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American Malls. Is There a Future?

I do an economic forecast for commercial construction annually. My valued client USG has been my sponsor for a decade now. I get great help to shape my presentations – that go beyond just numerical trends and forecasts to future projections – from the questions I get from the business owners in the room.

Back in 2011 one of them asked me about the future of big box stores and shopping malls. I confessed I wasn’t prepared to answer specifically but brought up the scenario of further gains in online shopping and the emergence of the buying power of Millennials. In the following year I went into a detailed forecast that is coming five years later.

Today the publicity about the loss of retail jobs (60,000 in the miserable March, 2017 BLS jobs report), Amazon’s ascendancy to the top clothing retailer expected this year, and the blighted enclosed malls of America brings the issue to top of mind awareness.
Blurred Mall 123rf
But what I wonder about is the future of those buildings that will go unused. Hundreds of large structures, located conveniently on good traffic arteries, surrounded by vast amounts of asphalt parking lots, and atop valuable real estate are destined for closure. Or repurposing.

It will be interesting to watch imagination and investment turn these properties into something other than what they are now. Early moves include conversion to flexible office space. Google is dabbling in this now in the South Bay Area. There’s plenty of employee parking and probably a food court that can be reopened. That may work in some specific areas but I imagine it’s an interim solution.

But the future might involve innovative uses that are in plain sight. What about a conversion to a “healthcare mall?” A centralized location for clinics, specialties, labs, pharmacies, medical device sales, and maybe even outpatient surgery. It’s almost a mini-hospital without the critical care or the beds. It might also have food that’s actually edible.

A restaurant mall might work in larger metro areas. Because the fastest growing segment of the restaurant sector is “fast casual” this could be formed by anchor tenants that are higher-line fine-dining options surrounded by fast-casual in the smaller spaces and even a food truck presence in an area of the parking.

An entertainment concept might also draw traffic. Multiple film screens/plexes could anchor the mall with gaming niches, paintball courses, indoor sports, electronics retailers, instruction venues, and other options.

I could even see an educational institution taking one of these structures and turning it into new housing for anything from a high school to a tertiary school or combination. Classrooms of various sizes optimized with technology could coexist with larger floor space areas turned to auditoriums, theaters, and sports facilities.

There is also the possibility that retail stores morph into demonstration centers. For the products and buyers that want a hands-on experience or need to make comparisons and selection this service might be an extension of the online provider. Amazon has retail stores now and could extend and widen the model in the future.

If retail continues to convert through market changes and consumer demand these real estate legacies could provide platforms for new uses, environmental upgrades, electronic retrofitting, and fulfillment of societal needs.

Driverless Cars and Long Term Implications

Driverless cars are reality today. The street images you look at on Google Maps came from cameras mounted on some of the first examples. It’s a logical presumption that eventually consumers will adopt the technology for mobility.

What does that mean? Is it a short journey, a “hockey stick” adoption pattern, and do the benefits outweigh the difficulties of putting those vehicles on the road? Who will own them? Who will make them? What will be the impacts on auto insurance, manufacturing, purchase, lending, and payment for usage?

The questions are multiple and should be asked if you’re in any number of fields. Government, public safety, financial services, city planning, transportation, city dwellers, auto manufacturing, and geospatial fields come to mind immediately.

The adoption? It will depend on consumer attitudes and those will be shaped by existing perceptions and the safety record of the vehicles. Google is ahead in the development with an enviably low mishap rate but the recent Tesla-related death and a culture of experimentation in the driving industry force – the software sector – means that the road ahead will be bumpy.

Plus there’s the regulatory environment which right now is a patchwork of state laws in the US without a Federal baseline that needs to be established. As typical, government lags by anywhere from 5 to 10 years just as they have with other de novo technology issues like drones, advanced analytics, and cyber-currencies.

But what you can do right now is think through the implications of eventual adoption on your career or industry. After a recent presentation where I outlined the impact of 25% of drivers switching to use of driverless vehicles a state government executive cam
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e up to me and said his department at looked at the same possibility and determined that the existing highway infrastructure is currently overbuilt by about 40%. He said his state is scrambling right now to convert construction assessments to other forms of mass transit. He believed a 25% adoption was highly probable by 2040.

Insurance and financial services already anticipate the impact. Travelers places language in their annual report on the threat to their revenue of autonomous auto adoption. Warren Buffett is quoted as saying, “when you start making the driver safer, that would be a big, big jump, and that will happen some day, and when it happens there will be a lot less auto insurance written."


