22 Jan

Washington D.C.-area pegged a good bet for Amazon’s 2nd headquarters

Three locations in and around the nation’s capital are among the finalists for Amazon’s second headquarters, fueling speculation that the Washington, D.C. area is at the top of the tech giant’s list and that it may be trying to pit the sites against one another to wrangle incentives.(The Associated Press)

Urban experts and Irish oddsmakers say the Washington, D.C.-area’s chances of landing Amazon’s second headquarters jumped significantly last week when the region won three spots on the company’s list of 20 potential locations.

Greater Washington has most of the attributes the online retail giant says it wants for the project, a $5 billion investment that will create as many as 50,000 well-paying jobs. The region has one of the nation’s best-educated workforces, a diverse population, international airports and public transit. It can’t hurt that Amazon founder Jeff Bezos bought a $23 million mansion in the District of Columbia a year ago and owns The Washington Post.

"I think their eyes are on D.C.," said Richard Florida, a professor at the University of Toronto and author of influential books on urban issues. "For Amazon, it solves a lot of problems."

But the three contenders on Amazon’s shortlist — the District, Montgomery County, Maryland, and northern Virginia — still face strong competition from large, cosmopolitan metro areas including New York, Boston and Atlanta.

In addition, a historical lack of cooperation among the District, Maryland and Virginia threatens the region’s bid, according to local officials and academic analysts.

Seattle-based Amazon has said it wants a strong, stable working relationship with local authorities. That poses a challenge for a region where power is split among two states and a federal district. The area’s well-known failure in recent months to agree on how to fund its rail transit system, Metro, has highlighted the problem.

"Washington has a really good chance if they are cohesive," said Amy Liu, director of the Metropolitan Policy Program at the Brookings Institution. "Unfortunately, that’s not where the region is."

Greater Washington was the only metropolitan area in the competition with three locations to make the cut.

That helped lead Dublin-based Paddy Power bookmakers to say the odds for Montgomery County jumped dramatically, from a 250-1 long shot to one of the favorites at 8-1. The District was close behind at 10-1, while northern Virginia placed at 20-1.

The oddsmaker saw Boston as the most likely winner, with odds at 3-1, followed closely by Austin and Atlanta.

Each of the Washington-area locations suggested more than one site for the Amazon campus, which the company said would require as much as 8 million square feet of office space.

Montgomery County and northern Virginia have not publicly divulged the sites, for fear of hurting their competitive position. But local officials, speaking on the condition of anonymity, identified some of the locations. Montgomery, they said, has proposed two Maryland sites: White Flint and another nearby in North Bethesda. Both have support from the state and county.

Sites proposed in northern Virginia, the officials said, which also are said to have state support, include:

A plot near Dulles International Airport occupied by the Center for Innovative Technology and supported jointly by Fairfax and Loudoun counties. A site in the Crystal City/Potomac Yard area, backed by Arlington and Alexandria. Two sites in Prince William County — Potomac Shores in the eastern part of the county and Innovation Park in the western part.

The District has publicly identified four sites: Anacostia Riverfront, NoMa-Union Station, Hill East and Shaw-Howard University.

Some observers said the Washington region should have agreed jointly on a single site and offered it. A unified pitch would be stronger, and everybody in the area benefits no matter which one gets the prize.

"D.C. might stand to be a big beneficiary, even if Arlington gets the ultimate nod," said Harriet Tregoning, a former planning and development official at the U.S. Department of Housing and Urban Development.

The Metropolitan Washington Council of Governments studied the possibility of a joint regional proposal in September, but the area jurisdictions quickly decided to go their own ways.

One obstacle: The District, Virginia and Maryland would have found it difficult, if not impossible, to offer subsidies for a project to be built outside their jurisdictions.

Amazon’s inclusion of three locations in the Washington area fueled speculation that the company has the region at the top of its list and wants to pit the three sites against one another in offering financial breaks.

"This is a textbook example of how to wrangle incentives," Florida said.

There were signs that the region’s governments were prepared to deliver. Maryland Gov. Larry Hogan, R, disclosed Thursday that Maryland’s inducements to lure Amazon totaled more than $5 billion. The offer, which Hogan was to describe in detail on Monday, includes tax incentives and transportation improvements.

That would be by far the biggest economic development package ever offered in Maryland. By contrast, the state and county extended loans, tax credits and grants totaling $62 million to Marriott International last year to build a new headquarters in Bethesda.

Montgomery County Executive Isiah Leggett acknowledged the incentives offered to Amazon were large but suggested they were worth the price given what 50,000 new jobs would mean.

"I believe they are affordable. I believe they are in the public’s interest," said Leggett, who declined to divulge the package’s contents.

Even at $5 billion, Maryland’s package was smaller than the one offered by New Jersey. It said its inducements, in hope of attracting the company to Newark, were worth $7 billion.

Virginia and the District both declined to say whether they would match Maryland’s offer.

Suzanne Clark, communications director for the Virginia Economic Development Partnership, said it could not provide details "for competitive reasons and to protect confidential company information."

Brian Kenner, District deputy mayor for planning and economic development, said winning the Amazon contest would "accelerate the growth of … vibrant [D.C.] neighborhoods, and we will offer incentives appropriate to that impact."

Although Amazon is trying to extract the biggest grants and tax breaks it can, local officials and private analysts said the single biggest factor for the company is a region’s ability to attract and retain a high-quality workforce over decades.

That augurs well for greater Washington, partly because its population includes a high percentage of people with college and postgraduate degrees. The area also includes numerous vibrant, walkable neighborhoods — such as Penn Quarter, Bethesda and Clarendon — that are desirable to millennial professionals whom Amazon wants to hire.

