstrasse of Marburg, Germany.After decades of unprecedented growth, suburbia has been surpassed by the inner city. It is — if you’ll excuse an old saying from my quasi-hippie days — where the action is! And that action is attracting an incredibly broad demographic — everyone from young professionals and singles to baby boomers who don’t want to end up living in God’s waiting room.

We have already seen the beginning of an inner city building boom by retailers who want a piece of the action and are willing to embrace the idea that bigger is not necessarily better or practical. Those who are late to the party or ignore this new urbanization should have no trouble finding new careers in the healthcare or dogwalking industries.

But to understand where we’re going we have to look at where we’ve been.

“White Flight”

Most historians concede that suburban life really took off in the late 1940s and early 1950s with GIs returning after World War II. This was the beginning of the so-called “white flight” to bucolic suburban settings where the kiddies were safe, stay-at-home moms traded recipes and child rearing advice across white picket fences and all was right with the world — far from the mean streets of New York, Chicago, St. Louis and L.A.

Those left behind, however, witnessed urban decay, a descent into the heart of darkness where once-vibrant neighborhoods became ghost towns after dark, street crime proliferated, empty stores were boarded up canvases for graffiti and the scent of dinner from apartment windows was replaced by the stench of urine, garbage and despair.

I didn’t read all this in some urban history book. I lived it in New York throughout the 1970s when muggers could elude police by ducking around piles of uncollected garbage. But the pendulum, I’m happy to say, has swung in the other direction.

In places like New York, Atlanta, L.A. and points in between, we are seeing the reanimation of city life and a retail renaissance that has drawn the attention of everyone from Costco and Home Depot to Walmart and a new generation of small but competitive neighborhood stores.

The New Normal

A temporary phenomenon? I think not. I believe the financial crisis of 2008 was a major turning point — a time when the dream of home ownership became a nightmare of foreclosures or at least unattainable for younger people. If you want to add another label to your already overburdened lexicon, forget about Millennials, Gen X, or Gen Y, What we’re seeing is “Generation Rent.”

This isn’t the end of suburban sprawl. Many people still yearn for the pastoral life and the retail industry is happy to oblige. But remember the old saying that retail follows the rooftops. Increasingly, those rooftops are urban high-rises and the impact on people and business will be tremendous.

But reurbanization, gentrification or whatever you call it has its dark side. It often displaces people who have lived in some neighborhoods for generations. For instance, take the Chinatowns or other ethnic enclaves that have been fixtures in cities like New York, San Francisco and London. Young professionals and Millennials are paying rents that have forced out long time residents. Such is the price of urban renewal or, as the novelist and playwright James Baldwin called it, “Negro removal.”

On another front, legal and illegal immigrant populations — now 40 million strong across the country — are growing rapidly and moving from their traditional central-city locations to the inner suburbs or ”exurbs” in order to find affordable housing. They are creating cities within cities.

Chinese Checkers

Of course, if you want an extreme example of reurbanization gone wild just look at China. For decades, millions of people were practically ordered off the farms and into the cities to bolster the country’s insatiable demand for industrial workers. People happily obliged in order to get lucrative factory jobs that would lift them from abject poverty. Now the government is encouraging people to leave the cities for rural areas to alleviate overcrowding and re-populate the interior. It’s like Chinese checkers but with real Chinese.

Reurbanization is an economic issue here as well. Gas and commutation prices and real estate taxes are so high in some areas that you can literally save thousands of dollars annually by moving to the inner city. Besides people like the “walkability” factor and are tired of the sedentary lifestyle that requires one to own a car or two. .Additionally, the number of married Americans continues to dwindle or people are getting married later and having smaller families.

In fact, due to the above factors and lingering economic uncertainly that some call “the new normal,” the US Census Bureau and the Department of Housing and Urban Development (HUD) forecast that by 2025, only 10% of new households will have children. Put another way, only 2.6 million of the 27 million new households to be formed will have children.

Other sources have gone even further, stating that by 2025, families with children will account for only 25% of all US households. Basically, the days of cheap money, cheap mortgages, cheap gas and long-term economic stability are over. As Yale economist and Nobel Laureate Robert Shiller has noted: “the heyday of the exurbs may well be behind us.”

Foundations for Growth

I’m not sure I agree and the reasons may be of interest to retailers formulating expansion plans over the next few years. It’s the far fringe suburbs that are in jeopardy for the reasons previously stated. The exurbs, in my definition are the inner-ring suburbs — places outside of city centers but accessible by public transportation or even bike paths. I believe these areas will be the foundations that support economic growth in cities across America.

Herein lies the conundrum for retailers who have erected those monuments to consumerism called malls and supercenters. They aren’t obsolete. But how many more of these pleasure palaces can you build before reaching the saturation point or the point of no return on investment?

