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The Home Town Advantage Bulletin
Issue #13 - February 2003
-- About this Bulletin
LOCALS: 4, CHAINS: 0
-- Local Stores Create Triple the Economic Activity of Chains
-- Big Box Stores Drain City Revenue, Study Finds
-- Another Survey Finds Independent Pharmacies Cheaper than Chains
-- Small Businesses Pay Their Employees. Wal-Mart Doesn't.
-- Cape Cod Coalition Promotes Local Ownership
-- Taos, New Mexico, Battles Big Boxes... Again
-- Historic Georgia Community Fights Wal-Mart
-- Midcoast Maine Residents Oppose Coastal Home Depot
-- McDonald's Defeated in Oaxaca, Mexico
-- British Government Rejects Big Box Sprawl
ALLIANCES AND COOPERATIVES
-- Community-Owned Department Stores Replace Chains
-- Charleston Merchants Join Forces to Promote Local Stores
-- Supermarket Concentration Harms Farmers and Consumers
-- German High Court Convicts Wal-Mart of Predatory Pricing
-- Wal-Mart's Purchase of Puerto Rico Chain Challenged
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.
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.
If you're not already receiving this newsletter directly, subscribe by sending a blank email to:
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Back issues are available at http://www.newrules.org/hta/index.htm.
I. LOCALS: 4, CHAINS: 0
LOCAL STORES CREATE TRIPLE THE ECONOMIC ACTIVITY OF CHAINS
When you spend $100 at the chain Borders Books & Music, your purchase creates only $13 worth of local economic activity. That same $100 spent at locally owned book or record store generates $45, or more than three times as much local economic activity.
That's the conclusion of a new study conducted by Civic Economics and published by Livable City in Austin, Texas. The study, "Economic Impact Analysis: A Case Study," examines the local economic impact of two of Austin's venerable independent businesses---Waterloo Records, widely considered to be the best music store in the nation, and Book People, a beloved, 32-year-old bookstore. The study compares their contributions to
the local economy with the economic return the community would receive from a typical Borders store.
The study was prompted by plans to develop a retail complex that will include a 25,000-square-foot Borders outlet and a Whole Foods store at the same intersection where Waterloo and Book People are located. The development is slated to receive $2.1 million in public subsidies.
"This analysis demonstrates a clear failure of public policy to steer desirable development at the site in question," the study concludes. "As presently configured, new development at the corner will yield a net loss to the local economy. Moreover, previous decisions have placed the city in the position of subsidizing such an outcome."
The two local stores opened their books to Civic Economics so the firm could track how much of their incoming revenue is re-spent in the local area. According to the study, every $100 in sales at Waterloo and Book People returns $30 directly to the local economy. Using a standard multiplier (an estimate of how many times dollars re-circulate locally) and accounting for induced effects (greater household spending due to greater economic activity), the study concludes that the direct return of $30 results in a total local economic impact of $45.
For the Borders comparison, Civic Economics relied on numerous sources---including interviews with former employees, the company's public records, and studies of similar stores conducted by Bank of America---to develop an estimate of what happens to dollars spent at a typical Borders. The study concluded that every $100 spent at Borders results in a direct return of $9 and a total local economic impact of $13.
The gap in direct return ($9 vs. $30) can be attributed to three factors. First, Waterloo and Book People have larger payrolls. "When people wonder why there's such a big difference, I tell them to go up to the fourth floor of Book People and look at all the professionals writing ad copy, buying inventory, and doing accounting," says Dan Houston of Civic Economics. Borders houses all of these functions at its headquarters in Ann Arbor, Michigan.
Another factor is that, compared to chains, locally owned businesses purchase more goods and services locally. Waterloo, for example, generates $600,000 annually in consignment sales of CDs by local bands which are recorded and produced locally. "The plastic case on the CD is about
the only component that comes from out-of-state," notes Houston. Although Austin's Borders stores do have sections featuring local bands, they only sell CDs from major labels, which return little of the sale price back to the Austin economy.
The last factor is that a much larger share of the profit at a locally owned store stays in the local economy compared to a chain.
