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Amazon’s retail power is being called into question with its plan to buy Whole Foods.

Amazon $13.7 billion deal to buy Whole Foods has sparked growing concerns that the web giant is getting too big and could start to throw its weight around.

Rep. David Cicilline (D., R.I.), a member of the House Judiciary Antitrust Subcommittee, called for a full congressional oversight hearing on the deal, citing the possible effect the merger could have on other grocery stores and their workers. The proposed transaction, however, does not raise obvious antitrust red flags.

“While several leading antitrust scholars have expressed doubt that the transaction will result in higher prices for consumers, it nevertheless occurs amidst waves of consolidation in recent decades that have decreased wages and resulted in gross inequality in the workplace,” Cicilline said in a letter to the Subcommittee on Regulatory Reform, Commercial and Antitrust Law.

The letter comes about a month after Rep. Ro Khanna (D., Calif.) expressed concern over the deal, saying it was likely to “hurt” grocers in his district, which covers a chunk of Silicon Valley.

An Amazon spokesman declined to comment.

University of Michigan antitrust law professor Daniel Crane is one scholar who’s been vocal about the propriety of the Amazon Whole Foods deal on Twitter, saying recently that it’s a simple “vertical merger.”

“From an antitrust perspective, that’s all she wrote,” Crane noted.

Although a congressional hearing would ostensibly explore the potential impact of the deal for consumers, Congress has no actual role in approving Amazon’s proposed acquisition. That responsibility in this case will belong to the Justice Department or the Federal Trade Commission.

Beyond the possibility that Amazon’s expansion into food retail could depress wages, Cicilline said he’s been hearing concerns over Amazon’s already extensive advantages “in terms of size, consumer reach and ability to absorb losses,” which could be enough to quell innovation and competition in grocery and food delivery.

Cicilline also cited concerns that the Whole Foods deal will further increase Amazon’s dominance online, enabling it to push even more of its own products and services ahead of competitors, regardless of who has the best price, in addition to giving it more power to set prices for even more goods. (Fashion is one area where Amazon is expanding, having launched its own private-label brands, inked deals with big names such as Nike and set up a box delivery program, Prime Wardrobe).

“Expanding its retail footprint through this transaction may increase the risks of self-dealing and preferential treatment of its goods on this platform,” Cicilline said.

Unbridled self-promotion has been a concern for European antitrust regulators, which last month hit Google with a record 2.4 billion euro fine after finding the search engine rigged search results to favor its own shopping platform. But so far, that’s not been much of a concern for U.S. regulators.

Nor has Amazon’s offer to buy Whole Foods.

While Amazon is undeniably a power player in e-commerce and increasingly retail at large, as well as a company with expansion in mind, it is not a dominant force in grocery and acquiring Whole Foods won’t immediately make it one.

Even if it was poised to become a giant grocer with the deal, antitrust regulators generally like to have some evidence of consumer harm, like price-fixing, before impeding acquisitions. So far, there’s nothing concrete to support the notion that Amazon’s version of Whole Foods will depress prices in the grocery industry or put a dent in worker wages, even if it brings cashierless Amazon Go technology into the fold.

Commerce Secretary Wilbur Ross has signaled that Amazon will have little standing in the way of regulatory approval of the deal, saying during a late June appearance on Fox Business Network that nothing Amazon has done “would qualify remotely for antitrust consideration” despite its growing power in retail.

“I don’t think big or powerful in and of themselves are that big of a problem,” Ross said. “I think the real problem is if they begin to abuse whatever power they have.”

But this seems contradictory to comments by President Trump, who has shown some hostility toward Amazon, its founder Jeff Bezos and naturally, The Washington Post, which Bezos owns.

“He’s got a huge antitrust problem because he’s controlling so much,” Trump said of Bezos in May 2016 while campaigning. “Amazon is controlling so much of what they’re doing.”

The president more recently lashed out at “#AmazonWashingtonPost” in a Twitter post at the end of June, characterizing Amazon as “the guardian” of the newspaper and accusing the company of not paying “Internet taxes.” The White House has yet to clarify the meaning of the tweet, but Trump’s rancor is obvious.

Whether or not that will translate into issues for Amazon as it continues to expand and gain power in retail remains to be seen, but as the saying goes, politics can make strange bedfellows.

Barry C. Lynn, director of the Open Markets Program at left-leaning think tank New America, has openly called for regulators to block the acquisition, and said after the deal was announced that it will only serve to “worsen the already severe damage that Amazon is doing to America’s competitive, open-market system.”

