Retail trade in northern Delaware seems to be in a funk. Between 2007 and 2014 total inflation-adjusted retail sales in New Castle County decreased 11%. Retail trade employment is down by over 7% and the total number of retail trade establishments has dropped by almost 11%. What explains this?
First, households are still retrenching from the four decade consumer debt binge that culminated in 2008. The ratio of household debt to wage and salary income has dropped from 2.34 to about 1.75. Simultaneously, wage and salary growth is historically slow.
Second, there is a huge structural shift of retail sales away from brick and mortar sites to the Internet. Internet retail sales have increased by double digits for five years straight. Many of the traditional department stores (e.g., Macy's) are maintaining sales income by shifting steadily to the Internet. Why then are regional malls, such as Christiana, still adding floor space?
Nationally the rents in regional malls have been flat since 2009 and vacancy rates are nearly double their prerecession levels. The answer, as is evident across the economy, is cheap credit as a result of liberal monetary policies_OLD. Despite contrary market signals, investment continues to flow into the supply side of regional mall retail trade.
Two things are clear. First, despite high retail sales per resident due to the absence of a sales tax, retail trade will no longer be a growth center for Delaware economic development. Second, the easy money policy since the recession has generated an asset bubble without substantively improving the economic condition of the average household. And bubbles always burst.
By Dr. John E. Stapleford President Caesar Rodney Institute