The study concludes that a typical Borders store generates $820,000 in local economic activity, compared to $2.8 million generated by Book People, which is roughly the same physical size as Borders at 22,000 square feet. Waterloo, which is smaller but has higher sales per square foot, pumps $4.1 million into the Austin economy.
Finally, the study looks at the likely competitive impact of the proposed Borders store. The study estimates that half of Borders' sales will be siphoned from Waterloo and Book People.
The study then considers three scenarios---one in which Borders experiences better than industry average sales growth, one in which growth is average, and one in which the store's revenue declines over a period of five years. For each scenario, the study finds that local economic activity will decrease---despite the fact that a new Borders will boost the area's overall retail sales. In the average scenario, the study predicts the city will experience a net loss of $2.4 million in economic activity over five years.
"Redeveloping this corner is important, but it must be done without hurting the economy and nearby local businesses," declared Bill Spelman, chair of Livable City. The group hopes the study will persuade Austin to withdraw public subsidies for the project.
-- Civic Economics provides economic analysis and strategic planning, and is looking for opportunities to conduct similar studies in other communities. http://www.civiceconomics.com-- For a copy of the Austin study, go to Livable City at http://www.liveablecity.org.
BIG BOX STORES DRAIN CITY REVENUE, STUDY FINDS
Big box retail, shopping centers, and fast-food restaurants cost taxpayers more than they produce in revenue, according to a fiscal impact analysis in Barnstable, Massachusetts.
The study, conducted by Tischler & Associates, compares the tax revenue generated by different kinds of residential and commercial development with the actual cost of providing public services for each land use. Barnstable is a community of 48,000 people on Cape Cod.
The study found that big box retail generates a net annual deficit of $468 per 1,000 square feet. Shopping centers likewise produce an annual drain of $314 per 1,000 square feet. By far the most costly type of development, according to the study, are fast-food restaurants, which have a net annual cost of $5,168 per 1,000 square feet.
In contrast, specialty retail, a category that includes small-scale Main Street businesses, has a positive impact on pubic revenue (i.e., it generates more tax revenue than it costs to service). Specialty retail produces a net annual return of $326 per 1,000 square feet. Other commercial land uses that are revenue winners include business parks, offices, and hotels.
"This study shatters the common misperception that any sort of growth creates revenue," says Christopher Cullinan of Tischler & Associates, a fiscal, economic, and planning consulting firm. "Communities often talk about development in terms of the new revenue it will bring, but they rarely give serious considerations to the on-going costs of servicing that development."
The two main factors behind the higher costs for big box stores, shopping centers, and fast-food outlets, compared to specialty retail shops, are higher road maintenance costs (due to a much greater number of car trips per 1,000 square feet) and greater demand for public safety services.
-- Tischler & Associates: http://www.tischlerassociates.com
ANOTHER SURVEY FINDS INDPENDENT PHARMACIES CHEAPER THAN CHAINS
In the last issue of this newsletter, we reported on two price surveys conducted by the state of Maine and New York City that found that independent pharmacies had lower prescription drug prices compared with chain drugstores, supermarkets, and mass merchandisers like Wal-Mart.
In December, another prescription price survey conducted by the New York Statewide Senior Action Council in Albany, New York, concluded, "The lowest prices for generic drugs were found at an independent pharmacy. . . contrary to the belief that chain drug stores with high volume purchases would pass on the savings to customers."
For example, prices for Lovastatin, a cholesterol medication, ranged from $84.50 at the independent Lincoln Pharmacy to $199.97 at Rite Aid. The online pharmacy Drugstore.com offered Lovastatin it for $99.99, Wal-Mart for $136.62, and Target for $146.39.
-- Senior Action Prescription Drug Price Survey:
SMALL BUSINESSES PAY THEIR EMPLOYEES. WAL-MART DOESN'T.
In December, an Oregon jury found Wal-Mart guilty of forcing employees in eighteen stores to work extra hours without pay. A separate jury will determine damages in the class-action lawsuit.
