Commercial developers headed for bankruptcy, naturally asking for a bailout
The most important part of thinking about the future is systems thinking. In our Future Intelligence method, the first part of every project or exercise is to map out the system of any business, activity, or market. Thinking about the beer market? Don’t just stop at consumer tastes, think about packaging, trasnportation, distribution, leisure, sports, etc. That way, you think not just about one kind of change, but the relationships.
This financial crisis is one long lesson on the interconnected nature of all industry, governance, finance, and geopolitics. This is going to surprise you all, but now, since they are part of the whole system, the commercial developers are now asking for bailouts from the federal government.
Let us not consider the merits of such a proposal, but just marvel at how much all of these industries are interconnected. Every actor in the system requires certain behavior from the others in order to survive. When one actor changes (e.g. suddenly ballooning the amount of credit) all the others respond.
Subprime mortgages are now changing the dynamics of the construction of mini-malls around the world.
It’s a mess, but at the very least it’s interesting.
If retail and commercial development are melting down, what comes next?
The retail bubble gets ready to burst
I base much of my prognostication on the future of retail on little more than my hometown of Rutland, 
Vermont. There, jobs have fled the state, while retail space expanded like an aggressive fungus. The model is untenable. Bankruptcy seems the likely result.
Today, 24/7 Wall Street throws its hat in the ring for a retail deathwatch, going as far as to name ten retailers who may not see 2009. The list includes Bon-Ton, Pier 1, Dillard’s, Eddie Bauer, Williams-Sonoma and more.
If this is the end of a business model, what follows for manufacturers, distributors, remaining retailers, city planners, and consumers? A giant strategic question for 2009…
Demise of the mall, parte deux
Furthermore, what designer thought that the zeitgeist of 2008, with all of its systemic change, would be 
best served by a giant mall with a 287-foot ferris wheel?
I’m not an urban design expert. I suppose there’s no accounting for taste.
The demise of the mall?
Factoid of the day: Last year was the first year in half a century that a new indoor mall didn’t open somewhere in the United States - a precipitous decline since the mid-1990s when they rose at a rate of 140 a year.”
Hat tip: Fark Business
We were building 140 malls a year? Really? Does that not seem insane to anybody else?
Prediction: the next bubble to burst will be the glut of retail in the United States.
Signs of the end of the Big Box model
Fareed Zakaria already commented on the fact that over-reliance on equities markets spurred expansion of retail space that should never have been built. My view is that inherent weaknesses in the growth-at-all-costs model will one day cause many of America’s Big Box chains to go bankrupt.
First up: Circuit City.
Who’s next? All I know is that if your business model is built on endlessly cheap goods from China and regular infusions of cash from Wall Street, don’t plan on twenty years of smooth sailing. Maybe not even twenty months.
The future of business: more business, less finance
Fareed Zakaria is taking the long view with our current financial crisis, which naturally impresses me. I am quite glad to read his take on the potential upside of the current financial crisis. His view is that we will finally correct some of our fatally bad habits and return to a more disciplined approach to management.
“The financial industry itself is likely to shrink, and that’s not a bad thing, either. It has ballooned dramatically in size. Curry points out that “30 percent of S&P 500 profits last year were earned by financial firms, and U.S. consumers were spending $800 billion more than they earned every year.”
The notion of 30% of profits coming from people who essentially charge fees to borrow money should have been worrisome. Then again, the idea of running your economy on consumers who were borrowing short of a TRILLION dollars per year should have sent us screaming into the hills.
As a result, most of our top math Ph.D.s were being pulled into nonproductive financial engineering instead of biotech research and fuel technology.
I love this point! It seemed for years that simply “being the best” meant a one-way ticket to Wall Street, not a genuine love or talent for finance. It was no wonder why - that’s where the best salaries and bonuses were, no matter what you did. Yes indeed, those brains would be a real help on all the rest of our challenges!
Capital expenditures went into retail construction instead of critical infrastructure.”
This would explain why my hometown of Rutland, Vermont shrank in population over the past decade (from 20,000 to 17,000,) while it received more than one million square feet of new retail space. The average age of the place is 57, most of our manufacturing and farming jobs are gone, but they put in a dozen new giant retailers. Only fundamental problems with the financial sector could have incentivized this.
I agree with Fareed Zakaria - we’re going to have the opportunity to kick some very bad habits! It sounds like instead of shuffling money through the financial sector, we’ll be more motivated to invest in bridges, solar panels, wind farms, factories, roads and things that will actually improve our future.
A silver lining indeed.
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