Couple of years ago, one of my friends bought a store at a strip mall. The store was making a loss. And the previously owners were an elderly couple. So my friends thesis was that they weren't exactly tuned into the digital presence business and it was still entirely possible to run a store in US.
Two years later footfall in the mall has decreased a lot. And in spite of the digital strategy etc my friend's store hasn't worked well. Now he is not only in debt but he is also trying to sell the store. But there are no buyers.
I wonder if it's also a case of there being too much of the wrong kinds of retail space.
If there's a retail store within a mile of our house, I'll happily walk to it and do my shopping there. Especially when it's a pleasant day outside, that's an enjoyable way to get out of the house and get a little light exercise.
If the only kind of store left that sells what I need is one of the big box stores, so that going there means having to get in the car and deal with traffic and haul myself halfway across town and, seriously, ugh, that is enough of a chore that I'm already feeling vaguely annoyed just thinking about it. No thanks; I'll happily order online.
And I would rather starve in the woods than drive all the way out to the nearest shopping mall.
All the stores that are walking distance from my house are:
Mobile phone stores (fake resellers)
Fast food/Chinese/pizza
Liquor stores
Gas stations
711
Laundromat
Check Cashing
etc...
None of these are stores I'd want to browse.
The alternative is the mall, which is all brand stores. Basically one big ad space. Shopping there is like running IE with 100 toolbars!
Same issue with some of the big box stores now. All are restructuring to be brand specific. Best Buy? Separated by Brand now. Want to buy a headset? Get ready to go to 6 different places and only see the the brands that paid to be there (just like with Facebook, we're the product, not the customer).
Toys'R'Us did the same thing before its death. It separated by brand. Which wasn't as bad in a toy store. I can see going shopping for Lego or Barbie more likely than going shopping for Corsair or Logitech. But it still feels based on who paid to get the space rather than making it easier for the customer.
What if your house was the shopping mall? When Sears, Macy's, JCPenny, etc all die, there's going to be a lot of shopping malls with big empty spaces. If those spaces were transformed to residential, it'd be trivial to walk to all the little shops currently between the big anchor chains, regardless of climate or season.
There are a few places by me where they've made apartments above a bunch of stores.
I'm in NY, Long Island specifically and they all get converted to Senior or Luxury apartments that cost way more than the average person can afford. But that's getting a bit off topic.
But it would be interesting to have some of those big places converted into cheap apartments. It's like you'd be getting a discount for having ads on your place of residence.
Back in the day there was more variety and more general-audience stores: small bookstores, magazine stands, maybe a mid-high end audio store, small toy store, music/video store, maybe a small pharmacy location.
Today, to put it bluntly, the stores skew heavily toward women-oriented products (clothing, accessories, underwear). Which is fine, and probably inevitable (clothing and whatnot are the kinds of things people prefer not to buy online). But there isn't of as much interest or utility for anyone else.
What I don't get is there are a lot of empty storefronts and places moving that I see... and retailers say the rents are still sky high for those storefronts.
Is it really worth the property owners keeping them empty?
At least in the UK, they're more likely to get permission to convert to residential if it's long abandoned.
Housing demand in cities is much higher than the normal available space on the boundaries. Carving a big box into 300 apartments more than justifies a couple of years of doing nothing with the place.
That might make sense for older downtown department store and street store fronts but doesn't make sense for malls and big box stores here in the US. I don't really see any way to meet code requirements like bedrooms requiring windows in those buildings.
Honestly a planned community around an abandoned mall is a great idea. You can tear up the parking lots and put a bunch of apartment buildings. Have the mall be the "town square" with a grocery store, restaurants and other shops. Build some transit there while you're at it. I'd love to live in a place like that, and it'd be much preferable over private single family homes. Of course, being new buildings it wouldn't be affordable sadly.
It'd be a neat idea if done well, most attempts at intentionally planned communities like that wind up being pretty fragile.
It'd also ideally need a ton of parking though which brings a hard compromise between making a nice walkable pleasant park area and having enough parking that your reinvigorated area doesn't become too congested. On top of that most malls are way too large even for that, it'd be hard to build out enough shops to make the mall not feel super empty.
The Santana Row planned community in San Jose, CA has been around since 2002 and seems successful so far. They have a walkable core area with retail and restaurants, apartments above and behind, and parking garages underneath and at the edge.
The developers tore down the existing structures and built from scratch. They didn't build around an existing mall (although there is an another mall across the street).
Yeah areas like that have the best chance of succeeding because they exist in an already lively downtown so they don't have to create all their traffic out of nothing. A community built around a dying mall though has to create enough traffic to justify businesses opening there unless they're small and cheap enough to exist solely on the business of residents.
Santana Row is several miles from any lively downtown. That area is a random collection of low-density retail, restaurants, offices, and housing. Outside of Santana Row there's very little pedestrian traffic and no real night life.
> Is it really worth the property owners keeping them empty?
Yes. It's a tax dodge. [1] [2]
The owners "...hold out for higher rents to increase the worth of their properties because value is based on future income stream...They can afford to forego current rental income, waiting for higher-paying tenants because they claim big business losses. Landlords get a tax loss from negative rental income when no rent comes in, which cushions their lack of cash flow."
There are also perverse incentives structured by the debt instruments securing these properties. [3]
There's some more miscellaneous reasons, like not wanting to hassle with renegotiations from existing tenants who hear about a lower psf/psm rent of a new tenant, not wanting to attract the "wrong" class of tenant, etc., but by and large, the money reasons talk loudest.
High real estate costs preventing affordable, energy-dense and hyper-efficient living and working for most of the world's population are imposing quite significant externalities around the world. Not really discussed much though, as it gores too many oxen. Saliently changing this status quo would require fundamental changes in how real estate and credit interact, and that's not going to happen without some real not metaphorical blood spilling.
It's easy to avoid taxes by not making money, but as someone states in the third article you link to: "A wise colleague told me that until effective income tax rates reach 100 percent, a dollar of income is worth more than a dollar of deduction".
That's just the apparently-not-so-well-known First Law of Tax: It is always better to have more money than less money.
This is only true if there is only one type of tax and it's non-negotiable and immutable over time.
For little people like you and me, taking rent is a simple income and forgoing it would be a simple loss. As you say, it wouldn't make any difference for our net taxes.
When you own thousands of square meters of [what will be] prime brownfield development space, leaving it unoccupied just hastens the local government to offer incentives for redevelopment. Tax, rates, planning, VAT. Even if they don't subscribe to broken window theory, an unoccupied building pays them no business rates or council tax (UK) so doing anything else is preferable to doing nothing. They'll bend over backwards to make that happen.
