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The Home Town Advantage Bulletin - November 2000
Reprint Policy and Guidelines
CONTENTS
- About this Bulletin
- ALLIANCES AND COOPERATIVES
Preserving Tucson's Unique Flavor
- NEW RULES
Santa Cruz Measure Ensures Diversity of Downtown Businesses
- LOCAL BATTLES
Maine Citizens Fight Wal-Mart Expansion
Opposition to Starbucks Brewing
- ANTITRUST
Wal-Mart Charged with Predatory Pricing
Wal-Mart Joins Oil Refiner to Overturn Fla. Predatory Pricing Law
Video Stores Seek Class Action in Suit against Blockbuster
- E-COMMERCE
Cal. Tax Fairness Bill Vetoed; Activists Mobilize for National Fight
- OUR PERSPECTIVE: BIGGER IS NOT BETTER
Littering the Landscape with Dead Malls
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--from Belfast, Maine to Taos, New Mexico--citizens are taking action to defend and strengthen their local economies. They are developing strategies and adopting new policies to curb the expansion of chain stores and support locally owned businesses.
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 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. It also maintains a web-based clearinghouse of model public policies at http://www.newrules.org
Other good resources for news on chain stores and local retail include Sprawl-Busters. Its NewsFlash! page provides weekly updates on hometown battles. The American Booksellers Association's web site posts several in-depth stories on independent bookstores each week. Holt Uncensored is a lively email newsletter on the book industry, with a decidedly independent perspective. Additional links and organizations are listed at the end of each story.
I. ALLIANCES AND COOPERATIVES
PRESERVING TUCSON'S UNIQUE FLAVOR
Two years ago, a group of independent restaurant owners in Tucson, Arizona stopped thinking of themselves as competitors and launched a collective effort to counter the rapid expansion of chain restaurants. They formed an organization, Tucson Originals, and pooled resources for group promotion and purchasing. Their success inspired the creation of a national independent restaurant network that hopes to seed similar local alliances in cities across the country.
It all began with an article in a Tucson monthly in 1998. Writer Michael Munday was disturbed at the number of local restaurants that had recently closed and the parallel growth of chains. The article touched a nerve with City Councilor Steven Leal, who convened a meeting with the magazine's publisher, John Hudak, and several local restaurant owners.
The group met for several months and launched Tucson Originals, which now has more than 40 members. To join, restaurants must commit at least $50 in annual donations to a food bank and agree to actively participate in one standing committee and one fund-raiser for a local nonprofit.
Tucson Originals has four goals. The first is to lower costs for its members through group purchasing. This has been accomplished through the creation of a separate entity, the Arizona Independent Restaurant Alliance (AIRA), which negotiates with food suppliers and has trimmed its members food costs by 10 to 20 percent. AIRA is open to all of the state's independent restaurants and now includes 75 members in Tucson, Phoenix, and Scottsdale.
The second goal is to encourage consumers to support Tucson's independent restaurants. Publisher John Hudak donated $50,000 in free advertising for this purpose. His magazine no longer reviews or accepts ads from chain restaurants. Member restaurants also include a card with each diner's check that lists the city's local restaurants and describes their important role in maintaining Tucson's culinary sense of place.
The third goal is to raise awareness of the community contributions of independent restaurants, which the group accomplishes through high profile fund-raisers for local nonprofits. The final goal is to expose kids to the experience of independent dining through various school programs.
Tucson Originals has become a model for a new national organization, the Council of Independent Restaurants of America (CIRA). "Chains are about money. Independent restaurants are about food," says CIRA's founder, Washington, DC restaurant owner Robert Kinkead. "It's time to fight back and unchain America."
The top 100 restaurant chains now account for more than half of the market. Chains have gained a 75 percent market share in the quick-service segment, and are moving aggressively into casual and full-service dining, where they have about 40 and 30 percent of the market respectively.
It is this last segment that is of particular concern to independents. In recent years, several restaurants chains have successfully entered the fine dining market by opening restaurants that appear to be independent, often with different names, d'cor, and menus at each outlet. Ample resources have enabled the chains to secure the best locations, recruit top chefs, and flood local markets with advertising.
