My brother, who is a city planner, pointed out to me that city planners and most other people in government and politics have no idea why there are empty retail stores. They have no idea why retail stores open or close. The same is true for commerce in general. So I wrote this explanation:
The basic reality of commerce is: Commerce is a weed. You have to make great efforts to keep it from thriving.
I was in Sweden in 1980 at the request of the government: I was brought in to generate small business. As I shuttled around the countryside, I noticed many new 20 story residential buildings in clusters with no retail businesses within miles. I saw that there was no space designed on the bottom floors for businesses,
I mentioned this to my hosts.
On a trip years later, to the same areas, it was different. The first floors of all the buildings had been remodeled for business. There were laundries, drug stores, copy shops, shoe repairs, clothing stores and every other form of retail. Commerce was flourishing.
Just give commerce space and permission and it will thrive.
That is the theme of this writing. The concept of permission turns out to be vast and complex. Governments, ordinances, bureaucracies, technocrats, public sentiment, morality, ideology and countless details conspire to keep business from existing, expanding or surviving.
I’ve written this after consulting with and working with over 2,000 businesses over fifty years. I’ve worked with every type and size of business from a one-person graphic artist to a global airline. I’ve written one of the best-selling books on marketing in the English language, Marketing Without Advertising.
I recently sat at a dinner with six business people. When the subject of their businesses came up they were vivid and emphatic about how their businesses and business expansion was nearly impossible because of government restrictions, permits and barriers. Everyone who associates with business people will recognize this reality.
Some ethnicities have a greater degree of trade skills in their population.
A person who travels the world can't help but notice one fact of business that I can't leave out of any writing about commerce: some ethnic people have a greater propensity for commerce.
Southeastern Chinese are in business nearly everywhere in Asia. The Lebanese (descendants of the Phoenicians) are business people everywhere they live. Fulani tribes-people from Western Africa, as well as some Nigerian tribes, are in trade everywhere. Every Arab city and town has a booming local market. Everywhere a Frenchman goes you will find a great bakery and a flower shop. Jews were once driven out of most cities in Europe by the Catholic Church, riling up the townspeople over local hardships; the Church blamed the Jews. Just as frequently the town’s rulers would later invite the Jews back because commerce and a decent life was not possible without them.
Today, in the few countries where Jews are welcomed, they are a core part of commerce. (I’m a Jew.) This photo is of a retail street in Tel Aviv.
Because so many ethnic peoples are adept at commerce, almost anywhere that commerce is welcome, where international diversity thrives, there will be people who can contribute.
Laws, bans and overreaching ordinances of all sorts stifle business.
If you are trying to promote commerce where you are, you have a major task before you. Commerce, retail and all else, is thwarted by every possible barrier — barriers far beyond the most fervid imagination.
In general laws and regulations keep businesses out of your city, state or jurisdiction. Mormons in Utah and a few surrounding states, for years, kept coffee shops, liquor stores and businesses that depend on the sale of liquor, like Trader Joe's, out of their area. Liquor has been a big issue in governing the operation of business, including grocery stores and bars, all over the U.S. for over a century.
Liquor is only one category of business that is regulated heavily and often taxed to extremes. Smoking and sex are in the same category. As is dancing, gaming (from bowling and racing to gambling) and comic books, even a wide range of foods are treated as sins. In California foie gras, live chickens, eggs from small nests and the meat from a dozen animals are banned in commerce. Even the hair of many animals are banned from sale. Children’s used toys, unless tested for lead with expensive test equipment, are banned from sale.
Thousands of businesses are stillborn because of these rules and ordinances.
The use of a wide range of chemicals, common in industry, are outright banned for urban business. Carbon tetrachloride, a solvent used in cleaning many goods ranging from clothing to mechanical equipment, is banned. That eliminates rapid cleaning services, antique clock repair and a wide range of cleaning and maintenance services. Most of these chemicals can be used with care and discretion safely.
The use of chrome, silver and mercury are often banned, consequently, along with antique repair, tinning and many kinds of plating businesses. Again, these elements can be used with care and discretion safely.
