Note_006: Retail may be dying, but it won't take cities down with it

Cities have faced mortal threats before - and COVID-19 is just the latest challenge urban areas will overcome

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Derek Thompson of The Atlantic wrote an excellent piece this week, The Pandemic Will Change American Retail Forever, that is 100% worth a read.+

In it, Thompson argued that coronavirus will accelerate several trends that will end up pushing urban residents to the suburbs, while the death of small businesses and bars will make cities inherently less interesting.

As e-commerce grows, it will pull more stores out of ground-floor retail locations. Many of these spaces will stay empty for months, removing the bright awnings, cheeky signs, and crowded windows that were the face of their neighborhood. Long stretches of cities will feel facelessly anonymous. With fewer independent stores and more Americans working from home, the streets will be quieter, too. Some urban residents might enjoy the feeling of a half-filled city; it will carry the eerie vibe of an awkward, permanent holiday. But even those cheered by the ample sidewalk room will find, in the darkened windows to their left and right, a shadow of the city they knew before the plague.

I agree that the pandemic will accelerate a number of changes - as I described about cities, retail, advertising, and Swiss watches. However, I'm still skeptical that coronavirus will cause a wholesale shift in the desirability of urban areas.

First, as we're seeing with large groups of protesters in front of state houses against lockdowns, people are resistant to change. I don't think that the pandemic is suddenly going to cause bars and restaurants and music venues in cities to cease to exist (though not without a slew of bankruptcies). It may take some time for people to once again feel comfortable going out to bars to have drinks with their friends, I'd expect them to wait the pandemic out until it is safe - not pack up and move to New Jersey or Riverside County.

Second, we have already seen the trend of people moving out of big cities in action. However, it is becoming more of a swap rather than a broad outflow. Cities are, and should continue to be, magnets for high-paying, high-productivity jobs. Pete Saunders has written extensively about the changing demographics of Chicago, where parts of the city have been economically booming like some of the most successful cities of the past decade.++

“On its own, the portions of the city that includes the Loop, north lakefront, West Loop, and Logan Square have the population of San Francisco, are about the size of Manhattan and nearly as dense, and have been booming,” he tells Curbed. “It’s as safe, vibrant, and walkable as any of the other cities you’d associate with success.”

For exactly the same reason that TikTok hypehouses are in LA - it’s an easy place to collaborate and leverage existing knowledge and connections into something larger - the information economy will remain firmly rooted in cities.

Third, Thompson described the failure of big, legacy retailers like Macy's and Neiman Marcus as another accelerant pushing people out of cities and into suburbs. I'll take the other side of that argument - that giant malls and shopping centers were leveraged plays to entice a shift suburban living, and that cheap credit (and federal housing and infrastructure policy) subsidized suburban life. As I mentioned recently, companies like Macy's and Neiman Marcus used supercharged, leveraged balance sheets to fuel their growth. That created retail anchors in suburban areas that supported home supercharged, leveraged household balance sheets - families taking out massive mortgages to buy the 3500 square foot homes on the fringes of cities. That co-existence works well, as long as revenues and home prices are growing. When that trend reverses, however, all that debt has to cause rationalizations somewhere.

Denser areas, on the other hand, are by definition more supportive not only to retail, but to more kinds of retail. Yes, it’s depressing to walk down Bleecker Street and see lots of empty storefronts, but that will change as soon as price falls to match demand. And there’s not much ecomm can do to replace the experience of walking down Bleecker on a warm spring day with thousands of others.+++

Fourth, the food shift to delivery and ghost kitchens was a thing before coronavirus, and the pandemic should only accelerate it. However I don't think that means the death of the local food scene here in Chicago or any other big urban area, but it should make it more interesting. If restaurants have fewer startup barriers and less fixed costs, that should mean more experimentation, more choices, and ultimately a more inviting scene for chefs. The NYT story this weekend about New York's Prune was fantastic, but also a cautionary tale. Restaurants like that were always living on the edge. Reducing the headaches of operating a business and letting chefs do what they do best will ultimately make for better food. Also, chefs congregate in certain, specific cities (again, the hypehouse corrolary), which would New York, San Francisco, and Chicago

The takeaway:

I think directionally I’m on the same page as Thompson, though I’d just dial back the dourness of his short-to-medium term outlook for cities.


+Some other quality reading on the death of cities in recent days:

People Were Leaving New York City Before the Coronavirus. Now What? (WSJ)

Millennials Will Swap Experiences for Buying Stuff (Conor Sen in Bloomberg Opinion)

Does Coronavirus Doom Density? (WSJ)

++But again, this brings up all sorts of quesions about inequality. Here's Saunders' (excellent) entire interview with Curbed -- Chicago’s new demographics: ‘A third San Francisco, two-thirds Detroit’

+++Chalk this up as “urban living is an aesthetic choice” for higher earners, which isn’t going to change anytime all . But that dynamic also supports more jobs and higher wages for those people that work retail jobs than they could get elsewhere.


Previous notes

Note_005: Retail's ecomm first future is now - Amazon, Shopify, and the future of Neiman Marcus (Apr 28, 2020)

Note_004: Companies are advertising... just not with ads (Apr 22, 2020)

Note_003: The $5,000 dollar jacket that is the light at the end of the tunnel (Apr 19, 2020) (Apr 19, 2020)

Note_002: Patek Philippe watches and Thursday Night Football - What changes in the post-coronavirus world (Apr 16, 2020)

Note_001: Will New York and Chicago become permanent ghost towns post-Coronavirus? Um, no. (Apr 14, 2020)