Chapter 10

CHAPTER X

CONCLUSIONS AND RECOMMENDATIONS

The writer has devoted almost three years to this study. He has sent out approximately 6,000 questionnaires to small retailers asking their views on strategies for survival in the face of the formidable gains of the mega-retail discount chains.

The questionnaire returns have been analyzed statistically and data has presented a picture of fear, sadness and disillusionment about the chance for small retailers to survive the impact of the mass discounters. This data is available in Chapter III.

Most of the returns included essay type answers explaining concerns about the survival of small business and the lack of serious efforts on the part of the federal, state and local governments to save their family businesses as well as the jobs and investments created over many years of hard work and sacrifice.

Much of the resentment was focused on redevelopment agency plans in many states where tax funds have been made available to the mega-retailers to pay for capital outlay and debt service for these "Big Boxes" which have destroyed the viability of the "Main Street" merchant, while denying the small business merchant the use of development funds to end center city blight. This type of subsidy for the mega-retail discount chains has been described as "corporate welfare." In many instances the retention of sales taxes for 10-15 years has deprived school and other local governments of needed revenues. It is clear that there is only so much demand in a given area, and where a supercenter opens, the result is often the closing of the smaller competitors. While the chain retains the sales taxes, the ultimate closure of the small retailers eliminates a traditional flow of revenue to the schools, counties and state governments.

The writer also visited and studied the commercial activities of the "Main Streets" and malls in California, Illinois, New York, and Pennsylvania. In the urban areas, the closing of apparel stores, drug stores, shoe stores, sportswear stores and hardware stores has destroyed the economic balance of the enclave or neighborhood. These stores have been unable to compete with the mega chains, such as Wal-Mart, Kmart, Target and others; and jobs have been lost within the enclave and neighborhoods. A lack of jobs in small family type businesses reduces the purchasing power of the neighborhood and eventually affects even the prosperity of regional chains such as Bradlees and Caldor, both having declared bankruptcy within the past few years. Moreover, Kmart has recently reported serious losses which have been noted on Wall Street. Problems have also been reported at Charming Shoppes and other regional and national chains.

The author also visited malls which 5 or 10 years ago were clean, bright, prosperous and bustling with customers. In many of these malls, the appearance in past five years has changed radically for the worst. There now could be a 30% to 40% vacancy rate. The traffic flow has become weak. The boarded, closed stores are loaded with graffiti and the malls have a slum-like appearance.

How Could This Happen?

Suppose a Kmart or a Target was an anchor store opening in the mall 5-10 years before. The square footage of the store ranged from 30,000 to 60,000 feet. Suppose several years later a Supercenter, such as Wal-Mart, with perhaps 200,000 plus square feet were to be constructed one-half mile away, soon, the auto traffic in the older mall lessened. The Target or Kmart with only 45,000 sq. feet closed and surrendered. The anchor store then remained vacant and the decline of the mall accelerated. Throughout the United States, formerly prosperous malls or strip centers have given up. The areas have become desolate and look abandoned and the customers depart for the newest supercenters and their parking areas.

The Potential Negative Impact Considering the Multiplier Effect on a Regional Economy

Previously mentioned and described in this study is the new phenomena of the "Power Center" which has been gaining momentum in the mid 1990's. The Power Centers have been described as "Big Box" farms where there are a half-dozen or more mega-stores and smaller superstores set around vast (upwards of 1200 spaces) parking lots with total retailing space nearing one-half million square feet.

The effect of the centers multiplies that of the single mega- or super-store. These stores and centers draw customers from a radius of 10 - to 15- miles in major metropolitan areas and even larger areas in rural ones. By increasing their drawing range, these mega-retail discount chains are also increasing their negative impact on "Main Street" retailers as well as the smaller retail discount chains that during the past year have been plummeting into bankruptcy or dissolution.

In California, we have begun to see another approach. Wal-Mart, who has received opposition in some communities to building new structures has begun to renovate empty mall department stores or attach their new buildings to an existing mall. They are easily able to accomplish this since the community infrastructure is already in place - parking, roadways, water, and sewers. Their economic argument is that they will enhance the traffic to the mall; hence increasing overall business and the local GDP.

But how is this constructive result possible when Wal-Mart provides direct competition to at least 50% of the small businesses already in the mall. Look at the example of the Huntington Beach mall (stores listed below in Table 15) where there are 31 relatively small stores in addition to three larger ones (anchors).

Table 15
Huntington Beach Mall
Spencer GiftsWet SealMusicland
Great EarthLechtersSunglass Hut
GNCMon AmiClaires
See's CandyBurlington Coat FactoryHudson Goodman Jewelers
Diamond JewelersLearhers ClothKinney Shoes
KayBee ToysWalden BooksGTE-Phones
Regis HairstyleLane BryantRadio Shack
HallmarkWard's Department StoreSilver Lace
Athletic PressAshley JewelersIntrigue
Shoe WitzPost OfficeExpress Emporium
Sizes UnlimitedGeneral StoreMervyn's Department Store
Horizon Beauty Supplies

It is reasonable to assume that since Wal-Mart does present strong direct competition and a major challenge to many of the current mall tenants, that many of these tenants may not continue in business. The argument or assumption that Wal-Mart will increase traffic must be questioned. The reverse is more likely to be true. A consumer, who traditionally shops at the mall in some of the smaller businesses or chains may be now more inclined to visit Wal-Mart while in the mall. However, the traditional Wal-Mart shoppers will not leave the store to see what else is available. They are drawn to Wal-Mart in the first place because their needs are met from a selection and price standpoint. Therefore, those traditional mall stores offering the same or similar merchandise as Wal-Mart will lose traffic and eventually close. Their closing may have a ripple effect on other non-competing mall stores as the "traffic" flow weakens.

Let us presume that as a result of a mega-retail discount "Big Box" moving into a mall, it created a loss of 250 full time equivalent jobs. A calculation of the average salary expense including salary and fringe benefit expense per employee would total $6,250,000. However this estimate is based upon direct wages and benefits paid to mall employees. If one were to then consider the multiplier effect of these wages using a conservative multiplier of 2, the result on the regional GDP would be $12,500,000 without income gains in GDP brought by the new mega-retailer. Obviously the gains would not match the losses here. Moreover, the "Main Street" impact of these small businesses which will close can be seen in the facts presented by the House Committee on Small Business:

"The establishment of a small business has a large, positive effect on the local economy. A small business with 100 employees in a town adds: 351 more people; 79 more school children; 97 more families; $490,000 more bank deposits; one more retail establishment; $565,000 more retail sales per year and $1,036,000 more personal income per year."1

These figures attest to the power of the multiplier, an issue which is seldom raised when describing the impact of the "Big Box" upon the mall or the community.

Now, if 50% of the mall's stores were to close as a result of a mega-retail discount chain's opening, there would be a negative impact of GDP. It is true that the new mega-retail discount chain such as Wal-Mart or Kmart will bring jobs to the area; however, as it has been discussed, an average mega-retail discount chain job is not full-time with full benefits. The multiplier effect or buying power generated by a "Big Box" job can not fully compensate for the loss of a traditional retail job.

There will be a net effect on regional GDP from the competition presented by this mega-retail discount chain and it believed that it will be negative for the reasons presented above. The "new" jobs created by the mega-retail discount chain will not compensate for the jobs lost from the traditional retailers who will close from direct competition. Added to this is the effect on the non-competitive mall stores and the surrounding restaurants and businesses to the mall.

Superstore Sprawl and Its Potential Harm

The 1994 publication of the National Trust for Historic Preservation, entitled How Superstore Sprawl Can Harm Communities....., (and what citizens can do about it) describes the fact that rosy promises of increased revenues for cities, more jobs, affordable prices and good products don't always arrive as promised. Were it true, there would not be the hundreds of citizen groups throughout the nation attempting to hang on to the "land we love."

