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The latest Home Town Bulletin, from the Institute for Local Self Reliance for your reading pleasure. Big box bashing galore. Long post warning.
The Home Town Advantage Bulletin
Issue #12 - November 2002
-- About this Bulletin
-- Surveys Find Local Pharmacies Cheaper than Chains
-- Big Box Opponents Win Two, Lose Two on Election Day
-- Norfolk Neighbors Organize to Stop Walgreen's
-- Bush Slashes Small Business Loan Program
-- Wal-Mart's Bid to Buy Bank Blocked
-- Mexican Communities Fight Costco and McDonald's
-- In New Zealand, Concerns Growing as Big Boxes Multiply
-- Eureka Develops Economic Impact Review Law
-- Two California Cities Ban Supercenters
-- Puerto Rico Challenges Wal-Mart Acquisition
ALLIANCES AND COOPERATIVES
-- YaYa! Bike Co-op Charts Rapid Growth
-- Tackling the Problem of Commercial Gentrification
-- Justice at Wal-Mart: National Day of Action on November 21
-- Grassroots Guide to Tax Increment Financing
-- Elsewhere in the Media: How Wal-Mart Keeps Unions at Bay
ABOUT THIS BULLETIN
In communities across the country, citizens are taking action to defend and strengthen their local economies. The Institute for Local Self-Reliance (ILSR) has been tracking these efforts and will use this bulletin to provide bimonthly updates on significant developments. We hope it
will serve as a tool for making connections and sharing strategies within this growing movement. We encourage readers to share news and resources by sending email to email@example.com.
Many thanks to the foundations and individuals who've provided funding for the production of this bulletin. ILSR is a nonprofit organization providing research, analysis, and innovative policy solutions for building healthy communities and strong local economies. This bulletin is part of ILSR's New Rules Project (http://www.newrules.org), which publishes a quarterly journal, The New Rules; several electronic bulletins on specific issues; and books, including The Home Town Advantage: How to Defend Your Main Street Against Chain Stores and Why It Matters. We also maintain a web-based clearinghouse of model public policies at http://www.newrules.org.
Another good source of news on local efforts to keep megastores at bay is the NewsFlash! section of the Sprawl-Busters web site (http://www.sprawl-busters.com). Additional links and organizations are listed at the end of each story.
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Back issues are available at http://www.newrules.org/hta/index.htm.
I. LOCAL BATTLES
SURVEYS FIND LOCAL PHARMACIES CHEAPER THAN CHAINS
In October, the Maine Department of Human Services released its third annual survey of prescription prices for fifteen common drugs at 106 independent and chain pharmacies statewide. The ten lowest priced pharmacies (based on the cost of all fifteen drugs combined) were all locally owned drugstores. National chains, including Rite Aid, CVS, and Brooks, had among the highest overall costs.
Even more revealing, prices at Wal-Mart pharmacies, which ranked somewhere in the middle overall, varied substantially from one location to the next. Of the seven Wal-Mart stores surveyed, the total price for all fifteen drugs ranged from $691.52 to $805.33---a difference of more than 16 percent. Wal-Mart's prices were lowest in those markets where it still faces a fair amount of competition, including Augusta and Bangor, and highest in those areas, like Lincoln and Calais, where it is practically the only game in town.
The New York City Department of Consumer Affairs reached a similar conclusion in its own survey, which concluded, "Contrary to conventional wisdom, independent pharmacies were often cheaper than the chains." As in Maine, the survey found, "Drugstore chains showed wide price differentials for the same drugs among their own stores."
-- Maine Drug Pricing Survey: http://www.state.me.us/dhs/beas/.
-- New York Survey: http://www.nyc.gov/html/dca
BIG BOX OPPONENTS WIN TWO, LOSE TWO ON ELECTION DAY
EASTON, MARYLAND – Home Depot suffered a resounding defeat at the ballot box in Talbot County, Maryland, on Tuesday in what residents hope will be the company's final attempt to build one of its giant stores in this rural Eastern Shore community.
In 1999, after Home Depot and other big box retailers proposed stores in the town of Easton, the City Council enacted a big box moratorium and subsequently adopted an ordinance barring stores over 65,000 square feet. Home Depot then moved to build just over the town line in Talbot County on land zoned industrial. Home Depot claimed its store qualified as an industrial use. The county planning staff agreed, but the elected Planning Commission did not and rejected the project.