To counter this trend, CIRA plans to seed local alliances throughout the country and then serve as a national network to provide local chapters with support and resources. Its first initiative is a series of workshops to introduce the Tucson Originals concept to restaurant owners in Atlanta, Milwaukee, Minneapolis, Providence, Seattle, and Washington, DC. CIRA will also advocate on behalf of independent restaurants in government policy decisions and within the National Restaurant Association, a trade group that includes both independent and chain members.
II. NEW RULES
SANTA CRUZ MEASURE ENSURES DIVERSITY OF DOWNTOWN BUSINESSES
After a 1989 earthquake destroyed virtually all of its central business district, the city of Santa Cruz, California adopted the Downtown Recovery Plan (DRP), a comprehensive policy for rebuilding the downtown in accordance with several community goals. A decade later, many of these objectives have been met. Downtown Santa Cruz is a healthy, pedestrian-oriented mix of commercial, residential, and public uses. The area reflects the community's distinct style and features numerous independent retailers offering unique goods and services.
Events last year, however, led the community to revisit the DRP. Borders Books announced plans to open a 23,000 square foot store, sparking a firestorm of opposition from residents who feared the store would harm locally owned businesses and erode the town's character. Although the Borders store was ultimately approved, opening in June of this year, the controversy led the city to consider whether revisions to the DRP were needed to preserve its original mission in light of changing circumstances.
In late 1999, the city adopted a temporary ordinance restricting stores over 16,000 square feet. Much of this year was spent studying the issue. In October, the City Council voted unanimously to enact permanent revisions to the DRP.
The amending ordinance states, "The continued establishment of large square footage retail businesses in the Downtown, if not monitored and regulated, may frustrate the Downtown Recover Plan goal of establishing and maintaining a diverse retail base with a 'unique retailing personality’. . ."
Under the law, new retail stores over 16,000 square feet must obtain a special permit from the City Council. Only stores that add to a balanced and diverse mix of downtown businesses are allowed.
Specifically, the new store must demonstrate that it 1) adds a desired type of business, 2) contributes to an "appropriate balance of local or non-local businesses," and 3) contributes to an "appropriate balance of small, medium and large-sized businesses." In addition to enhancing the overall diversity of the downtown business district, the new store must be a "good neighbor" and contribute to community life by becoming a member of a business or neighborhood organization, hiring local residents whenever possible, and participating in festivals and other events.
The ordinance favors maintaining the community's authenticity and unique retail character, and presumes local businesses are more likely to accomplish this. Other guidelines for granting permits include reducing the amount of profit that leaks out of the city and encouraging local investment and employment in the downtown.
For more information:
III. LOCAL BATTLES
MAINE CITIZENS FIGHT WAL-MART EXPANSION
Wal-Mart already operates twenty stores in Maine, including three supercenters, and ranks as the fourth largest employer in this state of 1.2 million people. But that's not enough. Wal-Mart wants to open supercenters, which combine general merchandise with a full supermarket, up and down the coast. This would enable the company to become the dominant, if not only, retailer in many of Maine's communities.
At every turn, however, Wal-Mart is facing organized opposition from local residents. Concerns center on the loss of locally owned businesses and the erosion of the state's unique character. Many believe the new stores will cause a net increase in the cost of public services and exacerbate traffic and crime.
Another issue of particular concern to Mainers is that Wal-Mart imports most of its clothing and shoes from overseas sweatshops, where workers earn below poverty wages. Maine was once a major center for textiles and shoe-making and the loss of these industries is still felt in many areas. Wal-Mart has refused to join the Clean Clothes partnership, a program in the city of Bangor that encourages retailers to evaluate the conditions under products were made and consider non-sweatshop alternatives.
Citizens opposed to Wal-Mart's expansion plans won their first two victories in April. Town Selectmen in Wells voted 3-2 to deny a developer's request to rezone land for a retail project that included a Wal-Mart and a Lowe's home improvement store. That same month, strong opposition from residents led Wal-Mart to drop plans for a 186,000 square foot store in Rockland. The new supercenter would have been located across the street from an existing Wal-Mart, leaving the original store vacant.
