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The Home Town Advantage Bulletin -May 2002
Reprint Policy and Guidelines
CONTENTS
- -- Note to Readers
- -- About this Bulletin
LOCAL BATTLES
- -- Vancouver Coalition Fights Wal-Mart
- -- Wal-Mart Developer's Tactics Questioned in New Orleans
NEW RULES
- -- Arcata Prohibits Formula Restaurants
- -- Ocean Beach Planning Board Endorses Formula Business Ban
- -- San Francisco Mayor Vetoes Big Box Law
ALLIANCES AND COOPERATIVES
- -- Austin Independent Business Alliance Takes Off
- -- Cooperative Bolsters Independent Lighting Stores
NATIONAL NEWS
- -- Independent Funeral Homes Rebound
ANTITRUST
- -- Local Bookstore Files Antitrust Suit Against Chains
RESOURCES
The Home Town Advantage Bulletin is a bimonthly electronic newsletter reporting on efforts nationwide to stop chain store proliferation and support locally owned, independent retail businesses. Learn about land use policies and other tools that can protect the character and vitality of your hometown. Find out how other communities are bucking the "big box" retail trend and encouraging small-scale, homegrown businesses - and why this approach is proving far more beneficial to the local economy. Plus, news on e-commerce, independent business alliances, development subsidies, franchisee legislation, and all the latest resources.
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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 smitchell@ilsr.org.
ILSR is a nonprofit research and education organization that promotes healthy and sustainable local economies. This bulletin is part of ILSR's New Rules Project, which publishes a periodic 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 chain stores 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.
I. LOCAL BATTLES
VANCOUVER COALITION FIGHTS WAL-MART
A coalition of neighborhood, small business, and environmental groups has gathered more than 4,000 petition signatures against a proposed Wal-Mart store in Vancouver, Canada. The coalition, Building Better Neighborhoods, formed in December when news of Wal-Mart's plans to build a 130,000 square foot store on Marine Drive near Main Street first emerged.
The 9-acre site is located in an industrial zone, which must be rezone for commercial retail in order for the development to move forward. The city council plans to vote on the rezoning on June 27. In the meantime, the city has ordered an economic impact study, paid for by Wal-Mart and conducted by a consultant. The study will examine the likely impact of the store on neighborhood business districts and the local economy, and is due to be released any day.
"Our primary concerns are the impacts on local businesses, increased traffic and air pollution, and sprawl," says Anne Roberts, chair of Building Better Neighborhoods.
The coalition's petition contends that a big box store would "divert nearly $50 million in retail sales from local merchants and put an estimated 75 to 150 local stores out of business" and "attract 7,000 car trips each day, causing increased air pollution, traffic congestion and noise." The petition also notes that for every two jobs created by Wal-Mart, three jobs are lost at existing retail stores.
Wal-Mart has distributed full-color brochures, flown in top executives, and hired a consultant to lobby for the store. Company representatives say their polls show three out of four Vancouver residents support the development, but they have refused to make the poll questions and results public, despite repeated requests from Building Better Neighborhoods.
The coalition's own experience suggests widespread opposition. In years of community work, Roberts has never seen an issue generate as much interest and energy as the Wal-Mart proposal. "It's taken off like nothing I've seen before. It's amazing to me how many people are getting involved," she says. The petition is being circulated by volunteers and is also posted at the check-out counter of numerous local businesses. About 100 people are active in Building Better Neighborhoods.
In addition to circulating petitions and organizing a letter writing campaign to city officials, the coalition also held a rally where the Raging Grannies debuted three new anti-Wal-Mart songs. The Raging Grannies are a group of women who dress like old ladies and sing satirical songs about important issues set to popular tunes. They invariably draw television cameras.
Vancouver has long been praised for its mixed use neighborhoods that allow people to shop for most things at small stores near their homes. The city's major vision statement and planning document, CityPlan, strongly supports small-scale, neighborhood business districts. Wal-Mart opponents argue that rezoning land for a big box store would harm these districts and directly contradict the city's stated planning policy.
Moreover, contend many local business owners as well as an editorial by the Vancouver Sun, allowing major corporations to buy cheap industrial land and get it rezoned commercial penalizes small businesses that must pay much higher prices for land already zoned commercial.
Wal-Mart entered Canada eight years ago when it purchased 122 faltering Woolco department stores. Wal-Mart is now the country's top retailer with 200 stores and about $9 billion in annual sales. Current plans call for one new Wal-Mart in Canada every three weeks. Vancouver is the only major city without a Wal-Mart, although there are several in nearby suburbs.