Home Depot then decided to rewrite the county's planning law. It persuaded the Talbot County Council to enact a measure allowing home improvement stores to locate in industrial zones and stripping the Planning Commission of its authority to approve development proposals. This power was instead given to county planning staff.
Residents organized as Citizens for Sound Growth gathered 4,000 signatures and placed the measure on the ballot. On Tuesday, it was rejected by a 54 to 44 percent vote, despite the fact that Home Depot spent $150,000 on the campaign, compared to $3,000 spent by the citizens group. Voters also approved a measure giving the Planning Commission greater authority to review development proposals, ousted several pro-Home Depot County Council members, and elected five candidates who favor controlling sprawl.
-- Citizens for Sound Growth: http://www.TalbotElection.com
SAN JUAN CAPISTRANO, CALIFORNIA -- Citizens of San Juan Capistrano soundly rejected a proposal to sell city-owned property to a Home Depot developer. The advisory measure failed by a 69 to 31 percent vote.
Home Depot has been trying to build a 130,000 square foot store with another 26,000 square feet of retail in San Juan Capistrano for several years. Hundreds of residents have signed petitions against the project and turned up for protests and public meetings.
Of particular concern has been the potential impact on locally owned businesses. "The ripple effect of this loss of local businesses will not only affect the character of the City of San Juan Capistrano, but also in the loss of the untold positive contributions these citizens and merchants make in our communities," wrote the No Home Depot Committee.
-- No Home Depot Committee: http://www.nohomedepot.com
ELLSWORTH, MAINE – By 1,719 to 1,099, voters in Ellsworth, Maine, rejected a measure to impose a six-month moratorium on large-scale retail development pending an update of the community's comprehensive plan.
The measure was sponsored by the Citizens Organized for Responsible Development (CORD). CORD member Audie Tunney told the Ellsworth American, "Although we would have loved to have the question answered differently, we had nearly 39 percent of voters. . . expressing a real concern and a need for planning in the community."
Opposition to the moratorium seemed to stem from concerns about rising tax rates and the cost of public services, and a feeling that any type of growth would ease the problem. "History shows that that is not the case," Tunney said. "Communities don’t gain by unplanned growth." Voters did endorse CORD-supported candidate Leigh Guildford for the City Council.
MAPLEWOOD, MISSOURI – Opponents of a shopping center in Maplewood, Missouri, failed to persuade voters to block the project. Two-thirds of voters approved ordinances to make the 31-acre development eligible for public subsidies and authorize an agreement between the city and the developer. The shopping center will include a Wal-Mart and Sam's Club.
Citizens opposed to the project spent about $13,000 on the referendum. The developer spent $126,000, or $61 for every favorable vote.
NORFOLK NEIGHBORS ORGANIZE TO STOP WALGREEN'S
In less than a week, residents of Norfolk, Virginia, have gathered nearly 400 petition signatures against a proposed Walgreen's store. The chain plans to bulldoze a marble and tile building in the historic Ghent neighborhood and build a 14,500-square-foot store with a double drive-through and large parking lot. The development would displace a dozen locally owned businesses.
Renee Zarro, one of the neighbors fighting the project, says Walgreen's will inundate the area with traffic and erode the character of this eclectic neighborhood. Ghent is already besieged by chain drugstores. Eckerd's has an outlet across the street from the Walgreens site. Rite Aid
tore down several buildings for its store just a block away. Ghent is also home to two local pharmacies.
The top pharmacy chains have been going head-to-head in neighborhoods across the country, building more outlets than residents can support, each hoping the others will be the first to falter. The result is a rash of empty drugstores. Sprawl-Busters recently reported that CVS has
abandoned 345 stores, totaling more than 3 million square feet of vacant retail.
In Ghent, neighbors are researching local planning law to determine what leverage they have to stop the Walgreen's. The company needs variances for the drive-through and 24-hour operation. Opponents want city officials to deny those permits, which may lead Walgreen's to reconsider.
Zarro hopes neighborhood residents and the city will treat this as a wake-up call and move to revise local land use policies. "We can't keep trying to put out wildfires," she says. "It's time we implement a plan for protecting and maintaining our neighborhood."