I understand that there are many reasons why it may make sense to leave a building unnoccupied, I just don't think that "dodging taxes" (because losing money reduces your tax bill) is one of them.
A job-seeker may pass on an offer that he considers too low (because he's confident he will find something better later), no one would say he's doing so to avoid paying income taxes.
Talking about very large real estate portfolio holders like the Vornados of the world, not small investors. In American terms, even newly-minted "accredited investors" can't avail themselves as private individuals to these kinds of strategies. In that context, when you are capitalized enough to land bank the worst-performing parcels until the next boom cycle, it makes sense to let them lay fallow and rejecting rent decreases until the asset appreciation bails out the parcel, and in the meantime use the rental income loss to offset the gains in other parts of your portfolio.
The overall portfolio cash flows profit, and capitalization is sufficient to ride out 10-20 year cycle minima on the minority of the portfolio sitting vacant until asset appreciation works in their favor again. These holdings are so large they overwhelm lay people's sense of what is feasible. This model only breaks down in "perfect storm" secular changes set within a dysfunctional government context like Detroit, and only then do you see true abandonment and not just vacancy.
To these holders, how these vacancies work is a feature, not a bug.
A bug that seems to pop up again and again, here's an article about a crusader against land speculators who found it more profitable to leave land unused all the way back in the 1800s:
Yup, am familiar with the Georgist argument, thanks for introducing it into the discussion since many others reading undoubtedly have not heard of it. I'm sympathetic to it, but I believe the real issue was alluded to in the middle of the article you linked to. As much as economics has physics envy, I have yet to find a physics-grounded explanation of mainstream economics' treatment and classification of capital and assets. Even a walk through as crude as energy transfers in kWh ranges would be a start, because for me, physics is our currently-known ground truth. Instead, we get tautological definitions of classifications, and I'm no longer convinced they're as obvious and simple as economists make them out to be, because we see all these interesting side effects within the market that Georgism arose to address, like an emergent impedance mismatch in code architectures.
This doesn't mean I want to toss out all economics, but some discerning skepticism about the descriptive (not to speak of predictive or prescriptive) modeling power of economics is in order, certainly at macro scales.
What to do about all this? I think a start was expressed by Iain A Banks in his The Culture storytelling universe, where he said "Money is a sign of poverty." My take on that is all capitalists should be striving to achieve a world where money is a historical artifact, because money is only used as a tool to advance science sufficiently to unlock post-scarcity material and cognitive abundance. In other words, capitalists should be working to progressively put themselves out of a job as capitalists, driving down the cost of every material good to the point it is cheaper to subsume it as a general utility everyone pays for than to leave it outside the Cosean boundary.
In practical, actionable terms today, I suspect this means forming inter-generational and intra-generational cooperatives as a defensive measure by the under-capitalized against predations (sometimes not even conscious or intentional) by the well-capitalized. That's a tough problem to solve.
In the UK some people are taxed at >100% on income, but that aside
If you have 100 shops, and rent 11 at $10k a month, and the rest are empty, you get $110k a month
If you have 100 shops, and rent 60 at $2k a month, and 40 are empty, you get $120k a month
Now lets assume a 50% tax
In the first example you keep $55k
In the second example you keep $60k
Great, go for the second.
But now if you make the empty shops a tax writeoff, you instead
first example, $110k income, $850k loss. No tax to pay, total income $110k with no tax (and a £750k loss to offset other income)
second example, $120k income, $80k loss. Tax to pay on $40k which is $20k, so total net income $100k
This is assume that you can claim that unrealised rent as a loss. I believe there are ways of doing that (charity shops for example)
I'm not sure if you read the link I sent. If I give $100k to a charity and they use the money to rent something from me for $100k I won't be paying any less taxes that if I had not done the whole "tax dodging" scheme... [1] Maybe it was possible to deduct "virtual" donations in the UK, but it's not hard to disallow if people abuse the system. I could also donate a stone to a charity saying that it's worth $1bn to get a deduction. Would that count?
Edit: reading your link it seems unrelated to deductions on taxable income. It's about council taxes on businesses, which are lower for charities than for regular businesses or unoccupied stores. So it makes sense for the owner to let a charity use the space rent-free and pay their 20% of the tax instead of paying 100% of the tax for the empty property.
[1] Actually I may end up paying less taxes if my costs raise, because I will be making a lower profit. But that would result in lower after-tax profits, which is probably not the objective of the scheme.
If you're a couple who transfer some of one earner's tax free allowance to the other via the marriage allowance, and the higher earner earns £46,350, they will pay £11,211.32 in income tax and national insurance
If they earn an extra £1, the marriage allowance vanishes, and they pay £11,449.54 in income tax and national insurance
there's a big difference between claiming > 100% tax rate and > 100% MARGINAL tax rate for a specific circumstance. Many jurisdictions have specific deduction boundaries where the next $ earned would bump someone into a very high marginal tax rated on that next dollar. In reality the net tax change for that person in your example isn't a significant material change - a couple hundred pounds on their yearly tax bill.
Earn some money from your savings, say £100, and you get taxed nearly £300. That's more than 100% tax.
You've also got the state where you have 7 kids (say you had 4 from a previous marriage and your partner had 3), and earn in the £50k-£60k range, where you attract a "High Income Child Benefit Tax Charge" which, combined with income and NI, works out to be 102% marginal rate, over a range of £10k.
As the OP said: "A wise colleague told me that until effective income tax rates reach 100 percent, a dollar of income is worth more than a dollar of deduction"
There are cases in the UK where that's demonstratably false. A dollar of income is actually worse than nothing. At the marriage threshold a pound of income is worth £-230. A pound of deduction is worth 33p.
While I wouldn't underestimate the degree to which some people will go to avoid taxes on principle I do agree that it seems a bit farfetched to intentionally fail your business to avoid paying some tax.
I can definitely see a situation where the owner prefers to have some storefronts vacant rather than lowering the rents because they aren't sure lowering the rents would actually fill the storefronts and it might cause the other tenants to demand lower rents. Plus it might attract the wrong sort of business.
People really do limit themselves because they don't understand taxes. There's a lot of bad information about tax out there, and even some propaganda.
I've met people who sincerely believed making enough to enter another tax bracket would mean all their income would be taxed at that rate, not just income inside the range.
Nothing guarantees the higher rent will come eventually
Also
"According to Plasky, landlords who wait for their ideal tenant are generally approached by small businesses but reject them because they want a national chain—like TD Bank, CVS or Starbucks—and a corporate guarantor... But this leads to a vicious cycle, into which the entire retail corridor is sucked.