Victor Hoskins, director of economic development for Arlington, said his county’s pitch to Amazon noted that 36 percent of the working population has advanced degrees.

Hoskins also addressed concerns that a huge influx of residents would swamp the winning location. He said the key to absorbing the surge was to add infrastructure in phases over eight to 10 years.

"You build the commercial building first …[and then] you build the housing related to that," Hoskins said. "We have a history of developing very well-planned communities. We would use that knowledge base to make sure this didn’t overwhelm our community."

Many officials and analysts thought the Washington region could best demonstrate to Amazon its readiness to cooperate by uniting around a funding plan for Metro.

"There’s no question Amazon needs a well-functioning transit system, making the imperative for all three jurisdictions to act together on Metro to provide dedicated funding and real governance reform even more urgent," said Jason Miller, chief executive of the Greater Washington Partnership.

"More broadly, a demonstration of regional unity can make clear to Amazon that regardless of which of the three locations that it chooses, they will be getting the best the capital region has to offer."

Liu, of Brookings, added: "D.C., Maryland, and Virginia came together for the Olympic bid. They can do that again for the Amazon bid."

— The Washington Post

The notion of the "zombie retailer" came into vogue after the 2008 bankruptcy of Circuit City, which liquidated its 567 U.S. stores, including this one in Jantzen Beach. Its intellectual property was bought in 2016 and the brand reemerged as an online retailer.

"Everything dies, baby, that’s a fact.

But maybe everything that dies someday comes back."

—"Atlantic City" by Bruce Springsteen

In retail, some brands that could no longer cut it with brick-and-mortar stores are getting a second wind in the digital world.

Take the apparel retailer the Limited, a fixture in malls that provided professional women with blazers, dresses, and trousers at midprice points. Its death was swift and sudden and reflected the impact of the online powerhouse Amazon on traditional retailers.

The chain announced on Jan. 7, 2017, that it would no longer operate stores. It shut all 250 of them in 42 states, along with its website. It filed for Chapter 11 bankruptcy protection a week later in U.S. Bankruptcy Court.

Another women’s clothier, Bebe, also filed for bankruptcy and closed all of its stores to focus on selling online.

On Feb. 24, 2017, the private equity firm Sycamore Partners announced it had purchased the Limited’s brand and website, through a competitive auction as part of the bankruptcy proceedings.

Sycamore relaunched the brand’s website last fall – sans stores – and promised to communicate with the Limited’s loyal customers about how to obtain the merchandise "they know and love."

Sycamore, which specializes in consumer and retail investments, partners "with management teams to improve the operating profitability and strategic value of their businesses," the company mission states.

The firm’s investment portfolio now includes Belk, Coldwater Creek, Dollar Express, EMP Merchandising, Hot Topic, MGF Sourcing, Nine West Holdings, Talbots, and Torrid. In fact, Limited merchandise is also available on belk.com or in Belk stores.

Limited.com is still in its first quarter of operation strictly as a web retailer. No sales figures are available and Sycamore, as a privately held company, declined comment on how the brand’s online conversion has fared.

The idea of going exclusively digital runs counter to the strategy of some successful online retailers, such as the eyewear maven Warby Parker and the menswear retailers Bonobos and Tommy John, which are opening stores. But analysts say the online-only approach will likely continue due to the high costs of rent and staff and the decline in mall traffic.

"Wall Street is increasingly using the term zombie for any retailer that is struggling, as a kind of walking-dead euphemism," said Garrick Brown, head of retail research at Cushman & Wakefield.

The notion of the "zombie retailer" really came into vogue after the bankruptcy of Circuit City in 2008, Brown said. Though the retailer was liquidated, its intellectual property was bought in 2016 and the brand reemerged as an online consumer electronics retailer.

"But when it reappeared online, it was only the same company as before in name only," he said. "It was a retailer that died and came back to life but in a form that while familiar, was totally different. A zombie."

On Jan. 8 at the Consumer Electronics Show in Las Vegas, current Circuit City CEO Ronny Shmoel promised a relaunch using the latest and most advanced technology for "a new, more personalized online shopping experience" starting Feb. 15.

"With retail bankruptcies elevated, you are going to see more zombies in the next few years," Brown said.

Among the bankruptcies of 2017 were those of American Apparel, BCBG Max Azria, Rue21 and Wet Seal. Many were due to declining sales and a heavy debt load as the combined burdens were too much to bear.

"Most of the retailers that are struggling still have loyal core consumers," Brown said. "They just don’t have enough of them. I think that if a brand is a household name, or if it has a positive reputation or brand cachet, it will be a candidate for this (digital focus). Someone will eventually buy the intellectual rights for many of these brands and eventually they will start popping up online."

Retail analyst Simeon Siegel, executive director at Nomura/Instinet Equity Research, said pure e-tailers’ physical stores validate the brick-and-mortar strategy. But "it is clear that certain companies may simply not be able to sustain them. And if a company has no stores, it will have shed itself of painful fixed expense (i.e., rent)."

Marc Prosser, cofounder and publisher at FitSmallBusiness.com, an educational business website for small-business owners, also predicts online-only growth as the traditional need for storefronts as giant billboards declines.

"The value of having a large physical footprint is declining, as shoppers increase their online activity and malls lose foot traffic," Prosser said. "The costs and risks of launching a major online presence has fallen dramatically as technology has become cheaper and more standardized. The combination of lower costs for going online and less return from physical locations means more chains moving to online-only format."

How well the online shift works, he said, depends on whether the retailer has a good fit with the web, such as unique merchandise, a strong identity, or if the brand can provide services that mimic or provide the same benefits as store locations.

"It’s not about just saving money, but about shifting your business and having different sets of costs," Prosser said. "No question it’s going to increase."

—Tribune News Service

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