Gene Davidson, a resident of Berea, Ohio wrote the following in a letter to the National Trust for Historic Preservation:

"I believe that the land that we love' is literally vanishing before our eyes. The present new construction rate of Wal-Mart, Super Kmarts, Meijers, and others of superstore' breed guarantees others an inevitable destruction of much of what we hold dear. Add to the new construction starts of the superstores all of the franchise operations, such as Sub-Way, McDonalds, Taco Bell, etc., and you can project ten years down the road an intolerable situation. This country would eventually be virtually unrecognizable from what we knew as the United States just one generation ago."2

While the sixties and seventies were replete with new regional shopping malls in the suburbs, the eighties and nineties ushered in the "Big Boxes" of Wal-Mart and Kmart, Home Depot and other sprawling discount stores located near the intersections of major highways.

The new discount stores were in many cases funded by redevelopment funds that were denied to "Main Street" merchants struggling to survive the exodus from downtown. The economic vitality of the downtown oozed out as the highway interchanges were the place to go.

As the downtown businesses closed, there was a desecration of civic and cultural life affecting families, education, crime and violence. The new mega-store required municipal and state investments in roads, water and sewer lines, police and fire protection and other governmental services.

As one travels through the towns and cities of America, it is easy to note negative change with abandoned buildings, unsightly parks, declining majesty of public buildings and general malaise. Interviews with surviving owners of retail stores disclose a hopelessness. They say "the traffic is gone"; the "future is bleak" --- "I may have to close."

In the four states the author visited, he saw numerous instances of community groups fighting supercenter sprawl. Often they resented the financial packages (RDA) funds offered to developers and chains. They feared the increase in pollution and traffic congestion that would affect school crossings. They deplored a lack of downtown planning that permitted illogical zoning changes. They feared the new chain stores would not add to the size of the consumer market -- but only cause commercial glut until the small retailer was eliminated. They were concerned about the negative impact upon the environment as well as the cultural, scenic, fiscal and economic impacts.

The National Trust for Historic Preservation designated the state of Vermont as "endangered." They wanted to make the nation more aware of the destructive phases of urban sprawl. The Trust's report was a "wake-up call" to communities to evaluate prospective changes in their way of life.

Was it always necessary to create huge sprawling developments or rezone farm land and industrial land several miles from a compact and traditional "Main Street" set of enterprises?

Since many of the mega-retail discount chains have built their supercenters with federal and state redevelopment funds; would it not be possible to apply RDA funds to rehabilitate old strip shopping centers and old malls? Could they not be given financial and physical "face lifts" -- to continue their desirability, both commercially and aesthetically?

Sprawl is not synonymous with planned growth development. If for example, a new Supercenter employs one worker for 20 hours and the impact on a small competitor is to create the loss of 1 full time jobs -- is there a benefit to the community?

Development that exceeds a community's ability to absorb it will ultimately result in abandonment of prior and public investments -- and possibly the new supercenter will also close as the joblessness in the town increases. Lastly, the major discount chain may close because of losses in the town's purchasing power. The chain then opens in the next county, leaving the town desolate and abandoned. This is more and more becoming true in the United States as new large chains open stores not realizing the demographics and other limits of the market.

Are Large Chains Doomed as Well as Small Stores in the Discount Race?

News of Caldor's and Bradlees' bankruptcies put to bed the belief that small retailers can survive the retail policies of the Wal-Marts. Certainly, it would appear that Caldor and Bradlees, each with several hundred stores and professional staffs, have the resources to compete successfully with a Wal-Mart or Kmart. Yet they have begun to flounder.

Moreover, Kmart, Wal-Mart's major discount competition has suffered a series of operating losses for the better part of the last two fiscal years. After a 1995 fourth quarter loss of $420 million, the company seems to be rebounding. Much of the loss was due to the write off of their subsidiary, Builders Square. Company executives contend that these write-offs and divestments are a necessary step in their turnaround. This was guardedly confirmed by Kurt Barnard, president of Barnard's Marketing Report: "They are not out of the woods, but their strategy is starting to take hold."3

A 1994 study co-authored by David T. Kresge of Dun and Bradstreet Information Services and retail consultant Gary A. Wright of Denver stated: "Despite predictions that small retailers are doomed, specialty stores are thriving in some important niches, says a new study of retailing. In those retail sectors where personal service, location or expertise are valued such as the women's fashion, accessories and gifts, smaller retailers are doing very well, said co-authors Kresge and Wright."4

The study discounts predictions that at least half of all retailers in business in 1990 will be gone by 2000.

In the same Philadelphia Inquirer article the opposite position was taken by a Wall Street investment expert following the retail chain picture:

"Senior retail analyst Walter Loeb of Loeb and Associates says the larger firms such as Wal-Mart are gaining increasing sway, with enormous control over pricing, the competitive environment and suppliers."

"When Wal-Mart is growing at 18-20 percent a year with the (economy) growing only about 3 percent, somebody is giving up business," he added."5

The study discussed in the article recommended personalized service as means by which small retailers could survive. On the other hand, the authors warned that powerful chains such as Home Depot were also offering personalized service.

The future of the small retailer is growing desperate, despite recommendations about personalized service, unique product differentiation, and a move from the destroyed "Main Street" of America to more appropriate locations. How can those small retailers, with less than a million in sales, finance a lease termination and the expense of a move to a more desirable location?

The proof of the pudding that the major discounters will sooner or later eliminate most of the small retailers is the fact that even the medium size firms are in trouble.

In their study, Kresge and Wright state that medium size firms with sales from $20 to $50 million annually could suffer the most (in the next century.) "They neither have the buying power of large firms nor the personalized approach of the small firms."6

The bankruptcy of Bradlees and Caldor are perfect illustrations of which way the wind is blowing. Someday a Wal-Mart may possibly have the entire retail market. As Mr. Loeb says, "if Wal-Mart grows at 20% a year and the economy only at 3%, somebody's giving up business."

If we examine the "Main Street" malls and the strip centers we can note the devastation of former prosperous retailers. There's only so much demand in a community and hence there may be only one or two powerful survivors left. Where will the jobs come from to provide the purchasing power to keep the "Big Boxes" viable? Soon they will leave for another town or county, and the same cycle begins once again.

Susan Dentzer in a May 1995 article in US News & World Report, entitled "Death of the Middleman?" points out the growing centralization of power between manufacturers, suppliers and discount retailers. As was stated many times in this study, small retailers have lost the wholesalers that sold to them. Many now buy from Sam's Clubs and other club stores. Dintzer states:7

"The rising competition has prompted consolidation among the largest wholesale and distribution firms; creating giants like Fleming Cos. an Oklahoma City based grocery wholesaler with sales of $16 billion."

Further, after tax profit margins (for some wholesalers) now average 0.5% to 2% and a survey by the National Association of Wholesale Distributors shows that most players think that these razor-thin margins will fall further.8

In addition to the problems of obtaining wholesale resources, small retailers have been hit by the information revolution. This has not only affected small retailers but also substantial companies like supermarkets.

Just collecting data is only part of the new power equation, though. Supermarkets have been capturing scanner data for years. But it has been mass-merchandising chains that figured out how to use such data most effectively. Between 1985 and 1992, notes J. Mark Harran, a senior vice president at Kraft General Foods Inc., outlets such as club stores, mass merchandisers and deep-discount drug chains took seven to eight points of food sales away from traditional supermarket -- a massive shift in such a slow-growth business.9

A major edge was information with Wal-Mart Stores, Inc. being the trend setter, using computers to take the guess work out of wholesale buying, to slash inventory cycles and to keep popular items in stock. Wal-Mart turned the tables on the suppliers, telling them what products it wanted, where and when, and driving them harder than ever on prices.