Photo: By Grendelkhan - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=47467048

A Red Letter Day for Global Trade


Brexit

July 24, 2016 is a day when two events impacting world trade became real – and create
a puzzle of after-effects. The implications of Brexit and the opening of a higher-capacity Panama Canal are going to ripple through a wide range of industries over the coming months and years.

At this writing markets are roiling around the world over Brexit. What’s puzzling is that there seemed to be almost no market adjusting in advance of the vote. What? Didn’t the polls continue to estimate the vote was too close to call? In those instances I always advise clients to be ready for either outcome and to take actions in advance to hedge, protect, and be ready to trigger pre-thought moves.

The EU is a key piece of the global economy. There’s no doubt it is weakened by this action. In economic forecasts recently I’ve been warning of the difficulty that arises when two major economic players are simultaneously at risk of recession. Britain and the EU may simultaneously dip after this action and the difficulties in Brazil, Argentina, Canada, and China could trigger a serious downturn.

The Canal? A longer-term but perhaps even more precarious situation. Panama took the low bid on the reconstruction of their overwhelmingly prime asset. The limitations to “Panamax” sized vessels limited shipping for at least the last 40 years of the century-old infrastructure. The rebuilding of the lock system enables very large container vessels through the “new” Canal.

Problems? Count em. Substandard concrete based on fracture-prone Panamanian rock. Poor design. Reliance on Spanish-built tugs that can only reliably operate in reverse, not forward. Not enough room in the locks for giant ships and the tugs at front and rear of the ships. Insufficient steel reinforcing in several areas of the new locks. And all that along in an El Nino-induced record drought that means that super-vessels don’t have enough water to float between the oceans.

One mistake. One super-ship into a lock wall and it all comes tumbling down. Planned volumes through the Canal like US grain into Asian markets are disrupted. China’s shipments to US East Coast ports. Months if not years of delays. Funding shortfalls that could topple the Panamanian economy.

Fiduciaries, leaders, directors, management? Sharpen up your implication thinking and start the discussions and actions now.

Image - Copyright: nerthuz / 123RF Stock Photo

Quick Look at the Economy

2016 isn’t off to the greatest economic start if you’re anywhere but the United States. China’s stock market has flirted with free fall, the Middle East has Shia-Sunni outright war in the tea leaves, and commodity prices have all but collapsed. The EU and Japan still pass the mirror test to see if they’re breathing – but barely.

With clients in agriculture, financial services, and construction on the agenda for the first half of the year I’m asked to weigh in. Generally, I’m optimistic.

There are problem areas. Commodity prices in the low range means crop farmers see the end of their 6-7 year run of record returns. Not a lot of new pickups in the shed these days. It’s a return to eking out profit from slim margins. Livestock producers benefit from lower feed prices. A lot of eyes are on the presidential election where a Republican win could affect biofuel policy that’s been buoying up grain prices – with corn as the leader. Plus the El Nino introduces even more weather and moisture uncertainty than usual. The dollar is expected to remain strong, working against exports. Huge amounts of US grains are sold overseas and the competition is stiff.

Financial service companies – banks, insurance, credit unions – depend on a stable to rising economy to produce loan demand. A GDP performance for the US economy usually points to a reasonably good year but it’s not quite that simple. The Fed is raising interest rates, albeit tentatively. The rest of the world is not. It makes for difficult decision-making. I’ll be in the room for about a dozen strategic planning meetings in this sector this year and the discussions will be “interesting.”

No sector deserves a better environment than construction and the outlook is fairly good this year after nearly a decade of abysmal to bad news. Commercial construction for 2016 should be up. One of the key indicators, billings at architectural firms, were up significantly for all of 2015 which should translate to buildings coming out of the ground in ’16. The home building sector is also looking positive. The National Association of Home Builders is projecting about a 25% increase in 2016 year on year despite some nagging worries about labor availability and costs. Job creation is a big driver in this sector.

But the question about whether the US economy can stand up to a world slowdown still stands. There are several factors that work in the country’s favor:

  • The US is so much better an investment destination than other global regions that it stands to attract more capital.
  • US consumers, as long as the job outlook remains strong and fuel prices remain low, will spend.
  • China is a totalitarian state. Don’t overlook the possibility that it can do almost anything it wants to get growth back up to a 5% GDP range. Plus it still possesses huge cash reserves.
  • The EU and Japan don’t have a great recent track record for growth but neither do they stand to take a deep dive into recession.