“This corporation already dominates every corner of online commerce, and uses its power to set terms and prices for many of the most important products Americans buy or sell to one another,” Lynn said. “Now Amazon is exploiting that advantage to take over physical retail.”

While Amazon said the Whole Foods acquisition was likely to close later this year, if public criticism keeps up, it may have more of a fight on its hands than it bargained for.

For now, investors don’t seem too worried. Shares of the company inched up 0.1 percent to $1,001.81 Friday, giving it a market capitalization of $478.84 billion.

But that was then, this is now.

It was before the dollar achieved near-parity with the euro, President Trump’s immigration policies had an additional chilling effect on tourism — NYC & Co., which promotes tourism in the city, expects 300,000 fewer international visitors this year — and before department and specialty stores started their downward spiral.

Now, with about 8,000 stores expected to close nationwide by the end of the year, e-commerce continuing to chip away at brick-and-mortar sales and few new retail concepts on the horizon, Manhattan’s real estate picture has darkened.

Vacancies in the first quarter rose 25 percent over last year’s same period, according to CBRE, and Fifth Avenue, Madison Avenue and SoHo are pockmarked with vacant stores.

Investors that bought retail co-ops at the height of the overheated market justified their heady rents on their heavy debt loads. But profitability became elusive and retailers closed locations. Rents are declining and some experts are calling it a correction. Everyone is wondering whether the industry has hit bottom.

“New York finally red lined,” said Jeffrey Paisner, partner at Ripco. “Rents went up too consistently and too much.”

The Real Estate Board of New York’s spring 2017 report found that asking rents in 14 of Manhattan’s 17-high profile corridors declined year-over-year. Asking rents on Madison Avenue between 57th and 72nd Streets fell 12 percent; Fifth Avenue between 49th and 59th Streets, 2 percent; 34th Street, Herald Square, 18 percent; Fifth Avenue between 42nd and 49th, 15 percent; Broadway and Seventh Avenue between 42nd and 47th Streets, 18 percent; Broadway in SoHo, 1 percent, and Bleecker Street, 27 percent.

Few retail districts rose so high and fell so fast as Bleecker Street. “It was hot and there was little vacancy,” said Robin Abrams, vice chairman and principal of Eastern Consolidated. “Rents were overly aggressive at $600 to $800 a square foot and tenants couldn’t sustain the rents. We’ll see how Bleecker Street reinvents itself.”

At its height, retailers on Bleecker Street included Olive & Bette, Lulu Guinness, Coach, Comptoir de Cotonniers, serial Marc Jacobs concepts and multiple Ralph Lauren units. The many closures on Bleecker Street have attracted the attention of Brad Hoylman, New York State senator for the 27th district, which includes Greenwich Village, the East Village and Chelsea. Hoylman attributed the situation to “high rent blight, where independent businesses are forced out because of exorbitantly high rents.”

Landlords aren’t budging on pricing and instead are “hedging their bets for getting bigger bucks and longer leases with high rents,” Holyman said. “The market has no morals. If we leave it up to the market, we will see the trend continuing.”

Holyman plans to introduce legislation on Formula Zoning Restrictions that limit the number of national chain stores in an area. He also supports phasing out tax deductions for landlords with retail space that’s been vacant for over a year. “Bleecker Street serves as a cautionary tale of how high rents in the Village and Chelsea are pushing out longtime independent business,” Holyman said.

It’s not only independents that are finding the economics of Manhattan retail real estate to be a drag on profitability. Ralph Lauren Corp. in April said it will close its Polo flagship on Fifth Avenue, shocking the fashion and real estate industries.

“Very few retailers can profit at rents of $3,000-plus per square foot,” said Jared Epstein, vice president and principal of Aurora Capital, citing the 50s block of Fifth Avenue as an example. “Flagship stores are a powerful asset for retailers. They create incredible brand awareness and drive online sales, but when the occupancy and labor costs create a multimillion dollar annual burden that threatens the stability of the company, it’s a problem that has to be addressed. Ralph Lauren closing the Fifth Avenue flagship is a perfect example. Retailers open stores to make money and flagships aren’t an exception.”

Lauren signed the Polo flagship’s lease in mid-2014 for a 15-year term that set the annual rent at $25 million.

According to data from CBRE and CoStar, there have been 689 leases signed to date in 2017, representing 1.8 million square feet. This compares to 1,797 leases and 5.1 million square feet in 2016 and 1,587 leases and 4.5 million square feet in 2015. “Based on the leasing velocity we’re seeing I’d say that 2017 won’t be as strong as 2016,” said David LaPierre, vice chairman of CBRE’s global services team. “Demand is significantly down. The deals we’re seeing most of are repositionings and lease renewals. Something’s got to spur demand. The appetite for retail has softened, but the market is going to find its equilibrium.”