When a retail corridor deteriorates because of its empty spaces, the first tenants to leave because of low foot traffic (and consequently fewer customers) are the mom-and-pop businesses. "
> Nothing guarantees the higher rent will come eventually
People in real estate are pretty satisfied with the current global monetary configuration that guarantees asset appreciation of most real estate over long enough (decades) time spans, over positions spread geographically wide enough (tens of millions of square feet/meters). At large enough capitalization scales, real estate starts to behave like passive indexing when set within our current monetary and legislative backdrop.
Thanks for that — it helps start to make sense of it. I wonder how sustainable the practice is; presumably a property owner making that sort of calculated decision is also looking at the negative impact on their other tenants.
Capital wields asymmetrically greater negotiating leverage in legislative and judicial spheres, and is far more connected through revolving doors in executive arms of government. While tech is the darling of the business press today, a plurality of wealth around the world is represented in real estate. In other words, there are far more landlords than tech bros/<<insert female equivalent>> around the world. Worldwide real estate valuation is >$217 Trillion [1], working out to about $5896 USD/ac or 12340 EUD/ha. That kind of valuation isn't materially deflating absent a pretty foundational change. Considering how much other asset markets derive off of real estate, the valuation at stake is much higher, and the resistance to change correspondingly greater.
The way credit and tax are structured around real estate is deeply entwined with how our civilization generally conceptualizes money and the act of exchanging. And the big realty interests (trusts, big brokers, etc.) are using the small players as human shields, what I call the "Grandma Shield" political strategy. Any move to configure the gears of globalization to also crush real estate pricing with competition like it has with supply chains puts up a storm of "think of G'ma's rental income receipts!!!111!!!". This gives them the emotional charge to gin up a lot of political support, and structure "way of life being threatened" political battles.
Globalization has shed blood. The grand hope of globalization was deeply intertwined national economies propel with enmeshed economic pressures an evolution to Western liberal progressive postures and increased global harmony. There are today gaps in that narrative; it remains to be seen if they are patchable or structural. Globalization is the overarching thematic fundament that lends legitimacy to sovereign interference in Syria, Iraq, Afghanistan, South China Sea, Crimea, Falkland Islands, etc., predicated on the current mainstream foreign policy conjecture that turned into the modern globalization effort starting around the WW1 era that non-interference and neutrality leads to even worse outcomes.
Deep structural changes in real estate (and finance more generally) would have to take place in some similar context as globalization, and historically conflict arising to the level of blood shed accompanies changes on such scales because the architects of such changes do not model conflicts into their projections. Like programmers that don't model debugging time into their project plans.
I personally think globalization is patchable, but only starts to make real progress again (we've done a lot so far, possibly stretching beyond our reach by now) by the time we start getting much better modeling of societies that makes today's Summit-based modeling look like a Tinker Toy. There's also the problem that we simply don't know how to model societies at a fine enough granularity to tell with a high degree of confidence (>99%) and consistency (>99%) how broad swathes of people will vote. Lenin thought central planning projection was possible, but it took until today's computer-driven supply chain management to even begin to realistically approach just a pale shade of semblance of his vision of how to perform economic projection, and only at the short-term, reactive micro-economic level at that.
As someone who also owns such vacant properties, loses can't continue indenfinately i believe.
I sold my company (had a legal battle with my partners which destroyed me emotionally and now I find it hard to trust others, naturally i am risk reverse now), and deployed excess capital in these vacant kept properties. I simply have no desire to earn extra income on them. I hope I'll make some amount on appraisal.
Secondly, not everyone is in the market for maximizing their gains. It would cost more of my time if I ran into a bad tenant who sued me (if partners i known for years couldn't resist, what makes a random one any different? No amount of rational explanation is going to change my belief. Once you are burned, you even start hating candles). I optimize for less risk and if it comes at zero return or slight loss, all good.
I’ve been wondering the same thing. There’s a former Borders in Pasadena that sits empty for most of the year, and only houses a Halloween costume store seasonally. They finally brought down the part of the sign that said “Borders” a few months ago, but they left up the “Books - Music - Cafe” part.
It’s clearly not worth renovating, but maybe the seasonal business brings in enough that it doesn’t need a tenant the rest of the year. But also, the store is huge and its layout is unwieldy for most types of retail.
What I don’t understand as well is how many empty storefronts around here still have Radio Shack signs above the doors, even in what should be prime locations. I’ve started wondering if having been a Radio Shack is a curse of some sort.
The Borders thing is a pattern that happens all over the country; pop-up Halloween costume stores love old Borders locations, and other abandoned retail spaces.
I suspect it's a combination of factors that leads to this:
* Retail was heavily overbuilt leading up to the 2008 market crash, so even a decade later there's oversupply of retail real estate compared to demand for it
* The economics of brick-and-mortar retail haven't gotten much better, which further depresses demand
* There are probably uses for those properties as tools for tax arbitrage which are best served by keeping them empty (and in California, the fear of Proposition 13 reassessment being triggered by redeveloping the property)
So leaving it empty most of the year, with the seasonal rental, may be the best option for the owner of the property.
The construction is also probably less subject to decay when unoccupied than your standard stickframe house as well, so vacant may cost substantially less than constantly occupied.
I saw a GameStop that was the top revenue store in a mall move to a nearby strip mall when the "mall" mall wouldn't negotiate down. Moves are happening to new and completely empty places.
They can borrow against the property at the stated rent instead of what the market would actually pay. As soon as they accept lower rents they can no longer claim it's worth as much in collateral.
Hmm. I would never have expected the kinds of lenders who might be in a position to accept a large commercial property as collateral to be so gullible as to just accept that number at face value without paying any attention to other factors that might call it into question.
Or are the "lenders" in this case actually retail investors who are buying into dodgy REITs and suchlike?
Commercial properties are valued based on their cap rate, so while vacancy is important to a potential buyer the seller is going to take the current square-foot rental rate and multiply it by the total size to get the projected annual revenue. They can then offer an 8% cap rate or other attractive return on a much higher asking price. As soon as they lower lease rates to increase occupancy the asset value is impacted moving forward, so if you've got a big inventory of commercial real estate that you're looking to sell it may be worth it to keep it largely vacant for years.
As a buyer you need to watch for new tenants at attractive rates as well. Sometimes the seller signs a 5 or 10 year lease with a connected company to drive up the cap rate, then a few months after selling the tenant defaults. As the landlord your recourse is limited, slow and expensive.
RTP in Durham, NC--there are so many office parks that were just 80-90% empty after 2001. I have a hard time imagining that any of them have any decent occupancy even now. That whole area must be commercial RE hell for some investors somewhere. When Nortel tanked they took down a good portion of the local economy. Sad.