The entire concept of retailing needs a refresh to compete in space-starved urban environments.

Some say retailing is retailing no matter where you are. For years, the mantra was “bigger is better” But urban living means give and take — giving up space and taking less home. Trust me. In New York closet space is scarcer than a parking space.

From the retail perspective, building in a city like New York means dealing with uncompromising union rules, convoluted fire and electrical codes and erratic deliveries. Getting timely deliveries is like planning the Normandy invasion. Only Allied forces never had to deal with parking violations.

Nonetheless, retailers like Target, Walmart, Costco and others have seen the future and are focusing more closely on smaller urban formats.

Urbanization is not a fad or a simple trend. It is an inevitable, unstoppable force. Retail will follow the rooftops in the cities as they have done in the suburbs, creating new jobs and becoming one of the foundations of urban economic growth. This in turn will hopefully contribute to a stronger infrastructure and, in turn, a better quality of life for everyone.

Kind of makes you wonder. America’s Heartland may not be where you think it is.

Reaching the Chinese Consumer

China continues to top the AT Kearney Retail Apparel Index, which shows the top 10 emerging countries viable for the retail sector. Strong growths in population and in income make it an increasingly attractive market for western brands looking to expand. Yet reaching the Chinese consumer poses unique challenges.

According to Euromonitor International, Chinese clothing expenditures are projected to nearly double within the next 10 years, from 1.2 trillion in 2012 to 2.2 trillion in 2020. Even in 2011, a year of slower than predicted growth, Chinese real GDP still amounted to 51.1 trillion RMB.

And while the Chinese population is expected to grow 2% by 2020, income growth will continue to outpace population growth — which means more consumers with more buying power. Per capita disposable income is expected to grow 75% between 2012 and 2020, according to projections made by Euromonitor International.

As the population continues to grow, though, it is also shifting towards more urban areas. This stands to benefit western retailers first expanding into larger cities, since urban consumers tend to spend more on discretionary purchases like apparel and textiles. [Read more...]

China Seeks Low-Cost Production

china_factory_main.top copyIn the United States

Beware of what you wish for. For all of the “pollyannas” who have been rooting for manufacturing jobs returning to the good old USA from low-cost countries such as China, they may just be getting their wish; but not in the way they intended.  It will end badly.

In a perverse kind of irony, it appears that the United States may be evolving into a low-cost country, wooing China-based manufacturers to set up shop here — at least in the textile and yarn industries — which the US lost to Asia and the Far East in the 70s and 80s.

In fact, several Chinese yarn and textile manufacturing businesses have already moved to the United States, primarily in the southern states where the manufacturing skills still reside and where most of those textile jobs were lost to lower-cost countries. The region also has state and local governments eager to boost their economies and decrease unemployment, and willing to provide significant tax breaks, bonds to defray project costs, grants, and job-development credits. [Read more...]

Developing Markets Aren’t Just About Opportunity

iStock_000015589936MediumWhile Stephen Elop was describing the culture of a Finnish telecom company he could easily have been referring to many western retail organizations today, specifically the pervasive attitudes around what is valued and how we address the changing competitive landscape.

To put Nokia’s turning point into context, consider Nigeria — Africa’s most important mobile device market.

At one time Nokia had a 70% market share in Nigeria, but by the time I arrived to conduct research for them, it was spiraling downwards hastened by the relentless onslaught of Chinese manufacturers who were shaking up not only the technology, but the entire approach to the channel. [Read more...]

Darkness at Dawn

iStock_000012485261SmallThe closer you get to the Equator, the more dawn and dusk become switches rather than transitions. It’s dark, it’s light.

I’ve learned as a global traveler to keep the curtains open at night, my goal to be in bed shortly after sundown and up at first light. Recently, I had a corner room at a hotel with floor-to-ceiling windows on two sides. The view of Paulista and the rest of São Paulo turned on a little before six; the cell phone towers, the park below and the high-rise buildings looked like uneven stubble on the contours of a Brazilian chin.

I was picked up at 7:00 AM by my colleague, the CEO of a publicly traded shopping mall company, in his Land Rover and we headed across town to the private airport to catch our turbo-propped Sky Master. We were headed for Brasilia. The traffic was heavy, and as we inched our way around a traffic circle, I lowered the window on the passenger’s side to stick my hand out and help get us to the outside lane. The driver gasped and I realized the window was almost two inches thick. Bulletproof. I struggled to get the window back up. The stupid Yankee had comprised the moving security perimeter. It took two security guards at the airport to tease the window back to its original position. [Read more...]

Going Hybrid: The Next Stage for Fashion Retailers

hybridToday’s fashion companies operate in a highly competitive environment, driven by increasingly fickle, price-conscious consumers, rising costs and clothing trends that change at light speed. With increased drops, the proliferation of SKUs and an incessant demand for newness, the big three—retailers, brands and manufacturers—are battling it out for market and wallet share.