New Possibilities in Agriculture

I admit it. Agriculture fascinates me. As someone with an engineering education I see so many potential upsides, complex merging of systems, and breakthroughs ahead.

I’m not a spiritual person but the miracle of growth is inspiring. As Cargill Executive Director Greg Page once said to me, “Trust in photosynthesis.”
Hand Water Plant Small

I envy the nifty toys agriculture pro’s get to play with. Robots and drones. Tiny nano-sensors that eventually feed big honking computational power to make everything work even better. Curls my toes.

If I could restart an education and career I could easily choose agriculture. It appeals to the boy still in me.

A fascinating niche of the field is the never-ending possibility of new crops and new uses. I spend a lot of time with the monoculture – the empire of corn and soy that dominates the best soil in America. But there are very interesting upsides for discovered or rethought plants and the potential within them.

Perhaps none of them will make a huge difference in agriculture – at least not in my lifetime. But every time I hear of a new potential crop, an experimental program, an adaptation, the possibility to grow a cure for a disease, a new source of energy, or a breakthrough that could help us in climate change, I’m inspired.

Carinata, moringa, and Rhodiola rosea are examples. Each has promise in a particular niche of agriculture.

Brassica carinata is the most interesting of new biofuel crops. It’s essentially a weed – Ethiopian mustard – that grows on marginal land in heat and drought conditions. New breeding by Canada produced a plant that rivals canola for yields, is resistant to disease, produces long hydrocarbon chains, and has a number of uses. Jet fuel, lubricants, and bio-plastics are all on the list.

Moringa trees are native to the foothills of the Himalayas and are cultivated in the tropics. One nickname is the miracle tree. It produces small leaves and pods that have an impressive nutrient profile. With a protein content nearly that of eggs, more potassium than bananas, more iron than spinach, and massive amounts of calcium you can see why it’s a new buzz in natural foods.

This is no recent discovery. Moringa were used 4,000 years ago but the application to a modern society for anti-oxidants, anti-diabetes, anti-inflammatory, anti-arsenic, and anti-cholesterol are just coming into wide recognition. Look for development of species even easier to harvest as the world seeks food for the next two billion planet occupants over the next 25 years.

Rhodiola rosea is an adaptogen. It’s made into a supplement that has an ability to improve the response to physical and mental stress and trauma. There are claims it lifts mood, increases energy, and sharpens focus. It can optimize insulin production and extend the effects of caffeine. The root is powdered or chipped for tea.

Cultivation is ramping up because demand far outstrips the wild sources from Siberia. Canada, Scandinavia, Poland, and even Alaska are doing startup cultivation. But there is a growing emphasis in agriculture on indoor cultivation of many specialty crops.

The Big Deal About Bitcoin

Bitcoin gets a lot of hype. There’s fascination with the first digital currency to gain traction in the financial world and a bit of a dark side panache about the development. It’s the preferred payment system for cybersecurity ransom demands. A few years ago it was getting high usage from illegal drug peddlers and other miscreants. There was also a highly-publicized hack of one of the major exchanges, Mt. Gox.

Now Bitcoin is gaining more attention not only because it’s an electronic means for making payments but because of its inner workings and a unique quality that promises to shift the world of money transfers.

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Bitcoin is a decentralized payment system. Two individuals or entities can transfer value without the need for a centralized overseer. In other words, it’s electronic cash held in an electronic wallet. Decentralization is attractive for a lot of reasons but it’s the currency’s reliability and security that stands out. You can rely on a Bitcoin transaction being genuine. That’s because its “block chain” is hardened against tampering or revision.

Remember that term. Blockchain (as it’s most often cited) will be one of the buzzwords of the financial field over the next five years as reputable organizations adopt alternatives to the “rails” of the ACH, card systems, and alternatives. This is not a short journey. It won’t even be free of bumps along the way but it’s another disruptive new entry. And it’s worth watching to see if it could give way to something even more powerful that maintains all the advantages of its predecessor. Just look at the millions of dollars of venture capital that is flowing into the Bitcoin-related businesses.

Even if Bitcoin itself doesn’t have a long run I believe that the blockchain will. The ability to transfer funds at the speed of e-mail between individuals located anywhere in the world without conversion fees or international currency wars at very low cost is a game-changer. I believe we’ll see the blockchain being used earliest for international transfers but long term for secure tracking of everything from legal services to land titles.