Employees testified that store managers used a variety of tactics to extract unpaid labor, including requiring employees to work after they had punched out for lunch, locking the doors at night to prevent off-the-clock employees from leaving until certain tasks were complete, and manipulating employee timecards.
Carolyn Thiebes, a former store manager, testified that she routinely docked overtime hours from workers' paychecks at the direction of her supervisors and pushed employees to work more than 40 hours a week without pay to finish assigned tasks.
Wal-Mart insists such practices are isolated and are not part of a company-wide strategy. But several former store managers have described intense pressure from Wal-Mart headquarters to keep labor costs low. They say the company made it impossible to meet the requirements without forcing employees to work unpaid hours.
Indeed, lawsuits against Wal-Mart for unpaid work are now pending in at least 30 states. Wal-mart "has ridden the backs of its hourly employees to extreme profitability," reads one suit filed in Michigan. In many towns, Wal-Mart controls most of the retail employment, leaving workers little choice but to accept its terms.
So far, Wal-Mart has settled out of court in two cases, reportedly paying $50 million in a class-action suit involving 69,000 employees in Colorado and $500,000 in a case brought by 120 workers in Gallup, New Mexico. The Oregon case is the first to go to trial.
With more than one million employees nationwide, Wal-Mart's free labor could add up to tens of millions of dollars, harming retail workers and giving the company a significant illegal advantage over small businesses that pay employees their full due.
-- Wal-Mart Watch: http://www.walmartwatch.org
-- "For Wal-Mart employees, another side to the coin," by Kathy Watson
II. LOCAL BATTLES
CAPE COD COALITION PROMOTES LOCAL OWNERSHIP
"Now you know who really has your interests at heart," reads a recent advertisement in the Cape Cod Times that explains that a locally owned business returns a much larger share of its revenue to the local economy compared to an absentee-owned chain.
The ad is part of a series of ads published in Cape Cod newspapers last fall by a new grassroots organization called the Smart Planning and Growth Coalition (SPGC). The group formed last year with the goal of promoting a more sustainable economy based on small, locally owned businesses and higher wage industries.
Cape Cod is one of the few regions of the nation governed by a regional planning body, the Cape Cod Commission, created by voters in 1990. All developments over a certain size (10,000 square feet in the case of retail) must gain approval from both the town and the CCC, which reviews proposals according to a set of environmental and economic criteria.
The CCC is also responsible for crafting an overall vision for development on the Cape. The current Regional Policy Plan (RPP), adopted in 2002, says that the region should focus on creating locally owned businesses, channeling new investment and growth into existing town centers, and limiting megastores and retail sprawl.
The goals are great, says SPGC, but not enough is being done to implement the vision. Many towns have not incorporated these goals into their own local comprehensive plans. The CCC itself can only respond to development in a piecemeal fashion, and its standards for reviewing the economic impact of chain retail projects are much too weak. Out of twelve-pages of minimum standards that projects must meet, only three lines are devoted to economic impact.
Over the last few years, the Cape has been inundated with proposals from big box retailers and smaller chain stores. Wal-Mart opened its first store on the Cape in an abandoned Bradlees outlet in the town of Falmouth. Home Depot is likewise proposing to open in an old Bradlees in Hyannis. Stop & Shop is building a 70,000 square foot store in Orleans.
Thanks to the CCC and regional planning guidelines, these stores are significantly smaller than their counterparts elsewhere and are located in existing retail buildings.
But those factors only slightly mitigate their cumulative impacts on the Cape's economy, according to SPGC Executive Director Felicia Penn. She says the stores undermine locally owned businesses, drain dollars from the region's economy, and strain town budgets. She points to a recent study in Cape's largest town, Barnstable, that found that big box stores require more in pubic services than they return in tax revenue (see
Cape Cod is already "over-stored," according to SPGC. Retail space per capita is many times the national average. Low-wage service jobs account for nearly one-third of the Cape's employment, and 29 percent of all families do not make enough to cover basic living expenses. Chain stores are not only adding to problem of low-wage jobs, but may be impeding higher wage businesses by consuming the region's limited land and eroding its historic character and appeal.