WAL-MART DEVELOPER'S TACTICS QUESTIONED IN NEW ORLEANS
Rumors of a citizens lawsuit are beginning to circulate in New Orleans less than a month after the city council approved a 200,000 square foot suburban-style Wal-Mart supercenter. The 17-acre development will be situated along Tchoupitoulas Street in the Lower Garden District, a historic neighborhood wedged between a bend in the Mississippi River and downtown.
The development has been the subject of heated debate in the city for nearly a year. Small businesses, preservation groups, and many residents fought hard to stop it. Hundreds turned up at every major hearing on the project. Letters poured into the newspaper. "No Sprawl-Mart" and "Is the worst of the suburbs the best we can hope for?" signs hung on many front gates.
This month it was revealed that many of the "concerned citizens" in favor of Wal-Mart were in fact paid by the developer, Historic Restoration Inc. (HRI). One of the most out-spoken supporters of the project, Marie Galatas, received $35,000 in consulting fees from HRI. A well-known, long-time community activist, Galatas called those with any reservations about the development "devout racists." Felton White, another long-term neighborhood resident and vocal supporter of Wal-Mart, received $60,000, ostensibly to oversee some hiring for the project.
HRI also tossed lucrative contracts to firms owned by friends and financial supporters of the mayor, such as a $350,000 consulting contract given to Major Services. HRI's permanent payroll includes former Mayor Sidney Barthelemy. Additional endorsement came from former Governor Buddy Roemer, whose firm is working with HRI to develop a nearby retirement community.
HRI also covered the $15,000 in expenses incurred by a "blue-ribbon committee" of distinguished citizens appointed by the mayor to reach an objective recommendation on the controversial project. The committee felt that it was not their place to question the "most successful retailer in America," in the words of committee member John Koerner, and endorsed the project.
In the end, the city council not only voted unanimously in favor of Wal-Mart, but also dropped some 30 conditions recommended by the planning commission. These included a reduction in the number of parking spaces, extra trees, bus shelters, and relatively modest design changes.
Wal-Mart insisted that there was no way it could build a store to these specs. But just weeks after the New Orleans vote, Wal-Mart unveiled, with much fanfare, plans to build a two-story outlet fronting the street with underground parking in downtown Dallas.
The New Orleans site had been a federal low-income housing project, which was torn down by HUD as part of its HOPE VI program to redevelop failed housing projects into livable neighborhoods.
Unfortunately, no rebuilding plan existed at the time the housing was demolished. City officials and former residents have grown increasingly desperate for construction to begin. HRI leveraged the housing component to push through Wal-Mart by insisting that the housing could not be financed without a major big box development.
An independent audit compared the St. Thomas redevelopment with other HOPE VI projects and found that HRI’s total development cost is $199,864 per unit of housing---$56,314 higher than the national average and $103,040 higher than in Dallas/Fort Worth. Moreover, the development fees are approximately twice the average of similar projects.
None of this stopped the city from using tax increment financing (TIF) to subsidize the development by diverting the sales tax generated by the Wal-Mart to fund the developer's costs. This, combined with the impact Wal-Mart will have on existing businesses, will reduce the city's general fund by several million dollars a year. Everyone agrees that a minimum of 20 percent of Wal-Mart's anticipated $85 million in annual sales will be diverted from nearby businesses---mostly locally owned stores along Magazine Street that have longed served community needs.
"It's no wonder so many New Orleanians feel like they've been played---by the retailer, the developer and their own elected leaders," declared the Times-Picayune.
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II. NEW RULES
ARCATA PROHIBITS FORMULA RESTAURANTS
In mid-May, the city council of Arcata, California voted 4-to-1 to enact a citywide cap on the number formula restaurants. The measure must pass a second reading on June 5. It will become law 30 days later.
The ordinance defines a formula restaurant as one that shares the same design, menu, trademark, and other characteristics with twelve or more other establishments. The ordinance bars a formula restaurant from locating within the city unless it is replacing an existing formula restaurant at the same location. Arcata is home nine such businesses, include McDonald's, Subway, and Denny's.
The ordinance was the first formal proposal to emerge from the Committee on Democracy and Corporations. The committee was created following the passage of a voter referendum on the power of corporations in 1998. The referendum, called Measure F, won 60 percent of the vote and read in part: "the people of Arcata request that the city government of Arcata
immediately act to establish, through the creation of an official committee, policies and programs which ensure democratic control over corporations conducting business within the city, in whatever ways are necessary to ensure the health and well-being of our community and its environment."
