An idea from the Great recession comes off age with the pandemic
Last week Whole Foods was in the news for opening a 'Dark store' in Brooklyn.
It's sort of a visionary move and a signal of times to come. Many retailers are reducing their store footprints and converting them into packaging, storage, and last-mile distribution centers. But have you ever wondered why 'Dark stores' are not called 'Store Lite' or 'Cloud Stores'? Why do they have a morbid name?
Well, the dark name comes from the 'Great Recession' of 2008.
My hometown back then (Farmington, MI) was one of those suburbs in Michigan that saw a wave of closures of big-box retailers and small retail outlets. Michael Shapiro, the enterprising tax attorney from the state pioneered the idea of dark stores. Usually, tax authorities assess a store's property value for tax purposes based on the sale price at which it was last sold. But big-box retailers have successfully managed to argue (from 2010 onwards, thanks to Michael Shapiro's initial victories in Detroit) that their properties should be valued at the price at which comparable properties in their neighbourhood are sold.
Who buys big box stores these days? I don't know but I am sure it is not Amazon. It's very likely to be a church or a warehouse operator. The boarded-up big box store is going to be sold for a value much lower than they were bought for. Ergo, thriving big box stores in the same area want to peg their property value to that of the run-down property.
As of 2017, when we laughably thought we had an apocalypse (of the retail kind though), the town of Wauwatosa was fighting six cases of dark store valuation re-assessment.
Suburbs in America woo retailers with subsidies on land parcels and other tax benefits in the hope of employment generation and property taxes. But the reality is that every big-box retailer who is armed to the teeth with the best legal & tax advice available is finding a way to claw back on their property tax outflows. Their argument is that nobody needs big box stores anymore. So it is unfair to tax them at the valuation at which they were bought. Renovations notwithstanding, big-box retailers are out of fashion.
Now that we have a real apocalypse and a sepia-tinted, smoke-filled San Francisco that is driving people away from the city the once petty and pugnacious sounding tax attornies of big-box retailers now have a sympathetic ear from the public. After all, who would want to visit a big box store in the midst of a pandemic and smoke if they can buy online? The tax-paying public will understand the need for dark stores. It is no longer a creative legal instrument. It is emergency surgery to save retailers from hemorrhaging to death.
But think beyond big box stores. Even the smaller footprint chain stores and corner block patisseries are going dark. For them, it isn't about the property tax savings. They are merely hoping to reduce the running costs and improve cash flow. In fact, the only way to save small retailers and restaurants would be to incentivize them to go dark and embrace online.
The emergence of 'Dark store as a service'
Already there are services like the creatively named 'Darkstore' and 'Ohi' that offer a dark store as a service for D2C brands. They convert un-occupied mall shops and office spaces into last-mile fulfillment centers. With COVID, my money is on them becoming giant companies that re-purpose America's storied retail spaces into dark spaces. As an aside, I can't help but wonder how good it would have been for Shyp, had they been around now.
We are at a place in the economic timeline where consumer behaviour post-pandemic is going to have little impact on the return of the store. Most retailers in America simply cannot afford to set up and run full-fledged retail stores that depend on foot traffic. Also, the eternally hopeful human psyche is counting on the ball dropping at Times Square on the night of 31st December 2020 and the world returning to normalcy at the store of that midnight. No, 2021 is another blurry year - at least for the first 6 to 9 months.
If things are bad for retail now, it is going to go worse in 2021. That seals the deal for Dark stores - an idea that germinated at the lawns of Midwestern foreclosed residential homes which is now coming of age with the pandemic.
PS: Cheer up! We just launched our brand new home page. Do check it out. We have a big, bold positioning that reflects our place in the ecosystem. I have a favor to ask. If you quickly scroll through it and don't understand something or see words that are not very American let me know. I grew up learning the Queen's English.
To be clear, I am looking for un-filtered feedback including W*F!
PipeCandy is a market intelligence platform that tracks the global eCommerce & 'direct to consumer' landscape.
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