All of these themes were highlighted in SPGC's print ads, which can be viewed on its web site.
The group plans to focus mainly on research and education during the next year. It has been giving presentations to town councils and community organizations, will soon begin running material on public access television, and has a emerged as a regular voice in the local media on economic development issues.
SPGC is also committed to fighting harmful development proposals. Currently the group is working with other organizations to block a proposed BJ's warehouse store in Hyannis. It would be the first free-standing big box on the Cape---"the camel's nose in the tent," according to Penn.
-- Smart Growth and Planning Coalition: http://www.gotcommunity.org
-- Association to Preserve Cape Cod: http://www.apcc.org
-- Cape Cod Commission: http://www.newrules.org/retail/capecod.html
TAOS BATTLES BIG BOXES... AGAIN
Hundreds of citizens packed a Town Council meeting in Taos, New Mexico, in late January to voice their opposition to a proposed Wal-Mart supercenter.
With the meeting room filled to capacity, many were forced to sit out the proceedings in other rooms, hallways, and even outside the building. More than 70 people testified against the development over a three-and-a-half hour period. Opponents wore green ribbons to identify themselves and presented a petition with 6,800 signatures. Small business owners held up green signs with the names of their stores and the number of
people they employ.
Wal-Mart already has a 70,000-square-foot store in this historic mountain town. The company wants to build a 180,000-square-foot supercenter that would combine general merchandise with a full supermarket and numerous specialty items from cut flowers to eye glasses.
An earlier attempt by Wal-Mart to build a supercenter was defeated three years ago. Afterwards, the Taos Town Council adopted a zoning law that prohibits stores over 80,000 square feet, about twice as large as a football field but less than half the size of a supercenter.
But this fall, seemingly out of the blue, two residents presented the town manager with a petition containing 7,000 signatures in support of a Wal-Mart supercenter (the validity of at least one-quarter of the signatures has been called into question). Proponents took out large ads in The Taos News and have convinced the Town Council to reconsider the 80,000-square-foot limit.
The two men leading the campaign for Wal-Mart, Santiago Chavez and Ramon Trujillo, will not say who is funding the ads and paying their salaries. An out-of-state developer has optioned land on the edge of town presumably to build a shopping center anchored by Wal-Mart.
Proponents of the development have attempted to divide the community along ethnic lines, painting opponents as white newcomers who care little about unemployment among Hispanics.
The characterization has angered many Hispanic small business owners. More than 290 businesses employing 1,700 people have come out against the development. In December, the Hispano Chamber of Commerce passed a resolution opposing Wal-Mart.
Resident Arsenio Cordova contends that, at the very least, the Town Council needs to conduct a thorough economic impact study. He contacted several New Mexico communities—including Las Vegas, Trinidad, and Espanola---which all reported losing grocery stores and other locally owned
businesses soon after supercenters opened.
Anther concern, according to Hilario Serrano, manager of Randall Lumber and Hardware, has to do with Wal-Mart's wages. He says local businesses pay significantly more, especially the town's three unionized grocery stores.
-- Examples of Size Caps: http://www.newrules.org/retail/size.html
HISTORIC GEORGIA COMMUNITY FIGHTS WAL-MART
Two churches and a long-time resident of the historic Sandfly community near Savannah, Georgia, have sued city and county officials to block a proposed Wal-Mart supercenter. The lawsuit claims the officials violated planning and zoning laws in approving the development.
Settled by slaves in the 1700s, Sandfly is one of the nation's oldest African-American communities. Until recently, most homes is this tight-knit village were built by residents themselves with everyone in the community pitching in to help. "Sandfly is a way of life," said James Miller. "It's basically family and I don't mean individual family, I mean community."
Wal-Mart wants to build a 204,000-square-foot supercenter on a 52-acre site that was once a drive-in movie theater and more recently a ball field for a nearby church.
