The End of WalMart?
Posted by Dave Cohen on October 31, 2005 - 12:31am
One of Jim Kunstler's favorite subjects is the collapse of "easy-motoring" suburbia and the business culture that serves it, all due to higher fuel costs in the future. This is the chief theme of The End of Suburbia.
Since World War II North Americans have invested much of their newfound wealth in suburbia. It has promised a sense of space, affordability, family life and upward mobility. As the population of suburban sprawl has exploded in the past 50 years, so too has the suburban way of life become embedded in the American consciousness....No business symbolizes or exemplifies the suburban lifestyle more than WalMart. Recently, some cracks have appeared in the facade of this retail juggernaut. This report does not focus on WalMart's evil business practices. Instead, we investigate how higher energy costs are affecting their business as reported in Wal-Mart to Seek Savings in Energy published October 25th in the New York Times.
The consequences of inaction in the face of this global crisis are enormous. What does Oil Peak mean for North America? As energy prices skyrocket in the coming years, how will the populations of suburbia react to the collapse of their dream? Are today's suburbs destined to become the slums of tomorrow?
As early as June of this year, the EIA was reporting that "surging global distillate demand in Europe and Asia has retail diesel selling at a premium over retail gasoline". This trend has not stopped; rather, it is worse as shown in the EIA price report HO cites here. Here in Colorado, the local fossil fuels feed shows gas at $2.59/gallon but diesel at $3.29/gallon. Why is this of interest? Because long-haul trucks use diesel and WalMart uses more trucks than anybody else. As reported in the Times
The trucks in Wal-Mart's fleet, the nation's largest, have a fuel efficiency of about 6.5 miles per gallon. "They can do at least 13," said Amory Lovins, chief executive of the Rocky Mountain Institute, a nonprofit organization that serves as a consultant to companies on energy efficiency and has performed work for Wal-Mart. "They are a big enough buyer to get truck suppliers' undivided attention."Although it may be hard for some to assess their feelings on learning that Amory Lovins gets consulting fees from The Borg, it is clear that WalMart chairman H. Lee Scott & company have recognized that they have a transportation fuels cost problem. But nothing with WalMart is straightforward and so we also learn that they are intent on saving the planet Earth as well, including [from the NY Times]
Mr. Lovins added: "The reason Wal-Mart's leadership in this area is so important is that they have the scale and market power to change what is offered, and to change it rapidly."
a set of sweeping, specific environmental goals to reduce energy use in its stores, double its trucks' fuel efficiency, minimize its use of packaging and pressure thousands of companies in its worldwide supply chain to follow its lead....WalMart has heart! Not everyone believes this, however. As reported again in the NY Times
The company's environmental initiative includes improving energy efficiency at its 1,876 supercenters, which now consume an average of 1.5 million kilowatts of electricity annually, according to Tara Stewart, a spokeswoman for the company. A model center in McKinney, Tex., has in its first few months shown an improvement of slightly less than 10 percent, she said.
Mr. Scott said that as the largest buyer of manufactured goods in the world, Wal-Mart has the power to encourage its more than 60,000 suppliers to adopt environmentally conscious business practices. "Our most direct impact will be on our suppliers," he said. "If we request that our suppliers use packaging that has less waste or materials that can be recycled, everybody who buys from that manufacturer will end up using that package."
... The commitments to environmental sustainability come after what the company described as an intense, yearlong listening tour that took Mr. Scott and his top managers to a maple syrup farm in New Hampshire, where they studied the impact of rising world temperatures, and the cotton farms of Turkey, where they examined the role of toxins in clothing manufacturing.
"It is a diversionary tactic," said Chris Kofinis, of Wake Up Wal-Mart, a group founded by the United Food and Commercial Workers Union, which is trying to organize the chain's workers. "Wal-Mart understands that they have a growing public relations disaster on their hands. American people are looking at a company with $10 billion in profit and $285 billion in sales that makes excuse after excuse about why it can't provide a living wage and health care to its workers."So, is this the beginning of the End of Walmart? Well, no, not yet. In fact, we learn that Wal-Mart looks to get even bigger, an article published (coincidently?) on the very same day that the NY Times reported that WalMart had gone green.
