Sharecropping on Madison Avenue, NYC

Even Luxury Stores Can’t Afford Madison Ave - NYTimes.com

a few paragraphs from the middle of the article:

Madison Avenue has traditionally catered to the wealthy, but until Polo Ralph Lauren opened at the former Rhinelander Mansion on 72nd Street in 1986, most of the shops were private boutiques like E. Braun. In 1998, the stretch on Madison Avenue known as the Gold Coast surpassed Causeway Bay in Hong Kong as the most expensive shopping strip in the world, Cushman & Wakefield reported, with annual rents averaging $550 a square foot. By then, Giorgio Armani had two 16,000-square-foot stores on Madison and Hermès was about to move there from 57th Street.

For many international retailers, a Madison Avenue address was viewed as essential for promoting their brand, even if sales were not robust enough to justify the rent. Often, part of the rent came out of the marketing budget —a practice that brokers say is fast disappearing.

Rents began escalating rapidly a few years ago, after the stores on the Madison Avenue side of the General Motors Building, at Fifth Avenue on 58th and 59th Streets, were expanded and began commanding annual rent of more than $1,000 a square foot, said Benjamin Fox, the president of Winick Realty Group, a New York retail brokerage.

In 2007, fancy jewelers clustered on the avenue, especially between 61st and 64th Streets. They were able to afford higher rents because their costly merchandise could fit into smaller spaces and more revenue could be squeezed out of every inch. Rents skyrocketed to $1,250 a foot or even more. (Even so, Fifth Avenue between 49th and 59th Streets is now ranked as the world’s costliest shopping strip, with asking rents as high as $2,000 a foot. Its luxury tenants share the avenue, however, with shopping-mall clothing chains like Diesel and Abercrombie & Fitch.)

Retailers typically expect their rent to equal about one-tenth of their sales volume. “In a prime location like Madison Avenue, most retailers will change that to 25 percent,” said Joel Isaacs, the president of Isaacs & Company, a retail brokerage. Even under that formula, a tenant paying $1.25 million for 1,000 square feet would need to have nearly $5 million in annual sales.

One tenth of sales volume!  One quarter of sales volume in prime locations!!  And that isn't for a fancy, well-outfitted building; it is for the prime location.  It used to be that retailers marked up the goods they bought at wholesale by 100%.  If that is still the case, then landlords are getting 1/5 of gross sales in ordinary location and 1/2 in prime locations.

Landlords, as the classical economists recognized, grow wealthy in their sleep.  Having acquired excellent sites, they need do nothing further.  They are permitted to reap what others sow, and we're so used to it we don't even notice.  Their trusts can collect the rental income in perpetuity, long after they're dead.  Remember the name Astor?

If we relieved the landlords of the portion of that "take" which is a function of the value of the location, we would no longer need to tax wages, and sales, and buildings.  Wages would rise.  Entrepreneurial opportunities would rise as prime sites got put to better use.  

Remember Leona Helmsley's oft-quoted statement?  It WASN'T about tax evasion; it was about how we have things set up:

"We don't pay taxes, only the little people pay taxes."

See also Winston Churchill, at quoted at http://lvtfan.typepad.com/lvtfans_blog/2008/07/leona-helmsleys.html.   .... 100 years ago, in 1909 ...

See also http://www.wealthandwant.com/themes/Sharecropping.html.  see in particular Joe Stliglitz's comment:

My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it's worse than a tax. Because it's not a land tax, it's a tax on their labor. And it's a tax that goes to the landlord rather than to society.

Who should that tax go to?  We the people, or the lucky-duck landholders of NYC??   

Is this a structure that serves us well?