In Belfast, the City Council responded to Wal-Mart's proposal to build a giant store in a residential area by enacting a six-month building moratorium in August. The measure halts construction of stores larger than 25,000 square feet, giving the community time to consider the impacts of large-scale development and to revise its land use laws accordingly. Many are calling for a permanent ban on large stores.
In Ellsworth, a group known as Citizens Organized for Responsible Development (CORD) is fighting Wal-Mart's plans to open a 200,000 square foot supercenter to replace its existing 94,000 square foot store. CORD joined with the Downtown Business Association (DBA) in backing a six-month building moratorium and urging the town to revise its zoning code. The City Council rejected the moratorium, but opponents will continue the fight. Wal-Mart has not yet submitted a completed application to the city.
In Bangor, another citizens organization, the Bangor Area Citizens Organized for Responsible Development, has formed to oppose Wal-Mart's plans to build a 224,000 square foot supercenter. The five-acre development would disturb a sensitive wetland area, home to 180 species of birds, 17 of which are endangered. The new store would mean the closure of an existing Wal-Mart store. The Planning Board is scheduled to consider the project in mid-November.
In Topsham, citizens opposed to a 361,000 square foot retail development, including a 205,000 square foot Wal-Mart and at least one other big box store, felt they were not getting an adequate hearing from elected officials and took matters into their own hands. The Topsham Citizens for Sensible Growth gathered enough signatures to place a referendum on the November 7 ballot to restrict new stores to no more than 90,000 square feet.
"Most of us in Maine enjoy a quiet kind of life," resident Jane Scease, who is running for a seat in the state legislature, told the Portland Press Herald. "We want to manage the way [development] happens. We the voters have the sovereign authority. We alone."
For more information:
- Sprawl-Busters is assisting several citizens organizations in their campaigns against Wal-Mart. Updates on these efforts are regularly posted on the NewsFlash! section of the Sprawl-Busters web site at http://www.sprawl-busters.com/newsflash.html To get involved or connect with local activists, contact Al Norman at info@sprawl-busters.com
- To learn more about the Bangor Clean Clothes Campaign, which convinced the city of Bangor to adopt a policy governing its purchase of clothing, footwear, and other products, visit the New Rules web site at http://www.newrules.org/gov/cleancloth.html
OPPOSITION TO STARBUCKS BREWING
Starbucks expected few hurdles when it sought city approval to open a fifth store in Evanston, Illinois earlier this year. That all changed when twenty neighborhood residents showed up at the Zoning Board meeting to voice their opposition.
Delighted to find others shared their views, the residents began working together to spread the word about the impending Starbucks and convince the city to deny the company a special use permit to build. They posted flyers in the area and launched a petition drive that has gathered 1,500 signatures so far.
"We want to avoid having this whole neighborhood turn into a block of chains," says Maureen Glasoe. The group has been using a local coffee shop as the base of their operations, but Glasoe stresses that the Starbucks fight is about more than protecting a single business. "It's about maintaining the diversity and uniqueness that drew us to this community."
The group has based their appeals to the city primarily on traffic concerns. Under the city's zoning code, officials must consider a project's impact on traffic and parking before granting a permit. The proposed Starbucks would be located in one of the most congested intersections in the northern Chicago metro area. On this basis, the Zoning Board of Appeals voted unanimously to recommend that the City Council reject the Starbucks. The City Council was to vote on the project in August, but at the request of Starbucks the hearing has been delayed several times.
Starbucks is also facing opposition in three Chicago neighborhoods. The company operates 134 outlets in the city and many residents have decided that's more than enough. In Lincoln Square, an opposition group recently formed to counter the chain's plans to open a third shop in the neighborhood. A protest was held in August. A similar group has formed in Roscoe Village, where residents organized a march.
One protester told the Chicago Tribune that Starbucks and other chains were "taking away that neighborhood feel." Another said that having a locally owned coffee shop is "like having a neighbor you can borrow a cup of sugar from." Many noted the chain often initiates a cycle of rising rents and more development, ultimately displacing working and middle class residents.
