Friday, June 15, 2007
WalMart Keeps Rollin' - Broomfield's Next
The Broomfield Enterprise describes "an unusually well-attended Land Use Review Commission hearing" last Monday regarding a 196,000-square-foot WalMart Supercenter to be built northeast of 120th Avenue and Sheridan Boulevard. Broomfield's looking a a nearly $5million sales tax break to lure WalMart in. Sigh.
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To my point about the city's 10 year revenue forecast and revenue sharing, that proposed store is 6 miles from Lafayette. 4 to 5 miles from Anthem Colorado and Vista Ridge.
Shame on Broomfield. Once again, local citizens are subsidizing the worlds largest retailer.
WalMart wants this location, or they wouldn't have approached the city. They have a SuperCenter at 95th and Sheridan (Westminster), one at 136th and I25 (Thornton), one at Flatirons (Broomfield), and the new one in Lafayette.
Map it out, look at existing/planned rooftops, and tell me where else it would go. No need for an incentive. WalMart won't abandon the market. If WalMart doesn't take this prime property, somebody else will, and WalMart doesn't want that.
WalMart has an easy threshold to hit in Lafayette before their rebates kick in. WalMart knows this threshold will be hit mostly at the expense of their competitors, only somewhat at the expense of any nearby SuperCenters.
I've been told the big box stores target territory is a circle some 5 to 10 miles from the proposed location.
They want to overlap and cover every inch. Saturation bombing. Broomfield has only one W*M. Hence the attraction. And they want to make sure they get the Anthem CO shoppers.
The fight for East Boulder County disposable income is on. Business is war. No quarter taken.
Not exact cirlces, but close. Other major considerations are population density, and traffic patterns. Several minor criteria.
Fact is, the WalMart at Flatirons is performing below expectations. In spite of the terrific traffic volume at Flatirons, their SuperCenter is not in a highly visible location.
But, the store at 95th and Sheridan is exceeding projections. (this store is only 25 blocks south of the proposed site). It enjoys excellent visibility, plus it's a SuperCenter that was expanded from an existing older-style WalMart.
So, WalMart needs the location at 120th/Sheridan to help balance out their revenue for the area. They'll pick up incremental revenue and relieve the customer traffic at 95th/Sheridan. (For those who may not know, there is a point where too much business is bad for business, crowded parking lots, long checkout lines, etc.)
Traffic patterns also play into this. Anthem residents will not necessarily drive all the way south to 120th to shop. There are intangible barriers causing them not to think south.
As is usually the case, those on the outskirts don't feel a connection to the town so have no loyalty to shop "Broomfield". Plus, the major roadway, in the minds of Anthem residents, is Hwy 7. So, they'll primarily think west/east for their shopping choices, not south.
If both Lafayette and Erie can offer good shopping choices for the Anthem folks, it won't matter their address is Broomfield.
I fear the Broomfield politicos didn't do their due diligence to determine WalMart's motives. So, they may feel they need to subsidize a store that WalMart would probably do without incentives.
And, although the opportunity exists for Lafayette and Erie to grab some retail sales tax revenue in this "war", I hope the local polititians don't forget - the retailers need these locations as much as the towns do.
d-b,
My guess is W*M laid out their business plan to Broomfield before moving forward on this. So the staff educated their city council. Probably in executive session. It's the city administration that does the due diligence and drives the deal.
So it must have been made to make sense to the politicos in order to deal with all the hub bub.
Now whether their city admin did a good job or not? We don't know.
But I bet if this moves forward, the deal was put together better than ours.
This site is where Barber Turkey Plant is now. It is in an urban renewal area in Broomfield. As I remember Wal-Mart was interested in building a store there but after some residents protested, Broomfield either extended their bid period or started the process of asking for redevelopment proposals over again. In the end, Wal-Mart was again the only retailer to step forward.
Exactly my point, dreamer.
WalMart was working on this site before Broomfield Urban Renewal got involved. BURA gets involved, puts the site out to bid for other retailers - but only gives them 30 days to respond. Naturally, the only retailer who was in a position to submit a bid within 30 days was WalMart.
Given the fact Walmart showed interest in this location prior, why would Broomfield give them an incentive package? That's the irritating part.
Since the site is in an Urban Renewal District, all the rules and finances are different than a regular site. So the "deal" has quite a different structure. Especially how the sales tax flows.
Understand that.
But why did BURA drop their shorts for WalMart? (rhetorical question)
The point is this. WalMart has built nearly 2,000 SuperCenters. Has gone through the negotiation process with developers and towns/cities of various sizes. This wasn't their first rodeo.
What makes any local politician believe they struck a "good" deal with WalMart? Against what yardstick? Because WalMart didn't walk? Broomfield wasn't competing with another town to get this WalMart. Remember, the retailers need these stores as much as the towns do.
I'm hoping EastBoCo politicians and administrators are learning something from the Broomfield situation. But, I wonder how many even know what went down. Or, how many know WalMart has had discussions with developers for a SuperCenter at I25/Hwy 7 (also Broomfield).
Dok,
Is there any way I can verify W*M's interest in that corner of I-25 and Hwy 7?
The politicos (mostly lay people) turn over every couple of years. Look at Boulder now. So institutional memory gets lost quite fast. The staffs are the ones who stay on and are not prone to highlight their mistakes. They also are the ones who do the negotiations.
When I challenged the city's 10 year revenue forecast, one of the items I asked about is new big boxes going up within 5 miles of us over the next 10 years. Silence. The I-25/Hwy 7 corner is closer to Vista Ridge and Anthem CO than 287 is.
