Can Amazon Save Your Town?

From the outset let’s get one thing straight, Jeff Bezos has changed the face of the retail world, and in my opinion, for the better. And he also makes it clear he has one goal for his company Amazon, to make money. While everything about the company screams innovation it is also about profit while providing customers what they want, when they want it, and for the best price. And still make a buck or two at the end of the day.

American towns are being hit hard economically. And I say towns not cities because cities have a greater diversity to absorb economic punches. More jobs in different sectors cushion large urban aggregates from body blows that would take out a small town. A city of two million means a level of economic safety that a town of 40,000 can’t provide. But even large cities, if centered on one industry, can suffer a collapse – look at Detroit for a sad but true example. Since 2007 small town America has suffered and if they lay in the greater ring of a large metropolitan area, the new urban areas called 'Edge Cities' by Joel Garreau, most have suffered greatly. They were the bedroom communities to the urban core and with the steep collapse in property values, taxes dropped and with that the downward spiral began. These towns desperately needed a savior but none arrived.

Amazon is as much about maps and highways as it is about innovation and sales. For Amazon demographics is a god that is worshiped and Google Earth is a treasure map. A few years back I was looking into the container shipping industry exploring an innovative way of moving those huge steel boxes. The easy part was the ocean; the hard part was the land. There are economies of scale when you can move 15,000 boxes all at the same time. When you move one box costs escalate. The goal to make money in the container business is to not touch the box too many times. Each time it is picked up and moved (truck to boat, boat to truck, truck to rail, rail to truck …) the costs rise. No different with Amazon. They need to be near their buyers to reduce the number of hands that touch the package, fewer touches, faster shipping, less cost, more profit. Which means “fulfillment” centers. I love the term it means so much on so many levels. Fulfillment is such a New Age term, “You are blessed,” says the UPS/FedEx guy, “here’s your package, you are now fulfilled.” Love it!

And that’s what towns in the surround edge of large urban areas are looking for, fulfillment. When the word comes down that an Amazon representative is looking at that site near the empty rail yard that conveniently sits five hundred yards off an interstate highway that already has services that once led to that regional distribution center for Safeway, mayors and development directors begin to salivate and lose sleep wishing and hoping they will be the next winner of “You’ve Got Talent.” Please look at me, me, me!

The typical Amazon warehouse is 1 million-square-feet, or 17.5 football fields. It needs to be near rail service and interstate highways. It has to have a reasonable pool of educated people that can be taught high tech logistics and warehousing. The land has to be affordable and available. And as I have found from conversations from some city officials, the town has to be able to keep a secret. When the Amazon rep comes to town the city has to agree they were never there. Amazon controls the message and the media, prices tend to escalate when word gets out – go figure. Currently Amazon is looking to hire 5,000 people nationally for its centers, each new fulfillment center will employ about 1,000 people (more to start then taper down as the internal systems come on line). On a national level these are numbers that disappear, but to a town with 10 to 15 thousand jobs in its economy these numbers are huge. The bulk of the jobs are for warehouse floor workers called “fulfillment associates,” they start at $13.50 an hour and include benefits such as health care, vision, dental, a 401(k) and a stock program. They must be physically fit, teachable, know English, and pass background checks (?) and a drug screening. For most this can be a fulfilling job.

But is it worth it? Amazon is like an army and with every army, camp followers tag along. Major companies that sell to Amazon want to be near fulfillment centers to reduce their handling costs. They take their TV and send it to Amazon, who sells it. Same goes for furniture, clothing, and the usual DVDs and books. Again it is the need to reduce the number of times the product is touched. There will also be growth in the local shipping industry, UPS, FedEX, even the US Mail all benefit. And then there’s the impact of salaries that rolls through the local economy. But $13.50 in Tennessee is a different $13.50 in Tracy, California. According to Zillow the average home price in Tennessee is $117,600, in Tracy, California it is $318,100. Maybe you can find a housemate.

But one small problem lies in the future; Amazon is committed to reducing the number of times an item is touched by “hands.” They are committed to robotic fulfillment (check out this You Tube)

How this will impact jobs remains to be seen but there will be fewer and fewer jobs as time moves forward. Now that Amazon has agreed to collect sales taxes, maybe it will be the sales taxes that save the town.

In these economic times towns are looking for anything to help broaden their financial base. Compared to a huge new auto plant, Amazon looks like a benign friendly use. There are few downsides, the use is known, the service demand is understood, the future though, is murky.

Stay Tuned . . . . . . .

If You Build It, Will They Come?

Last weekend the Wall Street Journal posted a story (click here) about a ghost city in China. The town, six miles down the road from Tieling in northeastern China, is designed to hold 180,000 residents and it is a long way from accomplishing that goal. Chinese central planning, the build first find residents later model is not new. Ten years ago Shanghai went through this same spurt of growth and then took years to fill in the towers, apartments and offices. But Tieling is not Shanghai (see my last blog with Shanghai's videos below).