The chain has been the subject of protest in a number of other communities, including Seattle; San Francisco; Bloomington, Indiana; Seal Beach, California; Long Island, New York; and Portland, Maine.
IV. ANTITRUST
WAL-MART CHARGED WITH PREDATORY PRICING
In September, Wal-Mart was hit with three separate charges of predatory pricing. Government officials in Wisconsin and Germany accused the retailer of pricing goods below cost with an intent to drive competitors out of the market. In Oklahoma, Wal-Mart faces a private lawsuit alleging similar illegal pricing practices.
The Wisconsin Department of Agriculture, Trade and Consumer Protection filed a complaint with an administrative law judge accusing the retailer of violating the state's antitrust law. The complaint says Wal-Mart sold butter, milk, laundry detergent, and other staple goods below cost in stores in Beloit, Oshkosh, Racine, Tomah, and West Bend. The company intended to force other stores out of business, gain a monopoly in local markets, and ultimately recoup its losses through higher prices.
State officials filed the complaint after Wal-Mart failed to take corrective action following several warning letters sent as early as 1993. The administrative law judge will review the charges and recommend further action to the department's secretary. The complaint carries a total of 352 violations, each of which could incur a fine of $500.
In Germany, Wal-Mart was charged with similar predatory tactics. The federal Cartel Office accused Wal-Mart and two other large supermarket chains of selling goods below cost and ordered the companies to raise prices immediately. Wal-Mart could face fines of DM1 million ($434,000) if it fails to comply.
The items in question include about a dozen staple products like milk and vegetable oil. A common Wal-Mart strategy is to price such staples, known as "corner products," very low. Corner products are items for which consumers know the going price. By setting prices on these items very low, Wal-Mart creates an overall impression of having very low prices, when in fact much of its merchandise may not be such a good deal.
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. "The material benefit [of below cost pricing] to consumers is marginal and temporary, but the restriction of competition by placing unfair obstacles before medium-sized retailers is clear and lasting," said the Cartel Office.
In Oklahoma, Crest Foods, a three-store supermarket chain, filed a predatory pricing suit against Wal-Mart. The suit contends that Wal-Mart sold goods below cost at its store in Edmond in order to force Crest Foods out of business. Wal-Mart employees---including on one occasion former chief executive David Glass himself---regularly visited the Crest store to monitor prices. According to the suit, Wal-Mart then targeted price cuts to undermine Crest Foods, often dipping well below its own costs to beat out its rival. Such tactics are illegal under two state laws, the Unfair Sales Act and the Antitrust Reform Act. The suit is expected to go to trial in about one year.
WAL-MART JOINS OIL REFINER TO OVERTURN FLA. PREDATORY PRICING LAW
As the story above suggests, Wal-Mart routinely engages in predatory pricing. But the company would prefer not to break the law in the process. To this end, Wal-Mart has joined with Murphy Oil in an effort to repeal a Florida law that prohibits predatory pricing among gasoline retailers.
The two companies financed a "consumer" group, the Coalition for Lower Gas Prices, which contends the Motor Fuel Marketing Practices Act costs Florida consumers $150 million annually in higher gas prices. Wal-Mart has launched a petition drive in its stores, complete with paid signature gathers, who ask shoppers, "Are you tired of paying too much for gasoline? Did you know that a 1985 Florida law prevents businesses from offering you the lowest possible price on motor fuel?"
"Don't be fooled," warned Rick McAllister, president of the Florida Petroleum Marketers Association. "Murphy Oil and Wal-Mart are not interested in anything but their bottom lines."
The law prohibits oil refiners from selling gasoline at their own stations for less than the wholesale price they charge independent stations. In a vertically integrated industry, the law is necessary to prevent refiners from using their control of wholesale prices to drive independent retail competitors out of business.
California provides a vivid example of what might happen if the law is repealed. California has no similar statute and has the highest gas prices in the nation. In a report released last year, the state's Attorney General attributed the high prices in part to the lack of independent gas stations and noted, "In both Florida and Texas, consumers benefit by a strong mix of independent marketers. . . [which] account for more than 50 percent of the gasoline sold to consumers."
