by Gary H. London

The big-box reductionists are at it again! At a moment in our city’s fiscal history where every dollar of revenue kept or added means something to our strapped city treasury, your San Diego City Council majority has voted to lay an additional layer of scrutiny on big-box retailers like Wal-Mart Stores Inc., should they propose to add or expand a store in our community.

The City Council tentatively approved an ordinance to require developers to conduct an economic and community impact study before a “superstore” could be built in San Diego.

The City Council voted 5-3 in favor of the so-called “Ordinance to Protect Small and Neighborhood Businesses.”

The ordinance, which was proposed by City Councilman Todd Gloria, would require an analysis of the economic impact superstores would have on neighborhoods and communities before they can be built.

It will affect retailers larger than 90,000 square feet that generate more than 10 percent of revenues from groceries. We have been down this road before. In 2007, the City Council voted to approve an ordinance banning superstores, but the decision was later vetoed by Mayor Jerry Sanders.

Resembles Pac-Man

So just what is going on?

Well, the public issue is that Wal-Mart is a “cannibalizer.” The argument is that they are like the Pac-Man video game, eating the retail sales from all that surrounds them wherever they are built or expanded, sucking the life out of existing retailers, shopping districts, small businesses and the like that cannot compete with Wal-Mart at their bulk buying levels.

Actually, this is nonsense.

My firm has performed at least a dozen studies regarding Wal-Mart projects throughout Southern California. We have never found even one instance where Wal-Mart, in and by itself, cannibalized the competition. Put another way, we have never found that Wal-Mart’s success was owed to its ability to redirect sales from other retailers to it.

In fact, just the opposite occurs. The presence of Wal-Mart invariably attracts retail dollars that had previously escaped the taxable confines of the municipality they were in, adding more taxable dollars to the city’s coffers!

Detractors have for years raised the concern that the presence of Wal-Mart, or Target, or a 99 Cents Only Store, impacts the sales of other retailers. Mostly this is urban legend. To the extent that it can be argued, it is explained by the greater dynamics of retailing: Where consumers are constantly shifting their tastes and spending patterns to meet their needs. It is up to the other retailers and shopkeepers to discover a way to target consumers. Some will fail.

City Council Behind the Times

But the preservation of vestigial retailers or shopping districts should not be within the purview of a council.

The irony is that the City Council is so far behind the times and trending of retail real estate that its voting majority fails to read the headlines.

In an effort to break into densely populated urban areas, Wal-Mart has been testing smaller stores called Marketside, a grocery format that averages 15,000 square feet. It has another format offering a mix of fresh food, pharmacy, beauty, stationery and pet supplies that is about 42,000 square feet. Yet another new Wal-Mart concept is a 30,000-square-foot store.

Wal-Mart’s rival, Target Corp., has opened stores as small as 60,000 square feet.

Yes, the latest trend in big boxes is small boxes!

So what is really going on? I hate to be a cynic, but this appears to be about the grocery workers labor union’s angst over the fact that Wal-Mart doesn’t participate in the union system, paying lower wages and benefits.

Wal-Mart is probably guilty as charged. The problem is they seem to fill their job quotas. No one who works there is forced to work there.

This is a touchy issue for those of us who understand the historical importance of the labor movement in America.

But one can’t help but ask about labor union relevance at a time when, rather than employers taking advantage of workers, these are the employers that are actually opening up jobs for workers. This isn’t an argument over sweatshop jobs or abuse of the downtrodden.

These projects might not even exist if the cost of labor increased. There is just not that much revenue elasticity in these business models to support higher operational costs. In other words, if the anti-big-box ordinance becomes local law, the effect might very well be a drop in proposals to develop these projects.

Then, everyone loses — consumers don’t get the new retailer, jobs are not added and the city collects no taxes.

Analysis Equals More Restrictions

Now some readers would remind me that I am taking this whole issue too far. After all, the ordinance is merely a requirement to conduct an analysis of the potential impacts. I wish I could agree that this is all exaggeration, but it probably isn’t. More analysis is usually the pretext to more rules and restrictions, which is where the authors of the ordinance likely want to go to satisfy the unions, who matter to them as campaign contributors.

Since the City Council is engaged in the issue, perhaps they ought to be focused on ensuring they get the best big boxes possible. Maybe the City Council ought to focus on some ideas that can matter in the retailing world such as:

• Focus on better design. I think big boxes are mostly ugly. Put them through a higher level of design scrutiny to get better architectural outcomes so that they blend into their neighborhoods.

• Focus on old shopping centers. There is a large array of outdated shopping centers that probably cannot be shopping centers again. Try to create some incentive legislation to encourage the new small boxes to help to revive these old centers. Bring in more flexibility. Streamline the entitlement process.

• Focus on redevelopment districts. A better use of City Council time would be to add some redevelopment districts, particularly in the old suburbs. Get some more tax increment money to work to revive old retail districts.

What we have here is a battle in a war that shouldn’t be fought. This is yet another great example of the present City Council’s lack of focus over what matters to the citizens of San Diego — getting their fiscal house in order. This is a side issue of their own making — or the making of their backers — and it is simply not appreciated by the vast, vast majority of citizens of this city. Certainly not at this time, probably not at any time.

Instead of being big-box reductionists, they should be fiscal reductionists. Take a note.