Trapped in a Mall
Once-promising small retailers can find themselves left with few options when mall anchors and traffic vanish.
Here are today’s highlights:
An MIT study finds it’s going to be too expensive to replace humans with AI—at least for a while.
Tracking another entrepreneur’s journey from influencer to promising startup to failure.
The movement to tax wealth to address income inequality is building.
Can a potato chip be considered food? We have an answer.
Inside the San Francisco Centre Mall, small retailers have been reduced to prayers: “Brian and Hailey Politron opened a luxury sneaker reseller called Nectar Supply on the third floor of the Westfield San Francisco Centre in 2022 after a successful holiday pop-up convinced the then-23-year-olds they were ready for a long-term investment. As opposed to their mall neighbors Foot Locker and Shoe Palace, which primarily carry the latest styles and makes, Nectar stocks as many rare vintage Nike Dunks, Air Jordans and Yeezys as it can source. In their first full year of business, the Politrons brought in around $2 million in sales, more than enough to cover operating expenses plus the $16,000 monthly lease they signed with the then-owners of the mall, Unibail-Rodamco-Westfield, at the beginning of that year.”
“‘That first year was so great,’ Hailey Politron said. ‘Our sales in San Francisco motivated us to keep building our empire.’ In April 2023, the couple used that momentum to branch out, opening up a second store at Westfield Galleria at Roseville, near Sacramento.”
“‘Once Nordstrom closed, the mall became like a ghost town,’ Brian Politron said from behind the register, looking out at the bright white walls of shoes at Nectar. With fewer and fewer customers coming, the couple sometimes pass the time by creating silly social media videos about their business making light of the situation and perhaps enjoying a bit of catharsis for themselves.”
“Last year was nothing short of a financial disaster for Nectar, Brian Politron said. The monthly rent payments have remained the same. Sales at the San Francisco store, on the other hand, plummeted by more than 55 percent in 2023.” READ MORE
An L.A. startup uses artificial intelligence to reduce the carbon footprint of concrete: “For the past decade, researchers at UCLA’s Institute for Carbon Management have been working on how to use data to reduce the environmental harm from concrete. Today, the startup based on their work, Concrete.ai, said that field tests using its AI-driven software reduced emissions by 30 percent, while cutting costs by more than $5 per cubic yard. That’s a big deal because cement, the key ingredient in concrete, is the source of 8 percent of the world’s emissions of carbon dioxide, the gas that’s catastrophically warming the planet. Yet concrete is ubiquitous – used in buildings, roads and other structures worldwide – because of its durability and low cost.”
“Concrete.ai is using generative AI to optimize different concrete mixes, telling concrete makers to swap in fly ash or slag for cement, for example, or alter the rocks or aggregates combined with it in order to use less cement. Its goal is to reduce the amount of cement required while still creating concrete that’s strong enough for what it needs to do — lowering costs and reducing the material’s environmental harm at the same time.”
“‘From an impact perspective, you’re talking about three times more emissions than aviation,’ Concrete.ai CEO Alex Hall told Forbes. ‘We haven’t seen technological advances in the concrete design and manufacturing world for the better part of 50 years.’”
“The startup plans to announce today at the World of Concrete event in Las Vegas that its technology, which it calls Concrete Copilot, is now available for commercial use. To date, the early-stage startup has lined up three commercial customers, and expects to sign on a fourth soon.” READ MORE
An MIT study finds it’s going to be too expensive to replace humans with AI—at least for a while: “A new study from the Massachusetts Institute of Technology offers a reassuring perspective: most jobs are currently too expensive to automate with AI. The study, authored by five MIT researchers and titled Beyond AI Exposure, delves deep into the practicalities of replacing human labor with AI in the US, focusing on tasks that lend themselves to computer vision, such as those performed by teachers, property appraisers, and bakers.”