There’s no shortage of parties to blame for the situation. Gene Spiegelman, vice president of Cushman & Wakefield, cited Wall Street’s voracious appetite for growth, which led retailers such as Gap and Victoria’s Secret to overexpand. “Private equity is also becoming a drag on the whole industry,” Spiegelman said. “How many businesses have negatively been impacted by private equity, where it accelerated their demise. They have a lot of debt and have to respond to the marketplace and there’s now a different metric.”

“Rents in many Manhattan submarkets were pushed to stratospheric levels by real estate investors that needed super-charged rents to justify their purchases at record prices,” said Epstein, whose Aurora Capital owns retail property in SoHo, the Meatpacking District, West 34th Street, Fifth Avenue, Harlem and Brooklyn.

GGP‘s 2015 acquisition of the Crown Building on Fifth Avenue and 57th Street with partner Jeff Sutton for $1.75 billion — the highest price paid for an office building at the time is an example. Given the debt on their books, GGP and Sutton charged Bulgari $5,500 per square foot for its 3,000-square-foot flagship, the highest rent on Fifth Avenue by far. Sutton last year leased a 9,000-square-foot space in the building to Ermenegildo Zegna with a reported asking rent of $4,000 a square foot, a premium over the $3,324 a square foot average, according to REBNY.

A parade of retailers have closed stores on Madison Avenue, including BCBG Max Azria, Kara Ross and Zegna, which moved to Fifth Avenue, among others. Matthew Bauer, president of the Madison Avenue Business Improvement District, acknowledged the departures and the street’s 9 percent vacancy rate, but touted new additions to the thoroughfare, such as Balenciaga, Golden Goose, Ever After Shop, Stella McCartney and Ceysson & Bénétière.

Potential tenants are still spooked. Julie Wainwright, founder and ceo of The Real Real, recently signed an 8,000-square-foot lease in SoHo for the company’s first store, part of a rollout that will see more units in Manhattan. “We’re a little leery of going uptown right now, especially to Madison Avenue,” she said. “There are too many vacancies. It’s a little scary.”

“It’s been coming, it’s come, and now we’ll be more stable,” said Joanne Podell, vice chairman of Cushman & Wakefield, referring to the rent reset, adding that fewer retailers today are actively opening stores.

Since rents have dropped, Podell said, brands such as Bonobos, Trunk Club and Warby Parker “have been coming to us and saying, ‘Let’s just talk.’ It’s a new paradigm. Urban flagships create not only energy, but retailers can preview new product launches.”

“Retail is going to continue to fill high streets in the U.S. with flagship locations,” said Chris Conlon, executive vice president and chief operating officer of Acadia Realty Trust, adding, “Rents are off by about 10 percent to 30 percent in critical New York submarkets, and if anyone thinks that’s not a reality, they’re in denial.

“Rents grew by between 5 percent and 20 percent per year for a number of years until 2015,” Conlon said. “It’s not a sustainable growth pattern. Paying $1,200 per square foot on Prince Street in SoHo was never happening. I’m happy we didn’t buy into that market too much. We expect to be investors and take advantage of the distress.”

Thor Equities founder and ceo Joseph Sitt, a scrappy Brooklyn native who founded the Ashley Stewart chain, is one of the city’s biggest retail investors. Sitt paid top dollar for trophy addresses such as 693 Fifth Avenue, where Valentino reportedly pays rent of $3,000 a square foot. Despite the fact that tenants have reportedly balked at Thor’s asking rents, Sitt said, “We’ve been aggressively looking for opportunities to buy, but everyone wants to own New York real estate, so prices haven’t come down much.

“There has been some reduction in rent in certain areas, but overall rents on every block are still a lot higher than they were in 2008,” Sitt claimed. “Other than department stores, [retail] sales in Manhattan are stronger than ever, which is why European luxury fashion companies have been reporting strong sales. It’s also why every Internet consumer company is considering opening a brick-and-mortar store in New York.”

Many retailers are either unable or unwilling to absorb high rents as they’d done in the past, when flagship costs were written off as advertising and marketing expenses, so Sitt, like other owners with vacant space, is faced with a dilemma: Lower the asking rent or wait for a deep-pocketed tenant come along or an upturn in the market.

Many believe the market will never be the same. “The market’s peaked and it’s changing,” Spiegelman said. “It will stabilize when retailers regain their footing and figure out what physical real estate means to their omnichannel business models.”