Now supermarket chains are hoping to emulate Wal-Mart's efficiency. Early last year, consulting firm, Kurt Salmon Associates Inc., released a study concluding that grocers could cut their costs -- and prices -- by 11 percent or more than $30 billion a year, by moving toward "paperless" links with their suppliers. The scheme, dubbed Efficient Consumer Response (ECR), would mean more effective merchandise assortment and store promotions and eventually a continuous replenishment of shelves based on what's actually sold each day.

However, it won't be an easy transition. The big players in the grocery business -- particularly wholesalers -- make much of their money by stocking up on discount merchandise that the manufacturers ofr. Fleming Cos., for instance, a $13 billion food wholesaler, makes roughly a third of its profits through such forward buying. The big discount deals would be cut sharply under ECR. And even if ECR eventually brings Wal-Mart-like efficiency, nobody wants to give up today's profits first. That's a major reason why progress toward this much needed streamlining has been slow.

Yes, the middleman is an endangered species because of the EDI hookups between manufacturers and large discounters. But here again, the small retailers may become a thing of the past, lacking funds and information to survive.

Retailing in Transition

In a study several years ago, the following forecast was provided: "By the end of this decade, more than half of today's retailers will be out of business." They explained: "there is too much retail space for the market, too much "copy cat" sameness among retailers, and far too much leverage on the books. These conditions leave no room for marginal performers." They further predicted: "that by the end of the century, some lines of trade will virtually be owned' by only four or five major players."10 It now appears that this prediction made in 1990, is being corroborated by the retailing change of power in the mid-nineties.

In the retail discount field such performers as Wal-Mart, Kmart and Home Depot, among other discount chain leaders, have set the pace which ultimately will eliminate thousands of smaller retailers in drug stores, family clothing, general merchandising, hardware and lumber stores.

According to studies by consultants, G.A. Wright, Inc. of Denver Colorado, there at first glance

"does appear to be evidence to support the contention that the retail industry is consolidating.' The largest firms are in fact controlling a larger and larger share of the industry. Large retail firms (those with sales over $100 million) increased their share of industry employment from 35% in 1985 to 39% in 1989 and to 45% in 1993."11

"In 1985, small firms (sales under $1 million) employed 21% more workers than the large firms; but by 1993 the small firms employed 22% fewer workers than the large firms."12

".....it does indeed appear that the (retail) industry is increasingly falling under the control of a relatively small number of very large firms."13

As an example of the domination of the large retail firms, The Wright report cited that employment growth in retail women's clothing and apparel in large firms increased by 18,000 employees between 1989 and 1993, while small firms cut employment by 19,000 and medium size firms cut by 16,000 employees. The only light at the end of the tunnel was shown by small retailers in women's apparel with concentration on selling accessories and specialized apparel. It is clear that large retail discount chains like Wal-Mart, Toy "R" Us and Home Depot will continue to extend their lead in sales and growth, unless small firms can perform miracles in providing specialized services. Given the ghetto-like influences on the dying "Main Streets," the specialized successes appear realistically impossible in a substantial way in the near future.

Data supplied by G.A. Wright, Inc. based upon U.S. Government SICs show the steady successive gains in chain store employment and declines in small retail employment when comparing 1985 with 1993.

Table 16
U.S. RETAIL EMPLOYMENT SHARE
Large vs. Small Retailers 1985-1993
14

Sales Volume19851993
$1 million or less37.4%35.5%
$1- 10 million14.9%13.1%
$10- 100 million6.1%5.7%
$100 million and over30.9%43.4%
Sales not available10.7% 2.3%
TOTAL100%100%

It is easy to see from Federal SIC data where employment grew in the years 1989 to 1993 and where employment fell.

In men's and boy's apparel retail chains with sales near $100 million, employment grew by 32% while in similar stores with sales of $1 million or less, employment fell by 9.1%.

In women's wear, the over $100 million chains had employment increases of 16.4% over the 1989 to 1993 period, while smaller retailers with $1 million or less in sales saw employment fall by 12.4%.

In drugs, the larger chains with sales over $100 million had an employment increase in the years, 1983 to 1993 by 30.2%; while the independent drug stores, with sales of $1 million or less saw employment drop by 28.7%.

According to the Wright studies, the consistent losers in sales, growth and employment are retailers in the sales classes of $1 million and $100 million. Thus, the concerns about the survival of the small retailer, must be added to the concerns of the survival of retailers in the $100 million sales class. The national retail discount chains by year 2000 and beyond will have a major negative impact on retail employment. The Wright study examined the closure or termination rate of retailers during the nineties. They provide great concern with the following:

"If the company closure rate for the industry of 2.9% per year for the first four years of the 90's were extrapolated to the year 2000, it would yield a closure rate of 29% for the 10-year period of the 90's. It is important to note that this is not 29% of the retail companies that start the decade, since many of the closures are likely to be businesses that were start-ups during the 90's."

"The major group of companies with the greatest closure rate is apparel stores. The 90's is experiencing a 5.4% per year closure rate in this group that compares to an 8.0% rate for the 80's. Extrapolating the 5.4% rate to the year 2000 would yield a 54.0% closure rate for the decade. Again, this is not 54% of those starting the decade."15

Not only are the small and medium sized retailers being hammered by the major retail discount chains but the medium sized discount chains are falling by the wayside as attested to the bankruptcy applications of Caldor and Bradlees, and now even the giant Kmart appears to be suffering. Charming Shoppes with over 1400 retail stores is reported to be in real trouble, while Silo's has closed all stores.

In retailing, analysts say, discount is no longer synonymous with success. "The days are gone when a discounter could be unique or alone in any market," says Allan L. Pennington, a Chicago retail consultant with McMillan/Doolittle. "It's become a difficult business to be in."

Analysts trace the trend to a redrawing of battle lines. Until recently, discounters of every stripe sought to steal customers from full-price independent, mass merchants such as J.C. Penney Co. and department stores such as R.H. Macy & Co.

But the expansion into nearly every market of the so-called Big Three -- Wal-Mart Stores, Inc., Kmart Corp. and Dayton Hudson Corp's Target chain -- has pitted discounter against discounter in a competition that favors size. Wal-Mart and Target, in, particular are thriving. "The smaller chains are getting caught in a battle between the Bigs." says Linda Kristiansen, a New York retail analyst with Wertheim Schroder.16

The Role of the National Trust for Historic Preservation

The author has endeavored to assess the contributions of the mega-retail discount chains as well as the negative implications of teir unprecedented growth.

It's important at this time as the writer comes to the end of his study to once again review the role of the National Trust for Historic Preservation and the challenge it sets forth to governments, citizens, planners, developers and local and national economists and sociologists.

The Trust sees the mega-retail discount chains as inputting such negatives as:

1. Sapping the economic vitality of downtowns and "Main Street" by shifting the retail center of gravity out to highway interchanges on the edge of town.

2. Displacing existing businesses, especially independently owned small businesses that contribute significantly to local civic life, by building stores vastly out of scale with town's ability to absorb them.

3. Setting the stage for higher property and state income taxes by creating developments that are costly to serve and require new roads, water and sewer lines, police protection and other public services.

4. Causing the waste or abandonment of previous public and private investments in existing buildings, streets, parks and other community assets.

5. Homogenizing America by building stores that have no relation to their surroundings.

While these points have been made in Chapter 1 of this study, they must be reemphasized as part of the conclusions of this work.