99% of development and growth in the United States is entrepreneurial and generally responds to market forces and supply and demand. When we mess with this through too much money flowing into a sector or government meddling we end up with 2008 to 2013: too much of everything (supply) and not enough users (demand). Balance will take years.

But I guess these rules of business and economics don’t apply in China. When you are sitting on billions and billions of yuan (much of it from trade imbalances with the US and the West) it has to be put somewhere and infrastructure can be a good home. A new city here and a new city there, why not? Stimulates the local economy, makes some people rich or richer and others well, just get out of the way. 

Some hard numbers: China has 1.3 billion people, that is about four times the number of people in the United States. They expect that 350 million will leave the countryside and move to cities in the near term. That is the more than the current population of the United States. It is an unprecedented movement of people never seen in the world’s history. If this can be accomplished without political or social disaster the economic benefits are beyond measure.

Watch this video from Australia.

 (I could not post the video image so just click above)

or click here: http://www.youtube.com/watch?v=InqAzvX6UrI

This new city planning has aggressive Western architects salivating at their AutoCadd stations. Unstoppable growth, no planning commissions, not planning boards, no little-old-ladies at design review meetings berating you over fenestration details – I have died and gone to heaven.

There is no wrong or right in this. China faces unreal demographic changes and this is one way to anticipate the future. Sure there will be maintenance issues, utility issues, power supply and even short and long term health issues, but taking a fifteenth century economy into the twenty-first century in less than thirty years is difficult at best. But unlike many aging western economies they are trying.

Stay Tuned . . . . . . . .

Cities Ultra-Fast

Once in a while I like to throw out some great videos I've come across about cities - when videos speeds are enhanced patterns emerge and interesting visuals become apparent. Again I have to thank Aaron Renn at urbanophile for discovering some of these.

Shanghai - 1

 Shanghai 2

New York - Video a bit old but still cool!

And Sublime .......

We are an Amazingly Adaptable Species

Stay Tuned . . . . . . . .

The End of Housing As We Knew It!

We are in the midst of a significant change in how we build our housing in the United States. Eighty-three years ago, and for fifteen years after that, almost no significant numbers of homes and apartments were built. There was a depression and a war, don’t you know? And those few homes built were done one or two at a time; the idea of large scale production housing wouldn’t seriously begin until the late 1940s and continue on through the rest of the twentieth century. Names like Bill Levitt, Eli Broad, and Phillip Kluztnick come to mind. They took Henry Ford’s idea of a production line and began to build housing the same way. Housing counts increased, prices (relatively) dropped; demand for housing during those fifteen years after the end of the WWII far exceeded the ability to supply. Housing prices climbed in concert with the growth of the economy and incomes.

From this the era came the big builders: Kaufman & Broad (Detroit, 1957), Pulte Homes (Bloomfield Hills, Michigan, 1950), Lennar (Miami, 1950s), Standard Pacific Homes (Irvine, 1960s), and currently the largest by homes sold, D.R. Horton (Fort Worth, 1978). Each morphed from a start-up small builder to the huge conglomerate with some now building apartments and even commercial and office space. They have extended their developments across America and into Europe.

In an article in the Wall Street Journal this week (ClickHere) headlines the all-important part capital plays in the building industry, who can get it, who can’t, and the result. The big boys in home building who can access the private capital markets are “gobbling” up the small entrepreneurial builders. Many of these small builders are grateful after hanging on by their nails through the past six years for the chance to either finally get out or have the financial backing to realize their dreams with partners like Toll Brothers. Some are lucky to even be alive.

The 10 largest publicly traded home builders have increased their share, since 2007, of the new home market by 6 percentage points to 30 percent. And I can only see this trend growing. The larger projects with hundreds of homes and hundreds of acres cost serious money, money most of the smaller home builders can’t access. Or the institutions are asking that a larger amount of capital be put in the deal, money the small builder needs to build the houses. The long term capital for the land is one thing, the contractors and subs putting up the houses want to be paid now – not later. The big boys can do this and in fact have developed their own construction teams using very different employment practices than the mom and pop shop.

What concerns me is this growing concentration of a fundamental part of the American economy in the hands of a few. Housing and its support through everything from appliances to furniture is a massive chunk of what makes this economy roll along. Look what happened when the housing bubble exploded – it nearly took down the world’s economy. And that was when there was a 24 percent concentration (and it was these same guys that over-built and over-sold, trapping families with future foreclosures). It was the quarterlies and stockholders that drove much of this overbuilding. No one said, “Hold on, is this right?” I know I was there.

And it was the politics. When the feds wanted a broader housing market that would eventually include many who shouldn’t own a home, it was the big builders they went to. They were more than glad to show their “political support” for the idea – with Freddie and Fannie guaranteeing the loans (i.e. us). And it was only these guys who could get the government to “refund some taxes paid during the boom years to offset losses during the housing crash. That policy, signed into law in 2008, gained the large public builders a combined $7.8 billion.” Wish I could have done that!