-- Zoning Policy Examples: http://www.newrules.org/retail/index.html
-- Sprawl-Busters (see 10/14 Newsflash for CVS report):
II. NATIONAL NEWS
BUSH SLASHES SMALL BUSINESS LOAN PROGRAM
The Bush Administration has cut the federal government's largest and most important small business loan program by more than 60 percent. This year, the program will back only $4.4 billion in loans, compared to nearly $12 billion last year.
The program, known as 7(a), is run by the Small Business Administration and guarantees loans of up to $2 million made to small businesses. It is the largest source of long-term working capital for small businesses in the nation, accounting for some 40 percent of available financing. Retailers and restaurants rely heavily on 7(a) loans, more than three-quarters of which are for amounts under $500,000. Unlike conventional working capital loans, which have an average maturity of less than four years, 7(a) loans may be repaid over a period of up to 25 years, a feature that dramatically improves cash flow for new and expanding businesses. The SBA currently has about 180,000 of these loans in its portfolio.
"The timing. . . could not be worse," declared Representative Darrell Issa (R-Cal.), one of a bipartisan group of Congress people working to restore the program's lending authority. "As we look to small businesses to restore economic growth in our state, the most important source of
credit that fuels economic growth and job creation has been cut in half." The SBA estimates that for every $33,000 lent to small businesses, one job is created or retained.
The Administration has used a budget trick to deflect criticism, claiming that the program has been funded at the same level and blaming the reduction in lending authority on changes initiated by the Senate last year. At issue is a faulty method for estimating defaults used by the
administration's Office of Management and Budget. The OMB pegs the default rate for the 7(a) program at 14 percent. In reality, it is about half that.
This faulty calculation has been used for years. One major consequence has been that loan fees paid by lenders and small business borrowers to protect the SBA from losses have been far higher than necessary. Last year, after President Bush promised to adjust the default rate
calculation, the Senate initiated legislative changes that cut these fees.
But the administration never followed through with its promise. Because the program is now taking in far less in fees, but operating under the same expectations in terms of losses, it can back less than half the loans it guaranteed last year. The OMB now says it wants to use a complex model to estimate default rates, but that model will take at least a year to develop.
In October, the SBA capped loans under the 7(a) program at $500,000, ostensibly to make the available dollars go further. But the move may make the situation worse, according to lenders, by eliminating the larger, more profitable loans that help offset the costs of making smaller
Critics of the administration note that the 7(a) program ends up costing taxpayers nothing. In fact, because of the faulty default rate estimates, the program has been generating revenue and will continue to do so this year. "The Bush Administration is robbing small businesses to
repay Enron, WorldCom, and their biggest contributors," contends Senator John Kerry (D-Mass.).
"The cuts to the loan program are symptomatic of a much deeper hostility towards the SBA," says Joel Marks, director of the American Small Business Alliance, a six-year-old membership organization that focuses primarily on federal policy issues. During his first year in office, President Bush removed the SBA from the cabinet (the director had previously served as an honorary, non-voting member) and proposed a budget that cut the agency's funding by more than 40 percent and eliminated the 7(a) program altogether.
Congress subsequently restored the SBA's budget and the loan program. Now, several lawmakers, backed by some 30 small business groups, hope to fix the default rate formula by attaching an amendment to an appropriations bill, effectively preventing a veto. But the administration is reportedly leaning heavily on House leadership to block such an amendment.
-- American Small Business Alliance: http://asbanet.org
-- SBA's 7(a) program: http://www.sba.gov/financing/fr7aloan.html
-- GAO report on the 7(a) program:
WAL-MART'S BID TO BUY BANK BLOCKED
A coalition of consumer groups, unions, independent banks, credit unions, and realtors managed a legislative feat in California last month when they pushed through an 11th hour bill to block Wal-Mart's attempt to acquire a small bank.
Wal-Mart filed an application with state regulators in April to buy Franklin Bank of California, an industrial bank with $2.5 million in assets and three employees in Orange County. The new law prohibits non-financial firms from buying state-chartered banks.
Opponents of the move argued that it could lead to dangerous conflicts of interest. Not only might Wal-Mart use its size and power to muscle out smaller banks and credit unions, it could also deny loans to retail competitors and their suppliers. Such distortions would undermine the
soundness of the banking sector and lead to a dangerous aggregation of economic power."
Wal-Mart says it is being unfairly targeted because of its size. The company insists it has no interest in offering consumer banking services. Owning a bank would allow Wal-Mart to process its own debit card transactions, bypassing Visa and MasterCard and saving about a penny per
transaction. Wal-Mart stores handle about 35 million debit card purchases per month.
