Trapping Local Business

There's quite a bit of rhetoric floating around about the relationship between regulation and business, and while some it's useful, there is another dynamic afoot in American capitalism that tends to get overlooked: the increasing centralization of business. Sure, there was the whole "trust busting" phase in the early twentieth century, and the corporatization of manufacturing and distribution in the mid-century, but never in the history of commerce has the consumer end of the business been concentrated into such a small number of channels.

Since I'm not one to go on about corporate finance and capital structures for their own sake, let's look at the impact on the ground in our cities. An important term to know here is the "national credit" tenant. This is a nationwide retailer (or restaurant chain) that rating agencies classify as "investment grade." Think one of Brinker International's restaurants or one of The Gap's siblings. These are pervasive (one could say ubiquitous) businesses with long management chains, managed brand identities, and substantial purchasing power. They are also businesses with almost no stake in their communities beyond immediate profitability.

This category carries with it a host of advantages: they have economies of scale for purchasing and distribution, large advertising budgets that can be spread from strong markets to weak, a floating customer base that precedes them when they enter a new area, and all of the staff specialty advantages (full-time legal, research divisions, GIS databases) that go with a large firm. Perhaps more importantly, they also carry access to cheaper and more readily available capital; at a certain size and sophistication a near-infinite amount. They can (often) issue bonds or stock offerings to finance expansion or renovation that a smaller-scale, more traditional firm would need to jump through the hoops of standard commercial banking to obtain. These advantages give this category of business a great deal of power that other, smaller firms lack.

What does this have to do with buildings? Quite a bit. With their advertising budgets and regional recognition, national credit tenants bring a built-in customer base and traffic to any retail environment. Also, with their deep pockets they are almost irresistible to property owners and their lenders looking for a sure thing in an uncertain environment. (see here: www.icsc.org/srch/sct/sct1106/tenants_credit.php) This allows them to set their own rules with building owners, developers, and even cities in all but the most lucrative locations. Other tenants suffer from the double-edged disadvantage of being both less profitable and less powerful. Like the uninsured in health care, the small business has to pay a higher rental rate, with less control, and also operates on a smaller margin that makes this higher rate more detrimental. The incentive to play the chain game is massive, and those that don't face an uphill climb.

So, if all of this is consumer-driven at its base, what could be wrong with it? Inside the balance sheet it all makes a lot of sense; it's the external effects that create the worry. Of the many problems lurking within the generic city (at whose origin lies this phenomenon) three stand out. The first is the destruction of free enterprise. As barriers to entry get higher and higher, the number of small businesses and local innovations dwindle until the "mom-and-pop" outfit becomes economic insanity. Kowtowing to a mandarinate of financiers is just as stifling and destructive as to a government bureaucracy. Secondly, removing the management from the local to the regional or national has detrimental effects on both the community and the consumer, as non-bottom-line considerations (and intelligence) disappear from the thinking of the firm and the patron can no longer even consider negotiating, complaining, or suggesting improvements. (Go to Starbucks and suggest a new product. I dare you.) Thirdly, the flexibility of the local retailer disappears from the built environment. Ground-floor retail spaces not configured for the corporate model sit vacant, regardless of their potential good for the community. Marginal locations are no longer served at all as the chain (which would never even think about locating somewhere with numbers like that) pulls all potential profit from the area and leaves local business to fail from lack of all but the least desirable customers. All of this and there's just less leasing to go around, as efficiencies of scale and scope concentrate outlets into the most efficient locations from the vendor's vantage point. (The effects on workers is another thing entirely.)

Of course, I don't have a solution. (yet.)