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Whether Wal-Mart will be successful depends heavily on getting Japanese to drive to its supercentres. That's in fact already happening in many Japanese cities outside of the top tier of urban centres (Tokyo, Yokohama, etc). A lot of hollowing-out is going on in downtown cores in the regions, where driving is nearly essential. One can expect a Wal-Mart expansion to exacerbate the trend towards the suburbanization of business. On the other hand, Japan's comparatively high gas prices (about YEN 130/litre) and the prospect of fuel-cost increases might restrict Wal-Mart's ability to expand in the manner and on the scale that it has in the States.
In a word: No. Crude oil shot up from $10 in 1998 to $70 in 2005, and it had no impact whatsoever on Walmart. The peak oilers need to re-evaluate their "relocalization" theory. The facts are in conflict with the predictions of the theory.
the investing public is losing faith in WMT:
down 25% over the past 2 years. They see the writing on the wall. I'd hardly call a 25% loss in market value having no impact on the company.
I think that Walmart is secretly praying for a serious recession, that way oil prices would plummet, and they'd be the only place anyone could afford to shop at.
WalMart is just the logical evolution of the supermarket, which put many smaller stores, grocers, bakers, butchers, etc., out of business. But they are more powerful and even more impersonal than the supermarkets.
http://www.walmartmovie.com/
The relevant piece here is that a provider of a service or good has a sphere of influence, the size of which is determined by two factors: (1) how widespread demand is for the good (groceries have a smaller sphere of influence than car dealerships), and (2) the cost of transportation. Cheap transportation is the driving force behind the super-sizing of retail and more expensive transportation will drive us back to retail with a smaller sphere of influence.
The reason Wal-Mart's stock is declining, but they haven't declared bankruptcy yet? Transportation costs have gone up, but they're not prohibitive yet.
If energy prices are going higher because the economy is growing, people can afford them. They're getting jobs, getting raises, getting better jobs.
But if oil prices are high, not because the economy is growing, but because the supply of oil is shrinking - then people can't afford it. Their income is not going up, but prices are. That's when Wal-Mart starts to bleed.
MY MY what to do now if Wally World does go out and Solve all the Problems by "Forcing" getting their Thousands of suppliers to "do the right thing" and be Energy Savy. Will we see everything just solved over the course of a few dear Business Lunchs and Store Cheer sessions??
I Don't think that they can move fast enough to make all those Truckers out there get 13 miles to the Gallon, Even at that, look how many miles are driven. It won't stop the "ON TIME" to Stock system.
Go and read todays blog on Kunstler's page. We are all to Blaim for this screw up in the Suburbian live style we live in, even though some of us live closer to the centers of towns. There are 5 Walmarts and 2 Sam's clubs in my county (Madison County , Alabama " home of Huntsville" ) only one of those Wally-Worlds is the old kind.
By the Way Costco a Competitor of Sam's clubs, Turns their lights down about 3 to 4 hours before the store closes, and they pay up to 10 dollars an hour to start. Wally-World grew up in the state of Arkansas, a "right to work" state, No strikes, They have that attitude, that you can get a company town going right there in each of their stores.
PS.
I grew up in Arkansas, and I have Worked for Wally- World. aka Wal-Mart.
I would like to hear what Kunstler thinks would replace the present suburbia - without a lot of energy-consuming investments. When there is an energy crunch you live with that infrastructure you have - you don't start to remake everything.
I've always been a little perplexed by Kunstler's focus on classic suburbia. If his predictions come to pass, we're basically all screwed, at least for some time. He did seem to say not that suburbs would be boarded up and abandoned, but that they would become the slums of the future, perhaps with multiple families per dwelling.
If Kunstler says that suburbs will become slums then it only means that the living standard will go down so that the the living space (square feet) per person will be lower. This is possible if the economy starts a negative growth. The suburbs are the result of increasing living space. This might be unsustainable.
This summer I vaccationed in Germany and learned two interesting facts:
1.) The roman limes was overrun by germanic tribes the first time in 290. It took a further 150 years to the fall of Rome.
2.) From the discovery of America in 1492 until the first potatoes were planted in an empiral prussian garden in Berlin a short 150 years elapsed.
The US now has roughly 165 million more people than it did at the end of WW II (approx. 297 million versus 132 million). As most of the major cities, particularly in the Northeast, were already pretty much saturated with people, this growth had to spill over beyong the city boundaries. And the more the population grew, the further away the suburbs grew. This is normal, and no different than the way most growth takes place in nature - from the center outward.
Furthermore, the highest growth rates were in parts of the South and Southwest. For example, in 1930 the population of Houston was less than 300,000; today it is roughly 1.8 million, a six-fold increase. Those extra people had to go somewhere.
So, to do away with suburbia and move something like 100 million people back into the cities would require filling those cities with thousand and thousands of massive Soviet-style high-rise apartment complexes. And you think our cities have serious social problems now!
Google found it: The World Inside by Robert Silverberg
Earth 2381: The hordes of humanity have withdrawn into isolated 1000-story Urbmons, comfortably controlled multicity-buildings which perpetuate an open culture of free sex and unrestricted population growth. Nearly all of Earth's 75 billion live in the hundreds of monolithic structures scattered across the globe, with the exception of the small agricultural communes that supply the Urbmons with food. When a restless Urbmon computer engineer begins to think unblessworthy thoughts of making a trip outside, he risks being labeled a "flippo," for whom there is only one punishment ...
Here are some reviews:
http://www.priceflo.com/-/1407544
Frankly, you can build "urban neighborhoods" which have single-family houses. I live in one (it was built in the 1920s). Much less space wasted in the form of front lawns and cul-de-sacs; a bit less space per lot than the latest single-family developments out in the sprawlburbs. Combining this style of traditional single-family with infill multi-family buildings (which unlike in exurbia don't require gigantic plots with big parking lots strung together by internal roads) can reduce the land-space-per-person by at least 5-10x compared to exurbia.
Take a mature city like Philadelphia, for example. Apart from the Center City business district, Philly is relatively low-density city characterized by row homes and small apartment buildings. There isn't much more you can do with Philly unless you razed major sections of the city and started all over. The suburbs of Philly are a vast continuum of housing extending many miles in all directions from Center City and including several million people. If you were to take all the people from the outlying suburbs and try to move then in close to Philly, you would have to essentially build another city. That might be easy to do in Texas, but not in the well established and already crowded Northeastern metropolitan areas.
You claimed that in order to solve "suburbia", we'd have to cram everybody into high-rises, and that's just not true. If you redeveloped along the 1800s - 1940s pattern, MOST people wouldn't be living in high-rises, and yet we'd only need 1/5 to 1/10 as much land as the common exurban pattern - AND those people would feasibly be able to use mass transit to get to work. They don't have to be "close in"; but they do have to be "close to each other".
"filling those cities with thousand and thousands of massive Soviet-style high-rise apartment complexes"
In my city the newest quarters are built of cute 3 to 4 floors buildings with small stores, kindergardens, parks and cafes around. It is great to walk around and not have to get into your car because you need a pack of chewing gum from a store 2-3 miles away. Basicly you have to see it to appreciate it truly - the atmosphere is full of life, people are walking, kids are playing freely in the open... Things that I badly miss here - everything is so nicely built, but one can not escape the feeling that he/she is walking in a lifeless desert.
I'd be very interested to know where you are from.
I'm sure that if one is starting from scratch, one can do wonders regarding urban planning and making a liveable environment. But once you have a built environment, it is far more difficult.
The problem is: What does one do with those urban and dense suburban areas that already exist? Do we bulldoze them and start all over, and if so, where does the money (and energy) come from to do that?
Major infrastructure changes take enormous amounts of capital committment plus political will - sadly, both of which are sorely lacking in the US.
I will agree that many aspects of the deep American suburbs are cold and creepy. Roaming around a huge American shopping mall can make me literally start to feel physically ill. It would be nice to have cozy little planned communities sprout up, but I just don't see much of that happening here.
The irony is that the reason we are like that is pure economics - corporate capitalism is still to grow up from the garage company and so is the economy of scale which brings the suburbs, highways and shopping malls. It is simply not applicable at the current state of affairs in US (somebody says "let's just build a dense residential") because the businesses there will be uncompetitive and the housing will be too expensive. Of course I'd expect this to change in the light of PO but I suspect that nobody has yet experienced contraction (of such scale and speed) to give a useful model how to do it.
It is true that in Eastern Europe the retail trade structure is still based on a non-driving lifestyle. Supermarkets are still rather rare, but there are many local shops. The cities are very compact and public transport is functioning quite well. Oil consumption per capita is much lower than in the US or Western Europe - may be 10% of the US level. Still these countries are basically modern industrial societies. This is not a free choice, of course. But it works. We should listen more people like Gloomy. They know how to live with less oil.
But what will happen to the suburbs in the US? Necessary density could be achieved by many means. Some suburbs may develop to more independent communities wirh more local jobs and services and parts of them could be rebuild denser. Land near public transport hubs will be more expensive and draw denser building. We could safely predict that in an energy crisis there will not be massive urban restructuring - nobody can afford that. Most changes will happen in the existing framework.
No, actually we are not like Cuba which is an isolated island (and also politically isolated) and we could import much of our oil from elsewhere. Besides, connections with former USSR did not disappear overnight, society lived by inertia for quite a while. The truth is that these years were complete chaos and many people retreated to their "backup places" - villages and vacation houses where much eastern europeans grow their own food. Even mass transit started to disappear at some time but it did not quite matter because even the capital Sofia (2 mln city) is almost fully walkable - from one end to the other it is no more than 6-7 miles. And yes, oil consumption is just around 10% of US while people are living OK in terms of infrastructure etc (I mean nobody feels a strain or lack of security, and the car is considered a luxury). The real country problems are not there but with the undeveloped economics and corrupted government.
It is the experience from my country which gives me hope that even if things get as worse as Kunstler thinks, people will find a way out - we are tough animals.
But Kunstler is spinning a scenario, not planning for a solution to the suburban problem. As he sees it, there are not any feasible technological or economic solutions to replace what we now enjoy. He concludes that the outcome is very bad indeed. He's worried at a level beyond suburbia: he wonders if civilization can continue at all.
I've noted a bit of a paradox about reactions to Kunstler here on TOD. Many actually share his concerns about how the American lifestyle has evolved, and the lack of feasible "solutions" to peak oil. At the same time, there's a pretty visceral reaction to his apocalyptic view of the future. So, we generally agree with his assumptions and analysis, but disagree over the outcomes it will create. It implies that someone's logic is wrong.
If you don't want to consider evil (argeed) Wal-Mart, think Home Depot, or Costco, or somebody reputed to pay good wages and offer good benefits.
They are one shipping "hop" closer to the "dock" than the small guys. Trucks run efficiently to their location. OTOH small neigborhood shops (good for another reason, hold on) require a more complex distribution system. They cannot take a big, direct, shipment.
The place where the small shops win, and I think Kunstler is right to focus on this, is on customer fuel efficiency. People tend to drive farther to get to the big box stores, and that is where the gas is burned.
Geez louise, picture your favorite big box store ... how many cars do you see out front, and how many trucks do you see out back?
Of course truck shipping costs are a smaller part of the equation ... what will matter for centralized stores is the number people who will be able and willing to drive to them.
Look around - there hasn't been any destruction of demand. There has only been a tight spot in supply, caused by the refinery outages. The rebuilding effort is only stimulating more energy expenditures. We are still meandering down the same river, Denial.
When the average family has to choose between going to work and taking the kids to soccer, then we have a crisis. The rest of all this is just noise, and those who are "in the know" are probably getting ready for trouble ahead.
We are probably at or near Peak now, but that doesn't mean we are sliding into the abyss. The abyss is on the back side of the curve. Demand destruction will only happen when there is a wide difference between what one needs and what one can actually get their hands on. We aren't there yet, we aren't even close.
Wal-mart will keep on keeping on until someone figures out a way to sell the same shit they sell cheaper. When energy prices make overseas shipping untenable, they'll just shut down burma and thailand and convert their smiley faced domestic workforce to manufacturing. Those "super-stores" out there in middle america will become "sweat-shops" churning out toothpaste and tighty whities.
Wal-Mart is both cheap and a one stop shop; groceries, household items, electronics, etc, meaning you can make one trip there and handle several of your shopping duties.
So, assuming the retail sales pie starts to tighten if energy costs become burdensome: Does Wal-Mart benefit visa-a-via other retailers or lose?
Finally, though Wal-Mart must deal with energy costs, so must every other retailer on the planet. A small local retailer cannot sell only local items, unless he plans on selling a very small amount of items, which means people are even less likely to come to him.
Kunstler has some valid points, but this is not one of them.
Listen instead to what Matthew Simmons has to say on this topic: Transportation of goods must be shifted to railroads.
A lot of this is perpetuated by the need for tractors to remain compatible with the horde of old and varied trailers out there (boxes, flatbeds) and vice versa. Wal-Mart doesn't have that problem; it could adopt something like the Blade Runner (cab on a turntable, fully faired into the trailer) to improve the aerodynamics. Adding a second turbocharger could supply air to inflate soft "boat tail" fairings and blow air through slots to force air flows to remain attached around curves, reducing drag.
For this to work, you need to redesign the tractor and trailer to work together. This means discarding compatibility with the existing stock (which independent contractors and many companies cannot do). Wal-Mart has its own fleet and thus the capability to do this.
I wonder if they will go a step further with embodying a plug-in hybrid system potentially powered from outside in electrified rail... hope I'm not dreaming too much ahead.
We could definately go to electrical transportation, and I am almost sure that it can solve our energy problem, but... It seems that the root of the evil is that there is no "we", there is not a counsil sitting around a table and saying "let's do this" because this is the right way to go. We have embraced a system of uncontrolled growth which is blindly following the path of least resistance.
The US burns about 139 billion gallons of gasoline per year (EIA link), and only 62 billion gallons of distillate oil (including diesel fuel). Passenger cars and light trucks are the bigger win.
That's half-true; there really are some councils sitting around doing just that, like the California Air Resources Board (remember the failed ZEV mandate?). Some industry groups get together and either adopt measures themselves or lobby government to implement them.We may only have one chance to do this, unfortunately.
The energy expended in moving a truck is largely composed of three components, engine friction and thermodynamic losses, rolling friction, and aerodynamic drag.
A large-displacement engine has more friction and thermodynamic losses than a small one - all other things being equal. But notice, however, that the large truck does not have an engine with a displacement 10 times that of the light truck (typically 800 cubic inches vs say 300 cubic inches). That is why a semi accelerates very slowing and needs a 12-speed gear box to even do that.
A 40,000-bl semi probably has almost 10 times the rolling friction losses as a 4,000-lb light truck, so that component is fairly proportional to weight.
However, aerodynamics becomes less important as you go up in size. Notice that the semi does not have anywhere nearly 10 times the frontal area as a light truck, nor does it have anywhere nearly 10 times the exposed horizontal surface area. Thus, it does not have anywhere nearly 10 times the aerodynamic drag.
While it is a good thing to reduce aerodynamic drag on a big truck (which is already partially being done with fairings), the potential for large incremental fuel savings from such measures is not as great as one might think.
As far as I know at highway speeds (where the benchmark fuel efficiency is measured) the bulk of the energy loss goes into the aerodynamic drag. So improving the frontal design could possibly allow semis to achive efficiency closer to that of a light truck. But in accelaration/deccelaration environments (city) the FE would be drastically lower. I think this makes the heavy trucks much more suitable candidate for hybrid drives than passenger cars. Has anyone heard of plans to implement these?
This article was on the front page of USA Today in August:
http://www.usatoday.com/money/autos/2005-08-21-gas-prices-usat_x.htm
A woman is talking about how she's been affected by higher gas prices:
Trips to Wal-Mart are out. The closest one is about 15 miles away. Just to get there and back costs more than she might save by going.
As others have pointed out above, the issue isn't how much higher gasoline proces will increase WM's cost, but their cost structure compared to that of the competition. Given WM's size, they have two enormous advantages: Economies of scale and monopsonist leverage they can use against suppliers of goods, trucks, etc. (Monopsonist is a single buyer, kind of the flip side of a monopolist.)
The issue of people paying more to shop at out-lying WM's is accurate, but is mitigated by the fact that far from all WM's are out in the boonies. In areas where I've lived in the northeast US, WM's are more often no farther away from residential areas than are other big box retailers, malls, etc. Also, the transportation of individual consumers will rise in efficiency quicker than will the transportation of goods to the stores. I think this "cost to drive to WM" factor will bite them a little, but not much and less over time.
I'm no WM fan, by any stretch, but I think they'll be around longer than toe fungus and cockroaches.
I also agree that the impact of much higher gasoline prices could have a devastating impact on WalMart's customers -- potentially far beyond that posed by their own transportation costs. The two together could constitute a serious threat to their business but I don't think prices are nearly high enough right now to make this scenario a reality. Conceivably, a really big oil shock might be enough to tip them over.
I suppose The Borg's initiative to paint themselves green and save the Earth is so absurd that no one here has much commented on it.
"It's a fresh vision of the nation's energy future that energy efficiency experts say is more likely now that US business finally has its bell cow - Wal-Mart - to lead the herd to greener energy pastures. Its new "green" plan, announced this week, seeks to get all of its energy from renewable sources."
http://www.csmonitor.com/2005/1028/p02s02-ussc.html
"I work with a major solar electric module manufacturer.
Our head of sales as of Friday is calling all our dealers and telling them that our silicon supplier has declared force majeure due to katrina and rita.
He is telling the dealers not to expect any additional solar module deliveries until mid-summer 06.
We also are a major dealer for a major Japanese module manufacturer. Our supplies of these modules is also discontinued until mid-summer.
Thought you all might find it interesting."
http://p088.ezboard.com/fdownstreamventurespetroleummarkets.showMessage?topicID=15396.topic
In the old days solar cell production was a cheap byproduct of semiconductor grade silicon. Now demand is so high that you pay semiconductor grade silicon prices anyway.
Twenty years ago, there were a bunch of small supermarkets in my town, and a thriving downtown where you could buy just about anything you were likely to need. No more. The malls, strip malls, and big box stores opened outside town, where the taxes were lower, and killed the local stores. Most of us happily drove out there, and loved the plentiful parking and bigger stores, not to mention the lower sales tax.
But a lot of people are stuck in the city. They don't have cars, and the supermarkets they used to shop at are all closed. There are buses, but they don't run very often, and it's not easy to carry a lot of groceries back on the bus. Many people take cabs, or buy their food at gas stations.
And it's not just the city. It's even worse in rural areas:
http://www.msnbc.msn.com/id/5353901
Wal-Mart has killed the mom and pop stores that used to supply rural America.
I think this is going to swing the other way as energy prices rise.
If and when Walmart does finally go under, here is something we could try with their vacant store fronts
http://unplanning.blogspot.com/2005/08/from-walmart-to-sustainability.html
We will buy a four square miles of farmland and plunk down a town on it with a clover leaf through the middle of downtown, with a public area of schools, police stations, fire stations, and other government buildings in one quarter, with an industrial quarter full of factories, and probably a sewage treatment plant in the downwind quarter if there is a prevailing wind and there usually is, with retail stores along the frontage road in the two residential, service, and retail quarters, and apartment complexes just past them, with sixteenth, eighth, quarter acre suburban lots past the apartment complexes.
There will be a spur railroad line, and a natural gas connection, and a high tension power line, and an optical fiber connection.
There will be larger lots outside the town for those that are willing to pay for them and their associated infrastructure costs.
This isn't about government compulsion, it's going to be the corporations that will refuse to build a factory someplace if you don't let them put in cheap housing for their workers by changing the zoning regulations and this is the cheapest practical housing you can build without freeloading off somebody else's infrastructure.
We will do this because we have to build a lot of factories someplace and the cities are fully priced. Primary production like coal and ore and agriproducts and forestry is not going to be like this since the labor requirements are so much lower. This is only for the four million factory jobs we are going to be building to replace imports, and the families and service providers to go with them. About forty million people in total, except that many of them will be reopening factories in the cities and working there.
So really it's onlyl going to be new housing that will be built in those little microtowns in the rural area. Maybe only a few million people each year. Say, five million people a year for ten years, to accomodate natural population increase? Ten thousand instant towns.
What with the employment situation the way it is, the large corporations will correctly surmise that its new workers will gladly travel long distances just to have a job. A company town in a sparsely populated area typically attracts workers from a very wide area who are willing to drive some very long distances to get the new jobs. (The GM Saturn plant in Tennessee being one notable example.)
While the concept of a totally planned "island urban complex" is fine, the thorny problem is: how do you match up where people live to where they work?
Worker housing might be fine for a Soviet-era steel complex, but in today's highly fluid and unstable job market, you can't expect a very good match-up between where people live to where they work. Sure, someone can move into one of these complexes to work near the factory with the new jobs, but then when the inevitable layoffs occur, he will very likely have to travel a great distance to find another job. And that sort of thing will be a continuing problem no matter how well planned such an complex is.