The Planning Commission endorsed the formula restaurant ordinance in February on a 5-to-1 vote after a two-hour public hearing in which more than 30 people spoke in favor. Many cited a need to protect Arcata's unique character from the cookie-cutter development that has overtaken much of the country. Many also highlighted the importance of supporting locally owned businesses and keeping dollars in the local economy.
The measure was also endorsed by Arcata Main Street, the city attorney, the city planner, and a mock city council comprised of high school students.
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OCEAN BEACH PLANNING BOARD ENDORSES FORMULA BUSINESS BAN
Six weeks after an advisory referendum won broad support from residents, the Ocean Beach, California, planning board voted 8-to-4 in early May to recommend that the city council adopt an ordinance banning all formula restaurants and retail businesses.
Ocean Beach is a neighborhood of San Diego with a population of about 15,000. Each of the city's neighborhoods has its own master plan and elected planning board. The boards have representation on the citywide planning commission and also make recommendations to the city council, which has final say over zoning changes.
The city council and city planner are not enthusiastic about the formula business restriction. Supporters say the council is unlikely to place the measure on its agenda until the fall at the earliest. The council may even hold consideration of the measure until the city's new comprehensive plan is complete, a process that will take two years.
Last year, hundreds of residents came out to protest plans for a Starbucks coffee shop on the community's main street, Newport Avenue. As far as anyone can remember, there has never been a chain store on Newport Avenue. Residents have successfully fought chain stores since the late 1970s. Starbucks, however, was willing to ignore protests and pay double the going rate for retail space. With the site zoned for retail, residents were unable to stop the store from opening.
But they continued organizing. Working under the name Save Ocean Beach, the citizens group gathered signatures to place a formula business referendum on the March ballot.
The measure reads: "Recognizing that the town . . . is unique in character, that the small individualized retail businesses and restaurants play a large role in maintaining that character, and that the unique character of Ocean Beach is being threatened by the influx of formula restaurants and retail establishments, the undersigned citizens. . . direct the Ocean Beach Planning Board to advise the City Council within 60 days of voter approval to modify the Ocean Beach Precise Plan to permanently ban any new formula restaurants and formula retail establishment. . . "
Save Ocean Beach distributed more than 7,000 flyers, ran ads in local newspapers, and hung posters around town to educate residents about the proposal and the need for it. Turnout was larger than usual and the measure passed with 77 percent of the vote.
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SAN FRANCISCO MAYOR VETOES BIG BOX LAW
San Francisco Mayor Willie Brown vetoed an ordinance to require greater scrutiny of big box development. The measure passed the Board of Supervisors on a 7-to-4 vote in March. Eight votes are needed to override a mayoral veto.
The citywide ordinance would have required retail development projects larger than 50,000 square feet to undergo an impact review and obtain a conditional use permit before proceeding. Projects would be reviewed by the Planning Commission and evaluated based on their benefits, costs, and compatibility with the surrounding neighborhood.
The ordinance was prompted in part by Home Depot's plans to build a 140,000 square foot store on Bayshore Boulevard off Cortland Street, which drew fire from local hardware dealers and residents of the adjacent Bernal Heights neighborhood. Rick Karp, owner of Cole Hardware and a supporter of the measure said, "One of the reasons that San Francisco is a city of neighborhoods is that people shop locally."
But Mayor Brown argued the legislation "sends the wrong message to businesses seeking to locate in San Francisco" and would hobble job creation.
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III. ALLIANCES AND COOPERATIVES
AUSTIN INDEPENDENT BUSINESS ALLIANCE TAKES OFF
Steve Bercu, owner of Book People, a large independent bookstore in Austin, Texas, has been increasingly concerned about the decline of the city's homegrown businesses. Like the rest of the country, Austin has seen as steady influx of national chains. Meanwhile, the local businesses so central to the city's sense of place and character are disappearing.
About a year-and-a-half ago, Bercu learned about the Boulder Independent Business Alliance (BIBA) in Boulder, Colorado and decided to replicate the approach in Austin. He ordered BIBA's how-to information packet and started cold-calling local businesses advertising in the Austin Chronicle, an alternative weekly.
"Almost everyone thought it was a great idea," says Bercu. The Austin Independent Business Alliance (AIBA) was formed and now includes more than 50 locally owned businesses.
"We have a fair number of well-known, larger local businesses involved," notes Bercu, including Waterloo Records & Video, one of the best music stores in the country, KLRU-TV, the local public television station, and the outfitter Whole Earth Provision. AIBA also includes coffee shops, an appliance dealer, an optician, a motel, and a print shop.