This is just the beginning of laws and regulations that eliminate scores and hundreds of businesses, small and large.
One might argue that many of these regulations are for the health protection of the public. A community that wants commerce would substitute outright bans for negotiated boards, hearings, mediation, special courts and arbitration for people who want to do businesses safely related to these ordinances. Safety can be assured without outright bans.
Small claims courts have generally become the friends of business. They should be a permanent component of a friendly business climate. Individuals bring their complaints to small claims courts. I've noticed that for nearly every small claim I've observed, the court finds in favor of the business, supplier or contractor. The reason is that the naive buyer often has no idea of the costs or difficulties involved in a remodel or repair project and is dissatisfied regardless of the laws of physics or engineering possibilities.
Leaving the generalities of business culture, I will use a number of San Francisco legislative disasters that have created empty store-fronts and vast numbers of business closures. I live in San Francisco where the political class has been hostile to commerce for over a century.
Businesses have trouble surviving despite open government hostility.
Business failure is common. Once a business has started, it may close simply because the market doesn't exist or the market changes rapidly. This is far less likely with a franchise or a chain, which is often derided by local government hostility.
Businesses close because owners get old, owners get bored, owners get sick and often the arduous work of dealing with ordinances (endless ‘paperwork’) drives business people mad. Business can be isolating and insufferable as well as rewarding and enjoyable.
I often tell business owners that when things get too tough, they can quit and get a job.
High rent is a false explanation for business failure.
San Francisco citizens often blame greedy landlords for all the empty stores. This simply makes no sense.
There are government charts that show the component costs of most operating businesses (business costs). If one looks at retail, rent is in the range of 7% of total costs. Wages can be from 25% to 40% with taxes and insurance on top of that. San Francisco has a minimum wage, a required health insurance plan and required vacation and child-birth set asides which directly affect major costs of doing any business. But the politicians and the citizenry never see the connections, they look at the 7% rising not at the 25-40% that is forced up by laws: they keep harping on greedy landlords like they see in villainous movies.
Getting started in business is uniquely hard.
Probably the two greatest barriers to starting a business in San Francisco are the permitting process which in the case of a small ice creamery took 3 years and a rule against chain-stores that requires extra approvals.
In the permit process, it is hard for bureaucrats to understand that a new business entrepreneur will have to pay rent for all the time the business is unopened. Ordinary people, the kind that start small businesses, can’t afford months or even years of rent for a business that hasn't started. Cut the permit process to weeks or a month at most.
The chain store issue is quite different. It is very important. Chain stores have multiple survival advantages. They have knowledge about their business and its operation that allow it to survive where other similar operations can’t. The same is true for pricing. They have a variety of economies of scale that allow them to operate at lower costs and often sell at a lower price than non-chains.
From a local point of view chains have an even greater advantage. I noticed this many times. Tourists will venture down a street or into a neighborhood where they see a chain-store they know. The familiarity gives them a sense of safety. This may not be true for some adventurous tourists, but it is true for most. All retail businesses benefit from the tourist foot traffic that national or global chain stores provide.
This brings us to magnet stores.
Shopping malls have often been built around a magnet store. A magnet store is a well known store that has a broad base of customers and national promotion. It is important to point out that a magnet store of yesteryear may not be a magnet store today. Once it was Sears, today it may be Apple.
Neighborhoods also need magnet stores. Government employees may not be current on business issues. In San Francisco, a number of blocks on the main street of Market had been dead and dangerous for years. A new store was willing to move into the center of the commercial dead zone. It was Frye’s an electronic mother-ship that every techie loves. Frye’s needed a large parking area, 90 cars. The city planners would only permit a 45 car lot. So Frye’s never moved in and the street continues to be undeveloped and dangerous to this day. The idea that an established business can be told, by bureaucrats and politicians, the right size for its parking lot, for its sales floor or any other business function, is absurd. Businesses know their operating functions; bureaucrats don’t.
Exactly the same thing happened with a Trader Joe’s store in a gay neighborhood. Trader Joe’s is a magnet store and would have revitalized a six block gay area. But insufficient parking based on bureaucratic rules kept the store from ever opening.
