Is the sky falling for U.S. retail?

Is it the Retail Apocalypse or simply Retail Restructuring?

There continues to be a great deal of apprehension about the retail sector. In June of 2017, Business Insider tallied more than 5,000 store closures with a projection of nearly 9,000 store closures by the end of 2017. Fourth Economy has mapped more than 1,700 of these closings across the United States. Traditional brick and mortar retail faces a fundamental challenge from shifts in consumer preferences and advances in online shopping and delivery services. The store closings are the physical manifestation of the challenges facing the retail sector, which often can leave significant redevelopment challenges for local community and economic development officials.

Despite the headlines and the hysteria, overall retail has been adding jobs. Job losses occurring over the last year may be a warning sign, but it is too early to tell. Fourth Economy created a dashboard to track three key statistics.

 

  • Overall retail employment
  • Jobs gains and losses from opening, expanding, closing and contracting
  • Worker separation and hires

 

At this point, the data on retail employment does not indicate a “Retail Apocalypse.” Over the long run, retail has been very volatile and the impact of the recession created a greater disruption than we are seeing now. What is portrayed in the media reflects a shift within retail. Over the past year there have been significant losses in general merchandise, and five other retail categories. These stores represent many of the traditional brands in brick and mortar stores.

 

Sep 2016 Sep 2017 Change
General merchandise stores 3,188,600 3,130,700 -57,900
Clothing & clothing accessories stores 1,351,800 1,321,100 -30,700
Food & beverage stores 3,096,200 3,067,400 -28,800
Electronics & appliance stores 530,200 502,100 -28,100
Sporting goods, hobby, book, & music stores 618,700 601,200 -17,500
Health & personal care stores 1,051,800 1,048,000 -3,800

 

Other categories of retail are increasing, with nonstore retailers (Amazon) leading the way. Gains have also occurred in motor vehicle and parts dealers as well as building material and garden supplies. These gains were not enough to offset the losing categories, but it shows that the retail sector should not be painted with a broad brush.

 

Sep 2016 Sep 2017 Change
Nonstore retailers 539,700 570,100 30,400
Motor vehicle and parts dealers 1,988,600 2,012,900 24,300
Building material and garden supply stores 1,279,100 1,296,600 17,500
Gasoline stations 932,400 940,500 8,100
Furniture and home furnishings stores 477,100 484,000 6,900
Miscellaneous store retailers 833,200 834,400 1,200

 

 

Even if retail is experiencing some short-term declines that portend larger losses to come, there are other segments of the service sector that are adding significant numbers of jobs. The 156,100 jobs added in food services and drinking places is nearly double the job loss in retail.

 

Sep 2016 Sep 2017 Change
Food services and drinking places 11,499,000 11,655,100 156,100
Personal and laundry services 1,458,500 1,491,700 33,200
Amusements, gambling, and recreation 1,616,200 1,635,300 19,100
Museums, historical sites, and similar institutions 161,500 168,600 7,100
Repair and maintenance 1,288,000 1,292,400 4,400
Accommodation 1,950,200 1,954,000 3,800
Performing arts and spectator sports 457,500 459,700 2,200

 

The dire forecasts are overblown. Consumers are shifting from commodities to experiences and many analysts say that retail’s future is to provide more than merchandise. This is as much about where the service is provided as how it is provided. Neighborhood level (Main Street) retail also appears to be adapting to these trends. People looking for and returning to walkable communities has helped, but so has the ability of “Mom and Pop” stores to differentiate through service and quality rather than low prices. The emphasis on more services, entertainment and food has also helped Main Street retail. Recent data on the performance of small retailers is not available at this time,  so it is not possible to fully evaluate these trends but it appears that the dominance of big box and superstore retailers is being challenged on two fronts – online and on Main Street.

 

Economic Impacts of Marijuana Legalization

With changes coming locally in Pennsylvania, with the state’s Department of Health releasing permits for medical marijuana growers and processors as well as dispensaries late last month, it seemed high time to take a look at the economic impacts of marijuana legalization efforts in other states.

Colorado anticipated $70 million in marijuana tax collections per year, but it hit $121 million in 2015 and over $140 million in the calendar year 2016.1 One estimate put the economic impact for the state of Colorado at $2.4 billion.

In Washington, tax revenues are slowly ramping up, but still far short of the estimated $388 million annually estimated in the legalization effort. Excise tax revenues from marijuana were $62 million in FY 2015, $134 million in FY 2016 and expected to hit $270 million for FY 2017.

Whether all states will hit these targets is not yet clear, and there has not been any analysis of whether legalization has offset or increased other public sector costs. We don’t fully know if legalization has produced any savings from reduced drug enforcement costs, or if those savings are offset by increases elsewhere.

It may be some years before we can really examine the impact of legalization on public costs, but there are other impacts that are receiving less attention. The legalization of marijuana at the state level has created a fundamental conflict with federal law where it is still illegal and controlled as a Schedule 1 drug, the most serious category of illegal substances that have no currently-accepted medical use and a high potential for abuse. As a Schedule 1 drug, the funds for research on medical uses are restricted, so it is even harder to get marijuana reclassified (as could happen if research proved that its medical use was beneficial). As recently as August of 2016, the DEA rejected reclassification based on the recommendations of the FDA.

The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) indicated in what is known as the Cole Memo that they would not charge a bank with federal crimes for accepting marijuana money if the financial institution ensures that all state laws and the directives of the Department of Justice have been followed. This situation puts a significant resource burden on institutions that effectively makes accepting these deposit not profitable. Some credit unions and “money service businesses” such as PayQwick are entering the marijuana market, but the uncertain legal patchwork they operate under provides a limited solution.