But Craig Hudson, director of the California Independent Bankers Association, which led the legislative effort, suspects Wal-Mart has bigger long-term plans to enter banking. "This is the camel's nose under the tent," he said.
Wal-Mart has tried to acquire banks before. In 1999, the company tried to buy a small Oklahoma thrift, saying at the time that it wanted to offer savings and checking accounts to customers nationwide. But a major overhaul to federal banking law that year barred non-financial companies from owning banks that are regulated by the Federal Reserve.
The only banks not regulated by the Federal Reserve are those with industrial charters. Only a handful of states allow industrial banks, which were founded in the early 19th century to provide loans to blue-collar workers. Now that California has closed the loophole allowing non-financial companies to buy these banks, Wal-Mart will likely look for an industrial bank in another state.
Meanwhile, the company plans to resubmit an application to federal regulators to allow Toronto Dominion, a Canadian bank, to offer consumer banking services in partnership with Wal-Mart through branch offices in its stores. An earlier application was denied by regulators, because
Wal-Mart employees were to staff the in-store branches.
III. INTERNATIONAL NEWS
MEXICAN COMMUNITIES FIGHT COSTCO AND MCDONALD'S
Residents of Oaxaca, a city in southern Mexico, are handing out free tamales by the thousands in an effort to stop a McDonald's from opening in a 500-year-old plaza at the center of town. News of the company's plans surfaced in May. Since then, opponents have been holding rallies
with free food to highlight the importance of local cuisine and build opposition to the McDonald's.
The plaza, a United Nations designated World Heritage Site, is currently home to dozens of locally owned businesses, many of which have been around for decades. McDonald's already has 235 outlets in Mexico, including one on the outskirts of Oaxaca. The fast-food giant has offered to pay $8000 a month to rent a former shoe store on the plaza. That's well above the going rate and could induce other landlords to also seek out high-rent fast-food outlets.
City officials have the power to veto McDonald's under a local law that allows them to halt any project that endangers the city's cultural heritage. Officials are taking their time with the decision. A public forum was held in October.
Meanwhile, in Cuernavaca, a city 50 miles south of Mexico City, residents are also fighting the invasion of an American chain---a giant Costco store slated for an historically significant site that is home to the former Hotel Casino de la Selva, more than 900 century-old trees, and
dozens of murals. In this case, however, city officials, despite widespread opposition, are squarely in Costco's camp, virtually ensuring that the store will open.
Plans for the development were first made public more than a year ago, after the city's sold the site to Costco for one-sixth of its market value. Opponents soon launched the Civic Front for the Defense of the Casino de la Selva, organizing rallies, gathering petition signatures, writing to Costco executives, and meeting with national and local officials.
Cuernavaca's sunny climate has earned it the nickname "the city of eternal spring," but residents contend that uncontrolled retail sprawl is reducing Cuernavaca to "the city of the eternal shopping mall." They believe a park would be a far better option for the Costco site.
The protests came to a head in late August. After the city gave Costco the official go-ahead, some 300 protesters blocked roads to prevent construction crews from reaching the site. The police beat several protesters and arrested 28 people on charges of rebellion, sabotage, and
assault. Within hours 3,000 people converged to demand the protesters' release. They were released several days later and organized a massive rally of more than 15,000 people.
Unfortunately, Cuernavaca officials seem determined to override their citizens. Construction crews are now on the site. Activists have called for an international boycott of Costco.
Some believe these recent rumblings may be the beginnings of a broader backlash against global chains like Wal-Mart, Carrefour, and Blockbuster Video, which have multiplied throughout Mexico. "Investment by multinational companies. . . has reached its limit," Flora Guerrero Goff, a Cuernavaca activist told the Dallas Morning News. "They have disrespected Mexicans not only because the megastores bring a lifestyle based on brutal consumption, but they are also destroying our customs, our culture, our traditional food."
-- Civic Front for the Defense of the Casino de la Selva:
IN NEW ZEALAND, CONCERNS GROWING AS BIG BOXES MULTIPLY
Citizens and community organizations in New Zealand are beginning to take action to curb the spread of chain stores and big box retailers. "The big box phenomena has had a huge impact," says Warren Snow of Envision New Zealand, a community development company. "In the same way that Wal-Mart has decimated the main streets of America, New Zealand towns
and suburbs are also buckling under the might of big box retailers."