Residents organized as Save Our Sandfly ("SOS") have used lawn signs, letters to the media, and turn-out at public meetings to fight the development. SOS has enlisted the support of several state and national organizations, including the Georgia Conservancy, the NAACP, and the National Trust for Historic Preservation. Two years ago, a similar effort led Target to drop plans for a store at the same location.
Sandfly falls under the jurisdiction of the Savannah Metropolitan Planning Commission. Despite opposition from the county commissioner representing Sandfly, in October the MPC voted to approve the Wal-Mart. Opponents say the decision-making process clearly violated zoning laws. The issue is now before a state court.
MIDCOAST MAINE RESIDENTS OPPOSE COASTAL HOME DEPOT
Residents of the midcoast region of Maine are petitioning the state Department of Environmental Protection (DEP) and the US Coast Guard to deny permits to a planned Home Depot store in the town of Rockland.
The 100,000-square-foot store is slated for a 24-acre site along the coast near Route 1. The project was approved by the Rockland Planning Commission in October. It still needs permits from the DEP, which is accepting public comment through February and is expected to issue a decision in March.
Concerned citizens say the project violates state law by creating visual pollution and noise, destroying wetlands, harming existing uses, and damaging the scenic beauty of Penobscot Bay.
In a letter to the DEP, Ron Huber of Penobscot Bay Watch points out that the Home Depot "would be the largest and highest major light-emitting facility on the West Penobscot Bay coast." Constructed at elevations of 50 to 150 feet above sea level, the store's nighttime visual footprint "would extend at minimum across a ninety degree swath of west Penobscot Bay and its islands and coasts." The store's air conditioning, lumber yard, and car traffic would produce a "continuous low frequency hum, annoyingly audible well throughout the harbor and beyond."
The harm to the scenic character of the bay could severely impact the region's thriving tourism and commercial wind jamming industry. Add to this the impact on existing hardware businesses and downtowns, and the project is likely to destroy more jobs and tax revenue than it creates.
Penobscot Bay Watch has also petitioned the US Coast Guard to block the development. The store's lights would be at about the same elevation as two lighthouses, and thus pose an illegal navigation and safety hazard.
-- If you live in or visit the region, the DEP needs to hear from you on why this project should not go through. For the DEP's address and guidance on what to write, see PBW's letter at http://www.penbay.org/hdepotdep122k2.html.
III. INTERNATIONAL NEWS
MCDONALD'S DEFEATED IN OAXACA, MEXICO
Officials of Oaxaca, Mexico, have turned down an application by McDonald's to open an outlet in a 500-year-old plaza at the center of town. "There are values that we have to preserve, such as our traditions and culture," city leader Gabino Cue Monteagudo said. A local ordinance allows local officials to reject development projects that endanger the city's cultural heritage.
As we reported in the last issue of this newsletter, residents organized a spirited campaign against the global fast-food chain that including gathering more than 10,000 signatures and handing out free tamales in the plaza.
-- November 2002 issue of The HomeTown Advantage Bulletin:
BRITISH GOVERNMENT REJECTS BIG BOX SPRAWL
In a move that could derail big box development projects throughout England, Deputy Prime Minister John Prescott has rejected a bid by the furniture chain Ikea to build a 300,000-square-foot store (seven times the size of a football field) outside the city of Stockport.
In a letter explaining his decision, Deputy Prime Minister Prescott said the proposed store violated several provisions of both national and local planning policy. Major factors included the store's impact on the vitality and viability of Stockport's downtown and other nearby town centers, and the fact that it would foster increased automobile usage.
Mr. Prescott declared that local authorities had not conducted a "sufficiently rigorous assessment of the likely economic impact of the proposed store." He said that Ikea's claim that the store will bring more traffic to Stockport's town center was probably overstated and unlikely to offset the store's negative economic impacts on the downtown and other smaller towns nearby.
Mr. Prescott suggested that Ikea substantially reduce the size of its stores and locate them in or adjacent to town centers. He said the company's approach to retailing---building massive out-of-town stores primarily accessible by car---ran "counter to the Government's objectives to ensure sustainability and promote social inclusion."
While planning and development is strictly a state and local matter in the United States, in England, local policies must follow broad national guidelines.
