"Import Substitution" as a Retail Model for Hyde Park

Discussions about the state of retail in Hyde Park sooner or later include the observation that millions of retail dollars flow out of our neighborhood due to the lack of choice and/or quality.  This article will quickly concede that fact and then aim to convince you that focusing on the money that goes elsewhere actually contributes to money going elsewhere.

Hyde Park is a wealthy neighborhood compared to the rest of Chicago and the rest of the world.  It's a natural inclination to wonder why we can't have a broader selection of retail available here.  However, the idea that we can substitute trips outside Hyde Park for clothing, for example, by bringing in a large retailer of clothing has a number of problems.

First, there's not a single apparel retailer which could possibly appeal to all Hyde Parkers.  We're an especially diverse neighborhood and to satiate our tastes we would still buy the vast, vast majority of our clothing elsewhere.  We face that issue at the Co-op, too.  While the Co-op certainly needs to improve its consistency on the basics-- friendly service, well-stocked shelves and appealing produce-- the notion that one grocery store could satisfy all Hyde Parkers is far-fetched.  Even with a much better run store, we'd still see Hyde Parkers spending grocery dollars elsewhere.  A single large clothing outlet will probably make some Hyde Parkers happier but couldn't possibly come close to solving the perceived problem.

In any case, the focus on bringing in a broad array of retailers to capture more types of neighborhood retail spending may well be counterproductive.  Consider as a rough analogy the Third World development strategy that's pretty much been discarded-- “import substitution”.  The thinking behind import substitution was that a nation would try to decrease imports by developing an array of local industries which could then replace imports by producing domestically. Some large countries like Argentina, Brazil and Mexico had limited success, but smaller nations like the Dominican Republic and Honduras found it counterproductive.

What went wrong?  Let's say a country the size of Honduras decided to reduce auto imports by subsidizing an auto factory and raising tariffs against auto imports.  It's very possible that Honduras could indeed decrease auto imports, but at what price?  The likely scenario would find only one major auto company in that small nation.  The company's financial well-being would not depend on the perceived quality of its products, but rather on the political connections it developed in a quest for subsidies and protection.  Besides swallowing up national resources, that manufacturer would attempt to further monopolize the market.  Honduras would likely have a national auto company with lousy cars and high prices.  (Analogies to perceptions of the Co-op abound here, don't they?)  Competition is the best way of keeping businesses on the ball.

So, what choice do we have for Hyde Park retail besides “import substitution”?  I think we can look to East Asia for another rough analogy, for a better model.  Rather than subsidizing manufacturers who replace imports, East Asian economies like Taiwan and South Korea instead began subsidizing factories which exported goods.  And when that’s been done smartly, it’s worked pretty well, well enough that western nations have fought back with trade agreements aimed at subsidy reduction.

How might that rough analogy shape our thinking about retail in Hyde Park?  Well, if we’re going to try to guide market forces to improve retail in our neighborhood, the better strategy would be to focus instead on businesses that are likely to bring shoppers to Hyde Park from elsewhere.  This translates into subsidizing retail competition, especially in niches where Hyde Park has an inherent advantage.

We often complain about the state of retail in our neighborhood, but rarely does anyone mention that we actually have the best neighborhood in the Midwest for one retail segment: books.  The better approach here would be to think of ways to build on that success and think about how we could promote Hyde Park as a destination for book-buying.

One of the problems with bookstores as a shopping magnet here is that besides O’Gara’s and Powell’s being located across the street from each other, our bookstores are spread out.  The two chain stores-- Borders and Barnes & Noble-- are relatively far away from each other, which is atypical.   The Seminary Co-op, possibly the best store for academic titles in the country is well-hidden far away from any other retail. 

If these stores were along one easily walkable strip, what would happen?  Folks from other neighborhoods would think of Hyde Park as a bookshopping destination.  Plus, businesses which do especially well with bookish people would want to be on that strip.  Would those bookish-friendly businesses also appeal to a lot of Hyde Parkers?  I bet they would.

What retailers do especially well with bookish people?  I can't say I know, but I bet the answer will be surprising and that they will generally tend to coincide with what Hyde Parkers buy disproportionately.  For example, I'd guess that bookish people probably buy more wine than average consumers.  If there were a strip of bookstores attracting shoppers from outside the neighborhood, a specialty wine retailer would probably be attracted to that same strip.

Now here's the key to my argument.  Which retailer would tend to run the better store?  One who felt she just needed to be good enough that Hyde Parkers wouldn't leave the neighborhood for wine or one who recognized that her customers were mostly coming from outside the neighborhood and therefore she was really competing with wine merchants around the city?  That's roughly analogous to the difference between subsidizing for import substitution and subsidizing for export.

I'm not saying this one example presents an easy solution. Relocating all the booksellers in Hyde Park to a half-mile strip would be an expensive undertaking.  I bring it up because that approach should guide how we think about retail here.  Could a couple booksellers be relocated in Hyde Park at a reasonable expense?  Is there some other segment of retail or services that Hyde Park could become a destination for if they grouped together? 

When we look at other retail segments, are we planning to have one dominant player who just has to be good enough not to anger the neighborhood or do we want a couple players who at least have to compete with each other?  And, better yet is to have retailers in Hyde Park competing for dollars from outside Hyde Park.   

Providing goods & services for people outside our neighborhood will increase choices and retail quality for Hyde Parkers.  That’s the better alternative to an “import substitution” strategy which will tend to leave us with unsatisfying monopoly retailers.