This is a good place to mention a related issue. Banks. In several locations I watched a small unique retailer create an entire thriving neighborhood. In one case it was a women’s clothing design store; in another it was a specialty furniture store. An entire neighborhood grew around these stores, feeding on the high foot traffic of these magnet creative supernovas.
In both cases a bank bid up the rent on these magnet stores and drove them out. In less than a year, both neighborhoods died. Banks have a bidding advantage because of bizarre bookkeeping. Loans are assets and customer deposits are liabilities. For a bank, owning or renting a store goes on the asset side of the ledger. This can get the bank more money from the Federal Reserve to lend or can count as capital and allow it to legally grow larger. A strange subsidy, but one that can destroy neighborhoods.
A vital neighborhood can die over many years. One reason can be the time-of-day traffic. Union Street in San Francisco failed after decades of success and vigor. It became a bar and restaurant street. That is nearly all evening business. So the daytime stores disappeared and all that was left were nail shops and low end tourist trinket shops.
Clean and safe are terribly important for retail business.
Street people started clustering and filthing-up 18th Street near the Castro district in the evening and at night, driving away the restaurant and bar customers.
Dirty streets, scary people, chain gates on stores can destroy a retail neighborhood. Shopping is an exciting, enjoyable, fanciful experience. Any downer can destroy it; especially for tourists who tend to be cautious in the first place.
I started a tourist bus service that took visitors to many unusual ethnic neighborhoods and let them out to wander around for a short time. The consequence was that the neighborhoods where my buses went and stopped, rapidly began to have thriving retail. Those same neighborhoods soon had walking tours that further enlarged the retail range of stores.
I mentioned street people and other perceived dangerous people, earlier. These are bad for business and businesses close soon after they become a visible problem.
Picture a block with businesses on both sides of the street but 5 of them are empty. There are several dimensions to look at the problem. Retail is about fun and pleasure.
Is the neighborhood dangerous? On a scale of zero where you find graffiti, filth, homeless people and iron security gates to 10 where stores sell candy and flowers; there are outside coffee shops, colorful clothing stores, exciting signage and a store with a line of people outside. What is the number for this neighborhood? Probably close to 10. Does it look dangerous (zero) or fun (ten)?
A neighborhood with a zero rating will not attract desirable foot traffic and will not be opening new retail stores or even keep existing ones alive. Conversely, the street focused on retail fun with abundant customers will find empty stores are rented quickly.
Look at the 3 main differences between a dead street and a vital one:
- Accessibility. Good transportation to the area. Sufficient parking, on and off the street. A walking street with bright interesting windows where carrying packages is not difficult, seats and water fountains are available. All good.
- Safety is perceived. The area is well lighted, including open store-fronts with familiar international brands. Ordinary people are visible everywhere as well as a good mix of ages including young and old.
- Fun looks possible. At least there are windows that elicit curiosity. Blank walls, garage entrances, and bureaucratic facilities are rare. Is there street life, like shoe shine stands, ice cream outlets or knife sharpening trucks?
Let’s go back to the initial issues. Can this retail street be appealing in an area that has a strong anti-commerce environment where retail permits are difficult and slow to obtain, where food retailing is limited by arduous inspections and costly kitchen requirements, where popular stores and retail competition is quashed? Can ordinary people afford to start a risky business with limited capital? Especially since ordinary people with limited capital are the ones likely to start innovative retail.
Lastly, laws, regulations, zoning and ordinances eliminated the many kinds of businesses that people need and use in their ordinary life like laundries, repair shops, technical stores, specialty items, fast food, etc. Are signage rules so onerous that they make it hard to find the type of business customers are looking for?
Finally, is your area openly hostile to large business, like San Francisco is? Nearly 500 global businesses have started in San Francisco and been driven out over the past 150 years (Southern Pacific, Bank of America, Charles Schwab, Bechtel, McKesson, AT&T are examples.) Many small businesses will not start in an area knowing their growth will later be treated with punishment and penalties.