Can't imagine there are still many mostly empty office parks left in RTP. I'm not a commercial real estate expert, but I'd expect if that were the case you wouldn't see so many brand new office-park type buildings going up. E.g. new buildings like this one that Microsoft moved into within the past couple years: https://goo.gl/maps/VRVCHMccD1S2
There's dozens of buildings like these either recently built or under construction in or near RTP.
In the UK if you occupy the space you have to pay business rates (a local government tax) which are not cheap - of the order of £1000/week. Unless you are a charity shop which are able to get freebies. Hence a lot of bust businesses get replaced by temporary charity shops.
Commercial real estate like another dimension. They make money up front based on tax and accounting games and rent. The empty strip mall with a dollar store and tae kwon do is used as a way to offset profits in other places.
From my personal datapoint, I agree with that question.
There are 2-3 abandoned moderate sized retail buildings in a suburb I pass on my way into work that have sat vacant for the better part of a decade with a big "for sale" sign out front.
On the odd times I look up the listing price, they want high hundred thousands to low million. Keep in mind this is for buildings and land that have not been maintained for years now.
Without a massive surge in pricing, they are already vacant maintained spaces that will capture most interest before that vacant tear-down gets bought.
I think this is a general phenomenon in finance/valuation and I'm sure someone has studied it.
Even when the value of something has fallen (as measured by market comparables, ability to generate incomes like rent, etc) people become anchored to a valuation and think they'll get the price they want if they just hold out a little longer. There's something psychologically difficult about accepting that you aren't going to get the price you want for something; it requires an act of "letting go" that can be hard.
You see this all over the subprime crisis, banks had tons of toxic debt but didn't want to "book" their losses by selling at whatever the fair-market price was that day.
I'm reminded of that old saying from finance, "The market can stay irrational longer than you can stay solvent."
Large commercial landlords are usually fairly rational. They aren't as likely to fall victim to the sunk cost fallacy as individual homeowners are. More likely they're highly leveraged and gambling that prices will rise enough in a few years to deliver a huge return.
This phenomenon is a close cousin of the sunk-cost fallacy but it's not quite the same thing.
I'm talking about rationally assessing that the value of an asset has fallen, vs. sunk cost's "we've come this far..." - even if you're rational, it can be hard to sell and psychologically tolerate taking such a huge loss.
Here in Vancouver, BC, it IS. The property values are SO high and continue to go up every year, that retail income is almost irrelevant to the owners. They are just waiting for a developer to buy the property so they can cash out.
having been invested into a REIT which tend to have these strip malls as one type of property, the other being office space, and more.
was it built during the rush thereby incurring high land and building costs?
do they have good clients? good are grocery stores, popular chain restaurants, and such. bad are "I want to run my own coffee, cupcake, and such, stores.
So if they ended up with the less than favorable clients in order to get storefronts it does tend to lead to vacancies. that is always compounded by not having the big draw, I love grocery.
As a, maybe, counter example, in my small bavarian city they opened 3(!) new shopping malls in the last 5 years. Me being more global than the rest of the fellow locals, I was baffled.
> By one measure of consumerist plentitude—shopping center “gross leasable area”—the U.S. has 40 percent more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany.
Of my local situation, probably the explanation is because on a 30km radius there are not really any other shopping malls ( space being filled with cows on green pastures :) ).
It's not just your town. I live in Dresden, which already has one of the highest "shop space per capita" values in Germany, and while they've stopped opening new malls in the city (out of sheer lack of space), every new building adds more shop space. In some places, it takes just 5 minutes to walk from one Rewe branch to the next one.
(Context: Rewe is a German supermarket chain. There are about 5 nation-wide supermarket chains and 5 nation-wide discounter chains.)
FWIW I think a big reason for this is also rent control. In Austria for instance many stores can't afford existing units because the moment a old store moves out the rent increases 10 fold. So many old stores remain in prime locations because for them still cheap rent exists and they sell old radios or similar things there because based on their rent this model still works whereas if the store were to close and be re-opened under a new owner they would not be able to continue that business model any more. These artificially low rents keep many stores afloat that would otherwise already have closed.
Sorry to be pedantic, but there's (almost) always a buyer at the right price. "there are no buyers" means "there are no buyers at the price he wants to sell".
Anecdotally, a guy at the gym I frequent is a commercial real estate broker of some sort, and according to him shopping plazas with CVS/Walgreens as headliners are selling at a discount to comparables, as the market figured out that if Amazon didn’t enter the pharmaceutical retail sector this year, they will next year.
After buying a Serta from Amazon and a Tuft and Needle, I will never buy a mattress again without being able to lay on it first.
Disrupted? Try to fit a king foam mattress back in the box to meet return obligations when you don’t like it, before we touch on the counterfeit product issue from Amazon.
What sort of places accept mattress donations? I know mattresses are not accepted by most thrift shops like Goodwill. Not only that, but you'd have to get the charity to come to your house and pick it up.
The problem with this is the most common problem I see in mattresses isn't how comfortable they are initially, but how comfortable they are after 9 months of sleeping in a very similar position night after night.
Is “Certa” a typo (for “Serta”) or some kind of knock off?
I’ve had great experiences with buying mattresses online. The secret is to have friends with a variety of mattresses so that their homes become your showroom.
For the name brand mattresses best to go local with either Sleepys (or whatever it’s called now) or Sears. The margins on mattresses are insane so you can haggle them down quite a bit. Only chumps pay for shipping or box springs.
Internet cafes/PC baangs never really caught on in the US -- home connectivity spread much faster and supplanted the need for such businesses in wealthier areas, and shared resources like public libraries serve less well-heeled areas.
It's basically nothing to do with internet cafes that you'd find (or have found) in Europe. These are just sweepstakes/gambling places that have the words "internet cafe" on the door.
> Couple of years ago, one of my friends bought a store at a strip mall. The store was making a loss. And the previously owners were an elderly couple. So my friends thesis was that they weren't exactly tuned into the digital presence business and it was still entirely possible to run a store in US.
Did your friends have extensive experience running such a business?
I used to go to the Times Square location with people who came in from out of town, as an attraction for when they inevitably wanted to check out Times Square. The article doesn't really do justice to what a spectacle it was (which is saying something, since the article calls it out repeatedly). The person-sized Lego Hulk they built for that store is still my phone background.
Made this even more shocking to read, since it was always packed:
> In late 2001, Eyler oversaw the opening of a flagship store in New York’s Times Square, with a 60-foot Ferris wheel, a life-size Tyrannosaurus rex, and a Barbie dollhouse bigger than many Manhattan apartments. Eyler promised that 20 million people a year would visit, and maybe they did, but the store never made money.