We know we’re preaching to the choir. You know better than anyone that there is a need to control business activities as much as you can—control over everything from product concept to consumer purchase. What’s emerging is the hybrid business model, where the big three are integrating across the supply chain in an effort to protect margins.

Why is this so important for retailers? If you haven’t thought about going hybrid, chances are that your competition has. Wall Street demands growth and with increased competition, international expansion and the rise of omni-channel retailing, retailers are seeking new ways to maintain that growth and stand out from the crowd. [Read more...]

Caracas Lost Dreams

The Robin ReportI noted more than a few binoculars focused this morning on the military airfield outside my Caracas hotel. It’s likely they were searching the ground for evidence of the military coup I heard whispers about last night in the hotel bar; but who knows in Caracas. Even the journalist interviewing me this morning made reference to the challenges of living in a Communist country; Venezuela is in midst of crisis. The recently botched election recalls the passionate controversy of George Bush’s results in Florida in 2004, except it’s unimaginably worse.

In 2013, I can’t think of a well-grounded leftist intellectual that can defend actualization of the Karl Marx syndrome we witnessed in the 20th Century. Russia, the former Soviet Republics, and Eastern Europe have all moved on. By most gauges, shedding this ideology has brought improvement and positive change. Poland grew faster last year than any other nation in Europe, which in the midst of our recession may not be saying much, but still says a lot. Of the three Asian remnants of Communist ideology, China and Vietnam have cherry-picked through Das Kapital and added doses of Confucian and Keynesian economics to craft some semblance of prosperity. North Korea has abandoned all logical thought; the only question is how much of the rest of the world they intend to take with them when they go.

Yet dear reader, this is a newsletter about retail, so here is our thread. In my trip to the supermarket in Caracas this afternoon, there was no coffee of any variety on the shelf, and the reek of rotting meat was stomach turning. People wait in long disorganized lines for basic food supplies. We are witness to the tragedy of governmental pricing control for food; Venezuela has gone from an exporter of food to an importer over the course of its Chavezian transformation. Today, much of its basic food needs are imported from the United States.

My economist colleagues predict that global food prices will increase country by country by 10% to 20% over the next year. While the precise number is anyone’s guess, it’s a fact that food costs are increasing by at least twice the rate that global wages increase. How are we going to continue to feed ourselves?

The answer, in part, rests in the world of retail where for almost 30 years we have watched a concerted effort to engineer both value and fair profits from the supply chain. From growing, to trucking, to minimizing waste and mechanizing the modern warehouse, the degree to which the increased costs of basic food commodities have been passed on to the consumer have been limited for us living in First World nations. Thank Walmart, Tesco and Auchan; but also thank the farmers markets, the slow food movement, and the advent of local community-supported agriculture (CSA) organizations.

At both ends of the First World retail spectrum, we are watching innovation and reinvention driven by competition and local entrepreneurship. At best, we ask government to get out of the way. We’d rather have the local farmers market manager certify a farmer’s products than the FDA, although we need to embrace both in the flawed, but preferable, world of Capitalism.

Journalists keep asking me –- whether it’s here or in Shanghai —how are we going to feed ourselves in the next five years, both from the standpoint of cost and safety? My answer is always the same: Price controls are not the answer, but organized retail can, and will, do its part. The process takes time, but it does work. The places that will feel the most pain over the five years are those where global organized retail is not playing a transformational role in a local economy. India is a prime example. Open markets provide incentive and examples for local merchant organizations to do it often better and faster. They provide farmers with stable prices, drastically cut down on spoilage, and most importantly, help get their offerings on dinner tables everywhere while making a profit.

When I arrived at Simón Bolívar International, I was expecting a sturdy intelligence officer with a serious face to meet me at passport control. I did not expect the smiling young woman with braces that giggled when I presented my thick, well-worn passport. She greeted me warmly after a long flight, stamped my passport and let me pass, welcoming me to her country. She deserves better.

Dispatches

Robin Lewis“What Your Intern Is Really Thinking, “ written by our staff Millennial, Grace Ehlers addresses the seemingly cavalier and misguided view among most companies about her generation, particularly those with college degrees. The article was justifiably critical, in my opinion, of companies assuming that these “best and brightest” of the Millennials should be available for hire as non-compensated “interns.” She has a follow-up article in which she challenges the misconceptions among many companies about the work ethics and career expectations of her generation.

So, as I set forth my argument regarding the deflation and devaluation of our economy and everything in it, due to our shift from value creation to value consumption, exacerbated by our new, “less-free- market” form of capitalism, it struck me how this shift is, and will continue to have perhaps its greatest negative impact on Grace’s generation. Conversely, it also struck me how this shift is wasting this generation as the greatest asset we have, and if given the chance, they might provide the very solution we need to reverse our economic decline.