Ikea has already built eleven of its massive outlets in Britain. The government's recent rejection may reflect a renewed and more stringent interpretation of "Planning Policy Guidance Note 6: Town Centres and Retail Development" (PPG6), a national policy that aims to protect the economic vitality of town centers.
PPG6 requires that town centers be given preference for all new development, followed by edge-of-town sites (defined as within walking distance of the downtown). Out-of-town development is allowed only if the developer demonstrates a need that cannot be satisfied with a more centrally located project.
Before approving out-of-town retail projects, local planners must consider the development's impact on the downtown's economic vitality, potential to attract new investment, mix of goods and services, visual character, and "role in the economic and social life of the community."
Ikea plans to appeal the decision through the courts. Sprawl opponents, including the Council for the Protection of Rural England, hope the decision will be upheld and herald a stronger national commitment to maintaining vibrant local economies.
-- Deputy Prime Minister's Decision Rejecting Ikea:
-- Planning Policy Guidance Note 6: Town Centres and Retail
IV. ALLIANCES AND COOPERATIVES
COMMUNITY-OWNED DEPARTMENT STORES REPLACE CHAINS
"It's been a remarkable success," says Ken Witzeling, who helped start a community-owned department store in the small town of Powell, Wyoming. Known officially as Powell Mercantile and more informally as The Merc, the store is the third community-owned department store to open in this region of the country since 1999.
It is unlikely to be the last. Witzeling has received numerous inquiries from small towns throughout Wyoming, Montana, Utah, and Idaho.
The idea originated in Plentywood, a town of 2,000 people in northeastern Montana. A few years ago, the Houston-based Stage Stores chain (formerly Anthony's) pulled out of Plentywood and dozens of other small towns in the northern Rockies, leaving residents with little choice but to drive long distances for basic clothing and housewares.
"We thought about contacting a national chain," says Ann McKenzie, the former manger of Stage and the current manager of the community-owned Little Muddy Dry Goods store. "But we realized, if we get another one, they'll probably pick up and leave in a few years too."
McKenzie proposed a community-owned store. Residents stepped up and purchased 18 shares in the venture for $10,000 a piece. (Many single shares are owned by groups of five or six people.)
Little Muddy Dry Goods opened a few months later. The 10,000-square-foot store has two full-time and four part-time employees, and sells clothing, shoes, linens, and housewares. Although not particularly profitable, the store does break even, while filling an important community need.
Plentywood's success inspired residents of Malta, Montana, to open their own department store, called Family Matters, shortly thereafter. Malta organizers took a slightly different approach, selling shares for $500, which allowed more people to get involved. According to Malta Chamber of Commerce Director Anne Booth, Family Matters has been profitable. But its real value has been as an anchor for the downtown and a draw
for other local businesses.
Organizers in Powell, a community of 5,500 people in northwestern Wyoming, likewise chose to sell shares in The Merc for $500 each. More than 800 shares have been sold to approximately 500 investors. Shareholders are limited to no more than twenty shares in order to prevent any one
shareholder from gaining too much control.
The 10,000-square-foot store, which sells mostly mid-range clothing and shoes, opened in July and has turned a profit ever since. Key factors behind its early success, according to Witzeling, include the store's lack of debt, a board of directors made up of local merchants, and a manager who is a veteran buyer in the industry.
Unlike Plentywood and Malta, where residents must drive at least 100 miles to find significant shopping options, Powell is just 22 miles from a Wal-Mart store in Cody, Wyoming. Some residents initially argued that The Merc was a sure failure with such a powerful competitor nearby. But, as it turns out, plenty of residents prefer shopping at the local store.
Part of the reason is undoubtedly the sense of ownership, say Witzeling. Before opening The Merc, he and other Powell residents visited Little Muddy Dry Goods in Plentywood. "We went up and down the street and talked to different people," says Witzeling. "They all referred to it as 'our store.' Not 'the store,' or 'that store.' It was 'our store.'"
Another community-owned department store is now opening in Glendive, Montana, and a fifth has started selling shares in Worland, Wyoming.
