Retail store overabundance blights, strains New York’s regions

Over-Retailed

Posted by & filed under Case Studies, Our Blog Posts, State.

(December 14, 2011) by Evan Lowenstein, Consultant

Between 1990 and 2005, the amount of retail space per capita in the U.S. doubled, from 19 to 38 square feet. In contrast, European countries generally have less than 10 square feet per person… By flooding markets with an excess of shopping space, chain retailers have not only caused a drop in customer traffic in downtowns and other areas home to independent businesses, but have increasingly cannibalized sales at older shopping centers and big-box stores, thousands of which are now vacant.

Institute for Local Self Reliance (2008) 

Just outside the Rochester city limit in the inner ring suburb of Irondequoit is Medley Center, formerly the Irondequoit Mall. It opened in 1990 with 900,000 square feet of retail space. Four years later, the Town of Greece’s Towne Mall and the Long Ridge Mall merged to form the Greece Ridge Mall. This mall, at 1,600,000 square feet, was at that time the second largest mall in the eastern United States. This new behemoth joined other regional malls: the Eastview Mall came on line in exurban Victor in adjacent Ontario County in 1971, and the 1,100,000 square-foot Marketplace Mall opened in the suburb of Henrietta in 1982. Eastview was moribund at the time the Irondequoit Mall opened, having been outperformed by the other malls. But in the 1990s, Eastview stormed back, and today, at 1,300,000 feet is the trendy “lifestyle center” of the region. Medley Center today is mostly vacant, despite new ownership. In fact, the new owner is being sued by the Town of Irondequoit for failing to make a $750,000 payment as part of a Payment In Lieu Of Tax (PILOT) agreement with the Town. Over four decades, the region’s aggregate enclosed mall square footage, almost entirely made up of chain/franchise establishments, has more than tripled while the population has increased only nine percent.

On top of all these malls came the big boxes, despite relatively flat population growth and a 20% plummet of the region’s inflation adjusted median family income over the last four decades. There are now 15 Walmarts in the region and seven Home Depots, and stores such as Target and Kohl’s have recently arrived. A Super Walmart in the rural Town of Sweden includes a full grocery; the independent grocer in the adjacent Village of Brockport closed quickly thereafter, resulting in 60 layoffs.  Clusters of big boxes and chain retailers have also sprung up in new greenfield retail plazas like the Towne Center at Webster, a 92-acre, 800,000 square-foot complex. The Towne Center—not to be confused with the real town center, the Village of Webster—was marketed by its developer as a place with “a warm atmosphere, reminiscent of small-town America.” It opened in 2004 less than a ten-minute drive from the most likely mortally wounded Medley Center.

But these big boxes are not just predators–they are prey as well. The Lowe’s home improvement superstore in the Towne Center at Batavia (same developer as Towne Center Webster and across the road from a Home Depot) was just shuttered by corporate because it “underperformed.” Ninety people lost their jobs.

Despite the flood of new retail stores across New York’s ten regions, between 2007 and 2010 only the New York City region gained more retail jobs than it lost. Yet new retail just keeps coming at same time protracted economic recession, demographic shifts,  rapid rise of internet shopping, and remarkable market oversaturation suggest less retail development, not more.

So why is this over-development happening?

Flawed philosophy, policy and practice creates retail oversupply. Persisting at every level of government and business is the entrenched belief that more development, despite population and demographic trends, is good for governments and taxpayers. This belief is so strong that chain retailers often enjoy hefty subsidies from governments.  For example, in 2007, Lowe’s superstores in Oswego and Cicero (a Syracuse exurb) received $3.6 million in Empire Zone tax breaks. Bass Pro Shops was offered an astonishing $35 million in public subsidies to anchor Buffalo’s revitalized waterfront. (Remarkably, the corporation pulled out before ground was broken.)

Also persisting is the belief that chain retail creates revenue bonanzas for local governments and stable tax rates for residents.  A 1996 study of seven Iowa counties by planning researcher and writer Elizabeth Humstone showed that 84% of big box store revenue came at the expense of existing businesses in their regions.  A study done for St. Albans, Vermont revealed that for every dollar of tax revenue generated by an 110,000 square-foot chain store there would be $2.50 in loss of tax revenue and costs to government. And a 2002 review of Barnstable, Massachusetts showed that big box stores cost their local governments 30% more to provide infrastructure and services than traditional downtown and neighborhood districts. Strip malls cost 59% more.

At the same time municipalities are working to attract more chain retail and/or do little to manage it, the companies themselves are moving into already over-saturated regions. This is because capitalism is based on competition for market share; retailers that move into slow/no/negative growth areas are working expressly to wrest business away from the existing retail. In essence, over-development of retail is simply a tenet of capitalism, and unlikely to change. (The Rochester region’s 33rd Tim Hortons coffee and doughnut shop opened last week.)

What can and must change, though, is what governments do to mitigate the damaging effects this kind of capitalism can have on communities.