Of course, thinking back on it, I went several times but rarely bought anything from the store.
Maybe that's the (21st century) story of Toys "R" Us, summarized into a sentence.
Flagship stores are a form of advertising. Many many retailers embark on this journey. Does advertising work? Or, more importantly, which is the case here, does selling your store shelves to specific brands hurt? (rather than stocking what's selling?) Some youtubers have done in length videos on Star Wars toys that sat on shelves for years.
Yes, visiting the times square location always used to be the highlight of my NYC visit. It reminded me of the toy store showed in home alone 2 (which I watched a lot growing up). Another one which I will miss is the FAO Schwarz store in NYC (which was also owned by Toys R Us).
I feel sad thinking that my son will never experience that joy of going to these huge Toy stores. At best, his experience will be limited to the kids section at Target/Walmart (if they are still around by the time he is old enough to visit them).
The toy store in Home Alone 2 was based on FAO Schwarz. I remember going to it as a kid a few times. It was very cool and a big NYC attraction for families. But I don't remember if we ever bought anything there.
I'm not sure it's terribly surprising, though. That Times Square location was mostly for tourists. Tourists, having come by plane, are probably not going to be terribly inclined to buy anything other than fairly small items. Nothing that would be a bother to try and pack home on an airplane.
I read the whole article, and I didn't really see a convincing argument that it didn't have to die. Sure, it could have eked out a few more years... but it was living on borrowed time.
Not only do most people shop online now, most toys are also online. I imagine most parents put money into TV shows, video games, iPhone apps, etc.
There's nothing about the brick & mortar toy space that's inherently living on borrowed time. It was Toys 'R' Us' own mismanagement that doomed it.
Toy stores can be a destination. Provide a compelling experience for parents and kids alike. It's easy to imagine a space where kids get to play with toys hands-on, and parents get to judge for themselves whether they think they're appropriate in terms of fun and quality—something you can't do online.
Make the adult experience a mixture of café and Apple store, and give the kids a safe "penned in" experience like IKEA does in their kids' section. Parents will enjoy the respite, and kids will beg to go. And of course, once they get there, they'll cajole their parents to spend more money. Never underestimate the power of a child in a store.
IKEA has nailed the brick & mortar experience, even though most of their products could easily be purchased online. Toys 'R' Us merely had to abandon their hubris and old thinking, and they could have killed it.
Instead, they languished with a chain of dirty, disorganized, depressing stores, ill-treated and unmotivated employees, and no vision.
They didn't have to die, but their leadership and strategy did.
It's easy to rattle off a list of things on HN, but a lot harder to build.
If people were invited to come play with toys, they'd just do it for free, enjoy the day, and buy it online after. Your other ideas just seem like... free babysitting? It's not like parents are going to shop for toys while their kids are babysat for free.
I agree the stores aren't great now... but they were working with insane debt and a dying business model.
I don't think it's impossible to sell toys (see: Disney), but it's really hard to do it when you're trying to pivot something like Toys 'R Us with no money to spend and nowhere to really go.
I'd argue that a toy store, more than any other kind of retailer, is insulated from that, because the store has an little advocate for spending ten dollars extra to buy the product right now with most shoppers. And going to the toy store itself is kind of an activity that I don't think you can replace with online shopping.
Anecdote time: I took my cousin (12) to a toy store once. First it was difficult to get him out of his iPad and get out of home. Second he was completely indifferent to anything in the store. We ended up buying some card games and credit for mobile games.
That's on the older end of the customer demographic, though. My kids (oldest is seven) would have a blast, and would definitely be begging to bring something home.
I'm sure it's recently shifted from 400 because not that long ago I could downvote (not that I did) and now I can't. Although I may have imagined that but I'm pretty sure I could.
Mine are growing up way too fast. My daughter, 12, lost interest in toys fairly early and was never into dolls or princesses at all. She did have a great Scooby Doo phase and we did buy the figures and toy Mystery Machine from Toys R Us and those toys went to hell and back. There were no monster characters to be had at the time, however, so our Scooby friends had little to do other than look at each other. We improvised.
My son, now 8, has been hot and cold with toys. I think he'd rather just run around with the neighborhood kids and engage in mock battles with makeshift swords and such. He liked my old Star Wars toys for awhile, and we even bought a few new ones to add to that stuff, but lately those things are sitting in a big bin in the basement. He was/is a Lego nut and has tons of Lego sets in his room and I am hoping he doesn't totally lose interest in building the sets and making up his own. If he loses interest I'll have about a zillion Lego sets to sell on CL.
It saddens me that kids aren't kids very long because I enjoy playing with him but my free time is so tight and I am often so harried that it is hard to just say "I'm going to dig through these bins and find parts so we can rebuild this set together." He'll be leaving for college one day and I'll have these huge regrets! My son's other big obsession is Nerf guns--those have been an enduring pastime for him, but one can only buy so many Nerf guns before saturation is reached as they are often huge and bulky items that don't store well. Still, much fun, especially in the dark winter months.
The only other toys that had any lasting impact for my kids were the expensive wooden Thomas trains when they were 3-4 years old. I guess my son liked Hot Wheels for awhile and we still have a large parking garage thing in our family room that probably is getting dusty right now. That thing comes out when the slightly younger neighbor kids come over.
I felt like last Christmas was really expensive and yet we didn't really buy them much of anything really good and I told my wife I'm not doing that again just to have the appearance of a lot of gifts. If they aren't going to play with stuff, they aren't getting it because our house is too full of unused junk as it is. I'd rather take a trip to Disney or maybe skiing.
Anecdotally, I have been to many bookstores and board game shops that allow people to play or read for free on site and taking it home is what costs money. The way they manage to make it work is usually by having a cafe with food and refreshments onsite; it's like how movie theaters do not primarily make money on the tickets, but on the concessions. It's also why McDonalds' has their Playplaces.
History of fun podcast has an good run down of how they innovated through history. Sadly they did not this time, and pumped and dumped a great iconic property.
IKEA's physical presence only works because they are sole and best-priced supplier of what they offer. Don't build a retail business on the premise that people will want what they handle in the store right now instead of saving a few bucks ordering it online from elsewhere.
The underlying price of the real estate to the revenue brought in by a toys-based sales funnel simply makes these locations untenable to flog products that can be sourced online for cheaper. You need a hell of a lot of sales volume to keep up, and online took away enough volume to starve these models.
The parenting culture is also wise to the models that are built around "hook 'em young and get them to insist on instant gratification". Look inside parenting forums and you'll see a shift in shopping habits, where toy stores are deliberately and consciously avoided precisely because parents are annoyed at the effects.