What other challenges did the Trust provide in its formidable 1994 study?17

The National Trust for Historic Preservation asks the mega-retail discount chains to answer the following challenge:

"Can the consumer benefits provided by the superstore be achieved only through the creation of more urban sprawl and all the sprawl brings: traffic congestion, automobile dependence, air pollution, dispirited or dead downtowns, despoiled country sides and weakened community ties? Or could some of the benefits be provided without so much damage to the environment and local communities? We think these are questions that should be asked."19

The Trust also poses an equally important challenge to the many communities facing the invasion of the super "boxes:

"And communities have choices. They can encourage or discourage certain types of development. If a community doesn't want superstore sprawl, it can take steps to prevent it. If a community wants a superstore, it faces a whole host of other questions relating to whether the store comes in on the communities terms. Where should the store be located? How big should it be? How much new retail space can the local economy absorb without suffering fiscal and economic impacts created by a commercial glut? Can the store be designed to help preserve the communities livability and attractiveness? How can the store minimize negative environmental, cultural, scenic, fiscal and economic effects? Above all, what is the long term impact of the decision?"19

Supercenters and Comparative Labor Costs

Earlier in this study, PaineWebber was quoted as having a negative opinion of "one stop" shopping. They apparently did not care for alternative advertising and promotion with an additional example from Kmart's ads as "We've got juice, jumper cables and jeans" and "Shop here for carrots and car mats." PaineWebber may have mistakenly believed that only a small minority of Supercenter customers would "shop both sides of the store."

PaineWebber earlier suspected that Kmart would have financial and management problems which have come to the fore prior to the completion of this study. As the writer indicated in Chapter II, PaineWebber had stated: "Kmart's well-known corporate problems give it a negative image among consumers as well as developers." As of late 1995, Kmart's per share price on the New York Stock Exchange appeared to be dropping sharply while Wal-Mart's securities prices appeared to be relatively stable.

The PaineWebber study also reported that Kmart's decision to use third party food wholesalers saved much needed capital, but put Super Kmart at a substantial disadvantage in fulfilling the Supercenters' low price positioning.

Furthermore, this author indicated in Chapter II that he did not accept the premise that Wal-Mart would have similar problems to Kmart's in executing the supercenter program. Wal-Mart's national management and store management appears quite strong. Wal-Mart, unlike several major supermarket chains, is unconstrained by corporate problems and appears to be going with 100% self-distribution.

Most supermarket chains self-procure and self-distribute. Apparently, when Kmart opened new Super Kmarts, utilization of outside food wholesalers strained Kmart's staff resources in opening new locations with the intense travel required as well as essential staff training requirements.

A major advantage for Wal-Mart's Supercenter, generally, is its lower labor costs as compared to both the unionized and non-unionized supermarkets. Wal-Mart is presently non-union. Kroger, the dominant supermarket chain, is unionized; nevertheless, it, unlike many supermarkets, continues to be strongly managed, effective and highly profitable. Wal-Mart's low labor costs, high productivity and control of its managerial and inventory processes have weakened not only Kmart, but many regional discount chains as well as supermarkets.

Both investors and Standard & Poors, which lowered its ratings on Kmart's $3.7 billion in debt, point out that Kmart is in a defensive position against competitors like industry leader Wal-Mart Stores, Inc. For example, Kmart plans to pare its 1995 capital spending by an as-yet undetermined amount from a previously projected $1 billion, while Wal-Mart plans to boost its spending to $4.5 billion from $4 billion.

Up to now the small retailer has been threatened by the power of the mega-retail chain -- now it appears that the same thing will be true of national as well as regional, and in some cases, mature supermarket chains. What will this mean for joblessness and the U.S. retail employment picture in the next five years?

The New Emphasis Upon the Food Industry in Supercenters Being Opened by Mega-Retail Discount Chains

The American food industry is the finest in the world. Its distribution of goods, and quality of service are the shining example world wide. Its products, from produce to paper towels, are available night and day for everyone's convenience. Primary locations make shopping easily accessible for all concerned customers. Different types of stores service all the needs of customers culturally, aesthetically, and most importantly, economically. And now, this industry is in jeopardy.

For example, in Southern California, 90% of the market share in the food industry is under a collective bargaining agreement. Labor contracts between the United Food and Commercial Workers and food employers such as Ralphs, Food-4-Less, Hughes, Vons, Albertsons and Luckys have been negotiated through collective bargaining over the past several decades. The end result of these deliberations, as one might expect, has been a livable wage plus important benefits. Here the community is truly the beneficiary with healthy, independent tax paying residents who contribute to the tax base rather than drain it. A full-time wage earner working at Ralphs, paid at top scale, will earn a more than livable salary with health costs and dental coverage paid additionally.

Wal-Mart and Other Mega-Retail Discount Chains Enter the Food Industry in a Most Powerful Way

As we discussed earlier in this report, recently a number of mega-retail discount chains (Wal-Mart, Kmart and Target) have decided to enter the food business. However, financial analyst opinions conclude that Wal-Mart will become the largest player. According to industry estimates, Wal-Mart's 239 Supercenters (combination food/retail stores) account for sales of about $13.5 billion or about 14.5 % of the company's fiscal 1996 sales of $93.6 billion. Supercenters are spread over 23 states with approximately 110 new stores planned for 1996. Most stock analysts believe Wal-Mart will become the largest food company in America with sales exceeding $30 billion dollars a year. Wal-Mart has been evaluating the potential of Supercenters at both ends of the spectrum from a 109,000 square foot center in Arkansas to a 220,000 square foot center in Tennessee. A 136,000 square foot model has all the same departments as a larger Supercenter, but it is laid out in a smaller box and has a more compressed variety. Wal-Mart officials told Supermarket News, "the decision to grow with a smaller size prototype is a clear indication that Wal-Mart plans to expand Supercenters into smaller towns of 10,000 to 12,000 people where there is less population density and less competition."21

In the near future Wal-Mart will probably enter the food business in California and several other states and what may be at stake will be the additional loss of many quality high paying jobs now found in supermarkets. Wal-Mart's increasing assimilation into the food industry is apparently motivated by the drive to increase total retail sales. According to company statements, total retail sales should increase some 30% due to the synergies established at combination stores. Furthermore, it has been suggested that Wal-Mart might use food as a loss leader in order to increase store traffic. There will be a positive transfer effect in the sale of general merchandise by having more visitors to the store, particularly if the sales of food are in the "loss leader" category. The impact that this will have on the food industry will parallel the effect it has had on the traditional retail industry. The problems created for employees within the traditional food industry could be nothing short of catastrophic. Supermarkets work on very thin margins, and their shrinking market share resulting from the combination of cheap labor and low prices will have murderous impact on the traditional food stores, large or small. The fallout could be compared to that of GM, Chrysler and Ford; not in overall job loss, but in weekly earnings, while company paid health benefits and retirement plans now prevalent in supermarkets might disappear. The shift in health benefits costs will go directly to the taxpayer while desperate worker who can't get jobs and retirees without pension funds may be adversely impacted and may have to be taken care of by federal, local and state governments. With a Social Security system already in jeopardy, increased drains will only shorten its lifespan. The elderly will certainly become more dependent on government subsidies as the shrinking "middle" will be further demonstrated.

The Supercenter's impact on the food industry will not be transparent to the causal observer. The entry of mega-retail discount chains like Wal-Mart, Kmart and Target into the food business is to increase their retail sales possibly by as much as an estimated 30% - in the case of Wal-Mart. However, there will be a further negative impact upon the local, state and federal economies as jobs go from full time to part-time and as wages drop and fringe benefits disappear.

