Monday, January 18, 2010

Ike’s Grand Idea for Wheaton

By Holly Olson.

At first blush, the thought of a Costco in Wheaton might be exciting. No more trekking out to Beltsville or Gaithersburg to stock up on bulk goods at low, low prices! But before you jump on the “Let’s Bring Costco to Wheaton” bandwagon, I want to share with you how Bigbox stores like Costco and Wal-Mart can affect local economies. What a bore, you might say. But this type of economic development has huge implications for Wheaton, so community members that care about the future of Wheaton should listen up.

The story goes something like this: Bigbox retailer comes in. Everyone is excited because the Bigbox brings convenience. People from all over the County come to Wheaton to shop at the Bigbox — and then they leave Wheaton after they finish shopping at the Bigbox. No going to the small retailers on the triangle, no going to any of the local restaurants. Get in and Get OUT. The local retailers continue to lose business, the restaurants don’t see any additional customers, traffic on University and Veirs Mill becomes exponentially worse, subsidies that could have gone to support local business owners go to the Mall instead, and the County gets a bunch of low-paying jobs for workers that don’t even live in the County — thank you very much.

With that said, let’s take a look at two major questions regarding this project:

1. How does adding another Bigbox impact the local business community?

2. Is this the best use of taxpayer money to create economic development in Wheaton?

As interest in developing local economies has increased, so has the research on how Bigbox stores affect them. While you can always find a study to support your point of view, there is a growing body of research suggesting that Bigboxes are not the economic panacea that they are made out to be.

In a December 2009 a study from the Center for Urban Research and Learning at Loyola University Chicago, by Davis et al called, “The Impact of an Urban Wal-Mart Store on Area Businesses: An Evaluation of One Chicago Neighborhood’s Experience,” looked at local employment, wages and sales in an inner city area after Wal-Mart opened. It surveyed retail establishments within a 4 mile radius of the Wal-Mart location. The study concluded that the closer a retail establishment was to Wal-Mart, the greater the likelihood that the establishment would go out of business. For each mile out, the probability of closing dropped by 6 percent. (It should be noted that not all types of retail establishments were affected equally.) When employment was examined, the study found that the addition of Wal-Mart did not lead to a net gain in jobs. Rather, any employment gains created by Wal-Mart were offset by employment losses from the surrounding businesses. Finally, the study looked at the impact of Wal-Mart on retail sales by zip code. In Wal-Mart’s own zip code, there was no evidence of an increase in sales. When the 18 months before and after Wal-Mart opened were examined, the data showed a decline in sales.

In a 2007 discussion paper, “The Effect of Wal-Mart on Local Labor Markets,” Neumark, Zhang, and Ciccarella reported in their findings that Wal-Mart resulted in a decline of non-Wal-Mart employment. They concluded that each new Wal-Mart store reduced county-level employment by about 150 workers, or 1 Wal-Mart worker replaced 1.4 non-Wal-Mart retail workers.

We can also examine the effect of Bigbox stores in terms of how much economic activity they generate. Most research has concluded that locally owned businesses generate as much as two to three times the local economic activity that chains do. In a joint study by the groups Urban Conservancy & Civic Economics, “Thinking Outside the Box: a Report on Independent Merchants and the New Orleans Economy,” they examined two models for returning commercial services to New Orleans. The suburban model included large format retail on large parcels, anchored by Bigbox retailers and augmented with a mix of medium and smaller stores. The urban model involved the restoration of urban commercial corridors. Civic Economics projected that if Orleans Parish customers shifted 10 percent of their economic activity from chains to local merchants, it would result in $60 million dollars being re-circulated into the local economy that otherwise would have left the area. At the metropolitan level, the same shift would result in an additional $235 million into the local economy. The study also showed that local retailers generate twice the annual sales, re-circulate revenue at twice the rate, and have four times the economic impact on a square foot basis when compared to leading chain competitors. Their conclusion was that in order to stimulate growth, the city should maximize local businesses in new and revitalized developments.

My second question deals with whether the County is spending its $4 million dollars wisely, particularly in relation to other projects that could be funded in Wheaton. This question is rather difficult to answer, because the County lacks an economic development plan for Wheaton. If the County did have a plan, it would be easy to assess how the $4 million dollars should be used to further Wheaton economic goals and objectives. Without a plan, the County risks spending money on projects that do not represent the best use.

If we use the Sector Plan goals as a paradigm for measuring effectiveness, then the project certainly fails. In no way does a Costco support smart growth principles, transit-oriented development, or a more walkable urban district. And just to clarify, the mall is not the urban district.

If we assess the $ 4 million dollar subsidy in terms of job growth, the project also will likely fail. As indicated above, research has shown the potential for zero net growth in jobs, and in fact may lead to a slight decline in employment. If this is the case, then MoCo will suffer from a double whammy. Not only will the Costco jobs go to those outside the county (because few people can afford to live in MoCo on a Costco salary), but we will lose local business owners that are likely to be residents of the County.

What this deal smells of is a County Executive desperate to show that he has accomplished something in Wheaton. But I for one had hoped for something a bit better than a Bigbox retailer. Wheaton deserves better, and so do its small businesses.

Holly Olson is a former Chair of the Wheaton Redevelopment Advisory Committee.