Since Broomfield is looking to give $5M in incentives, looks like our deal was not so bad after all, considering that it was only about $2.5M, we protected the base, and Walmart's payback only kicks in if their sale tax proceeds exceeds the base sales tax proceeds. Plus they agreed to carry the payback upfront (the equivalent of a no interest loan). As I have said many times before (which interestingly enough has been met by 'silence' from Councilor Bensman) is that the city's overall tax revenues from groceries (not the revenue from a particular store, but all grocery stores in Lafayette) has risen and continues to rise despite the opening of a King Soopers and a Vitamin cottage, which clearly indicates the grocery pie is getting bigger. If Councilor Bensman's argument about cannibalism was correct, the total would remain the same and each store would have a smaller piece of the pie. While Albertson's has closed other stores in Boulder County, they have not closed ours. While the new Walmart Superstore will have a short term effect on the other grocery providers, the number to watch is the total grocery sales tax receipts.
Vitamin Cottage services a different market than King Soopers and Albertsons. A walk through the store shows quite a difference in what they sell as well.
If one looks at the KS figures versus the history of Albertsons, the evidence is clearly there of "cannabalism".
Also food prices are rising faster than the general CPI. The effects are even more negative if one adjusts the figures for that inflationary effect.
I had an interesting conversation with the store manager of King Soopers this week. Her observations are in line with mine, though more negative than mine are.
What the "cannibalism" discussion misses is that at some point, some businesses go out of business.
DC ran an interesting article about Boulder's sales tax figures this week. While the 29th Street Mall was way up, Pearl Street Mall and University Hill were down.
The Rocky ran a front page story on the effects of surging food prices on the low income folks do to the increased price of corn which affects meat, dairy products, etc.
So we shall see soon. I suspect the KS store manager has more insight into what is going on though I hope her forecast doesn't come true.
The city has always benefited from the short term in that food and energy prices are more volatile on the upside. But then the city faces higher prices relatively shortly and wage pressure as well.
P.S. An interesting story on public radio this week. Mexican farmers are burning their fields of blue grava cactus to plant corn for ethanol. German farmers are planting corn instead of barley. Tequila prices are expected to go up. Beer prices are up 40% in Germany.
Total grocery receipts is not the number to watch. This number will be artificially inflated when the new SuperCenter opens, and by the lack of grocery options on Hwy 7 for Erie/Broomfield residents. Don’t spend this newfound wealth without some good forecasting on how long it will last.
The average household spends an average amount on groceries. Multiply this by the number of households in Lafayette, and you get total grocery purchases for the city’s population.
The “pie” isn’t growing unless the population is growing. Otherwise, the change in the city’s share of the “pie” is driven by how much leakage is occurring.
Not so many years ago, the only grocery option in Lafayette was Albertson’s. Most of the grocery “pie” was being lost. More of the “pie” was lost when Safeway opened on 287 in Erie. When KS opened in Lafayette, the city started to reduce the leakage. Vitamin Cottage also reduced the leakage.
With the addition of these new grocery options, not only did Lafayette start capturing more of its own grocery “pie”, but it also increased the amount of grocery business it was taking from surrounding towns, mostly Erie and Broomfield (Anthem).
WalMart SuperCenters draw from a much larger market area than their traditional stores. And, since the traditional stores don't sell much in the way of groceries, Lafayette’s grocery “pie” will look like it’s growing hugely.
Until WalMart opens new SuperCenters in some of these other areas (Hwy7/I25 is being discussed), and until there are other grocery options on Hwy 7, Lafayette will be capturing more than its share of grocery sales.
Does Lafayette know how much is spent by their citizens on groceries, regardless of where they buy them? There are national statistics that could be used with number of households. Without this, you have no idea how big the “pie”, nor how much of the “pie” your capturing. You could also be fooled into believing this bonanza is going to continue forever.
What is often overlooked in the discussion is the rebate agreement and the W*M effect.
Super W*M is not just a grocery store. It has a pharmacy, auto service, garden store, etc. Government and watchdog agencies report W*M takes 30% of the existing market. The rebate agreement gives them all the sales tax up to $2.4M. No yearly limited. And it is in effect for 42 months.
So the major effects include which businesses don't survive and how long it takes for them to be replaced. Aka Countrywide and Coal Creek. Albertsons is #1 on the hit list. So what happens to Wankea Marketplace if they get hammered? If the city doesn't get its $1.2M out of the OA building, that loss hurts too.
Another effect is a lowering of overall prices as competitors respond. Good for the consumer but questionable for sales tax collections. KS expects to respond witl heavy sales and coupons.
Given all this, it could have been modeled to get a view as how to deal with all of it. Didn't happen. Goes the dominance of staff in another topic. The council was given 3 business days to review the agreement and decide. The staff report did not address any of these issues. No statistics. Na da. Presented W*M as all upside.
Now one can argue it will all settle out in 3 to 5 years. So we will see.
Councilor Bensman still does not understand the Walmart Agreement, which surprises me. Walmart only starts receiving the rebate if their sales tax proceeds EXCEEDS a base set by the current store (approx $1M). So if their sales tax for the first year they are open is 1.2M$, they only receive a rebate of $200k. Conversely if they make below the base, they receive nada. They would have pull in about $3.5M in tax revenue to get their rebate in one year. While VC does sell a larger amount of vitamins then the Grocery stores, I don't think anyone can argue that the largest part of their store is grocerys. As to DB's comment, you are correct we should not read to much into the initial results and base future revenue projections on them. We have already done this with the Target Agreement, by gradually increasing our piece of the sales tax proceeds so we have a more even growth in revenue vs. the feast and famine you see with some of our neighbors.
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