Monday, October 4, 2010

The impact of Target in San Rafael

The proposed Target store at San Rafael was in the news last week as the San Rafael Chamber of Commerce postponed making a decision on whether or not to support the development.

This is a familiar big-box retail situation that has played out across the United States. Typically, the City often favors the development because it creates jobs and provides fiscal benefits from sales taxes. Other retailers and their representatives denounce the effect that the proposal will have on locally-owned independent businesses and the historic downtown and neighborhood stores. And the proponents claim that they will be providing a service that will compete mainly with other big box stores and will allow people to shop locally instead of having to drive to the big box stores and malls in other towns further away.

The Chamber plans to research other communities where Target stores have located. There are many examples where unlimited development of strip malls has killed downtown retail areas, but fewer where the impact of one store is clear cut. Target and Wal-Mart have plenty of experience in making their case in these situations.

A 135,000 sq.ft Target store like the one proposed in San Rafael would probably generate $40m-$50m in annual retail sales. The size of the retail spending market in central and southern Marin in the categories of goods that Target sells is approximately $1 Billion. Often, retail developers will cite growth in retail spending as demonstrating a need for new development. This isn’t the case in Marin, where population growth is less than one percent annually, and retail sales have been in decline as a result of the recession and the longer term growth of internet sales. The new Target’s $40m-$50m annual revenue would instead come from existing spending, which means on average the new store would capture 4%-5% of existing stores’ sales. This average figure represents a fairly minor sales decline that could be considered as being within the normal scope of competitive business. However, the distribution of impact will not be even, but will depend on (1) geography: the closer, the higher the impact, and (2) comparability: customers are more likely to switch from similar stores selling similar products; therefore niche, gourmet and specialty stores are less likely to notice an impact, but department stores and big box mass-market stores would take a larger hit.

Among the retailers in downtown San Rafael, many of the fashion boutiques and niche stores selling gifts and accessories wouldn’t compete directly with Target. The stores selling more generic items, like toys, sports goods, household goods, books, electronics and cds are in more danger of taking a sales hit from Target. And all businesses, including the eateries and health & beauty services that don’t directly compete with Target, will suffer if the new store reduces shopper traffic along Fourth Street.


NAO said...

At what cost? Has anyone bothered to look inside CVS, WalGreen & RiteAid? After doing so, how about looking at the inventory inside Safeway. What we are talking about is a mad dash to outdo existing businesses already present in the community. But consider the effects of having big boxes on most communities across the country. These big stores do not (did not) save money and they do not bring money to the community. They remove money from the community. They put people out of work; they drive down wages; they destroy small businesses and they ultimately cost the community money in terms of services. Members of the community need to look beyond their noses. Short term advantages do not outweigh long term losses.

Nigel said...

*Update* In a statement released Friday, the San Rafael Chamber announced its support for the new Target:
"The Chamber supports overall economic vitality for San Rafael. This project will contribute to
the greater economic health of the area, provide jobs for local workers, and generate
significant tax revenue for San Rafael," stated Rick Wells, Chamber President and CEO. It is
estimated that the store will generate approximately $675,000 per year in tax revenue."