Here’s the scenario for these Millennials. On totally reverse trajectories we have an economy that is shifting from higher-paying manufacturing jobs, including those in charge of running those companies, who also happen to require higher intelligence and professional skills, to lower-paying service jobs (feeding a consumption economy), and which require a lower set of skills and level of education. So not only fewer jobs, but lower paying jobs that are well beneath the skills of college graduates.

Furthermore, the theory that once we lost our manufacturing base we would simply move up the “food chain,” creating wealth and higher levels of value through innovation, technology and science has been debunked by many economists. In short, engineering, science and technology degrees are being sought less by students instead favoring MBA’s and liberal arts. And, while thousands of foreign students do seek those degrees from our best universities, they are finding it almost impossible (for many reasons) to obtain visas to stay and work in the US. Thus we not only lose their intelligence for these higher “food chain” industries, we are in fact, exporting these industries to China, India and other countries around the world. And, while all of this is happening, more and more young people than ever before have been graduating with college degrees.

However, most of them are heavily in debt for educational loans, (in the aggregate, about $1 trillion, and the percentage of borrowers who are more than 90 days delinquent has risen to 17%, from 10% in 2004). And the number of young Americans without a job has exploded to 53.4% —a post-World War II high, according to the Labor Department.

So, fewer and fewer jobs and more and more educated young people in dire need of jobs, spells tragedy. It is a tragedy because as I said, we are wasting our most valuable asset, the one cohort of our population who, if given a chance, might figure out how to reverse the economic decline.

Why Are Handbags So Important?

The Robin Report - HandbagsFunctional, Personal Statement, Self Expression, Fashion Accessory, Status Symbol?

The correct answer I believe is: “All of the above.” I’m not a handbag person, per se, although I own several. I don’t think of status so much when I buy a purse, yet I realize that, in addition to function, which for me means not too heavy and enough room for my stuff, I am conveying something about myself when I tote around my handbag. As Nora Ephron said in her very funny essay, I Hate My Purse, “…your purse is, in some absolutely horrible way, you…”

Whether real, fake, or my new favorite, ‘luxury pre-owned,’ handbags are an expression of who we are and where we belong in social, economic and fashion terms. As our most visible fashion accessory, our handbag is both functional and symbolic, conveying to others the tribe to which we belong. A form of self-expression and signal of personal style, handbags are also an entrée to luxury and glamour. One may not be able to afford that penthouse apartment on Fifth Avenue; or, the private tented safari in Africa; but, one could, perhaps, feel a part of that world with say, a Louis Vuitton bag. [Read more...]

Bribery, Felony or Line Item?

iStock_000010810931_SmallAre we all felons bribing our way though international commerce or victims of corruption, forced to pay the price of admission?

Let’s face it. Bribery is a cottage industry in many countries—part of their cultural DNA. The sad truth is that buying and selling influence is often the grease that lubricates the wheels of global commerce.

In Spain, it’s “mordita”– the bite. In French, “dessous-de-table,” loosely under the table. In German, it’s “schmiergeld” or smoothing money and in the Middle East the ancient Persian practice of “baksheesh” or gratuity has been common currency for a thousand years. [Read more...]

Hogwash

iStock_000000315739_ExtraSmallAnd if You Believe It, I “Have a Bridge to Sell You.”

Hogwash is a great word, as I was reminded by my colleague, Judy Russell, CEO of consultancy Markethink. First used in the 15th Century, it referred to swill, slop, nonsense and balderdash. And it’s particularly appropriate when describing the findings of a recent study conducted by none other than the Boston Consulting Group, as well an earlier survey conducted by NPD in the fall of last year.

Up front and to be clear, I am not attaching the “hogwash” description to the methodology, and how the research was conducted by these two revered institutions; and not even the accuracy of the findings. I am describing as “hogwash” what the findings indicate would be consumer behavior in making a purchasing decision based on patriotism and a “made in America” label over price. [Read more...]

Walmart’s Hire-a-Vet Program: Patriotic Gesture? Or Good for Walmart?

American veterans returning from war have had a history of finding employment at Fortune 10 companies. After the Korean War they got engineering and sales jobs at IBM and Texaco. After Vietnam they became production technicians and manufacturing coordinators at Dupont and Monsanto.

Those returning from Iraq and Afghanistan will be working at Walmart. Now that’s what I call economic progress.

At January’s National Retail Federation Convention in New York, CEO and President Bill Simon announced the Bentonville behemoth’s pledge to hire any returning veteran who wants a job, in a program it will kick off on (when else?) Memorial Day. It will result in 100,000 jobs for returning military personnel over the next five years.

This is a wonderfully patriotic gesture, and a great opportunity for all those returning vets, right? Or is it? [Read more...]