Something Afoot?

Updates

April 28, 2013: in the post below, I opine that agreeing to collect taxes, Amazon will benefit. It's counter-intuitive, but it is what it is. Now, tonight, I see that others now agree. The story is in the New York Times about how collecting sales tax is no longer an issue.

Original Post

This is a huge story, the story linked down below about the massive distribution centers going up in California. There are a lot of story lines. There are dots to connect, data points that have been bouncing around for the past couple years:

• the ports of Los Angeles and Long Beach have been growing over the past couple of years (for newbies), south of Los Angeles, there is a huge natural harbor, San Pedro Harbor; inside this harbor are the two ports, but to the casual observer, it's hard to separate the two; they are "side-by-side" (quay-by-quay?)
• a large port was planned on the west coast of Mexico; south of LA; not sure of the status
• on-line shopping
• shopping malls losing their appeal
• starting about a year ago, started seeing stories about US manufacturers bringing overseas factories back to the states
• energy renaissance in the US
• Asia booming; Europe in recession, but worse, Eurozone in struggle for its life
• LNG/CNG corridors 
• years ago, BNSF and UPR were in a race to get dual tracks from Chicago to Los Angeles; I've long forgotten who won the race (hardly matters any more); and I believe BNSF has triple tracks over the pass

This is the reason this story got me so excited. About one year before the Bakken boom "exploded," a developer put up a string of state-of-the-art warehouses south of the 4-mile corner west of Williston. They were among the nicest warehouse/office buildings that had gone up in Williston in quite some time. They were built on "spec" -- speculation. The developer did not have a buyer. In the autumn of 2011, all of those warehouses were occupied. Either great intuition, luck, or great "insight." I think the latter, based on correct reading of the tea leaves.

Now the linked story that got me so excited.

The Los Angeles Times is reporting:

Nestled on the windy plains at the foot of the San Bernardino Mountains, once austere stretches of agricultural land have morphed into the country's most desirable industrial real estate market, and it is growing faster than any other industrial region in the U.S.
Among the many merchants running large-scale operations now are such household names as Amazon.com Inc., Kohl's Corp., Skechers USA Inc., Mattel Inc. and Stater Bros. Markets.

They come for vast warehouses — some are bigger than 30 football fields under one roof — where they can store, process and ship merchandise such as clothes, books and toys to ever more online shoppers and handle the rising flood of goods passing through the ports of Los Angeles and Long Beach.

The clamor for these big buildings is so intense in San Bernardino and Riverside counties that developers are erecting more than 16 million square feet of warehouses on speculation, meaning they are gambling that buyers or renters will rush forward to claim the buildings by the time they are complete.

From wiki:

In the mid-20th century, with the rise of the suburb and automobile culture in the United States, a new style of shopping center was created away from downtown. Mall construction in America was encouraged by the accelerated depreciation laws of 1954, which incentivized greenfield development on the urban fringe. A second stimulus came from legislation passed in 1960, which allowed investors to band together in REITs (Real Estate Investment Trusts) to avoid corporate income taxes. The laws helped to shape the familiar exurban landscape of malls, motels and fast food chains.

When you read stories like the one in the LA Times about massive distribution centers, one begins to wonder if we aren't moving to a huge new phase in the US. Again, from wiki:

In the mid-1990s, malls were still being constructed at a rate of 140 a year. But in 2001, a PricewaterhouseCoopers study found that underperforming and vacant malls, known as “greyfield” and “dead mall” estates, were an emerging problem. In 2007, a year before the crash, no new malls were built in America, for the first time in 50 years. A mall in Salt Lake City which opened in March 2012 was the first to be built since then.

I think folks can connect the dots, make up their own story to explain all this, write their own narrative. That's pretty straightforward.

What is not straightforward is this: what was the tipping point? Why distribution centers now? What changed?

I think you can go back to the story that was posted September 15, 2012: Free ride is over: Amazon.com collecting California sales tax.

Amazon.com was holding itself back by not putting distribution centers in California. By not having a physical presence in California, Amazon.com argued it did not have to collect California state taxes. That gave the company an advantage, but it finally ended.

Amazon.com is the recognized leader in on-line retailing/distribution.

It did not have a physical presence in California; that way it could get away without charging California sales tax.

When they finally had to start paying California sales tax, they were "free" to build distribution centers in California (not paying taxes gave them a leg up on the competition).

Once they (Amazon) started building massive distribution centers in California, the competition was forced to follow. These massive distribution centers by Kohl's, Sketchers, etc. were bound to happen at some point as the US retail model shifts from shopping malls to on-line, home-delivery (OLHD).

But when Amazon moved in, the other retailers knew they didn't want to be last. And the race was one.

The tipping point? Amazon paying California sales tax. As long as they stayed out of state, other retailers could delay similar plans.

***********************
A Note To The Granddaughters

The post didn't have much (anything?) to do with the subject line, "something afoot?"  I changed the story line once I started writing, but I left the subject line as is. There may still be another story to write.

The general tone on CNBC with the market rally is that the consumers are burned out, this rally won't last, the market is headed for another correction. That may be accurate.

Wow, it is fun to blog. In a minute you will see why.

So, anyway back to the story line: the general tone on CNBC with the market rally is that the consumers are burned out, this rally won't last, the market is headed for another correction. That may be accurate. But the linked story above about the massive distribution centers in southern California certainly suggest something different. But I'm sure CNBC could find a negative aspect to that story. "Are they at risk to southern California wildfires. If a warehouse burns would it push the US into recession? Are these warehouses too big to fail?"

I can honestly say that listening to CNBC, when I do, is generally depressing. So much angst, so much news posted in a negative light. But have you noticed that when CNBC's California correspondent, Jane Wells, comes on, the whole tone brightens? She is almost always filmed outside (in fact, I don't recall any inside shots) where there is bright sunshine, at most a light breeze, and almost never any precipitation. And even when reporting bad news, when Jane Wells reports it, it doesn't seem so bad (wow, I hope they never bring her to New York; if anything they need to bring Erin Burnett out to California and let Jane and Erin, or Erin and Jane, have their own business news show).

In California there seems to be only two type of news: a) bad news, and that is about 90% foreclosure-related; and, b) nutty news, and that is about 90% bullet-train-related.

And this is why blogging is so much fun. I wanted to make sure I had her name correct. I see Jane Wells graduated with honors from the University of Southern California. My alma mater. Whoopee.

***********************

It never rains in southern California:
It Never Rains In Southern California, Albert Hammond

I can honestly say, at this moment in time, there's no place I would rather be than in southern California. Preferably in 1972.