Personally, I'd rather see more parents teaching children through involvement in daily activities than throwing more toys (including computer and video time) at their children. We're "over-toyed", over-retailed, and "under-practicum'd".
Good point. I've got two young kids, they're not particularly over-toyed but over the years the collection has grown.
My wife got fed up with the toys not being put away so she put all the toys in the attic.
The kids now play with the boxes, turns out they didn't even need the toys.
"toy stores are deliberately and consciously avoided precisely because parents are annoyed at the effects"
This. I have a few kids of my own and make a point to never go with them to toy stores - they go crazy from looking at all the possible options and end up being unhappy because no matter what we end up buying, there is a gazillion things we ended up not getting.
Much better to get ideas from wherever (window shopping, other kids, forums, etc) and buy online - free no hassle / screaming delivery.
Even if you end up getting not the "perfect" toy they would have picked, it's a superior shopping experience for the adult.
There are a few destination toy stores, but mostly limited to affluent, progressive markets like NYC, SF and Boulder. If your theory is correct, they should be able to scale up nationwide. Why do you think this hasn't happened?
Hamley's (in London) seems to have nailed the whole "destination" thing, and I think it's largely because it treats the adults as bigger, hairier kids.
" It was Toys 'R' Us' own mismanagement that doomed it."
It was the private equity investors who loaded it up with debt in order to cash out who doomed it.
You don't have a hope in hell of adjusting to market changes when your funds are tied up paying off the loans your owners made you take on in order to fund their takeover.
It’s insane that as a PE you can borrow money, buy a company with it, transfer the debt to the company and you magically own the company having paid $0 of your own money for it.
And the ultimate toy destination store FAI Schwarz also went out of business. Maybe Toys R Us could have done better but they were in a place where digital was making big gains.
I’m not sure to what degree you can focus on elaborate experiences for stores that are in every shopping mall.
Ikea works well online for me and several people I know.
The main factor is that we live in city centre and don't own cars, so 40 euro (or whatever it is) for shipping compares favourably to getting a taxi or a short-term car hire like car2go, gocar, etc.
TBH I even like visiting Ikea sometimes but ordering online solves the whole "this is going to chew up a whole Sunday afternoon" problem too.
They have a flat charge, so if you buy a lot it can work.
A lot of third party IKEA resellers on Amazon exist because of this (they basically run to the local IKEA to fulfill an order with better low volume shipping options).
Sorry, I met the USA. Other countries will be diffferent of course, like China where deliveries are expected and rediculously cheap even including assembly.
The company had been paying an unsustainable $400 million a year in interest.
Normal intuition would say that maybe the company could enter bankruptcy, wipe out that debt, turn the bond holders into the new owners, have the owners issue stock for a debt free company and sell the stock to pay off a fraction of the money they owed. That would seem like a rational approach that would maximize utility for at least owners and employees.
The problem apparently was that bargaining and brinksmanship destroyed the company before such a result could be considered.
There is some scope for a brick and mortar toy store provided they are willing to be double as a pseudo-playcenter.
Toy aisles and toy stores are frequently populated by exhausted parents standing around while their children entertain themselves checking out the toys. The kids are happy enough. The parents are content just to have a few minutes to themselves. Toy retailers typically try and dissuade this behavior.
Meanwhile indoor playgrounds/play centers are a huge and growing business. They are happy for parents to unleash their children while they make their money from entry charges, selling cups of coffee to the parents and snacks for the kids.
Despite having a huge inventory of toys play centers never actually sell toys that I have seen. Tearful children have to leave their new favorite ride on racing car (or whatever) behind when they leave.
>Meanwhile indoor playgrounds/play centers are a huge and growing business. They are happy for parents to unleash their children while they make their money from entry charges, selling cups of coffee to the parents and snacks for the kids.
There's a mom and pop place like this near me. They rented an old dead big box store (I remember shopping there when it was a Circuit City) and filled it with bounce houses and arcade games.
They charge $10/kid admission. Adults are not allowed in the bounce houses, and they've got an area set up with tables and free WiFi for the parents. They'll charge you $3.79 for a soda, so overpriced for sure but not quite movie theater or ballpark pricing.
My son begged to have his birthday party there this year. The parties have to be the big revenue driver, as it was $300 for twelve kids' worth of Domino's Pizza and use of a party room for an hour.
That business model appeared not to work in the 90s, because they all closed down, I wonder why. Unsustainable business model? Good business model but taking on too much debt? Kids get bored after a couple visits and don't come back? Rising rents? Admission prices too high?
Around me there was a Discovery Zone and there was two more independent ones that opened up around the same time as Discovery Zone and closed a little after too. From what I could gather, seems like the business model just didn't work, at least not at the time.
The DZ locations, at least where I lived, were in prime spots, and it was a time when they couldn't build strip malls fast enough to keep up with demand.
Now you've got an oversupply of dead big box stores and not enough ideas of what to do with them.
I wonder what kind of liability insurance, regulatory compliance, etc. is required for a business like this (in the US, where any injury to a child seems culturally likely to lead to a lawsuit). Mom-and-pop day cares exist in my area, so clearly it's possible to have a child-centered business without the backing of corporate lawyers -- but how big of a risk are they taking should something happen?
I think there's a pretty good opportunity here for a large format combined playspace/toystore. Build out the toy area around some hands-on demo spaces, and include the normal playspace items nearby with climbing structures and coffee/alcohol for the parents. The key is: charge admission, then credit back the admission price toward the purchase of any new toy.
People are terrible calculating sunk cost, and I'm pretty sure that the pre-paid $15 admission credit makes a $29 toy look like a "steal", even if you could buy it on Amazon for $24. In fact, I'll bet most parents would be hard-pressed to leave the experience without buying something for every child.
Toys 'R' Us had "curated" the vast swath of toys that exist down to a handful of the usual fair. Barbie, the latest Pixar toys, the standard board-games....
Like corporate bookstores, theater chains, music stores you got the same selection at all their million outlets in the country.
Perhaps it's just me that was tired of the same-ol' same ol' or maybe the public became tired of it as well.
amazon.com killed them, like it is killing whole categories of traditional retailers.
The owners knew it and sold while it was still possible to sell. The buyers gambled that they could cut costs fast enough to compete, but they lost the bet.
I agree. Other than manage its debt more effectively, the authors don't really expound on what Toys R Us could have done differently to right the ship.
Was it moving more effectively into online sales? Or alternate business lines altogether?
Despite the title and the focus on the form of financing, none of the facts in the article even suggested to me that the company would be in any better shape if it had used equity financing rather than debt. It sounds, rather, like an unprofitable business that no one in their right mind would give any more money.
