Thursday, July 17, 2008

Retail Reductions

Is it just me, or are there a lot more vacant storefronts around town this year? There seems to be a quiet contraction taking place, with small franchise stores and Mom & Pops closing down. Admittedly, I haven't been tracking this scientifically in any way, so this is purely anecdotal. A quick perusing of the SacBee business archives yielded a few of the more recent high profile regional failures like Elk Grove Ford, Room Source, and Gamel RV, but I think it's worse than that. Are you guys noticing the same thing, or am I crazy?

11 comments :

Patient Renter said...

You're not crazy. I'm definately noticing a ton of stuff closing too, small stuff. It's been going on for well over a year though. The crazy thing is that new commercial space is STILL BEING BUILT!!!

I am wondering if the new mall in Folsomland (where I dwell) will ever get finished, and if it does, will it be at the peak of the recession when everything around it is closing down? It sure looks as if we're headed that way. Ditto the new yuppie shopping center across from the mall in Roseville.

Sippn said...

Mom and pop's make a destination.

The new mall in Folsom will include a Whole Paycheck store. Should be busy, but might cannibalize some business from elsewhere. Sure don't need another Panda Express/etc.

The new stuff off Sutter Street around the rail road turn table should be very hot. Likely a busy spot for the post night club crowd (I mean older, not after 2am!)

Patient Renter said...

The post night club (older) crowd already has the run of the Powerhouse on Sutter. They don't need anything else :)

Or maybe older to me is not what it is to you, hehe.

Patient Renter said...
This comment has been removed by the author.
Max said...

Mom and pop's make a destination.

We make a conscious effort to frequent non-corporate restaurants. Typically the food is better, and you get something distinctive.

BTW, I was having a discussion with a small shipping store owner who was lamenting the credit card fees he has to pay. If someone buys stamps and nothing else on plastic, he loses money, but he's afraid if he refuses CCs for stamps, he'll lose customers. I'm usually a CC junkie (pay 'em off every month; collect cash back rewards), but I'm feeling guilty at the smaller places. I've actually seen owners wince slightly when I hand over the card on a large purchase. :)

How do you guys feel about this?

James said...

Max, credit card fee really hit the smaller merchants. They are not running the volume to get lower processing rates that restaurants and big merchants enjoy. The double wammy comes from using a rewards card. Amex and Discover will run the small guy about 3-4% of the purchase. Many business will have this margin built into their prices, but that is getting harder to do.
I try to use cash at the small guys to help them out, though cash never makes it to the books, thus hiding income from Uncle Sam. Can't say I support that either.

anon1137 said...

I try to use cash at the small guys to help them out, though cash never makes it to the books, thus hiding income from Uncle Sam.

So true.

MickeysDad said...

I assume that the merchants' pricing has already been factored for the transaction fee charged by the credit card company. A well run retail establishment should know what percentage of their sales are paid for with credit cards. This is an overhead expense, just like your electricity bill, or other banking fees. Therefore the merchant should probably offer a 2% discount if you pay cash, thereby saving the consumer money and saving the store money (assuming 3-4% is the fee paid). These are not new fees. I don't understand why they are suddenly getting so much press.

Anonymous said...

Not much fall out yet where I live (DC). Vacancy rates are extremely low so the commercial tenants are doing what they can to make sure the rent is paid (if not there are 10 others looking to take the space).

I still think things will soften up here - the far out counties in virginia are imploding. After 3.5 years however, im not as optimistic as I used to be.

Darth Toll said...

mickeysdad,

The fees are not new but the retailers are paying more fees overall because a higher percentage of folks are paying with credit cards than they used to. No surprise considering price of food/gas and loss of equity in RE is pinching the consumer from both ends, and job losses mount and raises are non-existent.

The retailers can't pass these additional fees on to the consumer or they lose (increasingly scarce) business. No pricing power due to cash-strapped consumers.

I'm sure when the Fed dropped interest rates below the rate of inflation they were imagining a full-blown 1970's style inflation to mop up from the housing bust, but that doesn't work when there are no raises to be found and a commodities crack-up-boom sucks all money out of the system. Nice pickle the Fed has put the economy in, eh?

Darth Toll said...

anon 11:58

You've done most of the waiting you're going to do, but I hope you have cash if you want to buy RE in the future. The GSEs are inching ever closer to the implosion moment, and spreads on GSE debt are blowing out. The GSEs represent what's left of the RE lending and are currently doing over 90% of new originations. FNM/FRE have lost most of their equity value in the last couple of months and now their are calls for GSE bailouts. Good luck with that one Paulson. That would double the national debt overnight. Besides, there are many players who would love to loot the GSE asset mountain for pennies on the dollar and a true Treasury bailout doesn't help these (largely foreign) interests.

Without the GSEs around? Rates will skyrocket and only those with cash bucks will be buying any RE (or much of anything else for that matter.) I was laughed at and ridiculed on this blog and others for suggesting that the GSEs would be imploded, but now the nay-sayers aren't laughing very hard as everything is coming to pass exactly as in a script.

If you wait another six months you may be surprised at how cheap RE will become when there is no financing.