Thursday, August 30, 2018

Online Transaction Fee Could Level Retail Playing Field

Abandoned Malls Are A Canary In The Coal Mine
This article is the second of a part-two series about the retail closings that are occurring across the country and a suggestion as to how we can blunt the damage they will leave in their wake. The fact is store closures are set to accelerate, this comes with a hidden cost to society that the average person fails to internalize. An "Online Transaction Fee" could go a long way to level the playing field between online retailers and its brick and mortar brethren. A charge on all online purchases of just a few percentage points would add a bit of competitive fairness to retailing while halting the demise of many of the brick and mortar stores that line the streets of American communities.

People often forget that the brick and mortar stores suffer several expenses not fostered upon online companies. Whether it is the cost of maintaining landscaping, ensuring safe ingress and egress or providing a parking lot for customers these costs rapidly add up. Staffing for longer hours for the convenience of customers often results in being open when foot traffic would indicate a store should be closed and even dealing with security and shoplifters is another expensive burden. Over the last few years, stores such as Target and Macy’s have even had to face a slew of dishonest shoppers trying to sneak defectives products purchased online back as exchanges and trading them for a fresh unbroken product. I have seen this costly abuse recommended by several online shoppers that see this as an "easy fix" while simply brushing aside the ethical issues it creates.

An online transaction fee is a very big proposal and while like most Americans I'm not a lover of any kind of tax, it may be just what is needed to halt the damage flowing from this shift in how consumers shop. This would also help many small businesses across America remain in operation. The revenue from such a fee would be sent to local governments in the area where the sale originated or goods are shipped. Rather than getting stuck on the details of something that will most likely never occur we should instead think about what kind of community and world we wish to live in and how best to preserve the nature and quality of the life we seek. The ugly reality that store closures are set to accelerate is a cancer on America. Large retailers as a group are collectively set to lock the doors for the last time at thousands of stores this year.

The sad fact is America has far more retail space than it needs. The country now has roughly 24 square feet of retail space per capita, more than twice that of Australia and 5 times that of the UK. Much of it has been built in recent years using low-interest money as investors rushed to build malls and shopping centers under the premise that if they built it "they would come" but the shift to buying from online retailers such as Amazon and overbuilding has broken this decade's proven formula. A number of retailer bankruptcies and the culling of unprofitable stores has been emptying storefronts and malls and exacerbated the glut of American retail space. This retail real estate carnage is continuing this year with breakneck speed and no signs of slowing up, 2018 will easily pass 2017's record of 105 million square feet emptying out.

2018 store closures
2018 Retail Store Closings (click here to enlarge)
Sadly, most politicians have a poor grasp of business and are more interested in pandering for votes than trying to create more sustainable communities. Washington lawmakers have shown little interest in addressing the issue of how online shopping plays into the overall economy other than initially granting it some rather large advantages. This has been followed by state and local officials going over the top in competing for what they call new industries and jobs. This often results in special tax breaks, deals, or incentives for companies such as Amazon in exchange for investing or locating a facility in their area. In the long run, this hurts and weakens companies already located and competing in their market but that often gets brushed aside.

In the last few years, department stores like Kmart, Macy’s, Sears, and JCPenney, and retailers including Best Buy, Payless, BCBG, Abercrombie & Fitch, and Bebe have decided to close dozens of locations and cut back on future expansions. In earlier 2018, the fall of the once massive Toys 'R' Us name should have drawn more attention. With more than 700 U.S. stores the Toys “R” Us chain was a prime example of just how much retail real estate has changed in just the last decade. When KKR & Co., Bain Capital, and Vornado Realty Trust took over the company in 2005, the buyers justified the $7.5 billion price, in large part based on the supposedly valuable properties that came with the deal. The drop in the value of these properties has only started and in the future will have a gigantic effect on the economy.

Much of this space across American cities is located in the large shopping malls that once flourished in commercial zones of suburbia and now sit empty and abandoned. While some of the empty storefronts will be re-purposed many will not. Sadly, America has created a bureaucratic obstacle course to rehabbing buildings adding a great deal to the cost and making demolition more appealing. Between meeting new regulations and codes dealing with the Americans with Disabilities Act (ADA) and other issues building owners often choose to simply tear down the structure and rip up the parking lot which is also required as part of the demolition. This reduces the often huge tax burden while they try to recoup part of their investment while selling off the land.

A new report by real estate research firm Reis states that shopping malls had not been this empty since 2012. The vacancy rate at regional and super-regional malls in the U.S. reached 8.6 percent in the second quarter of 2018, this is a jump from 8.4 percent in the prior quarter. The increased vacancy rate is simultaneously occurring while online retailing giant Amazon continues to acquire a more significant share of the consumption pie. According to Reis, the vacancy rate of malls could significantly jump over the next several years. Even Credit Suisse believes 25 percent of shopping malls will have to shutter their doors by 2022 if shoppers continue to move online and mall traffic declines,

An online transaction fee could level the field. A charge on all online purchases of say three percent could go a long way to halt the demise of many of the brick and mortar stores that line the streets of American cities. Forgetting the massive amount of real estate taxes these stores pay which flows directly into the support of local police and fire departments as well as maintaining roads and such is a big disservice to the companies that also employ our friends and neighbors. These stores are where we go when we need something really fast or that has to fit just right. As a final argument as to why we should support local stores, it should be noted that we the people will be forced to pony up more dollars in local real estate taxes as their contributions drop and local services are cut.

                                                                                           E-mail this blog post to a friend

Footnote; The link below will take you to part one of this article. Below that is another link to a post about how the USPS has sold retailers and businesses out to gain a few dollars in revenue that might not even reduce the amount of money they lose.



  1. So... let's spur the economy by charging people more money? Aside from that bit of brilliance, who gets the money? Wait. Wait; it'll go to some "government agency," where it will be doled out to whom it sees fit... minority and woman-owned businesses at the front of the line, as usual...

    Uhh... NO.

  2. Pete has a good point and clearly lays out EXACTLY how this bureaucracy will unfold. This money will either end up funding transgender studies, paying Iran not to murder us, or unnecessary and unwanted pork barrel politician projects for re-election. And sure enough minority businesses first no doubt. I live in Thailand where their shopping malls are thriving. Here in Thailand they have one thing the U.S. doesn't have: physical cash. A small percentage of Thais use debit cards therefore they pay in cash. And when you pay in cash you need a physical purchase. They also do not have something that the U.S. unfortunately does have: obnoxious inconsiderate fatherless thugs loitering all over the retail areas. The insensitive truth is nobody wants to deal with the scum of society when they slave away all week and have 1 day to enjoy with their family in peace and quiet.

  3. We can fill all the abandon malls with illegal aliens .That way we won't need the wall.