Discussions about the state of retail in Hyde Park sooner or later include the observation that millions of retail dollars flow out of our neighborhood due to the lack of choice and/or quality.  This article will quickly concede that fact and then aim to convince you that focusing on the money that goes elsewhere actually contributes to money going elsewhere.

Hyde Park is a wealthy neighborhood compared to the rest of Chicago and the rest of the world.  It's a natural inclination to wonder why we can't have a broader selection of retail available here.  However, the idea that we can substitute trips outside Hyde Park for clothing, for example, by bringing in a large retailer of clothing has a number of problems.

First, there's not a single apparel retailer which could possibly appeal to all Hyde Parkers.  We're an especially diverse neighborhood and to satiate our tastes we would still buy the vast, vast majority of our clothing elsewhere.  We face that issue at the Co-op, too.  While the Co-op certainly needs to improve its consistency on the basics-- friendly service, well-stocked shelves and appealing produce-- the notion that one grocery store could satisfy all Hyde Parkers is far-fetched.  Even with a much better run store, we'd still see Hyde Parkers spending grocery dollars elsewhere.  A single large clothing outlet will probably make some Hyde Parkers happier but couldn't possibly come close to solving the perceived problem.

In any case, the focus on bringing in a broad array of retailers to capture more types of neighborhood retail spending may well be counterproductive.  Consider as a rough analogy the Third World development strategy that's pretty much been discarded-- “import substitution”.  The thinking behind import substitution was that a nation would try to decrease imports by developing an array of local industries which could then replace imports by producing domestically. Some large countries like Argentina, Brazil and Mexico had limited success, but smaller nations like the Dominican Republic and Honduras found it counterproductive.

What went wrong?  Let's say a country the size of Honduras decided to reduce auto imports by subsidizing an auto factory and raising tariffs against auto imports.  It's very possible that Honduras could indeed decrease auto imports, but at what price?  The likely scenario would find only one major auto company in that small nation.  The company's financial well-being would not depend on the perceived quality of its products, but rather on the political connections it developed in a quest for subsidies and protection.  Besides swallowing up national resources, that manufacturer would attempt to further monopolize the market.  Honduras would likely have a national auto company with lousy cars and high prices.  (Analogies to perceptions of the Co-op abound here, don't they?)  Competition is the best way of keeping businesses on the ball.

So, what choice do we have for Hyde Park retail besides “import substitution”?  I think we can look to East Asia for another rough analogy, for a better model.  Rather than subsidizing manufacturers who replace imports, East Asian economies like Taiwan and South Korea instead began subsidizing factories which exported goods.  And when that’s been done smartly, it’s worked pretty well, well enough that western nations have fought back with trade agreements aimed at subsidy reduction.

How might that rough analogy shape our thinking about retail in Hyde Park?  Well, if we’re going to try to guide market forces to improve retail in our neighborhood, the better strategy would be to focus instead on businesses that are likely to bring shoppers to Hyde Park from elsewhere.  This translates into subsidizing retail competition, especially in niches where Hyde Park has an inherent advantage.

We often complain about the state of retail in our neighborhood, but rarely does anyone mention that we actually have the best neighborhood in the Midwest for one retail segment: books.  The better approach here would be to think of ways to build on that success and think about how we could promote Hyde Park as a destination for book-buying.

One of the problems with bookstores as a shopping magnet here is that besides O’Gara’s and Powell’s being located across the street from each other, our bookstores are spread out.  The two chain stores-- Borders and Barnes & Noble-- are relatively far away from each other, which is atypical.   The Seminary Co-op, possibly the best store for academic titles in the country is well-hidden far away from any other retail. 

If these stores were along one easily walkable strip, what would happen?  Folks from other neighborhoods would think of Hyde Park as a bookshopping destination.  Plus, businesses which do especially well with bookish people would want to be on that strip.  Would those bookish-friendly businesses also appeal to a lot of Hyde Parkers?  I bet they would.

What retailers do especially well with bookish people?  I can't say I know, but I bet the answer will be surprising and that they will generally tend to coincide with what Hyde Parkers buy disproportionately.  For example, I'd guess that bookish people probably buy more wine than average consumers.  If there were a strip of bookstores attracting shoppers from outside the neighborhood, a specialty wine retailer would probably be attracted to that same strip.

Now here's the key to my argument.  Which retailer would tend to run the better store?  One who felt she just needed to be good enough that Hyde Parkers wouldn't leave the neighborhood for wine or one who recognized that her customers were mostly coming from outside the neighborhood and therefore she was really competing with wine merchants around the city?  That's roughly analogous to the difference between subsidizing for import substitution and subsidizing for export.

I'm not saying this one example presents an easy solution. Relocating all the booksellers in Hyde Park to a half-mile strip would be an expensive undertaking.  I bring it up because that approach should guide how we think about retail here.  Could a couple booksellers be relocated in Hyde Park at a reasonable expense?  Is there some other segment of retail or services that Hyde Park could become a destination for if they grouped together? 

When we look at other retail segments, are we planning to have one dominant player who just has to be good enough not to anger the neighborhood or do we want a couple players who at least have to compete with each other?  And, better yet is to have retailers in Hyde Park competing for dollars from outside Hyde Park.   

Providing goods & services for people outside our neighborhood will increase choices and retail quality for Hyde Parkers.  That’s the better alternative to an “import substitution” strategy which will tend to leave us with unsatisfying monopoly retailers.