In the meantime, landlords are using incentives to convince tenants to agree to their terms. The offers include up to several million dollars in tenant installation money, which can be used toward store build-outs, and three to six months of free rent, six to 12 for large flagships. “Any savvy landlord now understands, the need to be flexible,” said Lisa Rosenthal, broker at Eastern Consolidated. “That doesn’t mean they’re giving away spaces. I’m sure plenty of people are also trying to re-trade [renegotiate] leases.”

“Temporary space has turned the city into a big pop-up market because stores are staying vacant,” Ripco’s Paisner said. “When you see a pop-up shop, you hope the tenant will do well so that it can do a deal with you.”

But even as the Manhattan retail market resets rents to the new reality, more space is due to become available that will only add to the existing glut. In the next two years, Hudson Yards will bring 750,000 square feet; the Seaport District, 400,000; Nordstrom, 363,000; Manhattan West, 240,000, and 1 Vanderbilt, which connects to Grand Central Terminal.

There have been concerns about the financial health of Neiman Marcus, which is the anchor of The Shops and Restaurants at Hudson Yards. Neiman’s in 2014 signed a 250,000-square-foot lease at the Shops, and other leases are contingent on Neiman’s opening and operating. The Dallas-based retailer has reported six consecutive quarters of sales declines and has $5 billion in debt. Executives of Related Cos., which is developing the project with Oxford Properties Group, met in May with Neiman’s executives and investment bank Lazard to discuss making Related part of the ownership group.

Related chairman Stephen M. Ross concluded, “Neiman Marcus is a great company, and we are a developer, and I don’t think those two areas come together.”

Richard Cohan, retail consultant for the 34rd Street Business Improvement District, cited positive developments such as an Amazon store opening next month on West 34th Street across from the Empire State Building. “Amazon is a tremendous traffic generator,” Cohan said. “It’s going to be a book store similar to one that opened at Time Warner Center. It definitely has a buzz.”

Cohan said the neighborhood is also anticipating the arrival of a flexible-format Target unit and Sephora’s one-level retail prototype.

But for every arrival, it seems there are several departures. For instance, J.C. Penney’s 150,000-square-foot flagship on West 34th Street is on the block. The retailer is said to have a $16 million annual lease obligation. “Penney’s said it’s exploring a potential sublease agreement for its space located within Manhattan Mall,” Cohan said. “There aren’t that many retailers of that size that are expanding. I’m pretty sure the Penney’s space will be broken up into a couple of users. In today’s environment, Penney’s, like any company, is considering every option.”

SoHo Broadway Initiative executive director Mark Dicus said, “There’s definitely more vacancies than three years ago. But we’ve seen things start to stabilize a bit.” Asics, Maison Kitsune, Nike and Sketchers have opened or plan to open stores, and Artists & Fleas bowed in the former A|X Armani Exchange on Broadway and Prince Street. Dicus said the landlord agreed to allow Artists & Fleas to pay reduced rent for the first year.

“It’s a new environment with the Internet and people shopping less,” Dicus said. “We’re in a period of transition. Things are always changing.”

Struggling construction and support services group Carillion has appointed some more outside help support its efforts to avoid collapse, bringing in professional services firm EY in an effort to cut costs and collect more cash.

Carillion’s shares collapsed after a profit warning last week, falling 71 per cent amid fears the group will have to launch a debt-for-equity swap or rights issue to avoid an emergency takeover or bankruptcy.

On Friday the company hired HSBC as a joint adviser and broker to help repair its balance sheet, and today it announced it has also appointed professional services firm EY “to support its strategic review with a particular focus upon cost reduction and cash collection”.

Carillion said it has already identified a number of actions it will take to reduce its borrowing, and Keith Cochrane, interim chief executive, said:

We are moving forward quickly with the actions outlined last week. Alongside our own efforts, EY will provide support across the business and bringing an external perspective to our cost reduction and cash collection challenge. My priorities are to reduce the group’s net debt and create a balance sheet that will support Carillion going forward.

We need to simplify the business and demonstrate that value can again be created for shareholders by focusing the group on its core markets, including infrastructure and property services, in which it has good strengths and leading positions.

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Economy beats Beijing target for second straight quarter as full-year rebound looms

China’s economy expanded 6.9 per cent in the second quarter, beating the government’s target in a year of political transition as unexpected strength in the property market kept growth humming.

With 6.9 per cent growth in both the first and second quarters, the Chinese economy is on track for its first year-on-year acceleration since 2010. Growth in gross domestic product was 6.7 per cent last year. In March China’s rubber-stamp parliament approved a full-year growth target of “around 6.5 per cent”.