CHARLESTON MERCHANTS JOIN FORCES TO PROMOTE LOCAL STORES
A dozen independent businesses in Charleston, West Virginia, have banded together to promote one another and the idea of supporting locally owned businesses.
In November, the group began running print, television, and radio advertisements. The print ads read, "Supporting your locally owned stores keeps your dollars in our community. Not only do we provide the best service and selection, but we service what we sell and most importantly, take care of our customers."
The ads include joint coupons that can be redeemed at any of the businesses. Barry Ogrin, owner of the Charleston Department Store, collected more than 400 coupons within the first few days.
Other businesses in the group, called the Kanawha Independent Merchants after the Kanawha Valley, include Kelley's Men's Shop, Pile Hardware, SportMart, Save Supply, Foto 1, Drug Emporium, Calvin Broyles Jewelers, Sodaro's Electronics, Andrews Floor & Wall Covering, and Goldfarb
One of the group's co-founders, Don Tate of Fas-Check, said the association could evolve beyond joint advertising to take on an active role in local affairs. The association has already begun to voice complaints about the subsidies that the city routinely gives chain retailers. "We've watched giants like Wal-Mart get the tax breaks, which independent merchants don't get. We wonder where's the fairness of the whole situation," Tate said.
The group is hoping to block a plan by the city to lease land it purchased for $5.5 million to Dillard's, an upscale department store chain, for $1 a year. The company has also requested $7.5 million in subsidies from a city program designed to help low- and moderate-income families.
V. NEW RULES
SUPERMARKET CONCENTRATION HARMS FARMERS AND CONSUMERS
Supermarket chains in the northeast are using their market power to reap record profits on milk at the expense of both dairy farmers and consumers, according to a new report.
The findings are fueling legislative efforts in several New England states to rein in the power of grocery chains. One proposal in Maine would tax big box retailers to support dairy farms.
The study, "Milk Prices in New England and Neighboring Areas of New York: A Prologue to Action?" by Ronald W. Cotterill, Adam N. Rabinowitz, and Li Tian of the University of Connecticut, examined milk prices at 191 stores in four states and found that, while farm prices have dropped to 25-year lows, retail prices remain at record highs.
Since late 2001, when Congress abolished a price support structure known as the Northeast Interstate Dairy Compact, raw milk prices in New England have dropped from $1.65 a gallon to $1.10. This is well below what it costs farmers to produce milk, which is about $1.50 a gallon.
Meanwhile, consumer prices have inched down only slightly, from $3.09 a gallon to $3.01. The problem, according to the researchers, is that a handful of retail chains and milk processors now dominate the market, leaving farmers with few options for selling their milk and consumers with exorbitant prices. "Consumers in New England are being overcharged at the rate of $144 million per year," the report concludes.
The study found that, despite efficiencies of size, prices were highest at large supermarket chains and lower at smaller retailers. Wal-Mart's milk prices were only slightly lower than the high prices charged by established grocery chains.
The study found that prices in New York are much lower---around $2.20 a gallon---due to a 1991 law that bars retailers from charging more than twice what farmers receive for their milk. Massachusetts, Connecticut, and New Hampshire are now considering similar legislation.
Another approach, proposed by Ronald Cotterill, one of the study's authors, is a "fair share" law. When the consumer price of milk exceeds 1.8 times what farmers receive, then half the additional revenue would be collected from supermarkets and funneled back to dairy farmers.
Vermont meanwhile has launched an extensive investigation of milk prices and is expected to release a report soon recommending legislative action.
Several measures are under consideration in Maine. One would revive a statewide program similar to the regional Compact. Another would levy a handling tax on milk that would be funneled into a subsidy program for farmers.
Another measure would tax big box stores to support dairy farms. The bill would levy a 0.001 percent tax on revenue at stores larger than 10,000 square feet located outside of traditional town centers. (The tax on a typical Wal-Mart supercenter would be roughly $80,000.) The funds would be used for support payments to dairy farms and to reduce property taxes on agricultural land to protect it from development.