As a result, marijuana businesses that are legal in their home states cannot use banks or many traditional banking services.They have to pay all of their bills, taxes, and payroll in cash. They can’t get loans or mortgages, and they can’t build credit.

These problems can also extend to companies that supply marijuana businesses and all of their employees. If your income comes from an activity that is not allowed by federal law, then you as an employee may be barred from using a bank or getting credit. Furthermore, since these businesses are paying their workers in cash, any individual with a bank account would be subject to additional scrutiny for making large amounts of cash deposits. This is such a new industry that the potential problems facing employees in these businesses have not yet surfaced, but it is something that policymakers should be considering before significant problems emerge.

 

1.  See Joseph Henchman, Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington, Tax Foundation Special Report (Apr. 20, 2016).

Tracking Retail Closures

At Fourth Economy we have been tracking the news about retail store closures.  These store closures often can leave significant redevelopment challenges for local community and economic development officials. In future posts we will highlights some of the ways that communities are dealing with these buildings. According to Business Insider more than 5,000 store closures have been announced so far, with the potential for nearly 9,000 store closures by the end of 2017. These store closings are the most physical manifestation of the challenges facing the retail sector.

As a resource to the community, Fourth Economy has started to identify and compile a list of retail store closings. Tracking down the locations has proven to be a challenge, but we have identified 1,768 of these closings so far.  You can see the results in the above Working Map of Retail Closings, created in Tableau Public.  We are providing this as a resource to the community and will continue to update it as closings are announced and locations identified.  If you know of any closings in your area, please send them to engage@fourtheconomy.com and we will update the map.

Stay tuned for more.

Co-authors: Jamie Reese & Katie Grauer

New Economics of Land Use

A great American poet once said, “For the times they are a-changing.”  That is especially true today in our economy. Underneath the radar of the rhetoric and public spotlight, the changes in the economy are generating a ripple effect for how industries and people use land.  Land use is not a topic that is top of mind for most people, but a few local governments are waking up to the reality that a number of forces are beginning to change the need for land, and ultimately its value.  Local governments care deeply about land use, or they should, because the value of land translates into the property tax revenues they need to maintain the community. Continue reading “New Economics of Land Use”

Checking Up on the Health of Pittsburgh’s Startup Economy

Much attention has been paid to Pittsburgh’s burgeoning cohort of tech startups — but, more broadly, how is the climate for startup businesses in Pittsburgh, and what does it indicate about our city’s entrepreneurial culture? The Kauffman Index is one of the most prominent rankings of entrepreneurship and startup activity. Its release is often used to measure how Pittsburgh is doing compared to other metropolitan areas–and how we’ve progressed over time.

The 2016 Kauffman Index shows that entrepreneurship in the Pittsburgh region continues to lag behind other major metropolitan areas. Pittsburgh ranks 40th in startup activity in 2016, unchanged from our 2015 ranking. However, our rate of new entrepreneurs slipped from 150 new firms per 100,000 adults in 2015 to just 120 in 2016. By way of comparison, Austin, which ranked first in 2015 and 2016, saw its rate of new entrepreneurs go from 550 per 100,000 in 2015 to 600 in 2016. This means that Austin generated five times as many new firms per 100,000 adults as Pittsburgh did last year. Continue reading “Checking Up on the Health of Pittsburgh’s Startup Economy”

Education and Growth

paytas-main-blog_imageKnowledge is not an excludable good.

I have been thinking a lot lately about what drives economic growth and who shares in it. There are a lot of explanations out there, and I expect that we will hear a lot more theories about uneven growth in the months and years to come.

Thinking about what powers our economic growth, education exerts an increasing influence on the distribution of benefits (Figure 1). Earnings are higher and unemployment is lower as the level of individual educational attainment increases. Continue reading “Education and Growth”

Fourth Economy’s Jerry Paytas Appears on “Workforce Central” Podcast

I recently had the opportunity to appear on the Workforce Central podcast, where I discussed the current state of the economy, trends that workforce boards should be aware of, and my thoughts about the impact of the upcoming election on the overall U.S. economy. Workforce Central is the official podcast of the National Association of Workforce Boards.  The podcast is hosted by Ron Painter, President of the NAWB.

GASB Shines a Light on Tax Abatements

Paytas-Blog2-Web-05-2016The Governmental Accounting Standards Board (GASB) has implemented new guidelines[1] for disclosing tax abatements with the requirements taking effect for financial statements for periods beginning after December 15, 2015. These new regulations will require a significant change in the operating procedures and record-keeping of many economic development organizations and local governments. Chances are many are not ready to meet the requirements of the new GASB standards. Continue reading “GASB Shines a Light on Tax Abatements”

Measure Up!

Paytas-Blog1-Web-05-2016The ripple effect of big data and analytics is hitting economic development. There has been a resurgence in new tools that package economic data to make it more accessible to a wider audience. A lot of these tools are using aggregated data that is useful but it is often not granular enough to inform an individual EDO or city about how to improve its economy and what is working.

To do that we need better data that is more granular with details about specific projects and specific companies. Big Data relies on and pushes for this kind of transactional data. Much of this kind of economic data does exist but it is walled off by various bureaucratic walls. We are a long way from incorporating Big Data into economic development, and there are real risks with a pure Data Analytics approach to understanding economies and creating development strategies. Continue reading “Measure Up!”