Back in June 2009, in one of our earliest posts in the aftermath of the financial crisis, we took a “random walk down Madison Avenue” and found empty storefront after empty storefront after empty storefront.
In retrospect, the ghost town that was New York’s “Golden Mile” was not surprising: after all the US economy had just been hit with the worst recession since the Great Depression, and only an emergency liquidity injection of trillions of dollars prevented a global financial collapse.
What is more surprising is why nearly 9 years later, at a time of what is supposed to be a coordinated global recovery, a walk along Madison Avenue reveals the exact same picture.
But don’t take our word for it: here is Starbucks Executive Chairman Howard Schultz speaking during the company’s annual general meeting on Wednesday, and making some stunning observations.
From the transcript:
… let me shift just quickly into the business a bit and what’s going on in terms of the seismic change that we’re all witnessing in terms of consumer behavior in Retail.
No, I wasn’t clairvoyant three years or four years ago, but I did notice something and you didn’t have to be a genius to figure it out that the e-commerce effect of things was going to have a dramatic effect on people physically shopping for goods and services. And that has resulted in a tremendous level of compression in terms of the amount of retailers that are serving customers today because less customers are coming into their stores and that has resulted in unfortunately many, many stores national, regional, and local going out of business.
Now this is a photo as you can see of a mall that is very, very busy with people shopping for goods and services. Unfortunately, that was then, this is now. And it’s a dramatic change. And what it means and you saw this today and what we’ve tried to present to you is that we’ve got a push for reinvention and innovation and we have to do – everything we can to become a primary destination.
Now, as a result of what we’re witnessing, we’re also seeing something else and that is, there is a proliferation around the country right now of empty storefronts. We took a walk in New York two weeks ago from 59th street to 79th on Madison Avenue, and we lost count of how many empty storefronts there were in Manhattan. It reminded me of the cataclysmic financial crisis in 2008. But what’s happening is very simple, the rent structures for the last 5 to 10 years, have been rising at historic rates and retailers do not have the amount of customers they had during these last 5 to 10 years and could no longer economically survive.
So they’re closing stores and as a result of this, I can promise you just like I predicted in 2014 that rents are coming down and landlords are going to have to get religion, or else their stores are going to stay empty. And we’re already beginning to see a different level of reception in terms of what we believe the cost of occupancy should be. And this is going to bode extremely well, specifically for us. We’re adding almost 700 new Starbucks stores a year. And so we are going to take full advantage of the economic reality of this situation. And as we go forward two, three, four, five years out even though labor is going up in terms of cost of labor, we believe rents are going down and the economic model of Starbucks is going to be enhanced as a result of this macro situation. And we’re just at the beginning of this trend.
In other words, if 2017 was the year the “retail bubble burst” as Urban Outfitters CEO Richard Hayne said one year ago, 2018 will be the year when not only the retail sector slides into purgatory, but the deflationary shockwave that is being unleashed as rents finally hit a brick wall, will lead to the next, and far more violent crash in commercial real estate, and the hundreds of billions in debt that prop it.
Don’t believe us? Just take a walk on Madison between 59 and 79th…
Take advantage of one of nature’s most hardworking nutrients with Vasobeet now at 40% off!