New Zealand has long had discount department stores. But traditionally they were relatively small and located along main streets, where they co-existed with numerous locally owned businesses. Today, corporate retailers are building massive stores on cheap land far from town centers, harming the vitality of downtowns and forcing many independent businesses to close.
New Zealand's biggest retail company, The Warehouse, has modeled itself after Wal-Mart, with large edge-of-town stores that offer a wide range of merchandise. Founded in 1982, the Warehouse operates 78 stores in New Zealand, along with 120 outlets in Australia, and took in $NZ 1.89 billion ($US 900 million) last year. New Zealand has a population of 3.8 million.
Like Wal-Mart, The Warehouse has begun abandoning older stores to build even larger outlets further out on the periphery. In Hamilton, the company plans to vacate at least one of its three stores after it opens a massive store along a road slated to undergo several other big box
developments. In Wellington, New Zealand's largest city, officials are currently reviewing plans to construct a retail park with twelve megastores near the airport.
"There has been a stunning lack of debate in New Zealand of the pros and cons of allowing big box retailers to build stores where and when they like," says Snow.
But that is beginning to change. In September, Envision New Zealand organized a nationwide tour of Micha Peled's documentary Store Wars, the story of Ashland, Virginia's fight against Wal-Mart. The screenings drew as many 220 people and generated national and local media coverage. Each was followed by an audience discussion of ways to strengthen community-based enterprise.
Based on the success of the tour, Envision New Zealand will be establishing a web site and email listserv to disseminate information. "The problem is that all the information given to town officials is provided by the big corporations wanting to build stores," contends Snow. What they
don't mention is that much of the revenue will be taken from existing businesses, many of which will close, causing a ripple of decline. "Local lawyers, accountants, shop fitters and trades people all miss out as their local clients go out of business," says Snow.
Snow was hired by Stephen Tindall, founder of The Warehouse, in 1995 to set up his foundation, the Tindall Foundation. Snow left the foundation in frustration in 2000. "I found I was going into communities to arrest social decline and the source of the money I was giving them was actually the cause of the decline, The Warehouse."
Another activist, Judith Bell, recently had her name legally changed to Stephen Tindall to draw attention to the impact of The Warehouse. "The Warehouse buys a fraction of products from New Zealand, so all our wealth is going out of the country, mostly to China," she says. "And
manufacturers here can't compete with labor rates abroad. . . so they're going out of business." Snow points out that since the Warehouse was founded in 1982, New Zealand's trade balance with China has shifted from a $NZ 69 million surplus to a $NZ 1 billion deficit.
"It’s time to stop and question the real bargain that we are all getting," contends Snow. He is urging communities to adopt new policies that limit the size of new retail stores, require that they locate in existing town centers, and provide for a comprehensive review of their potential economic and community impacts.
-- Envision New Zealand: http://www.envision-nz.com (not yet live)
-- Mandez, a new organization that will promote "local production for
the home market": http://www.madenz.co.nz (not yet live)
-- Town Centres Association: http://www.towncentres.org.nz
IV. NEW RULES
EUREKA DEVELOPS ECONOMIC IMPACT REVIEW LAW
Citizens in Eureka, California, recently attended the third in a series of public meetings aimed at drafting an ordinance that would require big box development proposals to pass a comprehensive economic impact review before being allowed to build.
"We're trying to create a livable, walkable city," said City Councilor Chris Kerrigan, who introduced the ordinance in April. "We've spent millions and more than a decade trying to turn our downtown around. We need to protect that investment."
The City Council asked the Planning Commission to review the proposal and offer recommendations. The commission organized the forums to gather feedback on what impacts should be studied and what criteria should be used for approving large retail development projects. The forums have been well-attended and residents generally support the idea.
As currently structured, the ordinance would apply to any proposed stores over 40,000 square feet---which would include retailers such as Wal-Mart, Target, Home Depot, and Office Max---and any existing large stores planning expansions of 20 percent or more.
The ordinance would require these developments to undergo an economic impact analysis. Depending on public feedback, the analysis might include such things as the impact on local employment and wage levels; tax revenue and public costs; surrounding land values; existing business districts; and storefront vacancy rates. The measure would also require an
environmental impact review in accordance with the California Environmental Quality Act.