Effects on the Community

The Midwest Center for Labor Research(MCLR) studied the tax revenues now generated at existing supermarkets in San Jose, California which might well be lost if three super stores (combination retail/food) were to locate in the city. According to the MCLR:

"The presence of three such non-union super stores would take away work from supermarket workers already employed throughout the city. The grocery sections of the new super stores would employ the equivalent of three hundred sixty supermarket workers. Their presence would result in a decline in the hours of work of existing supermarket workers. (MCLR) examined three areas of impact: (1) The higher wages of existing supermarket workers, almost all of whom are unionized, and the wages of other workers whose jobs are supported by the multiplier effect,' which result in increased consumption in the area; (2) Higher employment attributable to this increased consumer expenditure; and (3) The increased taxes paid to the government as a consequence of the higher wages."22

Increased Consumption and Increase Jobs

The study estimated that there is a $2.7 million dollar additional consumption in Santa Clara County, California because of the higher level of prevailing wages paid by the existing supermarkets compared to the average wages that will be paid by the new Supercenters which generally might only amount to one to two dollars above the minimum wage. Of this additional consumption(GDP), 82.7% comes from the higher prevailing wages of the supermarket workers, while the remaining 17.3% comes from the "multiplier effect," previously described, and the wages of workers who benefit by the secondary and tertiary respending of higher supermarket salaries.23

When a group of workers are paid more they consume more, thereby raising the overall consumption of goods and services in an area, in other words an increase in GDP. This consequently augments the number of jobs in the community. The MCLR study found that in Santa Clara County, for every 100 supermarket jobs where the prevalent wage rate was paid, nine additional jobs were created. Of course, there is then a multiplier effect from the wages of these newly created jobs and the taxes paid by these citizens.24

In another study concerning San Jose, California, the Sidway Kotin Mouchly Group estimated $350,000 in new sales taxes would be derived from each of the new superstores locating in the county. However, they failed to measure the overall economic dynamics, i.e., declining tax revenues for pre-existing supermarkets and a net loss of jobs. The MCLR study predicted a loss of $1.3 million because of the difference in wages between prevailing (traditional supermarkets) and non-prevailing (mega-retail discount chains) wages. The taxes created by the new super stores will be offset by the failure of pre-existing supermarkets, the loss of jobs and revenues.

Results in Four States: Pennsylvania, California, Illinois and New York ; Respondents to Most Questions on the Shils Questionnaire Almost Unifrmly Indicated Pessimism About Their Chances for Survival When Faced Competitively by the Mega-Retail Discount Chains

The pessimism is shared by none other than our own President Bill Clinton who, in an address at the 1995 White House Conference on Small Business, on June 12,1995, stated that while more small businesses had sprung up in 1993 and 1994 than in any previous year since World War II, he was concerned about their ability to stay alive. He expressed concern about the high rate of failure and bankruptcies among small business.

Chapter III disclosed that when the respndents were queried as to what the anticipated effect upon the firm's economic health might be if a mega-retail chain were to relocate nearby, the answers were overwhelmingly, "negative" and "very negative." Forty percent anticipated the results as "negative" and an additional 33% answered "very negative." Thus 73% viewed their future in a most despondent, negative manner.

The respondents generally mixed pessimism with facts. Fifty-eight percent of the respondents visualized serious losses in employment were a major chain to move into the area selling similar products. Forty percent of the respondents saw their retail venture losing 5% to 35% of their employees. Eighteen percent visualized losing more than 50% of their employees. Only 4% saw a gain in employment. Thirty-seven percent anticipated "no effect." The author believes that the "no effect" data stemmed from a lack of hard data on the part of the respondents -- but in no way expressed optimism about the future.

The respondents were then asked to rate the negative or positive impact on sales volume by the imminent competition of a mega-retail discount chain. Eighty percent of the respondents anticipated "sharp" to "drastic" reductions in sales volume; while only 14% saw "no effect." Only 6% saw a rise by virtue of a new competitive entry of a major retail discount chain.

Data appeared consistent as to the expected reduction in sales volume as well as serious estimates of future profitability. Twenty-four percent of the respondents visualized profits dropping by more than 50%. In fact, 76% anticipated serious reductions in profitability as a result of the imminent competition of the mega-retail discount chains. Only 8% saw an increase in profitability, with these estimates being mostly conservative i.e., 10% or less. Sixteen percent saw "no effect."

Respondent retailers saw the reduction in the number of wholesalers, or those middlemen willing to sell to small retailers, as affecting their business negatively. Over 50% saw the direct selling to mega-retail discount chains by suppliers as being "negative" of "very negative." Kmart's and Wal-Mart's recent ventures into the Super Kmarts and Supercenters' food and grocery departments are creating new competition for the small grocer and the more traditional supermarket. Small retailers see these ventures as further threatening the survival of countless small food retailers. Many of whom (lacking wholesale resources) are now buying from Sam's Clubs or other clubs.

Small retailers anxious to survive do not have the relative financial ability to compete with the mega-discount chains in advertising, promotion, public relations or radio and television. They rely on the small business techniques replete with flyers, leaflets, brochures, using the yellow pages of the telephone book and the local newspaper. This, despite the fact that many proponents for the mega-retail discount chain movement believe that small retailers can survive by employing specialization, improved marketing, utilization of information and computerized systems and other MBA driven techniques. The average "Main Street" retailer in general fails to have these resources or capabilities.

Small retailers sell most of the products sold by Kmart, Wal-Mart, Target and many other major chains. Each store, however, was limited with respect to national brands, inventory and product lines; one might specialize in apparel; another in food; another in auto mechanics and supplies and so on.

In his 1993 study, Kenneth E. Stone, Professor of Economics at Iowa State University, stated that "businesses that sell the same goods as Wal-Mart sells tend to experience some reduction in sales after Wal-Mart opens." The study used sales tax data to document changes in trade area size in 32 Iowa towns with populations between 5,000 and 300,000 over a five year period.

Stone described a state with a "static population, resulting in a fixed size "retail pie." He stated, "in this situation when a large well-known retail store enters a town, it captures a significant slice of the pie, thus leaving less sales for the other businesses." He also indicated that in smaller towns, with less than 5,000 in population, sales were lost even more rapidly.

Professor Stone's early studies (1992) anticipated the result of Wal-Mart's national growth into the east and west. There is simply not enough customer demand for smaller retailers to survive the competition of Wal-Mart, Kmart, Target and other discount chains where the retailers essentially sell the same products as are found in the major retail discount chains.

In his earlier paper, "Strategies for Co-existing in a Mass Merchandising Environment,." Professor Stone was very direct in his admonition to small retailers. "Try not to handle the exact same merchandise . . . (or if it's a similar product) then sell another brand."26

Both Chapters III and IV presented the ever increasing concerns of small retailers for survival. The data in Chapter III was quantitative, while the narrative explanations as to why some 500 to 600 respondents were fearful about survival, was indeed qualitative.

When one mixes the anger of not having adequate and free downtown parking with the tax abatements and other grants provided the large chains -- yet generally denied to rehabilitate downtown businesses -- the reason for the anger comes through loud and clear. The customer base of the retail respondents, described in Chapter III, depends greatly on highways and parking. Naturally the major chains locating outside of "Main Street" have the advantage of parking lots; ease of access; freedom from parking meters and downtown traffic congestion. Added to that, the fear of crime and violence in downtown evening shopping creates major disadvantages for the small "Main Street" retailer.

A major question addressed to the small retailer related to strategies they might apply in competing more effectively with the major discount chains. While the staff received an 84% response rate, it was lower than the answers to other questions. The respondents appear fragmented in their choices as well as frustrated, confused, pessimistic and having trouble concentrating on how to answer this question.

Fifty-six percent selected alternative strategies that could be defined as somewhat "positive"; such as to "increase staff"; "increase visibility"; "provide fuller service" and "expand product lines." Forty-four percent of the choices were "defensive" strategies, going from "raising or lowering prices"; "decreasing staff"; "liquidating or selling the business" or "going into bankruptcy."

There was not a great deal of difference among the four states' as to "positive" strategies. Illinois was the most positive with 60%; New York with 56%; California 55% and Pennsylvania with 50%.