“Surprisingly, the authors found that only 23 percent of workers’ wages for such jobs could be cost-effectively replaced by AI. ‘Even with a 50 percent annual cost decrease, it will take until 2026 before half of the vision tasks have a machine economic advantage,’ states the 45-page study seen by Quartz.”
“The researchers predict that even with a 20-percent drop in cost per year, it would still take decades for computer vision tasks to become economically efficient for companies.”
“While AI excels at recognizing patterns and analyzing images, the technology behind it comes with hefty installation and maintenance costs. In many cases, it’s simply cheaper to rely on human skills and intuition. Plus, AI already has a power consumption problem, and companies are struggling to implement AI systems.” READ MORE
Here’s how Arielle Charnas and Something Navy went from blog to influencer to startup to falling apart: “Like many digital startups, Something Navy burned through cash in pursuit of growth. The company opened stores and invested in digital marketing. Scanlan hoped to achieve $40 million in annual sales. The brand raised an additional $5 million from investors in 2021, according to a person familiar with the fundraising round. In an episode of Charnas’s podcast, Scanlan outlined his ambitions for the company including having as many as 25 stores in the U.S., as well as international shops. In February 2022, Something Navy hosted an intimate, celebrity-filled dinner to mark the opening of a new Los Angeles store. Then it started running out of capital. ‘The business wasn’t reaching the growth multiples we wanted, year over year, and was costing more money, and was losing more money,’ Scanlan says.”
“The influencer-marketing industry was emergent, and Charnas was an early star, using her growing blog to broker beauty and fashion deals. As her presence grew, her style got more luxurious. Her photos took on a new sheen of professionalism.”
“As blog audiences migrated to social media in the 2010s, Charnas’s influence grew. She could post about a skin care product on Snapchat or Instagram, the brand could sell hundreds in a day. When she hosted an event at fitness retailer Bandier to promote a collaboration with an activewear brand, hundreds of fans lined up to attend.”
“Nordstrom, like many retailers eager to harness the digital audience of influencers, tapped her for a capsule collection in 2017. After some items ‘sold out within hours of the launch,’ according to the company, Nordstrom launched a Something Navy private label in 2018.”
“But Charnas had even bigger dreams. As she told The New York Observer that year, she hoped to become ‘the next Tory Burch’—the founder whose fashion empire keeps growing. Matt Scanlan, a direct-to-consumer entrepreneur, had a pitch for the Charnases: He could turn Something Navy into a household brand.” READ MORE
Rates for commercial space in NYC are still 20 percent to 30 percent below pre-pandemic levels—but showing signs of life: “Retail rents being down by as much as 30 percent doesn’t sound like a good sign. But Keith DeCoster, director of market data and policy at the Real Estate Board, said retail is rebounding. Certain parts of the city are doing better than others. ‘Some of the retail corridors like Fifth Avenue and Times Square have a little bit more vacancy than they did,’ he said. Same with other parts of the city that have a lot of office buildings. But in neighborhoods with a good mix of residential, office, tourism and retail? ‘We’re really busy,’ DeCoster said.”
“Steven Soutendijk, leasing broker and executive managing director with the retail group at Cushman & Wakefield, said they’re seeing all kinds of businesses sign leases: luxury brands, coffee shops, clothing stores, restaurants.”