Officials from Humboldt County and the nearby community of Arcata have also attended the forums and expressed a commitment to working together to address big box retail. Humboldt County has a population of about 130,000. Eureka is its largest city with 30,000 people.
Humboldt County currently requires a special permit for big box retail and plans to expand its policy early next year to address environmental and community impacts. County officials want to steer any new retail development to existing commercial centers and avoid additional sprawl in outlying areas. Arcata already requires a review of stores larger than 30,000 square feet.
Two years ago, Wal-Mart spent $700,000 on a ballot referendum to allow it to build in Eureka. Voters rejected the store by a 2-to-1 margin. They also voted out a pro-Wal-Mart City Councilor and elected 22-year-old Chris Kerrigan, who ran on a sustainable development platform.
-- Examples of Economic Impact Review ordinances:
TWO CALIFORNIA CITIES BAN SUPERCENTERS
Two California cities have adopted ordinances that prohibit "supercenters"---massive 200,000-square-foot stores operated by Wal-Mart, Target, and Kmart that combine general merchandise with a full supermarket and numerous specialty services like florists and gas stations.
In October, the Inglewood City Council voted 4-1 to bar stores over 155,000 square feet that sell more than 20,000 nontaxable items, such as food and pharmacy products. Inglewood has a population of 113,000 and is located in Los Angeles County. The ordinance specifically targets
supercenters and would not impede the construction of large stores that do not sell groceries.
The city of Martinez passed a similar ordinance in September. That law prohibits stores over 90,000 square feet that devote more than five percent of their floor space to groceries. Dozens of people attended the city council meeting and spoke in favor of the ordinance, describing it
as a way of preserving neighborhood retail. Martinez is a community of 36,000 people located about 35 miles from San Francisco.
The two ordinances were initiated by the United Food and Commercial Workers (UFCW) union, which represents grocery workers. UFCW locals throughout California have launched campaigns to block Wal-Mart, which says it plans to open 40 supercenters in the state over the next few years. Wal-Mart is non-union. Its employees earn an average of $3 per hour less
than UFCW members, who also receive healthcare and pension benefits. Several of California's unionized supermarkets are already pressing for wage cuts in expectation of competition from Wal-Mart.
-- UFCW's Wal-Mart Watch: http://www.walmartwatch.com
PUERTO RICO CHALLENGES WAL-MART ACQUISITION
A broad coalition has coalesced in Puerto Rico to block an attempt by Wal-Mart to buy Supermercados Amigo, the island's largest supermarket chain. The deal would give the retailer, which already has $1.16 billion in sales at 19 Wal-Mart and Sam's Club stores, a 40 percent share of Puerto Rico's grocery sales.
"Before, we were fighting this alone; and now, there is a united front to fight this octopus that has come to cover the island," Ricardo Calero, president of the 18,000-member United Retailers Association of Puerto Rico, told the Orlando Sentinel.
In rare agreement, legislators from Puerto Rico's three major parties rapidly moved to investigate the deal, passing a resolution that calls for a 30-day probe. The resolution notes that the acquisition would severely reduce competition on the island and cites Wal-Mart's anti-labor
policies and studies that show it destroys small businesses and jobs.
Meanwhile, several grocers have filed suit in superior court in San Juan to block the purchase on antitrust grounds.
Also providing a temporary delay is the Federal Trade Commission (FTC), which must approve the acquisition. The FTC insists that Wal-Mart sell a few of Supermercados Amigo's 38 stores to preserve local competition. But Wal-Mart has yet to find a buyer suitable to the FTC, which would prefer they be taken over by another large chain. Beyond Supermercados Amigo, Puerto Rico really has no supermarket chains.
VI. ALLIANCES AND COOPERATIVES
YAYA! BIKE CO-OP CHARTS RAPID GROWTH
The number of businesses belonging to purchasing cooperatives has doubled in the last ten years, to about 50,000, according to Paul Hazen of the National Cooperative Business Association. In the hardware and grocery sectors, long-established co-ops like Ace Hardware, have provided an essential line of defense against large chains and made the difference between survival and failure for countless independent merchants. The co-op model is now spreading to other retail sectors.
One example is YaYa! Bike, a new cooperative of independent bicycle dealers, which has grown to more than 130 members with 200 stores in 35 states in just over a year.
