Millennials prefer to shop local, shop small
Local retailers counter-punch Amazon.
In this evolutionary age of ever-expanding high technology and rapid growth of robotics, small- and medium-sized retail operations that comprise America’s hundreds of thousands of shopping centers may appear to be on the verge of extinction. Look again.
Amazon, innovated by intrepid founder Jeff Bezos, has turned the great multitude of small retailers comprising the neighborhood shopping centers on their ears by promising most products found in local centers — and shipping to the customer’s front door, often next-day.
Inherent in this online marketing revolution are additional advantages not available to the small retail stores at a local shopping center. At this time, these include: no sales tax, tax breaks for stores for building warehouses, and discounts from shipping companies.
“Showrooming” further penetrates shopping centers by turning a local store’s warehouse into a showroom for the thousands of online products that the former shopping center customer was picking up on a continuous basis. This has proven to be a major incentive for the prospective buyer, encouraged with a discount for a specific product identified in the “showroom” of the buyer’s neighborhood store.
It’s now estimated that 52% of Amazon’s customers belong to its Amazon Prime program, which offers free services and subsidized shipping.
But, like all competitive changes occurring in America’s free-enterprise market economy, the situation continues to evolve. Small Business Saturday sales in 2015 beat out Black Friday and Cyber Monday. The “shop local, shop small” movement is going strong. Millennials are showing a strong preference for the pleasure of in-person, local shopping.
An increasing number of the small stores making up local shopping centers are offering savvy deals and promotional days. Being competitive on a local basis still holds a good chance of fending off a “business closing” invasion.
As is the case with major department stores in the big cities, local shopping centers still maintain the attraction of social camaraderie that goes along with going out to shop. In addition, one of the advantages of local shopping is the ability to try on shoes and especially clothing, which do not necessarily conform to tag size.
Within America’s gigantic consumer sector, which makes up 68% of our nation’s world-leading gross domestic product of $18 trillion, plenty of room still exists for the traditional local shopping center as well as the positive evolution of Amazon’s marketing program of overnight shipping.
Capital investment’s downward trek
The overall deterioration of capital spending, which fell 10% from previous levels in 2015, continued its decline during the first three quarters of this year. This shrinkage is expected to continue, although at a slower pace, throughout 2017. This belief has been fortified by a position published by Standard & Poor’s highly respected credit rating system.
The current administration continues to emphasize the lower unemployment rate as an indication of economic improvement, since the labor force participation rate has become the accepted standard for the nation’s inability to put millions of potential workers back on the payroll. Some economic experts, however, discredit that percentage.
This overall hiring downturn has been confirmed by the Kauffman Foundation Research, experts on new business creation, which cites the rate of new business development as having peaked just prior to the Great Financial Recession in 2008. New business creations shrunk 30% during the four-year recession and are showing few signs of bouncing back.
What is of even greater concern is that business closures have outpaced new formations for the first time since 1970, when the Kauffman Report first published this statistic.
While the media celebrated a strong month of 250,000-plus jobs earlier in the third quarter, monthly employment gains have averaged 175,000 so far this year, well below the 229,000 pace in 2015. This demonstrates that the post-recession period is still on a long-term downward trend.
Such factors have resulted in persistent revenue declines in the post-recession period. These factors have contributed to the ongoing reduction in bottom-line profits, a trend that has continued throughout the first three quarters of 2016. While most of the larger corporations have indulged in cost-cutting through employment reduction, as well as reduced capital spending, further reduction opportunities might be harder to come by in 2017.
With revenues down, and cost-cutting having reached a maximum, any cash left on corporate balance sheets will not be used for future expansion.
This means that the 2% increase in annual gross domestic product will be more difficult to achieve in the immediate future, and even next year.
U.S. housing market dominates
The improving values of America’s total housing market provide uneasy insight into the stability of this massive housing sector as a whole. But because of the uncertainty of the current price improvement, the questionable solidity of the mortgage debt plays a large part in this multi-trillion-dollar housing assessment.
But the uncertain future of home ownership, still not healed from the 2008-2011 financial crisis, makes the security of America’s single largest financial sector questionable. What has given the nation a degree of optimism is the return of overall value approaching the trillions of dollars that America’s more than 300 million inhabitants had been counting on. This sense of safety has been underscored by the fact that the proportion of household mortgage debt, once as high as a quarter percentage point over current value, is now practically even.
But the ticking time bomb is that this is underscored by extremely low interest mortgage rates that carry adjustment clauses, which could be swept away if a sudden wave of inflation ends its current dormancy.
While banks, under the pressure of the Federal Reserve Board, have generally become sounder than at any time in decades, there is no guarantee that this couldn’t unwind in a storm of uncertainty brought on by the recent U.S. election, and its aftermath.
Although home ownership today is at a low percentage ebb, it should not be forgotten that America’s overall population will be approaching 350 million before mid-century, making a sudden change in total mortgage debt, and skyrocketing interest rates, a major threat.
Record budget deficits
As President Barack Obama’s second term reaches its end, growth plans by his successor focus on infrastructural development, job creation, and fleshing out America’s military capabilities.
While these worthy objectives, emanating from the major platform commitments of both political parties, are long overdue, the reality of such plans’ implementation will be nipped in the bud by an out-of-control U.S. Treasury debt.
The Congressional Budget Office’s preliminary report on the fiscal year 2016 (which ended Sept. 30) anticipated a nearly $600 billion federal deficit, which ranks among the highest in U.S. history. This revenue shortfall reflects government agency spending in light of America’s corporate profit decline and slower economic growth. These together have created a record federal public debt percentage whose share of the economy approaches 80%, four times what existed in 1980.
While it topped 40% during the mid-1990s, it took off at jet speed with the start and end of the Great Recession from 2008-2011. While buttressed by a nearly $1 trillion recovery plan submitted to Congress by the incoming Obama Administration in early 2009, it has been followed by a string of record budget deficits. These have failed to be offset by a post-recession growth economy.
With expenditures funding regulation tightening, climate control, and federal government expansion, post-recession fiscal years never reached even a 2% growth factor. This resulted in tax income falling far short of government spending in the administration’s eight years.
As a share of the national economy, U.S. Treasury debt, held by the public, increased more than 75% in the 2016 fiscal year. That’s the highest percentage share of America’s gross domestic product since 1950, when the Treasury debt burden hit its peak of repayments for World War II debt outlays.
With no current debt reduction anticipated, due to the incoming expansion of such existing entitlements as Obamacare, Medicare, Medicaid, and food stamps, the succeeding administration will have its hands full, even without implementation of campaign promises.
Barring major legislation bringing home the U.S. corporate wealth that is stored in foreign countries, and/or increasing income taxes considerably, any major new expenditures will prove impossible to fulfill, no matter how well-intentioned the new administration’s plans might be.
This article was originally titled “Local retailers counter-punch Amazon” in the November 2016 print edition of Plumbing & Mechanical.