Murphy Oil operates gas stations at Wal-Mart stores in Florida. It was selling gas below the wholesale price at these stations until April, when a judge concluded the company was violating the law. In the 4th quarter of 1999, Murphy Oil lost $1 million on its retail sales, but netted $60 million on its refining and wholesale business.
For more information
VIDEO STORES SEEK CLASS ACTION IN SUIT AGAINST BLOCKBUSTER
A judge is expected to rule within weeks on whether a lawsuit filed by four independent video stores against Blockbuster Video and seven Hollywood studios may be certified as a class action suit. The suit charges Blockbuster and the studios with attempting to fix prices, a violation of the Sherman Act and California state law. The suit was filed last year in a Texas federal court.
Class action certification would enable the plaintiffs to seek damages and injunctive relief on behalf of thousands of independent video stores. The suit will go forward regardless, says John Merchant, a plaintiff in the case and president of the Fairness Alliance of Independent Retailers (FAIR). If class action is denied, they will add as many named plaintiffs as possible to enlarge the scope and impact of the lawsuit.
At issue are special purchasing agreements and revenue sharing deals between Blockbuster and the studios that give the chain a substantial and illegal advantage over its smaller rivals. Rather than buying videos outright, Blockbuster pays little or nothing upfront and agrees to share 30 to 40 percent of the rental income with the studio.
Independents generally buy videos for about $75 each. While Blockbuster turns a profit immediately, independents must rent the tape about 25 times to break even. Revenue sharing on at least some titles is available to independent stores, but their percentage of the rental income is much smaller than Blockbuster's, even accounting for the 5 percent that goes to a middleman. The return is so low, most independents don't consider revenue sharing a viable option.
More than 4,100 independent video retailers have gone out of business since 1998, according to the National Association of Video Distributors. Blockbuster has 6,900 stores and accounts for a stunning one out of three rentals nationwide. Hollywood Video has 1,600 and controls 10 to 15 percent of the market. Both chains plan to continue their aggressive expansion in the next year.
A common Blockbuster strategy is to open a new store within a few blocks of a successful independent and undercut prices until the local store is forced to close. Prices tend to rise once the competition has been eliminated. Christopher Bach, owner of Music Stop Movie Time in Cedarburg, Wis., told USA Today that Blockbuster is now charging as much as $5 per rental in markets where it has a virtual monopoly.
Consolidation has also narrowed the range of titles available. Independent video stores have selections as varied and unique as their owners. Their existence means that just about any film can find space on a retail shelf somewhere. Selection at a chain store, on the other hand, originates largely with the head office. The focus tends to be less on depth and variety and more on providing hundreds of copies of the latest hit. Moreover, Blockbuster has banned NC-17 films and dozens of individual titles in order to maintain a family friendly image.
For more information:
- Fairness Alliance of Independent Retailers: Contact John Merchant at 530-759-8260 or john49er@hotmail.com
V. E-COMMERCE
CAL. TAX FAIRNESS BILL VETOED; ACTIVISTS MOBILIZE FOR NATIONAL FIGHT
In September, California Governor Gray Davis vetoed a bill that would have clarified state law to require that all retailers with a physical presence in the state collect sales tax on internet transactions. For more information on this measure, see the August 2000 issue of this bulletin at http://www.newrules.org/hta/hta0800.htm
Despite the veto, the campaign to enact the bill accomplished a great deal by raising awareness and building support for tax fairness at both the state and national level. Thousands signed petitions or contacted their state representatives. Several major newspapers endorsed the bill. Moreover, many believed the bill had little chance in a state with a powerful high tech sector. It won both legislative houses by significant margins.
Supporters of tax fairness are now turning their attention to a bill in Congress. Sponsored by Senator Byron Dorgan, the measure would authorize states to require retailers with more than $5 million in sales to collect sales taxes on remote purchases (i.e., internet and mail orders). Currently, internet retailers are exempt from collecting sales tax, giving them a six to eight percent price advantage over local stores.