If someone thinks they can figure out how to make a workable business out of big box toy stores, it sounds like the name is for sale.
You're missing the key piece: Toys R Us didn't go into debt for any good business reason, it was bought by a private equity firm and loaded with debt it didn't need. This is how private equity works:
1. A PE firm uses a combination of other people's money (limited partners a.k.a investors) and debt to buy a company.
2. The PE transfers the debt to the company's books. This way, if the company goes bankrupt the PE fund isn't liable for that debt.
3. The PE firm charges millions of dollars in fees for providing management services. This way the PE firm makes money regardless what happens to the business.
Toys R Us was profitable before it was bought and saddled with debt that was essentially used to purchase it's own business.
“In 2004, after years of flat sales and falling profits, the Toys R Us board of directors put the company up for sale” [1]. Then, over “the next five years, sales at Amazon quadrupled to $34 billion”.
Toys ‘R’ Us was bought as meagre profits fell and right before Amazon went for them. Blaming this outcome on the debt load is inaccurate.
> To compete, Toys R Us would have had to invest significantly in its website and stores. But the retailer was using most of its available cash to pay back its debt.
Yes, profits were falling crazily, but the company was still profitable. Without the debt load, they could've spent some time losing money while they pivot to a new business strategy. The debt load really prevented them from trying anything except surviving as long as they could.
> they could've spent some time losing money while they pivot to a new business strategy
There is zero evidence, in the history of Toys 'R' Us or their failed competitors, that another strategy would have worked. More likely? It would have limped along until the next recession. In any case, I see no reason to blame capital structure when a simpler explanation abounds: Amazon taught people to buy toys online.
I don't understand why people keep repeating this story. Bain Capital had to provide huge amounts of collateral (upwards of a billion dollars), all of which was lost in the bankruptcy. Do people really believe that PE firms will write of a loss of hundreds of millions in order to make a few million in management fees?
The PE fund's capital is partly other people's money too. In particular, fund limited partners (the fund investors) put up most of the initial money. The PE firm itself also puts in money but not nearly that much. This makes it easier for the fund managers to make a profit themselves quickly, even if the fund investors end up losing.
I'm familiar with this narrative, I'm saying that the evidence in the article, though the article is written by someone sympathetic to this point of view, contradicts it. The PE firms, despite their huge fees, lost a boatload of money. No one wanted to buy the business out of bankruptcy for more than it was worth piecemeal. There are easily identifiable reasons (Walmart, Amazon) why the competitive landscape is much tougher than when it was a profitable business. It sounds to me like the PE firms did a lot of harm by keeping the company from bankruptcy for so long.
In general, if a business is clearly profitable it should continue no matter how thoroughly you screw up the capital structure: the worst case is a bankruptcy in which the shareholders get nothing, the debt holders get very little, and a new capital structure gets created. When this doesn't happen, it's because the business is worthless or nearly so.
The financials aren't publicly available, but I'd expect PE firms still made money here. The funds probably lost money, but funds are an investment vehicle separate from the managing entity.
I disagree that profitable businesses can continue no matter the capital structure. You're assuming that there's a liquid market for businesses, or parts of them. For a huge retailer that's almost certainly not true. Additionally, the current owners have to actually want the business to continue. I would believe there's more value to a short-term owner in liquidating assets than accruing profits over a relatively short timeframe.
Also a similar "technique" (LBO to be exact) was used to break down a giant company into smaller companies, effectively shutting down monopolies at the expense of a small number of workers, often making big gain for investors. With the failure of RBR Nabisco LBO, investors think twice about this kind of venture nowaday. If Toys'R US failure could cost the investors a bulk of money, maybe this won't happen anymore with big business like this.
Anyway, if you take part of venture like this, you better be the law firm or the executives, especially if your target is a big company.
The question was more: why does the law allow this? They are using one company to benefit another, then leaving it in debt without financial liability. Seems like a gaping loophole in the law there.
It at least sounds plausible to me that you could make a toy store a "destination" business if you did something to differentiate it from Amazon: kids parties, video game tournaments, something. You'd have to transform what it means to be a "toy store". Of course, that takes a lot of money, and with Toys-R-Us' debt load there was no way they could have afforded that.
I don't know if it scales up to big box stores, but this– plus adding food/café– is what a lot of game and hobby stores have been doing, and it seems to be working. There at least five stores like this in the Seattle area (2 of Café Mox, Meeples, etc.) and they seem to do good business.
Of more interest is will this scale up culturally. Going in this direction at scale means monetizing physical socialization. I've observed this while touring Tokyo, where the society and culture has accepted eye watering residential real estate prices with accompanying micro-sized residences by American standards, in exchange for scads of commercially-run spaces used for social activities. Socialization there seems to take place outside of people's homes, and in restaurants, bars, and other commercial venues. These venues seem predominantly mom and pop sized and run in the non-tourist areas, small, and affordable.
I have no idea if that will translate into American urban culture; I can see cases made for Millennials and post-Millennials embracing this model and rejecting it. I don't see it happening in the suburbs, much less exurbs. For this business model to work at scale, it would have to be embraced ubiquitously, but I'm not convinced there is a lot of space left to scale into after Starbucks got there first in so many locations.
The ones here in Australia aren't independent and are currently in voluntary administration. For example they stopped accepting their customer loyalty cards, the one next to me seems to have stopped restocking as well. There are however some bidders to take over the entire Asian arm so it could be fine.
The thing that's really lacking to me in online toy stores is, I guess, discoverability. Amazon can give you a list of all the Transformers, or all the Legos, in an instant, and with a bit of prodding it does an acceptable job of showing you the current top-selling toys, but it's impossible to walk down an aisle at Amazon and see something awesome that you've never heard of.
Yeah, my wife and I are definitely disappointed they could find a way to make it work, largely because of discoverability. It definitely made it easy to find new toys, see how they would look/feel in person, etc. Others stores just don't have the selection they did and the experience on Amazon isn't as easy.
Another thing is knowing the quality of stuff you are getting. Of course, plenty of cheap crap gets sold at Toys-R-Us and elsewhere, but some of the stuff on Amazon is in a league of its own in terms of poor quality and I suspect it will continue to get worse.
I went to our neighborhood Toys-R-Us to be a vulture, and discovered quite a few toys I wouldn’t have considered purchasing otherwise. Of course, the 40-70% discounts helped a lot.
Same here. I went there to soak in childhood nostalgia one last time before it closed, and I was surprised by a) all the things I saw there that I would have never heard of otherwise and B) all the random things I have vague memories from when I was a kid that are still around.
