posted by Mike Madison at 4:34 PM /
Today's Almanac leads with a story about community opposition to the new Walgreens on Bower Hill Road, which will be built principally in Scott Township.
The merchants in the Bower Hill Shops, which currently occupy the site, express their support for the project. That's consistent with what I've read before.
This is capitalism at work. The charming, walkable community that Mt. Lebanon wants to be requires that people put their spending money where their mouths are. If the Bower Hill Shops were thriving, Walgreens wouldn't be in the picture. The Bower Hill Shops are suffering. Why? Because Mt. Lebanon residents don't spend enough money there.
Want to make sure this doesn't happen again? Don't shop at the mall. Don't buy coffee at Starbucks. And get your prescriptions filled at Asti's on Mt. Lebanon Boulevard. Just for starters.
Link: http://thealmanac.net/main.asp?SectionID=5&SubSectionID=12&ArticleID=10011
The merchants in the Bower Hill Shops, which currently occupy the site, express their support for the project. That's consistent with what I've read before.
Stuart Chaban is a lifelong resident of Mt. Lebanon, and owns The Coffee Den in the Bower Hill Shops.
According to Chaban, many of the tenants are anxious for this project to go through so customers return to what has become a desolate shopping center.
"We want to get this done and over with as soon as possible. We have options once we get to that point. The more you prolong this, the less businesses you will have in that shopping center and the more abandoned it is going to look...It is not fair to the business owners," said Chaban.
This is capitalism at work. The charming, walkable community that Mt. Lebanon wants to be requires that people put their spending money where their mouths are. If the Bower Hill Shops were thriving, Walgreens wouldn't be in the picture. The Bower Hill Shops are suffering. Why? Because Mt. Lebanon residents don't spend enough money there.
Want to make sure this doesn't happen again? Don't shop at the mall. Don't buy coffee at Starbucks. And get your prescriptions filled at Asti's on Mt. Lebanon Boulevard. Just for starters.
Link: http://thealmanac.net/main.asp?SectionID=5&SubSectionID=12&ArticleID=10011
10 Comments:
Fortunately, or unfortunately, we have more convenient ways to purchase coffee, prescriptions, groceries than we did in the past.
I do not shop in small mom & pop shops because the prices are (usually) higher, and they are much less convenient. I guess if I didn't have a job and kids, I would enjoy spending 2 hours at a coffee shop spending $2.50.
Mike Madison is quite right to say that “This is capitalism at work” when he talks about the current state of the Bower Hill Shops, which Walgreens wants to tear down. But the “capitalism” at work here is not quite what you might think it is.
The first thing that everyone needs to know about the current condition of those shops is that Walgreens has owned them for most of the last three years. It isn’t “the market” or a “lack of patronage” that is creating empty storefronts in that “desolate” strip. Walgreens is creating the empty storefronts! After all, why would it sign long-term leases for storefronts that it plans to demolish? And what merchant would want to locate there on a short-term lease? It’s prudent business management all around – i.e., good capitalism.
What’s more, this strip never had vacancies for any length of time until Walgreens bought it. Anybody who lives in the area knows that. It was a very active shopping area, with full parking lots all the time. To argue that stores are leaving because they weren’t patronized is nonsense. Some were well managed, some were not; some thrived, some did not. But there were always plenty of shoppers there. And yes, there was turnover. But frequent turnover is a retail fact of life everywhere – even at places like South Hills Village.
The physical deterioration of the shops (the deterioration of the buildings, the sign, the fencing, and so on) is also entirely due to Walgreens. It’s making a simple more-or-less-sound business decision not to invest in what it plans to tear down.
Stuart Chaban, the owner of the Coffee Den, has argued otherwise. But as a Walgreens tenant he has a stake in all of this. He shouldn’t be quoted as though he’s an impartial party, either in your blog or in the newspapers. He has every reason to want to support Walgreens – presumably he has a lease and, who knows (he doesn’t say), it’s possible that Walgreens has to buy that lease out. He’s also indicated, however, that he’s hoping to be one of the two or three lucky businesses that Walgreens will provide space for in the old supermarket building. Whatever it is, he has every good business reason in the world for supporting Walgreens. More power to him on that. He obviously should be pursuing his own financial interests. But he’s not in any way a disinterested observer.
Like Chaban, all of the merchants in the strip also have an obvious interest in having this whole issue resolved quickly. But the neighborhood opposition to these shops hasn’t caused any delays. The delay in getting a decision from Mt. Lebanon’s Zoning Hearing Board was caused for the most part by Walgreens’ own attorney. He couldn’t respond until January to the Board’s requests for additional information because he is in court on another matter through all of December. So the Board might not rule until March. Walgreens caused earlier delays by rescheduling planned appearances before both the Planning Board and the Zoning Board. So look to Walgreens as the source of the delays, not to those of us in the community who are against the Walgreens plan.