“Then why are retail rents still so much lower than before? Soutendijk thinks one reason is that landlords saw how their tenants’ businesses struggled in the pandemic and they’re worried about raising rents too high, too fast.” READ MORE
New York City leads the country in office-to-apartment conversions: “One Manhattan office conversion, 25 Water St., is taking over an office building formerly known as 4 New York Plaza. ‘The 25 Water St. project in Manhattan epitomizes this surge,’ RentCafe said in its report. ‘This former office building will be transformed into 1,263 new apartments.’ In 2024, more than 55,000 apartment units are expected to be converted from office buildings throughout major U.S. cities. That office conversion number is up from 12,100 in 2021, RentCafe reported. During 2022 and 2023, 23,100 and 45,200 housing units were converted from office properties, respectively. The office-to-apartment conversions come as some office space becomes obsolete due to the rise of remote work, despite attempts to wrangle employees back into offices. Leasing volume has shrunk and office sales have slumped due to overall lower demand.” READ MORE
Vermont is one of 10 states looking to tax wealth: “Lawmakers in Vermont are introducing legislation this week that would impose new taxes on the state’s wealthiest residents, joining a growing national campaign being pushed by Democrats who believe that the measures will gain traction as states reckon with post-pandemic budget squeezes. One proposal in Vermont would tax people with more than $10 million in net worth on their capital gains, even if the gains have not yet been realized. Another would add a 3 percent marginal tax on individual incomes exceeding $500,000 a year — a measure that supporters contend could pump $98 million, or almost 5 percent of the annual budget, into the state’s coffers.”
“The package of bills is part of a broader push across the country by progressive groups who hope that the political moment has arrived to shake up the tax system to address income inequality.”
“Called the Tax Justice Initiative, the campaign began in earnest a year ago, when legislators in seven states, including California, New York and Washington, coordinated the introduction of bills mirroring the federal wealth tax proposed by Sen. Elizabeth Warren of Massachusetts during her 2020 presidential campaign.” READ MORE
Can a potato chip be considered food? Not according to a court in Great Britain: “At its colloquial heart, the debate is about whether poppadoms are food or snack. For the law’s purposes, ‘food’ requires preparation and is intended to be eaten as part of something bigger. ‘Snacks’ are efficient packages that can be enjoyed on their own. Like, say, a bag of potato chips. It may sound like a trivial distinction, but when it comes to British tax law, it’s no small claim. Where most food items are tax-exempt, the current Value Added Tax rate for snacks like crisps is 20 percent, putting the potential stakes of Walkers’ poppadom play in the multimillions. ‘It’s a lot of money for the government,’ said Dr. Catherine Clarke, a senior law lecturer at the University of Exeter. ‘It’s all really silly. But that’s where we are.’”
“The ruling is the latest in a years long journey for Walkers, which has claimed since 2021 that its Sensations Poppadoms are not the same as their potato crisp cousins, and hence should be tax-exempt like most other foods. There are plenty of reasons, Walkers lawyers said, that a poppadom isn’t a crisp. To start, they are meant to be eaten with other things like chutney or dips — or, one might say, prepared.”
“Unfortunately for Walkers, the tribunal was unmoved by the company’s case. The poppadoms may not contain as much potato as a traditional crisp, the judge said, but the proper ratio of potato-to-poppadom-to-chip is in the eye of the beholder.”
“The ruling means Walkers, the company that makes poppadoms and dozens of other snack foods, will have to pay the same value-added tax on its poppadoms as it does on its various crisps.” READ MORE
THE 21 HATS PODCAST
We’re Making Good Money. I’m Not Sure How: This week, Jay Goltz, Jennifer Kerhin, and Liz Picarazzi discuss their efforts to get a better grasp of what drives their profits. They ask how much they should manage their finances themselves, and how much they should rely on an accountant or a fractional CFO. When does delegation become abdication? Jennifer says she’s benefitted from hiring a fractional CFO who has taken an active leadership role, including setting up a database that helps Jennifer see in real time whether the fees she’s charging cover the labor she’s deploying. “Whatever she's charging me,” says Jennifer of her CFO, “it's absolutely worth it.” Liz, meanwhile, thinks she should be doing more herself. And Jay says he was paying big bucks for a full-time CFO until late last year. “And it was a complete waste of money,” he says, which is why he’s decided not to replace her.
Plus: Liz reveals her secret strategy for marketing directly to municipal government officials, some of whom have started to use the term “Citibin” generically. And the owners respond to a question from the head of a cost-reduction service who wonders why she’s struggling so much to get business owners to try her risk-free service.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren