Tag: object lesson

The vape shops seem to be multiplying. You’ve almost certainly noticed them, if only because most are difficult to miss, decked as they tend to be in rainbow colors and neon signs. You might have emerged from pandemic isolation to find a new one next to your local smoothie shop, or maybe one has sprouted in a long-vacant storefront you always wished would turn into something you actually need.

The national trend line is strong: Since 2018, the number of vape shops in the country has increased by an average of almost 20 percent annually, according to one estimate. The retail vape market isn’t growing by leaps and bounds everywhere, says Timothy Donahue, the managing editor of Vapor Voice, an industry trade and advocacy publication. In Alabama, for example, a law restricting where vape shops can be located has made it hard to open new ones. But such laws are the exception instead of the rule. For now, vape shops appear to be a winning business model in most places. Their neon signs glow across cities, suburbs, exurbs, and rural small towns alike, even when many other kinds of retail stores are struggling to stay afloat in the same places.

But what exactly is the business model? Colloquially, vape shop is a catchall term that can be applied to a cohort of similar retailers: those that sell only vaporizers and their related nicotine or cannabis products; those that lead with hemp-derived products like CBD in forms vapeable and non; and those that might have been called “smoke shops” a decade ago, which stock things such as loose-leaf tobacco and hookah supplies in addition to new lines of vapes, oils, and gummies. In places where recreational cannabis sales are legal, vape shop is a term that might be used to describe some actual licensed dispensaries, though mainly those are just called, well, dispensaries. Vape shops are, first and foremost, specialty stores, even though they all seem to specialize in something slightly different.

Some of the factors in these shops’ success are pretty clear. For those that do it, selling cannabis products, legally or illegally, is not an unremunerative pursuit. And vaping nicotine exploded in popularity at the end of the 2010s, especially among young people. Even so, the broad flourishing of these stores can nonetheless challenge credulity. Vape shops have spread across the American retail landscape with a bizarre swiftness, seemingly unbeholden to the same vagaries of inflation, customer demand, and local real estate that bind every other kind of storefront small business in the country. How do they stay in business if they generally don’t seem swamped with customers? Why can so many of them make the numbers work when so many other kinds of small retailers struggled during the pandemic? What are they up to?

I have spent much of the past few years pondering those exact questions as vape shops grew seemingly unbidden in the expensive Brooklyn retail real estate around me. I asked neighbors, friends, and people who owned other local businesses for their theories, and nobody had any compelling ideas, except that the shops were all selling weed. (More on that in a second.) For the past few months, I’ve been trying to figure out the answer myself and have encountered mostly dead ends: Not many academics study the phenomenon, and those I contacted declined to speak with me. One cited a wariness about alienating the subjects of his research. Local vape-shop owners clammed up as scrutiny over their sales practices increased. People who manage retail rentals, broker commercial leases, or analyze commercial-real-estate data declined to speculate on the phenomenon or didn’t acknowledge my inquiries at all.

I think I’ve figured it out anyway.

First, the elephant in the room: Yes, some of these shops are doing a fantastic business in under-the-table or dubiously legal cannabis, especially in places where new laws have reduced penalties for unlicensed sales or created some legal confusion over exactly what merchants are allowed to carry. New York City is a prime example of this phenomenon. Vape shops have become common even in luxury shopping districts with sky-high rents. Mitchell Moss, an urban-planning professor at NYU, credits the shops’ quick proliferation in large part to what he described to me as the state’s “unmitigated disaster” of a legalization process. Recreational cannabis use has been legal in New York for more than two years, and penalties for its illegal sale (which is now more of a regulatory issue than a drug-trafficking one) have been drastically reduced, but the state did not get around to licensing a single recreational dispensary until late last year. In the interim, demand for cannabis pushed its sale to an expanding gray market that operates largely through the city’s now-expansive constellation of vape shops, some of which have the stuff clearly visible behind the counter.

It’s impossible to say what proportion of America’s vape shops fund their business through revenue from contraband product, but I couldn’t find anyone who thought it was all or almost all of them, even in places where illegal retail sales now commonly result in a fine instead of a criminal charge. Instead, the easiest thing to explain about the proliferation of vape shops is the ready availability of the storefronts themselves. Landlords who lease to vape shops have long run some risk of provoking ire in the surrounding community or spooking prospective tenants for adjacent spaces, but the pandemic forced some of the country’s commercial landlords to get less picky. During 2020 and 2021, retail vacancies rose significantly. According to Andrew Csicsila, who leads the North American consumer-products practice at the consulting firm AlixPartners, this effect was especially pronounced in storefronts with a very small footprint, the kind that might have previously housed a cellphone dealer. These spaces tend to turn over quickly because of their size, Csicsila told me, and suddenly the new prospective tenants who would have usually cycled into the vacancies all but disappeared.

Read: You will miss Bed Bath & Beyond

This was vape shops’ golden opportunity. Not only had vaping surged in popularity in the years leading up to the pandemic, but vape shops themselves have turned out to be wonderfully suited to the limitations of small storefronts. Shops can fail in small spaces because there’s just not enough room for products and services that bring in enough customers, generate enough revenue, and provide enough gross margin to, at the very least, cover expenses. One reason that supermarkets, for example, are so big is that they make up for the food business’s notoriously thin margins by dealing in very high volumes, with huge corporate-wholesale purchases and tens of thousands of sometimes-bulky products in every store.

Vape shops solve the problem in the opposite way. Their start-up costs are low; their margins are high. All they need to get up and running is their inventory, some shelving units and display cases, and a guy or two behind the counter. (Whether they also need a big neon sign outside making some kind of stoner pun is up to the individual business owner, but it does seem to get factored into quite a few vape-shop budgets.) They deal in tiny, expensive objects, many of which need to be repurchased regularly: vials or cartridges of vape liquid, disposable e-cigarettes, rolling papers, tubs of CBD gummies, pouches of shisha. According to both Csicsila and Donahue, a retailer might buy a vial of e-liquid for as little as a couple of dollars from a wholesaler, and, depending on their market, that same vial could be priced anywhere from $10 to $30 in a vape shop. Wholesale prices for vapes and other equipment, they said, allow for similarly generous premiums.

Vape shops have one other advantage: Many of the high-margin products you’ll now find in a typical vape shop didn’t even exist five years ago, when a change in federal law threw open the floodgates for legal commercialization of many of the chemical compounds found in hemp. The constantly expanding menagerie of vape-shop products—CBD! Delta-8 THC!—can be pretty confusing for new or casual users. Some convenience stores and corner shops now carry a handful of the most basic vape and cannabinoid products, but Donahue said that their selections are limited. By contrast, Moss, the urban-planning professor, likened vape shops to old-school pharmacies: You come in, you tell the proprietor what your problem is or what effect you’re trying to create, and they talk you through your options and how to use your new purchases. When so much of a consumer-product market is largely inscrutable to its potential customer base, specialty shops with knowledgeable staff are how new products catch on.

Fahd Shoaib, the manager at Aurora Smoke Shop in Lovejoy, Georgia, south of Atlanta, told me that he and his cousin, who owns the store, spend a lot of their time at work answering questions. They are the business’s only two employees, and when they opened Aurora in March 2022, he said, they quickly found customers, even though they don’t advertise and don’t even have their name listed on the shopping-center marquee that’s visible to passing drivers on busy Tara Boulevard. The storefront is tucked between a Subway sandwich shop and a 24-hour laundromat, which provides plenty of foot traffic, Shoaib said, and his cousin picked their location because the surrounding area, way out in the suburbs, was not yet saturated with similar businesses.

The cousins sell both nicotine-vapor and legal cannabinoid-vapor products, as well as tobacco and supplies for hookah, which has experienced a less widely acknowledged burst of popularity in recent years, alongside vaping. They don’t stock cigarettes, except for Newports, which Shaoib said are the brand that customers ask for most frequently. Cigarettes are still the most popular nicotine products in the country among adults, but Shoaib told me he and his cousin consider the Newports more of a courtesy to their regulars than a real profit opportunity. The margins on cigarettes are far lower than they are on much of the rest of their inventory.

After Shoaib and I spoke, I noticed that relatively few vape shops in New York carry cigarettes. Their exclusion is telling, a clear hint at the grander context of how—and why—the vape market has spawned so many small businesses so quickly. The vapor industry is, in short, one of relatively few unconsolidated consumer-product markets in America. There is no Coca-Cola or ConAgra or Walmart of vapes. There is still Big Tobacco, yes, and there is still Juul, whose e-cigarettes the FDA is trying to banish from the country. But Juul’s once-dominant market share has declined sharply, thanks to the legal blowback and increased competition from the makers of disposable vapes, such as Elfbar. The nicotine-vape market is in the process of consolidating, Donahue told me, but compared with the market for combustible cigarettes, it’s still highly variable and competitive. He described the market for the other types of products that vape shops commonly carry as “fragmented.” Shoaib mentioned that one of the most important parts of his job is keeping up good relationships with the store’s distributors, precisely because so many small suppliers are bringing new products to market and the store benefits from guidance on what to stock.

Who’s not getting into the vapor business is arguably even more important to understanding the vape-shop phenomenon than who is. Many national big-box and grocery chains publicly disavowed the nicotine-vapor market before the pandemic, fearing association with a rise in vaping among teenagers and a rash of lung issues that later seemed to be connected to black-market THC vapes. Walmart, Target, Kroger, Walgreens, and CVS, for example, don’t carry any vapor products at all, and convenience stores that sell cigarettes are poorly equipped to compete with vape shops. Vapor products can also be difficult to sell online—some states forbid internet nicotine sales entirely, and in those that don’t, a combination of federal law and corporate policy means that USPS, UPS, and FedEx all refuse to ship parcels containing them. Some online sellers get around these restrictions by mislabeling shipments, but the rules generally discourage big, mainstream internet retailers from getting into the business. Cannabinoid products, because of their sometimes still-murky legality, among other reasons, have yet to really catch on among well-established corporate producers or retailers.

Read: The death of the smart shopper

For now, this squeamishness leaves the wholesale and retail markets feeding the vape-shop boom mostly to the little guys. In that way, it’s a reversal of the big trends in American retail dating back more than 40 years. When there’s no Walmart or Amazon around to pressure suppliers into sweetheart wholesale deals and undercut much smaller competitors on price, people buy things from local businesses. When a type of product has yet to be standardized through commoditization, lots of suppliers can make many different things and thrive simultaneously, and their variety spurs people to go to specialty shops, ask questions, and get recommendations. We are, of course, talking about vape shops here—these are not necessarily the most beneficial or widely needed types of local businesses that could be sprouting up in America’s unused retail space. But they provide something of an object lesson in the conditions under which a particular type of small, locally owned retailer can flourish, and, by extension, a lesson in why so many others have failed since the dawn of the big-box chain store.

The continued success of mom-and-pop vape shops is hardly guaranteed. Some of their products might be regulated out of existence at some point, and the market for whatever remains is likely to become more consolidated over time, just as we’re now seeing for nicotine. It’s not difficult to imagine the same thing happening with vape shops themselves, even if the traditional retail behemoths continue to abstain. Some operators will be more efficient than others, and they’ll expand and buy up competition; maybe, at some point, private equity or venture capital, which doesn’t have the responsibility to public perception that retail giants still do, will step in to speed that process and reap the financial rewards.

If vape shops as we know them do decline, in other words, it would likely mean not that we’ve won a public-health war against nicotine or cannabis but that the market for those products has simply become more efficient and more centralized, in the same way it has for virtually everything else Americans buy. In the meantime, small entrepreneurs are getting in where they can while the business is still good and the market’s math still lets people without enormous financial resources wring a good living out of some of America’s most inhospitable storefronts. Shoaib, when we talked, was considering expanding the family business and opening a vape shop of his own.