Most of AIBA's focus is on public education and marketing. The group's window decals identify a business as locally owned and a member of AIBA. Print advertisements were initially aimed at recruiting new member businesses and featured such things as a "Declaration of Independents." "That was our call to arms," says Bercu. Future ads will be geared towards consumers and focus on the importance of independent businesses to the community and local economy.
The ad campaign has cost AIBA almost nothing. The Austin Chronicle donated free ad space and a local ad firm provided design assistance.
AIBA hopes to double its membership in the next few months. The group has asked each member to recruit one new business. When membership tops 100, AIBA plans to issue a directory of independent businesses. "The idea is to ensure that those who care know where to find alternatives to national chains," says Bercu.
Actively engaging in local policy issues might be a possibility down the road, but for now, AIBA plans to concentrate on organizing and delivering tangible benefits to its members. Recently the association hired a staff person to provide administrative assistance one day a week, and hopes to soon be able to hire a full-time executive director.
"It's not simple thing to start," says Bercu. "Reaching critical mass is difficult. But once you get there---we're getting there---it starts to take on a life of its own."
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COOPERATIVE BOLSTERS INDEPENDENT LIGHTING STORES
To counter competition from big box retailers, independent lighting stores are banding together in a cooperative called Lighting One. The coop enables members to reduce costs through joint purchasing and gain access to services and expertise that otherwise would be unaffordable.
"Lighting One puts us on a level playing field with the big boxes," says Marilyn Shulman, second generation owner of Bayshore Lighting, a 60-year-old lighting store in Long Island, New York.
The coop was founded under the name Ilucio in 1999 by Jeff Carmichael, former owner of a lighting showroom in Chattanooga, Tennessee. Ilucio grew steadily but slowly at first, struggling with the chicken-and-egg problem of needing a critical mass of members to offer the price reductions and other benefits necessary to attract members.
Then in 2001, Ilucio linked up with CCA Global Partners, the parent organization of Carpet One, a very successful coop of more than 1,000 independent flooring stores. The partnership allows Ilucio, renamed Lighting One, to tap into Carpet One's sizable resources, staff, and expertise.
With expanded services, Lighting One grew rapidly and now include 75 stores and expects to top 100 stores before its convention in June. The coop screens new members, allowing only established stores and generally limiting membership to one store in any given market area. Members put up $15,000 in initial capital to join (payable over three years), plus $299 per month. They receive stock in the coop and a percentage of any returns. As co-owners of the venture, members each have one vote and direct the governance and operation of the coop.
The membership investment has paid off many times over, according to Shulman. "Before this, things were getting really tight." Lighting One has negotiated better terms and prices from suppliers, as well as lower rates from American Express. Bayshore Lighting's rate dropped from 3.15 to 2.65 percent. Through its partnership with CCA Global, Lighting One also offers members reduced rates on insurance, including a health insurance plan for store employees.
The coop provides extensive, on-going training programs in sales and management for both owners and employees, and has also hired top consultants to advise members on merchandising, store design, and marketing. Other services include a private label credit card, which allows members stores to offer customers the zero percent financing now common at many chains, and print and television ads that can be customized for local markets.
Lighting One will soon unveil a line of private label products---unique lighting fixtures that will be available only at member stores. "That's a big advantage in our industry," says Shulman, noting that it’s hard to compete with megastores selling identical products. Independents, she believes, should be able to gain an edge by staying ahead of new consumer tastes and trends.
IV. NATIONAL NEWS
INDEPENDENT FUNERAL HOMES REBOUND
Just a few years ago, industry observers were predicting the demise of independent funeral homes. Four giant companies were buying up thousands of independent mortuaries and rapidly consolidating the industry. By processing bodies at large regional embalming plants, buying in bulk, and sharing employees across multiple homes, the chains were expected to gain a significant financial edge over their independent competitors.
But now, all four companies are struggling to stay afloat. Earlier this year, they began to sell hundreds of funeral homes back to local owners.
The largest, Service Corporation International or SCI, with more than 4,300 funeral homes in 18 countries, has mountains of debt and is facing numerous lawsuits for everything from concealing information from investors to mishandling bodies. Its stock price fell from nearly $50 a share in 1998 to the single digits today. SCI is now selling more than 500 properties.
The second largest, Loewen Group, filed for bankruptcy two years ago and recently reorganized as Alderwoods Group. Both Stewart Enterprises and Carriage Services are also facing financial difficulties and have sharply scaled back their expansion plans.
"It looked like the independents were finished," says Dick Babcock, president of Independent Funeral Professionals (IFP). "But now the pendulum is swinging back the other way. People have realized there is a difference." IFP, which represents 60 funeral homes, formed in the mid-1990s when the chains were at the height of their buying spree. The group conducts educational and promotional programs to help its members compete.