The multitude of individual municipalities in this home rule state enjoy primary land use authority, but also are on their own to generate property and sales tax revenue for schools, services, and infrastructure. Also, many suburban and rural municipalities are overwhelmingly zoned for single-family residential development, which tends to generate more costs to local government than revenue. The Rochester suburb of Penfield learned through a fiscal impact study that homes in the Penfield Central School District would have to be close to $300,000 for the local government to break even on them. Since few of the  houses in Penfield are this expensive, other sources of revenue must exist in the town to offset the deficits from residential development.  Predictably, local governments chase retail development, seeing benefits but not costs, and to the point where they often actually give away tax revenue in order to get it someday.  And on top of this, in the absence of a regional approach a municipality can’t do much or anything to keep a neighboring municipality’s development from squashing its own.

Today, most municipalities’ land use regulations and zoning codes do little or nothing to right-size the amount and size of retail establishments, or steer it to the right locations. More communities are regulating the design of retail but without better managing number, size and location, those communities are concealing the retail problem underneath some columns or clock towers. What’s more, there is little inter-municipal or regional land use planning in New York, meaning that regions together are doing nothing to right-size their collective retail. Much of this new retail is in auto-dependent outer suburban and exurban areas, meaning not only high vacancy among the older stores, but also extensions of infrastructure and costs of maintaining that new infrastructure—plus the old—with virtually no more taxpayers and consumers.  Unchecked by sound smart-growth land use and development policy, retailers will continue overdeveloping our communities.

So how do we right-size retail in New York?

Inter-municipal and regional planning, to include tax revenue sharing, is essential to halting  over-development. Tax sharing agreements make regions more cooperative and less competitive; development can be steered to the right places within a region.  Rural communities wouldn’t need to seek commercial and industrial development on greenfields in order to generate revenue (which it often wouldn’t anyway).

More communities are employing codes that regulate the design, size, location, and even number of formula/chain stores. Some have enacted a store size cap so retail square footage can be held to sensible levels: the Town of Skaneateles in 1994 enacted an ordinance that prohibits shopping centers larger than 45,000 square feet (a Walmart Supercenter by comparison is about 185,000-200,000 square feet). In addition, retail can be steered to higher density nodes served by transit, to include adaptive reuse of existing buildings.  But again, if these rules aren’t employed regionally, stores that don’t meet one municipality’s regulations will likely meet a neighboring one’s, meaning winners and losers within the same region from the development, and at best a zero-sum-game for the region.

Economic impact review is another tool for communities seeking to right-size their regional retail. The entire state of Vermont had the foresight in 1970–in response to I-89 and I-91 laid out across the state–to require local governments and regional commissions to conduct comprehensive community impact studies for major development. The criteria for these studies include impact on land, water and air; on infrastructure, services and schools; and on energy and aesthetics. This policy has resulted in retail stores often being 50,000 square feet in an existing building rather than 100,000 to 200,000 square feet on peripheral farmland or forest. Also, more communities are commissioning fiscal impact analysis as part of the development review process, to assess effects on the public coffers.  Albemarle County, Virginia even has a fiscal impact planner on the county planning staff. When St. Albans, Vermont conducted the study mentioned above, they found that the costs of a large store would outweigh the benefits.

Another right-sizing method is a regional retail study. In 2000 the Northeast Ohio Area-wide Coordinating Agency, alarmed at the amount of vacant retail throughout the region, commissioned the Northeast Ohio Regional Retail Analysis. The study revealed ominous but important results, such as the fact that 10 million square feet of retail space in the seven-county region was vacant, at the same time 10.1 million square feet had been recently proposed or constructed.  The study also revealed that an unbelievable 77 square miles of the region was zoned for retail development, paving the way for even more saturation of the market. The study also determined that while the suburban population of Cuyahoga County declined by 9% over three decades, the square footage of retail space shot up 91%.

Doing away with the jaw-dropping tax breaks and subsidies granted to large retail chains and implementing existing state policy like the recently passed Public Infrastructure Policy Act are additional changes in practice that can prevent retail over-development. Buffalo ultimately didn’t get a Bass Pro on its waterfront in exchange for $35 million in subsidies, but there are many communities that have rolled and are considering rolling out carpets of public funds to attract big box stores in sprawl inducing locations in exchange for their perceived benefits.

 

Bigger and more retail establishments aren’t necessarily better for the consumer and have shown to be inefficient economic development tools.  Our over-retailed regions with their shuttered stores of every size and type across the state, from Mom and Pops to mega-malls, are stark evidence of this.  To actualize the benefits of retail development, governments and regions must first recognize the problems—and ironies—of the ways they allow retail now. Then they must take action in the form of regional land use and development planning, and employ as many of the other prescriptions above as they can. For the sake of our economies and communities, the time to rethink our retail is now.

 

3 Responses to “Retail store overabundance blights, strains New York’s regions”

  1. Phil Myrick

    In 2007, over 46 square feet per capita of retail existed in the United States, compared to 3.3 square feet in Sweden and 13 in Canada. Even after the closing of thousands of retail stores in 2009 and 2010, total retail is still far in excess of projected demand. For downtowns, this is a stark statistic. In contrast to the old model wherein retail was the primary driver of downtown districts, in the new model retail is a more modest ingredient in a recipe in which downtowns are differentiated by more varied and vibrant experiences. In other words, the creation of successful downtowns and districts is not something that the private or public sector can achieve on its own using past formulas – it now depends on an intricate relationship between sectors, with a process to build avid interest among residents and future visitors, including shoppers, but especially those looking for a more unique mix of uses and experiences.