The author is confident that the profile of small retail business as portrayed in Chapter III showed consistency and validity, not only nationally but also as among the four states studied. Surprisingly, respondents have generally been in business longer than might be the popular notion with a large proportion having been in business for more than 10 years. Small retailers, on the whole, showed serious concern about their future viability and evidence of job loss, liquidation and bankruptcy.

The State of Mind of the Small Retailer in America; His Fears and Concerns about Survival

As was indicated in Chapters II and III, there was approximately a 10% return of questionnaires mailed to Pennsylvania, California, New York and Illinois. The research staff had categorized these responses which provide comments and suggestions on how to cope and prepare for the survival of the small retailer. The categories were grouped by state returns and indicated the types of product lines or services provided by the respondents.

Chapter IV revealed the depths of fear and discouragement of the small retailers who were desperately concerned with their chances of survival in the face of mega-retail discount chain competition of other powerful retail chains.

The narrative comments and quotes in Chapter IV have been compiled from retailers responding to the 6,000 questionnaires sent by the author in 1994 to firms in Pennsylvania, California, New York, and Illinois. They represented all of the subjective responses to the completed questionnaires returned which were about 10% of the original addressees.

Part I of Chapter IV was a response to the excellent book authored by Taylor and Archer. Our staff recognizes this serious work as well meaning -- but finds the "Ten Suggested Strategies to Survive" almost impossible to implement at the current stage of frustration, retail failure and stagnation. These small firms simply do not have the financial resources, staff or leadership to snap back in the ways suggested by Taylor and Archer. Were there a reason to start a new business with more than adequate management experience and venture capital, their "Ten Strategies to Survive" would be both helpful and essential. It is possible that some individual retailers might survive in the face of "Big Boxes" by following Taylor and Archer's "Ten Commandments" or strategies. However, for the most part, the dying breed of "Main Street" merchants require external and enormous help from their local, state and federal governments as well as specialized agencies such as zoning boards, planning commissions and community development authorities who are prepared to provide incentives and subsidies to small retailers currently available to the mega-retail discount chains who generally build their "Big Boxes" on former agricultural or industrial land. For example, a mega-retail discount chain store is given the right to retain sales taxes collected for a given number of years in order to help finance construction of and debt service for the "Big Box." As small retailers close, the sales taxes they formerly collected are no longer available to local government. These entrepreneurial subsidies and dozens of other incentives as well as tax abatements are not generally available to the small retail merchant.

Taylor and Archer are among those writers and journalists who attribute the failure of the traditional "Main Street" retailer to other causes than the price competition of the mega-retail discount chains. Taylor and Archer authored a provocative and interesting volume which appears well meaning in identifying ten survival strategies to enable the small retailer to compete more effectively with a giant Wal-Mart or other mega-chain retailers. Their book, published in 1994, Up Against The Wal-Marts (How Your Business Can Prosper in the Shadow of the Retail Giants, was first cited in Chapter IV.

One cannot argue with time honored principles taught at the nation's illustrious business schools, i.e., Wharton, Harvard, Stanford - but these schools prescriptions are far away from the financial constraints of small businesses. Those principles being such as "satisfy your customers"; "study the success of others"; "gather and analyze management information regularly"; "sharpen your marketing skills"; "increase the customers perception of value"; "position your business uniquely"; "eliminate waste"; "find something to improve every day," for example, the Kaizen, Japanese method of incremental improvement; "embrace change with a positive attitude"; and pull the trigger and start the battle."

The writer has visited many strip centers, "Main Streets" and malls, in number of states and has interviewed a number of valiant survivors. In Part II of Chapter IV, the reader certainly has to recognize the discouragement and disillusionment of the respondent retailers about the end of their "American Dream."

Taylor and Archer, while truly attempting to encourage small retailers to survive, nevertheless did recognize the present devastation going on in malls, strip centers and the former "Main Streets" of middle America. Furthermore, it is easy to see that observers are shocked by the decline and elimination of most small retail stores in the ethnic and minority enclaves of our very large cities in the East, Midwest and the West. The elimination of small retail stores in the neighborhoods results in job loss and contributes to the ultimate conversion of a formerly socially stable neighborhood into a ghetto, beset by violence, crimes, drugs and an underground economy.

Predatory Pricing - A State and Federal Legal Review

Chapter V introduced the subject of legal review of mega-retail discount chain behavior in the pricing area. In the case of American Drugs, Inc. v. Wal-Mart Stores, Inc., an Arkansas predatory pricing case, Wal-Mart lost in the lower Chancery Court.

This introduced the subject of "sales below cost" claims, and whether or not anything could be learned that might provide reviews of below cost pricing under the Sherman, Clayton, Robinson-Patman or Federal Trade Commission Acts. Up to this point, it appears that "sales-below-cost" claims appear easier to maintain under state laws rather than under federal antitrust laws. The subject is tremendously complicated. Also, monopolization and predatory pricing under federal antitrust laws should not be confused with potential remedies under state unfair trade laws.

In Arkansas, the Chancery Court rejected the "market basket" approach to analyzing "sales below cost." Rejection of the "market basket" approach means that an aggrieved plaintiff can recover in a state "sales below cost" claim regarding a particular product overall even if the retailer maintains a healthy profit margin.

Additionally, in the Arkansas case (in the lower Chancery Court), the judge determined that the plaintiffs need not show monopoly power to do damage to competition (involving complicated expert analysis of relevant markets and so forth). Instead the plaintiffs only needed to show the company had an intent to injure the competition, which could be inferred more directly from the company's stated policies and purposes. However, Wal-Mart won its appeal at the Arkansas Supreme Court level. Both the majority decision and the dissenting opinion in the Supreme Court case did create interest in the subject of predatory pricing and should stimulate the Federal Trade Commission and possibly the U.S. Justice Department to review appropriate federal regulatory statutes which might result in greater protection for the small retailer. Further, most states have enacted "baby" Sherman Acts which track the federal statute and the below-cost sales provisions. These are often contained in more general pricing statutes which are similar to the federal Robinson-Patman price discrimination law -- either of which may be used advantageously to challenge truly predatory pricing behavior. Chapter V, also mentioned that a group of retailers took a different tack on pricing differentials by suing both manufacturers and wholesalers. This study shows that more and more of the chain's ability to lower prices is due to the massive discounts available to them for large volume purchases. Not only are these unit prices not available to small retailers, but wholesalers, who used to sell the small retailer are disappearing, as the chains buy "direct" from the manufacturer.

In August 1994, the House Small Business Committee met and listened to witnesses who were concerned about the survival of the small retailer in the face of growing power of the mega-retail discount chains. Should not the 1995 and 1996 Small Business Committee of both the House and Senate continue this type of public hearing?

Materials from the U.S. Congressional Budget Office (CBO) were included in Chapter V for the purpose of opening the question (in public forums) as to which regulatory statutes are available at the federal level that might pertain to the behavior and growing power of chain stores. Their interpretative comments and analyses of the Robinson-Patman Act were particularly valuable. CBO describes "how in the 20's and 30's, large chain retail stores rose to prominence. The market power of some of these chains enabled them to negotiate lower prices from manufacturers than could be obtained by the traditional small independent retailer. For that and other reasons, the small retailer found it difficult to compete, leading to pressure on Congress to do something to help them. The dissatisfaction with the lack of success of the Clayton Act in preventing price discrimination, led to the passage in 1936 of the Robinson-Patman Act."

There appears to be many similarities in the retail market today as was noted by CBO for the period of the 20's and 30's. Then it was the large chain that threatened the small retailer; today it is the mega-retail discount chain.