-- "Milk Prices in New England and Neighboring Areas of New York: A Prologue to Action?"
GERMAN HIGH COURT CONVICTS WAL-MART OF PREDATORY PRICING
Germany's highest court has ruled that Wal-Mart's below-cost pricing strategy undermines competition and violates the country's antitrust laws.
Two years ago, the federal Cartel Office accused Wal-Mart and two other large supermarket chains of selling goods below cost and ordered the companies to raise their prices. The items in question included about a dozen staple products like milk, butter, and vegetable oil.
German law prohibits below cost pricing, because of its impact on small businesses. In this case, authorities feared a price war among the country's three largest food retailers would decimate independent shops, ultimately leaving consumers with fewer options and higher prices.
Wal-Mart appealed the regulator's decision through a state court, which ruled in the company's favor. The Cartel Office then appealed to the Supreme Court, which ruled that below cost pricing harms independent competitors and reduces competition over the long-term.
Wal-Mart opened its first German store in 1997, but has struggled ever since. Last year the company dropped plans to open 50 new superstores.
WAL-MART'S PURCHASE OF PUERTO RICO CHAIN CHALLENGED
Puerto Rico's Department of Justice has asked the U.S. Court of Appeals for the First Circuit to block Wal-Mart's acquisition of the island's largest grocery store chain, Supermercados Amigo Inc. The outcome of the case could affect the ability of states to review and challenge mergers.
Wal-Mart already operates 19 outlets in Puerto Rico, including eight Sam's Club stores and one supercenter. Last February the company announced its intention to purchase the 36-store Amigo chain, which employs 4,800 people and takes in about $500 million annually. The Federal Trade Commission (FTC) approved the merger in November, provided that Wal-Mart divest four of the Amigo units in areas where the agency believed the deal would restrict competition.
Puerto Rican antitrust officials, however, did not bless the merger, contending that it could severely curtail competition and harm the island's farmers and distributors. Nevertheless, Wal-Mart closed the deal in early December. Local officials immediately sought an injunction from a Puerto Rico court. Wal-Mart appealed to a federal court, which ruled that the Puerto Rico Department of Justice had illegally sought to protect local suppliers and interfere with interstate commerce. The judge also found that Justice Secretary Anabelle Rodriquez had abused her authority---a decision that, if upheld, could result in jail time.
The case could affect how much authority states have to review and block federally approved mergers. The district court's decision concludes that state power is very limited.
"This is a serious issue if a company can get a federal injunction barring a state from pursuing a claim," said Albert Foer of the American Antitrust Institute (AAI).
Meanwhile, several agriculture, retail, and legal groups have filed letters with the FTC arguing that the consent decree is insufficient and violates agency policy. The FTC will review these letters and possibly revise the terms of its approval over the next few months.
The Organization for Competitive Markets (OCM) raised concerns about Wal-Mart's power as a buyer and the impact on Puerto Rican farmers. "Local farmers. . . already faced limited channels of distribution and potential purchasers of their products due to. . . geography. [This merger will] further concentrate the buying power of Wal-Mart to the detriment of local farmers."
The deal could "destroy or at least strongly disadvantage the distribution system that supplies the remaining competitors, thereby raising the costs of Wal-Mart’s rivals," noted Albert Foer of the AAI. "But, without explanation, the Commission ignores Wal-Mart’s buying power."
The National Grocers Association points out that the FTC did not explain its criteria for requiring the sale of only four Amigo stores. The NGA's own market share calculations suggest problems in at least five other local markets.
Concerns have also been raised about the divestiture's ability to alleviate anticompetitive harm in the four local markets. The FTC insisted that a buyer for the stores be identified before the acquisition. But the company slated to buy the stores is owned by a principal shareholder of Amigo. "His motives for purchasing the stores are not to maintain the levels of competition existing before he sold his business to Wal-Mart," a group of Puerto Rican grocers argues. "They are clearly to induce the FTC to approve the acquisition without further delay or investigation."
-- American Antitrust Institute comments to the FTC
-- Organization for Competitive Markets comments to the FTC
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