The chains incurred substantial debt to finance their acquisitions and proved unable to deliver the cost savings anticipated. To maintain cash flow, they jacked up prices by as much as 25 to 50 percent. A Consumer Reports study last year found that the chains charged an average of $1,300 more than independent funeral homes for comparable services.
Pushing sales and profits in an industry built on personal care also proved disastrous for the chains. "They couldn't match the service," says Babcock. "It's a very sensitive industry."
"We know from reports that the manipulative sales tactics of these giant chains are pretty despicable," contends Lisa Carlson, head of the Funeral Consumers Alliance. "All they really care about is the stockholders, not the neighborhood family."
Consumers generally cannot tell that a funeral home is owned by a chain unless they ask. The chains maintained the appearance of local ownership at most of the homes they purchased by keeping the original name and often hiring the former owner to manage the home.
The idea was to take advantage of the community roots and trust built up by the business. But it also meant that the chains gave up a significant strategic advantage: the ability to develop a national brand and mass advertising. As they regroup, industry observers predict that the chains will roll out national brands. SCI has already begun to do this with its Dignity brand.
It's a new challenge, notes Babcock, but the worst seems to be over and independent funeral homes have demonstrated they can hold their own.
V. ANTITRUST
LOCAL BOOKSTORE FILES ANTITRUST SUIT AGAINST CHAINS
The now defunct Intimate Bookshop of North Carolina has filed suit against Barnes & Noble and Borders Books alleging that the chains used their market power to pressure publishers for special discounts and terms unavailable to other retailers.
According to documents filed in the case by Intimate's attorney, Carl Person, the chains received an effective discount of 60 percent off the cover price, compared to only about 40-46 percent given to independent bookstores. In many cases, there were no cost savings to publishers to warrant the added discounts. Under the federal Robinson-Patman Act (RPA), it is illegal for retail businesses to use their market power to exact discounts that are not available to other retailers, unless there are legitimate differences in the supplier's costs (e.g., shipping in volume).
Borders Books and Barnes & Noble are larger than the top ten publishers combined and control about half of all U.S. bookstore sales. Both factors give the chains enormous clout when dealing with publishers.
The court papers outline dozens of discriminatory benefits the two chains obtained from publishers. For example, the chains received a 4 to 8 percent "co-op allowance" based on their purchases from the previous year. Co-op funds are paid to bookstores by publishers to fund advertisements and other promotions of their books. But, while independents must rigorously document their expenditures to receive these funds, the chains provided no proof of having spent the funds on promotion and in many cases simply absorbed the fees, according to the suit. Publishers Weekly has noted that co-op funds have become a "profit center" for the chains. Barnes & Noble took in $113 million in co-op money during the first quarter of 1997 alone.
The chains also demanded and received a 1 percent discount for shipping returned books back from a central warehouse, although publishers complained there was no cost savings. Houghton Mifflin told Borders, "We find that receiving returns from your warehouse less time efficient and more costly than receiving returns directly from stores. It is therefore very difficult for us to justify an additional increase to our costs when the new system does not benefit us."
Other discriminatory advantages detailed by the suit include taking the maximum carton-quantity discount when only a few copies of a title were ordered; discounting publishers' invoices for violating shipping rules unilaterally imposed by the chains; and demanding special discounts for new store openings or expansions. The chains also routinely deferred payment of invoices beyond published terms. While publishers block shipment to independents with outstanding invoices, this was not the case with Borders and Barnes & Noble.
Typically, the chains find one publisher willing to pay a new discount or other compensation, and then insist that other publishers provide the same terms. At one point, Borders wrote to Houghton Mifflin, "We demand Houghton Mifflin recognize the. . . profitability of the Borders account through purchasing terms that reflect the added value we provide. If Houghton is unable to meet the discount standards. . . we will be forced to minimize our support of your titles."
The allegations are based on depositions taken by Person and thousands of pages of documents compiled by the American Booksellers Association (ABA) during a similar lawsuit that ended last April when the chains paid the ABA a $4.7 million settlement, but admitted no wrongdoing.
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VI. RESOURCES
NEW E-BULLETIN: DEMOCRATIC ENERGY LAUNCHED
The Institute for Local Self-Reliance's New Rules Project---publisher of this bulletin---has launched a new bulletin called Democratic Energy. This periodic email newsletter will bring you news, information, and policy ideas from the growing movement to build a decentralized, democratic energy system. Check out the first issue.
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