A lot of what we find interesting about cities is the retail within them. We lean on retail – shops, cafes, restaurants and so on – to make cities what they are. Urban economist Ed Glaeser called this the rise of the consumer city, showing how consumption agglomeration was becoming increasingly important, as well as production agglomeration, in driving up urban rents.
When people say Hayes Valley in San Francisco or Williamsburg in Brooklyn are interesting neighborhoods, what they often mean is that they have interesting retail. Hayes Street is Hayes Street because of stores and restaurants, rather than something inherent about the streetscape. Williamsburg is Williamsburg because of its wine bars, taco trucks, and fancy coffee shops.
Get the print magazine Subscribe for $100 to receive six beautiful issues per year. Subscribe
Yet the retail operating environment is as hard as it’s ever been. Online shopping continues to capture market share, remote work reduces foot traffic, and crime eats into already-small margins. Almost half of stores shuttered within four years in one San Francisco shopping district.
We risk losing something that makes cities what they are, because we don’t have a good model for letting retail capture the value it creates.
Retail suffers from leaky value capture
Hayes Valley has some of the most interesting retail in San Francisco – clothes shops like Marine Layer, Lisa Says Gah and Faherty; some of SF’s best coffee at Ritual; the best bagels in the city at Wise Sons; and some of its best ice cream at Salt + Straw. But the shops there go in and out of business all the time. They barely survive. The neighborhood thrives, the rents go up, the stores struggle.
This is because a big fraction of the value created by these retailers is not captured by them. Consider how you enjoy going into interesting shops – often independent, or quirky, from which you are unlikely to buy something. Going there is a leisure value in itself. Compare to a Walmart where the value is largely in getting food and household items that directly benefit you, and people rarely walk around the shop without buying things.
When an interesting new store, cafe, bar, or restaurant opens up, as well as it profiting from selling its products (if it does), others benefit too: owners of other commercial properties on the street benefit because potential customers are attracted to the area, and owners of homes nearby benefit because their house is now near a nice thing to do. This means that the value of commercial and residential properties go up. A substantial part of the efforts of the retailers on Hayes Street gets realized through the home values of the folks owning Victorians on Fell Street two blocks away.
Home prices near Hayes Valley commercial corridor. Image Zillow.
... continue reading