Finally, another word about “capitalism at work.” A lot of us can write about the virtues of market capitalism, as there are many. But one of the darker sides of the system is that it allows a $47 billion a year corporation – for nothing more substantial than its own need to build a “signature” store on a corner – to put locally-owned businesses in peril. It also allows the corporation to completely ignore the wishes of the people in the area, indeed defying the very people it will someday want as customers. Even Charles R. Wallgreen – from the vantage point of his innovative little turn-of-the-century drugstore at the corner of Cottage Grove and Bowen Avenues in Chicago – would find that distasteful.
John Conti
Big, out-of-town "corporation" = bad; small, local business = good is reductionism. I'm not persuaded.
If the property really was economically vital, and if local residents were really supporting it so well, then why was Walgreens able to buy it?
Either the property really wasn't doing so well, so that the owners were happy to get out, or it was, and Walgreens jumped on an opportunity to build a store on a "hot" corner. Either way, the time for neighbors to complain was at the time of the sale -- not that the sale could or should have been blocked, but people who now want their local stores back could have borrowed enough money to outbid Walgreens and buy the property themselves.
I still say: Welcome, Walgreens. If the store does well, then that's capitalism at work; if the store doesn't do well, then the neighbors can buy the property and re-develop it as small shops (maybe they can apply for a TIF!). Either way, the whole thing sounds pretty much like capitalism to me.
Did somebody say TIF?
Mike,
Your reasoning is great if only the local market and local economics are considered. But if you look at the behavior of Walgreen's, CVS, and Eckerd over the last several years, its clear that they've all implemented national strategies that involve buying properties, razing the existing structures, and building brand new stores.
It wouldn't be surprising if a national company with such a strategy were willing to pay a premium for particularly attractive properties, making up the difference from savings elsewhere in the country.
If the Bower Hill shops are a well-frequented neighborhood location, it probably makes the property even more attractive, especially given the residential surroundings, the relatively large distance (by Burgh standards) to any other retail, and the fact that the next closest retail area is probably the intersection of Cochran and Altoona, which has a CVS store. (BTW, that CVS is also a new structure on a spot where there was once a small retail strip.)
Jefferson,
The "predatory development" hypothesis is interesting, but I'd be more persuaded if there were actual evidence that Walgreens et al. use profits at one or more locations *there* to subsidize under-performing stores *here.* Or the reverse. In antitrust law, the comparable idea of predatory pricing (monopolist artifically depresses prices in order to drive competitors out of business, then raises prices to supra-competitive levels to make back the difference) has been almost entirely discredited for lack of empirical support.
If the location really is an attractive one (and since it's next door to a hospital, there is some logic to drugstore chains competing nearby), then Walgreens' decision to buy and develop the site strikes me as logical on its own (local) terms.
Mike
There needn't be anything predatory about it, but it only makes sense that a national corporation should reason nationally, not just locally. In fact, it strikes me that reasoning entirely by the local economics of each store would be extremely inefficient for a national company. I'm not suggesting that they would construct a store that they didn't expect to make money, only that they would be willing to pay a premium for the real estate, under the right conditions.
I could imagine that a company would adopt a policy in which they're willing to pay $X to build a new store. Now it's unlikely that they'll pay exactly $X for each store, but rather the prices will fall in some statistical distribution with a mean of $X. They'll certainly pay more than $X for some stores, as long as every dollar paid over $X is balanced out by a dollar saved under $X somewhere else. Not predatory, just good national business.
Having said that, Pittsburgh's relatively low real-estate costs, make it possible, even likely, that Walgreen's could pay a premium for the property and still regard it as a bargain.
BTW, I just drove by there today, and there's a shiny new Eckerd's store half a block away! More evidence, IMO, that the Walgreen's move is strategic.
My intuition is exactly the opposite: I can't imagine a large, successful, national corporation opening a new store without having a precise sense of the costs and benefits and likely profitability of that store. For a company with Walgreens' resources, it can't be so expensive to figure out how much it should pay for land in any given market.
That said, it may well be true that Walgreens is going in partly or even largely because Eckerd is already right there. But drug stores aren't like gas stations (two or more per intersection). Gas station development is often zoned that way, so that the stations are concentrated rather than distributed. And the Eckerd store went in, along with many others, at a moment when the company was betting that Harrisburg would liberalize alcohol sales.
Dear Madison and Jefferson:
Your flights of fantasy into economic theory are fascinating. (Is there a Hamilton around here anywhere?) At the risk of further reduction, let me try to bring these issues down to earth for a minute.
The Bower Hill Shops provide value for an entire neighborhood. There is genuine economic value to residents in having a variety of small shops close by.