This concentration is as troubling as any concentration is in any industry. Things will begin to disappear like competition for buyers, higher quality construction, and diversity in design. Much will tend to get dumbed down and lost. And with the government involved through the growing influence of the federal guarantee programs (it now controls 70% of the mortgage market) and the purchasing of home loans, we will all be losers at some point. I am reminded of that every time I see pictures of Pruitt-Igoe and Cabrini Green housing projects. All well intentioned government housing programs doomed to failure from the first day. Big is not necessarily better and giant is worse. The marketplace demands accountability and this can only be achieved through competition – which is now being lost. When Henry Ford said that you can have any color as long as it’s black – he controlled the automobile market. After WWII, less than thirty years later, Ford hovered in bankruptcy; arrogance is a tough market to satisfy.

It’s my belief that we are headed toward a dark place in housing. Governmental demands and controls through energy (solar and lighting efficiency), materials (recyclable demands), densities (wrong type in wrong place), hookups (costly access to sewer and water), and price (loan guarantees and tax changes), will significantly add to the cost and the decline of the product’s quality. The single family house is on every environmentalist and bureaucrat’s hit list, the American dream is threatened. We will be the poorer for it.

Stay Tuned . . . . .

The Mirth of Firth

Jane Austin

Sometimes something just strikes me as strange and in fact bizzaro

strange, to wit urban art and sculpture in our world today. Most urban art is selected one of two ways, a benefactor or sponsor (builder/developer) is requested or required to provide a piece of art for a public venue on or near their property. This is a mild form of extortion where the public benefits with art and sometimes a bit of class. The other is where a public entity, such as a parks commission, wishes to place an art piece for the benefit of the public. Sometimes as a memorial or sometimes just for fun (there’s a big range here). Often these opportunities are very successful and well, some just leave you scratching your head.

It took almost fifty years to decide that a monument was required (actually approved) to memorialize the men and women who fought in WWII. Forty years to celebrate Martin Luther King’s life and commensurate periods of time for other honorees to be properly remembered with a statue or plaque. Often we rush to celebrate and just throw something up then wonder what all the hub-bub was about. We build roadside markers to celebrate the first log cabin at a cross-roads, the first settler’s farm, the first bank (now gone) on a corner in town, and even where some religious refugees first stepped on terra-Americana way back when. We just love the pomp and the chance to put a politician’s name on a plaque (in bronze, forever) and maybe capitalize by fleecing a few tourists.

I am a helpless romantic, ask my wife. I get teary over almost anything with a good storyline and great acting. As a writer I respect fellow scribblers who can bring a touch of dampness to my eye by just mixing the right words and characters. Even some hardcore thrillers can do this (but not many), but the best can be found in Jane Austin. I would suggest that more movies have been produced from her books (dozens) than just about any writer during the last two-hundred years. She defined the dream of romance, the finding of success, and a husband. “It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.” Even now a tear comes.

But I digress. A great miniseries series pulled together by the BBC way back in 1995, brought Pride and Prejudice to life better than any other of the 10 movies and countess story adaptations made thus far. It also propelled a number of the actors to greater careers in British and American films and stage, and probably no more successfully than Colin Firth. His performances in any number of movies show his depth, style, good looks, and comic timing. From period pieces to modern dramas, the man (and his great head of hair and Academy Award) offers the audience someone they believe in and can trust and understand. But as Mr. Fitzwilliam Darcy he stole more than hearts and made more than a few men jealous. Dark, brooding, disheveled (the hair thing), brutish, honorable, horseman, good dresser, and marginal dancer, Mr. Firth pushes it all forward. I know, I know, where the devil am I going with all this?

Well it seems that someone in London has a thing for Mr. Darcy (Firth). One scene in the BBC production has Mr. Darcy-Firth (the Brits hyphenate everything), who after a hard ride from London, cools off in his estate’s fish pond at Pemberley. Rising like a British-god from the cool waters he accidentally meets Miss Elizabeth Bennet, the novel’s heroine, who is visiting the estate (i.e. tourist). Damn it’s still romantic even now during the 200th anniversary of the novel’s publication. But someone has literally gone overboard.

Colin Firth as Mr. Darcy

Mr. Darcy as Serpentine Monster

Sitting in the Serpentine Lake in London’s Hyde Park is a 12 foot tall fiberglass replica of that famous moment in film. “Creepy,” “Loch Ness Monsterish,” “the swan’s like it,” and other such verdicts have made it the talk of London.

Urban sculpture has to do a lot of things. Make a moment of enlightenment (celebratory), create something beautiful (subjective), honor a hero or event (objective), or satisfy a planning requirement (financial). Some do it all and others fail, and some quite delightfully make you scratch your head (Mr. Firth and that great head of hair).

Stay Tuned . . . . . . . .