And it made me feel profoundly sad that that experience will be gone forever soon. Soon, it'll just be the top brand names that anyone will have ever heard of and the random weird stuff will all be gone. I'm talking about the toys that you had growing up that you never knew what they were called but you had because your parents passed by it at random and went "ooh, that looks interesting, I bet [kid's name] will like this".
VR could en a thing here for Amazon. Instead of seeing endless lists, just walk down the isles virtually. Maybe accompanied by some cheerful sounds of kids playing in the background to set the mood and incentive to buy.
One of the more interesting theories I've heard is the link between the housing crisis and the retail crisis. When you live in a tiny shoebox, the last thing you need is more stuff. Back in the days people had comparatively huge houses all to themselves, and could buy crap to their heart's content.
If you are a parent you will feel it did need to die. I went in there years after being a kid and nothings changed, that old warehousey look,the same toys, nothings changed since I was a kid. Worse, is they are all overpriced compared to even other stores let alone internet stores.
> The same toys were available at Target for a lot less money.
True for a relative handful of the most popular toys, but Target doesn't have the floorspace dedicated to toys to cover any but a small fraction of what a Toys R Us would carry. Last time I was in a Toys R Us, the section dedicated to play houses was, no kidding, the size of an entire Target toy section. Target might stock one item in that category in store (though I don't think I've ever seen one in a Target).
It's Amazon and friends, not brick and mortar stores with smaller but discounted toy sections that killed the advantage of having floor space and variety in stock to browse, since people would use the store for discovery and then order from a discount online channel that didn't have the overhead of brick and mortar showrooms.
I worked for a home improvement retailer for a long time, around 2008 they stopped building 120k sq ft stores and moved down to 80k sq ft, Then staff was cut (2010), a few years later (2012) more staff was cut, now they are talking about replacing some staff members with self help robots that have video conferencing to help customers(2014). These traditional retailers are trying hard to stay in the game but i just don't think they can compete and Toys 'R' Us is just another name on the long list of the dead.
I once tried to stock up on some generator connectors and like electrical items in my department before Hurricane Sandy. My orders were denied because last year sales and previous three week trends weren't enough to justify the order. The shelves stayed empty for almost 2 months.
Modern logistics algorithms have massively increased supply chain efficiency, but there should always be a human override for cases like this. The models cannot and will not ever be able to account for everything.
I dont know the economics of our local toy stores, but the ones that seem to thrive allow you to actually play with the toys. If it was more like a theme park or a playground you would get parents to bring their kids in just to play.
For example, let kids drive power wheels around a track. Have playscapes that they can play on and buy. And sample toys that kids can play with.
I remember reading 20 years ago how retail stores need to turn into experience destinations. I think the perceived risk at the time was mail order rather than the internet.
However, even with Apple and the Apple Store there for all to see, few retailers still seem to get this. Without the hands on element, they are really fighting a losing battle vs ecommerce.
Apple sells high-margin products that are typically priced the same (or roughly so) everywhere - I don't know that there are interesting lessons for all industries to learn here. Wasn't Ron Johnson's attempt to take some of those lessons to JC Penney pretty disastrous?
Everyone always has the same ideas when retailer struggles come up, and a lot of the ideas would undoubtedly make many stores more pleasant to visit. But people still buy based on cost, and that makes it hard to compete with a company who has a much lower cost model than a physical retail store and has much larger scale.
I don't think retailers will stop the bleeding and start implementing some of these ideas until they can figure out how to solve the showrooming problem. They may never do so, and physical retail in most categories will be a distant memory for most of us.
I’m a bit surprised that we haven’t ended up with some formal manufacturers showrooms fronting Amazon or whatever. But I guess as long as some big box retailers hang on there isn’t the incentive
Toys R' Us was dead so many years ago. I went there once to buy a present for a kid and it was just so depressing and not at all a fun or cheerful place. When I had a kid of my own I never took her there. I regret it not being what it was when I was a kid but I don't regret it going from its state ~10 years ago to dead.
I wonder if what you're actually describing is the change in your adult perspective, not in the store. As a kid, and as an adult who likes toys, shelves piled high with toys are "fun and cheerful" all by themselves. I'm not sure what else you felt was lacking.
"Bain, KKR, and Vornado... will end up losing well over a billion dollars combined."
A lot of retail debt will be renegotiated in 2019 as underlying interest rates are increasing, so the pace of these might be set to increase dramatically as delaying reckonings like TRU did becomes steadily more costly.[1]
The article points out that the collapse of this one big name was pretty expensive to lenders, even if lawyers made some money during the unraveling.
I'm curious about the prospects for another financial crisis. How many billion dollar losses happening all at the same time are we looking at? How many can retail financing divisions endure without undermining the stability of larger banks?
It's not my main area of expertise, so I genuinely don't know if there's a serious contagion risk, but Google alerts for retail apocalypse have been a fun ride.
and the morale of the story is, dont let your business get taken over by a bunch of vultures fueled by a lot of debt. unless you like seeing it die a slow death, that is.
What types of toys are kids buying these days? I’ve never been a parent of a really young child, my experience with parenting are with my stepsons - the youngest was 9 in 2010. Besides a bike, the only toys he was interested in were video games, he collected action figures for awhile, and water guns.
All of which could be served better by Amazon or for video games by GameStop - a store with a much smaller footprint.
Even when I was growing up in the 80s by nine, I remember most kids being interested in video games, bikes and sports equipment. All of which were available at Walmart either at the same price or cheaper.
With video game downloads becoming more popular, I don’t see how GameStop is going to survive after this round of the console generation.
The article mentioned the Irish chain Smyths. This is a company that has grown from one store in a small Irish city to expanding in to and dominating the UK market in just over 30 years. Having shopped in both I can see the difference.
Toys 'R' Us felt like it wanted to be part of the toy experience with their whimsical logo, mascot, jingle and colourful in-store decoration.
Smyths on the other hand is just a toy warehouse. They forego the mascot, jingle and colorful stores instead focusing on making sure they always have what the children want. In other words Smyths knows that the toy is the experience, not the store.
They would have survived if they hadn't filled all their aisles with stupid star wars and disney princess stuff. There was a severe lack of creative toys.
https://www.bloomberg.com/news/articles/2018-04-17/retail-st...
Couple of years ago, one of my friends bought a store at a strip mall. The store was making a loss. And the previously owners were an elderly couple. So my friends thesis was that they weren't exactly tuned into the digital presence business and it was still entirely possible to run a store in US.
Two years later footfall in the mall has decreased a lot. And in spite of the digital strategy etc my friend's store hasn't worked well. Now he is not only in debt but he is also trying to sell the store. But there are no buyers.