For more information:
VI. OUR PERSPECTIVE: BIGGER IS NOT BETTER
LITTERING THE LANDSCAPE WITH DEAD MALLS
As corporate chains have taken over much of the retail economy, they've left the American landscape littered with dead malls, vacant strip developments, out-dated outlet centers, and empty big box superstores.
The problem is two-fold. Chain stores are multiplying at a staggering pace and creating a glut of retail space. In the last 12 years alone, per capita retail space has increased 34 percent, from 14.7 to 19.7 square feet. Most communities have more retail space than residents can support. Large sections inevitably end up vacant.
The second part of the problem is that corporate chains reinvent themselves every ten years or so, abandoning existing outlets in favor of new formats. First there were the strip malls, which gave way to the enclosed malls. These in turn failed as developers built successive waves of ever larger regional malls. Hundreds of malls weakened and died following the arrival of the first wave of big box stores in the 1980s. Then in the 1990s the big boxes began to shed their existing skins, building larger stores and congregating in groups known as "power centers."
Wal-Mart is one of the worst offenders. In the last few years, the company has abandoned hundreds of stores, many less than ten years old. In some cases, the company decides profits at a new location are not good enough and leaves the area altogether. More often, Wal-Mart closes an existing store to open a larger store across the street or across town.
In West Columbia, South Carolina, for example, Wal-Mart recently vacated a 100,000 square foot store to open a new 220,000 square foot "supercenter" next door. Supercenters are the company's latest format craze, combining general merchandise and a full supermarket under one giant roof. Near the empty Wal-Mart sit ten other abandoned or soon to be vacated big boxes, including Lowe's, Target, and Circuit City. All are building larger outlets.
According to Al Norman of Sprawl-Busters, Wal-Mart alone has nearly 400 empty stores in the U.S. That adds up to more than 30 million square feet of vacant retail space surrounded by millions of acres of useless parking. The company plans to "relocate" as many as 110 additional stores in the next year.
Most of these stores will remain vacant for many years. The buildings are single-purpose and unsuitable for much besides big box retailing. Most chains, including Wal-Mart, prefer to maintain the lease rather than letting the property fall into the hands of a competitor.
City officials in Peachtree, Georgia are considering an ordinance that would require retailers who vacate more than 10,000 square feet to allow the landlord to immediately re-lease the property. Some developers question the legality of interfering with private contracts, but city officials say there are overriding public health and safety concerns.
All together, of the five billion square feet of retail space in the country, half a billion sits empty, according to the National Trust for Historic Preservation. That's the equivalent of about 4,000 dead shopping malls.
This wasteful phenomenon concerns environmentalists and preservationists, but it has also caught the attention of real estate interests. In their "Emerging Trends in Real Estate 2000" report, PricewaterhouseCoopers and Lend Lease Real Estate Investments advise investors to "shun power centers." Too many big boxes have been built, the report notes. America is over-retailed and e-commerce threatens to further erode demand. As for enclosed malls, a new one can survive only by "killing the existing mall [and] attracting its prime stores."
For communities considering new chain store developments, this is advice worth heeding. Rather than becoming a victim of the corporate cannibalization game, many communities are opting to maintain traditional downtowns and neighborhood retail districts. This requires strong land use planning and a commitment to funnel new investment downtown and not to outlying areas.
But the pay-off is big. Many Main Streets have been around for hundreds of years and have the potential to endure for hundreds more. Individual businesses may come and go---yesterday's dry goods store becomes today's internet cafe---but the structure itself retains its utility and its place as the community's social an economic center.
For more information:
- For listings of empty Wal-Mart stores by state, visit the company's web site at http://www.wal-martrealty.com/ and click on "Search for buildings." To get a sense of this process over time, check out the lengthy property listings under states where Wal-Mart first expanded: Arkansas, Louisiana, Mississippi, Missouri, Oklahoma, and Texas.
- National Trust for Historic Preservation: http://www.nationaltrust.org/
- Sprawl-Busters: http://www.sprawl-busters.com
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