Predatory Pricing and What Was Learned from the Majority and Dissenting Opinions in Wal-Mart's Victorious Appeal to the Arkansas Supreme Court

Chapter VI analyzed in some detail Wal-Mart's arguments to set aside the Chancery Court's decision against it. Wal-Mart believed that there was no rational basis for the Arkansas Court to have ruled against the company. Further, in the appeal, Wal-Mart believed the Arkansas Act was preempted by federal law by the Robinson-Patman Amendments to the Clayton Act which specifically addressed the weapon of predatory pricing by monopolies.

The discussions in Chapter V and Chapter VI do suggest that it would be appropriate for the Small Business Committees of the House of Representatives and the U.S. Senate to hold hearings on the growing power of the mega-retail discount chains.

The Court's concluding comment in the dissent is reproduced here:

"We would hold that the Appellant has failed to prove that the Chancellor used an improper legal standard with respect to the inference of intent to injure competitors and to destroy or substantially lessen competition. We also find that the Chancellor could have found an intent to injure competitors from the evidence in the record and particularly from the testimony of David Glass, President of Wal-Mart Stores, Inc. who used language such as aggressive,' to do whatever it takes,' kill the competition's momentum,' and war zones.' Appellant failed to establish that the Arkansas Act violates rights guaranteed by the Arkansas Constitution, Article 2, Section 2. Appellant also failed to establish that the Arkansas Act was preempted by federal law.28

The Supreme Court, despite a strongly worded dissenting opinion by three justices, reversed the Chancery Court's victory for American Drugs Inc. and dismissed the original plaintiff's case and awarded in favor of Wal-Mart, the Appellant.

In Chapter VI, the author provided great detail in the dissenting opinion because of references to the predatory pricing features of Robinson-Patman Act; particularly with respect to the several different approaches to calculating below cost sales on the "market basket" approach or the "single product" approach. The majority opinion in the Supreme Court reversal also acknowledged that, "Admittedly, there is point where competitive pricing ends and predatory pricing begins." Further, Justice Robert L. Brown's majority decision in favor of Wal-Mart also pointed out that the Eighth U.S. Circuit Court of Appeals had discussed the difficulty in distinguishing the two in the context of the Sherman Act; i.e. "Competitive pricing" vs. "Predatory pricing." Moreover, while a finding that a defendant has engaged in selling below cost, is not the equivalent of finding specific predatory intent; nevertheless, it could be a basis from which such intent might be inferred.

In the August 1994 House Small Business Committee Public Hearings and in Subsequent Congressional Sessions, the Committee Lashed out at the Mega-Discount Superstore for Hurting Small Businesses and Entire Communities with Predatory Pricing, Unfair Labor Practices and Market Saturation

In Joyce Barrett's article on August 11, 1994 in Women's Wear Daily she reported on the first Congressional probe of the retailing phenomenon that was changing local markets nationwide. The mega-stores were blamed for everything from crushing local competition to altering the product distribution chain.

As the largest retailer in the nation, according to Barrett, Wal-Mart Stores Inc. drew most of the criticism, although Representative John LaFalce (D., NY), Chairman of the House Small Business Committee said he had hoped the discussion would not target specific retailers. Wal-Mart's projected volume for this year was $85 billion.

Representative LaFalce said he aimed to explore three ways of protecting small business from the super-chains.

1. Increase publicity about expansion of the mega-stores.
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2. Curb federal money, such as industrial revenue bonds, that goes toward retail development.

3. Insure that federal antitrust and banking laws are tough enough and are enforced.

LaFalce acknowledged that the federal government can do little to affect the recent course of retailing, but said he was concerned that superstore development was coming at the expense of smaller merchants.

At the hearings, which were commented on in Chapter VII, there was a litany of complaints about the superstores. Thomas Muller, a Fairfax, VA, economist and the author of a report on the impact that three proposed Wal-Mart stores would have on northeastern Vermont communities, said Wal-Mart charged higher prices in communities where it has eliminated the competition. Also, Wal-Mart and other mega-stores don't increase the dollar volume of sales, but instead redistribute sales. Further he pointed out that the claim that Wal-Mart creates jobs also is wrong. Muller added that in communities with a Wal-Mart the result could be fewer retail jobs. He also said that full-time jobs in the mega-retail were often based on a 28-hour work week, instead of the usual 40 hours. He also observed that based on its current marketing strategy, Wal-Mart could open another 5,000 stores within the next 10 to 15 years. Muller further estimated:

"...that Wal-Mart had reached optimum penetration levels' in Arkansas, Mississippi and Oklahoma, and now appears to be targeting urban and rural areas in other states. The new Wal-Mart approach for areas close to saturation, as well as others, is to revamp the older stores as supercenters," Muller said. "These combine the general merchandise store with a full-line grocery store, using the checkout counters."31

Muller continued,

"The experience of Wal-Mart has been that these superstores have increased per-square-foot general merchandise sales. With its superstores Wal-Mart sales could easily double, even in states where current stores are close to saturation. In a few years, given that current trends will continue, one corporate entity may have a substantial share of all retail trade in the United States."32

The author recommends that the current Committees on Small Business in both the U.S. House of Representatives and the U.S. Senate continue to hold hearings on the applicability of such regulatory statutes as the Sherman, Clayton, Federal Trade Commission and Robinson-Patman Acts upon these mega-retail discount chains and their effect on the weakening condition of small retailers in the United States, due in part to the ever increasing power of the chains to procure the lowest of prices from manufacturers and suppliers.

While predatory pricing might have to be viewed differently in the federal area compared to state litigation, nevertheless the increasing power of the chains requires federal review in terms of applicable statutes and regulations designated to protect small business and to provide free market opportunities. Further, the opportunities of the large chains to secure "corporate welfare" in terms of financial assistance for building their huge stores should be re-examined by Congress, since many of the grants are basically part of federal funding.

An End to "Corporate Welfare" - Recommendations to Congress for Federal Legislation to Combat and Restrict "Big Box" Abuses

The following recommendations set forth in Chapter VIII, hopefully would restrict "Big Box" abuses by mega-retail discount chains, developers and redevelopment authorities operating under existing state redevelopment laws by taking away state and local tax giveaways and providing a vehicle for Congressional Hearings.

The idea is to attach strings to federal monies given states and localities: for example, such strings are often attached to highway monies. This would make sense here because these "Big Box" stores create additional burdens on federal highways as they are often built in areas accessible only by federal highway.

The legislation would say that highway money would be reduced to any state which allowed these stores to go up in any of the following circumstances:

(1) If the development received state or local tax incentives;

(2) If it was within x miles of a federal highway;

(3) If the developer/retailer did not pay the government for the full social costs of building such a store (not just for repairing highways more often, but also cleanup of air pollution) (a study to determine those costs should be required); or

(4) if a required "small business impact report" showed existing small businesses would be injured significantly.

Ideas for titles such as Small Business Survival Act; Retail Overdevelopment Act; Tax Financing Restraint Act (or any combination of these).

Further since the Internal Revenue Code is filled with provisions which aid, help or restrict the activities of certain industries, it is a natural place to consider curtailing the redevelopment agency, developers and "Big Box" abuses.

The idea might be to impose an excise or penalty tax on any state or local tax giveaways these "Big Boxes" wangle out of state and local government. The legislation possibly could apply only to retailers with an income over x billion dollars or a minimum of square foot. Our logic is this: The federal agencies and Congress are the only people who can stop the states and cities from cannibalizing each other as each gives away more and more in the form of tax breaks to win these mega-retail discount stores, only to rob their neighboring town or state of tax revenues (and jobs) from the existing retailers.

Only states or the federal government can step in to stop the current warfare; warfare which makes local governments more dependent on Washington D.C. No new jobs are created, and because the mega-retail chains pay their employees less and kill jobs at other retailers, they cause the federal government to receive less in income taxes. This should certainly interest Congress and the U.S. Treasury Department.