Value accrues to people who can walk to these shops (and there are many who do). Value accrues to older people who can still drive in the familiar neighborhood but can’t otherwise drive themselves longer distances to go shopping. Value accrues (and will likely increase in coming years as energy costs rise) to every one of the rest of us in the area who simply don’t have to drive to the Heidelburg/Bridgeville area, to other parts of Mt. Lebanon, or to the South Hills Village area for certain types of routine shopping, services or dining.
Value also accrues to staff and visitors to the hospital and the doctors’ offices who don’t have to drive away to go to lunch outside the hospital.
Value accrues to the neighborhood because some of the owners of these small businesses live in the neighborhood, and do indeed contribute to it by earning what are likely to be higher incomes than, say, the individual manager (and certainly the clerks!) of a Walgreens store. In effect, some of the surplus that’s earned from these shops stays in the neighborhood – at least for a while – rather than being immediately distributed elsewhere.
Value accrues to the neighborhood simply because the neighborhood has the convenience of close-by shopping. This makes us different from those places to the south of us – like Peters, USC or South Fayette – where almost nobody has neighborhood shopping. You could say that it’s part of Mt. Lebanon’s – and Cedarhurst’s – “comparative advantage.” Value also accrues from existing “neighborhood character,” as opposed to the “highway character” of the proposed architecture and site plan that Walgreens has proposed. In some measure, all of this is reflected in the value of the homes.
So, what then is the value of the proposal by Walgreens?
To the residents, there doesn’t seem to be any future value at all. Walgreens will not offer us anything that we cannot already get across the street at Eckerd. And yet, if Walgreens builds what it currently plans, we’re giving up all the value that accrues to us from having a variety of close-by locally-owned shops and eating places that are in character with the neighborhood.
How can residents not oppose the Walgreens plan?
You could argue competition, but it seems to me that even if there is real price competition it doesn’t do that much for us either. Ten cents off on a bag of potato chips, or even $2.00 off on a $100 bottle of pills, won’t make up for the value we lose.
Obviously, what we lose is hard to quantify. But it’s also obvious that it’s there.
I’d like to add two other comments. The first is about Mike Madison’s take on what makes owners of shopping centers sell them. By Mike’s take a commercial property sells only when it’s either a “hot corner” taken at a premium price or a struggling location in dire need of improvement. That’s totally divorced from reality. People who deal in commercial real estate like shopping strips usually have one ultimate goal in mind when they buy, and that goal is selling. Sometimes sooner, sometimes later, but selling is the goal. Nobody takes commercial properties to heaven with them, if they can help it. There can be any of eight or ten reasons (including the two that Mike cites), but more often, the selling point is when the depreciation begins to diminish, or when the owner has tax advantages that can be realized by selling, or there’s an interest rate advantage to selling, etc., etc. So please leave out that “either … or” argument about why commercial property sells. That’s not real world practice.
Second, about the discussion over locating across the street from the new Eckerd.
The chains are doing this all over the country. Some people call this “The Drug Wars.” Just look around here. The new Walgreens at Fort Couch Road is opposite the existing CVS. The new Walgreens at the foot of Greentree Road is just around the corner from a large Eckerd. The failed Rite-Aid (now a Dollar Store) on Cochran went in opposite the expanded and remodeled CVS. You better believe that Rite-Aid had plenty of marketing studies showing that it could prevail or survive over CVS on Cochran. You gotta believe Walgreens has such studies too. But as Rite-Aid proves, such studies aren’t always right. (Other examples of prominent short-lived retail ventures: Lazarus in Downtown Pittsburgh and, the worst example of all, Lord & Taylor in the old Mellon Bank.) So don’t think these “masters of marketing” always get it right, or, to put it another way, don’t assume that they are always acting in their own best interests.
Finally, the liquor sales angle – which many people believe is true – could be right, but it doesn’t explain identical super drugstore trends in virtually all other parts of the county.
John Conti
That's a selective misreading of my comment. Sure, small shops provide value to a neighborhood. If the neighborhood wants to preserve that value, the neighborhood needs to be prepared to pay for that value. No neighborhood is simply entitled to a value proposition that it likes. Fighting to keep small shops by preventing a property owner from developing its land isn't paying for value; it's trying to get value for less than what's fair. Pay the higher prices often found at small shops, and the economics should swing in your favor.
Moreover, I never wrote that property sellers sell (or buy) only because property is hot or distressed. (In fact, my comment was about why Walgreens would buy that parcel, not about why the previous owners would sell.) I lived in the business world for a long time, and that, more than any other reason, is why I prefer a marketplace outcome here. Walgreens put a higher value on the parcel than any other firm, person, or group. It bought the property. It should be allowed to develop it. That's the market at work.
The "Drug Wars" are interesting and in some respects puzzling, but that's no reason for local government to intervene; overbuilding drugstores doesn't lead to consumer harm, unless there's some kind of collusion between Eckerd and Walgreens that I'm not aware of.
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