YaYa! Bike---ya-ya is baseball slang for a homerun---is the brainchild of Cooperative Solutions, Inc., a five-year-old organization that creates and builds cooperatives. The company has launched seven co-ops, including Amarok, a very successful alliance of drywall contractors, and
provides recruitment, financing, and management assistance to help these ventures reach critical mass.
For most of YaYa's members, their primary motivation for joining is to gain greater clout in an increasingly consolidated industry. The number of bicycle suppliers has shrunk dramatically in recent years. Pacific Cycle, which owns the leading brands of Schwinn, Mongoose, and GT, now has about 30 percent of the market. Independent bike dealers have little leverage with these companies, which determine retail and wholesale prices, and often even product mix.
"There's a feeling that we don't have much say," says Mikki Griffin, owner of Perpetual Motion Bicycles in Carrollton, Georgia. "As the little guy, it can be like talking to a brick wall."
YaYa is providing an unified voice and building more advantageous relationships with suppliers. Twenty-six distributors have agreed to become the co-op's "preferred suppliers." The benefits go both ways. Member stores get rebates on purchases and better terms, as well as streamlined ordering. "I don't have to police my suppliers," notes Griffin.
In turn, suppliers are able to increase their market share with fewer staff hours spent servicing accounts. "We've already seen an effect---a dozen new stores in the Midwest and West," notes one supplier. Suppliers also benefit from closer contact and more feedback from retailers on
how to improve their products and build more interest in bicycling among certain demographic groups.
Jeff Milbauer, owner of Valley Bike & Ski in Apple Valley, Minnesota, believes this new strength in numbers, combined with superior service and higher quality products, can rescue independents and give them an edge over their competitors.
In the last couple of years, more than 800 independent bike retailers have gone out of business. Independents' overall market share has dropped below 20 percent, while chains like Target and Toys R Us are selling more bicycles. A recent deal by Pacific Cycle to retail Schwinn bikes at Wal-Mart has independents concerned. Although Schwinn has developed a low-end model for Wal-Mart, such reputable brands have generally been the province of independent dealers.
YaYa is a true cooperative. Each member business has one vote, regardless of its size. To join, members buy one share at $1,500, plus $500 in one-time fees. There are no other costs currently, but the co-op may eventually add services like member web sites for an annual fee. Rebates and co-op earnings are redistributed to members based on the volume of their purchases.
The co-op hopes to grow to a membership of 1,250 dealers, which would represent about one-quarter of all independent bicycle stores. Not just any dealer can join; stores must apply and are considered based on their credit worthiness and quality of service.
YaYa's plans for the upcoming year include a line of its own YaYa brand products. Stores are already selling YaYa shorts and tubes, and plan to introduce a bicycle this spring. Private label products yield greater margins for the members and provide a way to differentiate their offerings from those found at chain competitors.
Eventually, YaYa members may add the co-op name to their stores to build recognition among consumers---much as Ace and True Value members have done in the hardware sector.
-- YaYa! Bike: http://www.yayabike.com
-- Cooperative Solutions: http://www.co-opbuilders.com
VII. OUR PERSPECTIVE
TACKLING THE PROBLEM OF COMMERCIAL GENTRIFICATION
Rising commercial rents are generally a good thing; they are an indication of the health of a business district and encourage landlords and banks to invest in building improvements.
But in some communities, commercial rents are rising too far too fast. Often this sudden run-up is driven by chain retailers, which discover the appeal of an area and sweep in by the dozens, offering above-market rents for choice spots and sparking a frenzy of speculation. Landlords
raise rents across the board and opt not to renew leases for existing tenants in order to attract a national brand. Banks are often willing to lend building owners more capital at better terms if the lessee is a big-name tenant rather than an independent business, no matter how successful.
The displaced local businesses are not the only casualties of this process. The community as a whole suffers. Businesses that meet everyday needs, like the hardware store and the barber shop, are replaced by chains and upscale boutiques that primarily serve tourists and leisure
shoppers. Residents are forced to shop elsewhere for basic items. The local economy becomes more dependent and vulnerable to outside forces---from boardroom decisions to stock market drops. Over time, building owners also lose as the character and unique appeal of the district evaporate. Why shop downtown when the mall has the same stores, free parking, and better weather?