It is also obvious that there are incidental costs to the federal government for "Big Box" store development. They tend to expand near interstate highways, adding additional traffic which certainly costs the federal government more.

The mega-retail discount chains generally don't provide health insurance to employees, adding these people to the governments' burden. These chains are quite profitable, so an excise tax would not put them out of business.

Further, the environmentalists and preservationists should see the need to reduce the tax incentives for "Big Box" development. Finally, those in favor of reducing the federal deficit should be eager to embrace new sources of revenue.

Greg LeRoy, previously cited in Chapter VII, made it very clear that the state and federal governments have been wasting large sums on "corporate welfare" for enormously powerful and rich retail corporations. Whether it is a tax abatement or the right to retain sales tax revenues to pay for capital outlay or debt service; these are funds, which based upon earlier objectives, should have been applied in great part to rehabilitation of the "Main Streets" of the United States. Further, as Greg LeRoy pointed out, the grants help build structures which are often abandoned while the companies receiving the financial assistance move elsewhere.

The Need to Combat Urban Sprawl (The Work of the National Trust for Historic Preservation)

It is clear that the cities and towns of America, are gradually succumbing to urban sprawl. Moreover as described in many places in this study, the same type of sprawl is taking place in malls and strip centers away from the downtown areas. All of the abandonments of stores that were a delight to see ten years ago have taken place in great part due to the restless mobility of such competing giants as Kmart, Target, Wal-Mart and other mega-retail discount chains, as they feverishly move from area to area building larger and larger superboxes in a desire to kill off their competition. Soon the nation will appear to be scenes of desecrated malls looking like ravaged cemeteries, abandoned, looted, boarded up and loaded with graffiti.

Can better planning on national, state and local levels help with respect to zoning and involving the community and their citizenry?

The following long term strategy for combating sprawl may be found in the work of the National Trust for Historic Preservation released in 1994.33

"One of the best long term strategies for combating sprawl is to revitalize the downtown, the community's traditional center of commercial, cultural, and social activity. Making downtown "the place to be" helps to attract businesses, shoppers, and appropriate development to Main Street'."

"Sometimes a downtown's problems seem overwhelming to local citizens. By flooding the community with more commercial space than can reasonably be supported and by diluting the downtown's economic vitality, sprawl can add to those problems. Yet downtown's problems are not insurmountable. Rebuilding the historic commercial district's economic strength simply requires persistence, collaboration, and a clear vision of what you hope to achieve."

"By identifying the downtown's major problems, then breaking large tasks down into smaller, achievable steps that gradually bring about positive, incremental change, a community can restore the downtown's economic vitality and make downtown, an exciting place to shop, conduct business, dine, live, and visit."

A Successful Downtown Revitalization Program Will Usually Have These Characteristics

1. A clear focus on a historic or traditional commercial district (either a downtown or a neighborhood commercial district).

2. Comprehensive and coordinated design, promotion, organization and economic development activities.

3. Strong support from both public and private sectors.

4. Broad-based community involvement and support.

5. A strong historic preservation ethic and a commitment to preserve the district's historic commercial buildings.

6. Willingness to take risks and try new approaches.

7. Trained, professional staff, whose primary function is to coordinate the activities of committed volunteers.

8. An active and effective board of directors and committees.

9. An evolving track record of individual and overall successes in preservation-based commercial revitalization.

10. Ongoing contact, sharing information and affiliation with other local, state and national preservation-based commercial revitalization programs, through correspondence, memberships, volunteer service and conferences.34

The National Historic Preservation Trust Tells Communities, How Should You Get Started?

In their publication, the National Trust for Historic Preservation, pulls on successful strategies in combating Superstore sprawl and offers the following advice on methods communities can use:

"Publicize the issue. Talk with community leaders. Hold a community meeting. Put together a slide show illustrating the successes other communities have had in revitalizing their downtowns, and show this to civic groups, school classes, local businesses and others. Ask the local newspaper to write a series of articles about the downtown and its revitalizing efforts."

"Recruit participants. The downtown program must involve groups and individuals throughout the community in order to be successful. Main Street revitalization requires the cooperation and commitment of a broad-based coalition of public and private sector groups: Business; civic groups; local government; financial institutions; the chamber of commerce; consumers; and many others. It also involves mobilizing a large number of volunteers to implement activities."

"Form an organization. Sometimes an existing organization or institution can take on the downtown revitalization initiative. It is usually more effective, though, to create a new organization that focuses exclusively on the revitalization process and that is unhampered by an existing reputation or by the expectations and particular interest of existing members. The new organization should include broad-based community representation."

"Identify barriers to downtown development. Ultimately, it should be as easy for a new business to locate downtown as it is to locate out on the strip. Examine your community's planning and land-use policies, financial programs, building codes, and other tools to see if there are regulatory or financial incentives that encourage sprawl instead of downtown development. List other problems affecting the downtown as well."

"Develop a realistic, incremental work plan. Articulate what the community wants the downtown to achieve. Develop a written mission statement and three or four major goals. Then identify some high-priority, but achievable activities the organization can do to meet these goals. In the early years try to include highly visible physical improvements and promotional events. Remember that you can't tackle all the downtown's problems in one year. Some of the problems may take years to overcome. Take one step at a time."

"Measure your progress. Keep track of the amount of money invested in physical improvements and of the number of new jobs created and new businesses that open. Track the downtown's vacancy rate. Count the number of people who take part in promotional activities. Ask downtown businesses to let you know if their sales are increasing. Publicize the progress the downtown revitalization is achieving."

"Be persistent. Downtown revitalization doesn't happen overnight. It's a gradual, incremental process. As your organization succeeds in mobilizing resources to tackle small problems, it will strengthen its capacity to confront bigger challenges."35

Key Actions in Fighting Sprawl

The National Trust for Historic Preservation advises community groups as follows; "Don't let anyone tell you that sprawl is inevitable...The biggest enemy is a sense of hopelessness."36

Small businesses must stress the idea that fighting sprawl or rebuilding the "Main Street" is anti-competitive. The superstores spend a great deal of money to secure rezoning, win referenda and influence local decisions. Small business has to collectively make a decision to invest in its own future.

Key actions proposed by Beaumont which were taken from the Sierra Club Guide on this issue are as follows:37

"1. Obtain a copy of the developer's proposal and analyze it.

2. Find out if the proposed development complies with relevant federal, state and local laws.

3. Make a flow chart of the development review process and include time deadlines.

4. Think your objectives through carefully set priorities.

5. Organize a committee and delegate responsibility.

6. Develop a well-reasoned position on the proposed development and back up your position with careful research.

7. Develop grass-roots organizing and media strategies.

8. Generate letters to the editor and opinion pieces in the local paper early.

9. Meet with local officials and opinion leaders. Draw their attention to facts they need to know.

10. Turn out and speak out at public hearings.

11. Ask the city council to analyze the development's probable fiscal, economic, environmental, traffic and other impacts. Make sure long-term impacts are considered.

12. Circulate petitions.

13. Distribute similar fliers clearly summarizing your position and the reasons for it.

14. Raise money to pay for radio spots, newspaper ads, bumper stickers, and other ways of getting your message across.

15. Above all, build broad public support for your position. Work to reach different segments of the community, especially local business and civic leaders."

CONCLUSION

The author concludes this extensive review of the impact of the mega-retail discount chains on the economics and sociology of urban, suburban, "rurban" and rural areas with strong concern for the future of Young Americans. Where will they work? Where will they live? Will we live in an economy of hopelessness or one of opportunities and entrepreneurial growth? While intelligent government policy is creative; nevertheless, the spirit of entrepreneurship should be enacted into our enterprises, from a private as well as a public point of view.

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