“As China goes, so go emerging markets. Its solid growth reinforces recoveries for commodity exporters and keeps 2017’s pick-up in global growth on track,” Bill Adams, senior international economist at PNC Bank, wrote on Monday. “The retreat of US long-term interest rates since early 2017 and the Fed’s commitment to a gradual pace of interest rate hikes are maintaining supportive monetary conditions for emerging market growth.”

In the medium term, however, risks from rising debt and overcapacity in large swaths of the manufacturing sector still loom over the economy. The strong property sector was crucial to the first half’s strong growth, but many experts worry that the market is in a bubble, especially in large cities.

At a five-yearly financial work conference that ended on Saturday, President Xi Jinping again stressed the need to control financial risks and tackle excess leverage, especially at state-owned enterprises.

The National Bureau of Statistics said the 6.9 per cent growth figure showed China’s economy had become “more stable, co-ordinated and sustainable”. But the agency added that “there are still many unstable and uncertain factors abroad and long-term structural contradictions remain prominent at home”.

Following the strong start to 2017, some experts had forecast that China’s growth would slow markedly as the government tightened monetary policy and the property sector appeared poised to lose momentum.

Local governments imposed a series of restrictions on home purchases and mortgage lending beginning late last year. Those curbs were expected to slow housing sales and damp new construction, which would send ripples to the factory sector that supplies construction materials such as steel, base metals and cement.

But house prices have continued to rise strongly, reducing inventories of finished homes and prompting increased construction investment. Property investment grew 8.5 per cent in the first half compared with the same period a year earlier — faster than last year’s 6.9 per cent pace.

Factory output, a measure of strength in China’s core manufacturing sector, grew 7.6 per cent in June from a year earlier, equalling a two-year high hit in March.

Foreign trade has also provided an unexpected boost to the manufacturing sector. After contracting 7.7 per cent on an annual basis last year, exports grew 8.5 per cent in the first half of 2017, reflecting strong demand from the US and Europe.

Economists cautioned that a slowdown was still likely in the second half. The central bank has reportedly instructed banks to limit mortgage lending in a further bid to cool the property market. While still above last year’s pace, real estate investment has decelerated for two consecutive months.

“I still expect a broad slowdown, led by property,” said Larry Hu. “The government has unlimited tools to roll out, so ultimately they can cool the market down. It just hasn’t been enough yet.”

But few expect a sharp slowdown. The Communist party will conduct its five-yearly leadership transition in November, when Mr Xi is expected to install loyalists in key positions. Stable growth in the run-up to this conclave is seen as essential to bolstering Mr Xi’s position in the political horse-trading.

Reckitt Benckiser [LON:RB], a UK-based consumer products company, has received offers for its foods division from Anglo-Dutch rival Unilever [LON:ULVR] [AMS:UNA] and Minnesota-based Hormel Foods [NYSE:HRL], The Sunday Times reported.

The newspaper did not cite a source for the information.

Binding bids for Reckitt’s food division are expected within weeks, the item added. Other companies expected to submit final-round offers include New Jersey-based Pinnacle Foods [NYSE:PF] and Maryland-based McCormick & Co [NYSE:MKC], the report said. However, Hormel and Unilever will probably have the strongest offers, the article added.

The report went on to cite unspecified sources who said the strong competition for Reckitt's food business will probably drive the sale price above GBP 2.2bn (EUR 2.51bn).

As previously reported, Reckitt has hired investment bankers from Morgan Stanley to advise on the auction.

City analysts cited by the report have predicted that Reckitt could sell its homecare business after selling its foods division.

Markets opened mixed in the wake of US data on Friday that showed weaker than expected retail sales and inflation; supporting the view that the next rate hike could be gradual. Markets remained thin with Japan closed for a holiday; Japan did report four Chinese ships near the disputed islands. Markets in China opened slightly lower before falling nearly 5% on the promise of greater coordination of financial regulation and the strengthening of weak links in supervision. The loses were later reversed when Q2 GDP, June industrial production and retail sales came in strong. Over the weekend China held the National Financial Work Conference (held once every 5-yrs) where President Xi pledged that the PBOC would play a stronger role in defending against risks, calling for more work on safeguarding the financial system and modernizing its regulatory framework. Xi also said prudent monetary policy should be firmly implemented and the PBOC should take a stronger macro-prudential policy role (prudent policy was announced in Dec 2016).

Nikkei Closed Hang Seng +0.59% CSI -0.24% Shanghai -0.61%

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