For commercial districts undergoing a rapid rise in rents, or at risk of one, there are number of strategies that could help ensure that locally owned businesses continue to be part of the district:
1. Encourage Owner Occupancy
The best way for a local retailer to maintain a stable location at a reasonable price is to buy the building his or her store occupies. Cities and states could encourage this through income or property tax incentives (in the same way that many jurisdictions tax owner-occupied apartment buildings at a lower rate than those with absentee landlords), or by providing low-interest loans for this purpose.
2. Create a Commercial Land Trust
Community Land Trusts (CLTs) have been used effectively for thirty years in cities nationwide to maintain affordable housing. A CLT is a nonprofit corporation that buys property in a city and holds it in perpetuity for the benefit of the community. Homes on the properties are sold to
low-income families at affordable prices. The land beneath the homes is leased indefinitely. When the family decides to sell the home, the CLT repurchases it for a price set by a formula that allows for a fair return on the family's investment but maintains affordability for the next
The CLT model could be adapted for commercial districts with the requirement that buyers or lessees of CLT buildings be independent, locally owned businesses. Although a few CLTs have been involved in non-residential projects such as office space for nonprofits, to date none have
been involved in maintaining affordable retail space. But there's no reason the model would not work for this purpose, according to Julie Orvis of the Institute for Community Economics, the group that originated the CLT model and provides technical assistance and grants to help CLTs get started. In fact, the major source of funding for CLTs, HUD's Community Development Block Grants, are available for both housing and economic development.
3. Establish Municipal or Community Owned Retail Space
A city could buy a commercial building and contract for its management with the stipulation that space be leased only to local businesses. Rents would be stable and below market, reflecting the city's actual costs of owning and maintaining the building with no profit. A town could
also lease a building and sub-lease the spaces to local businesses at subsidized, below-market rates.
Another possibility raised by Donovan Rypkema of Place Economics is a land write down. It's common for cities to buy land and resell it to developers for less than the acquisition price in exchange for the developer building a stadium or some other publicly desirable project. Communities could likewise target key downtown properties for re-conveyance with the stipulation that they house only locally owned retailers.
4. Identify and Revitalize Underutilized Commercial Districts
Communities should consider whether there are underutilized, perhaps run-down, commercial districts in the city where local businesses pushed out of high-rent areas might relocate. If so, the community might focus revitalization and economic development resources on making these districts vibrant and viable alternatives for local stores.
5. Implement Small-Scale Zoning
Many chain retailers will not open stores smaller than a certain size or that have street frontage of less than 25 feet. Maintaining the small-scale character of a retail district through zoning rules that stipulate maximum store sizes can reduce interest from national retailers and stave off gentrification. The Brookside neighborhood in Kansas City, for instance, limits stores to no more than 10,000 square feet and several San Francisco neighbors set limits at 4,000 square feet. Both have found these measures effective in keeping locally owned, neighborhood
-- Place Economics: http://www.placeeconomics.com
-- Institute for Community Economics: http://www.iceclt.org
-- Zoning examples are available on the New Rules site at
-- JUSTICE AT WAL-MART: NATIONAL DAY OF ACTION ON NOVEMBER 21
From the United Food and Commercial Workers Union: "The National Day of Action on Thursday, November 21, 2002 (one week before Thanksgiving Day), will kick off the People’s Campaign for Justice at Wal-Mart. Thousands of American workers, supporters, and organizations will gather at selected Wal-Marts and Sam’s Clubs between 4 and 7 PM to be a collective voice for change in a country where giant corporations like Wal-Mart rake in profits at the expense of employees, neighborhoods, and all fair-minded citizens." To find out about activities in your state, see http://www.walmartdayofaction.com.
-- ELSEWHERE IN THE MEDIA
"How Wal-Mart Keeps Unions at Bay," by Wendy Zellner, Business Week http://www.businessweek.com/magazine/content/02_43/b3805095.htm
-- GRASSROOTS GUIDE TO TAX INCREMENT FINANCING
Tax increment financing (TIF) is one of the most common ways that cities subsidize big box retail development. To learn more about this questionable practice and how to fight it, check out a new chapter on TIF in "No More Secret Candy Store," a grassroots guide on how to investigate development subsidies published by the nonprofit group Good Jobs First. The TIF chapter explains how TIF works, describes the problems associated with TIF, gives tips on researching TIF usage in your own community, and lists resources for further information. The report is available online at http://www.goodjobsfirst.org/research.htm.
Copyright 2002 by the Institute for Local Self-Reliance.
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