Big Box Stores

Just What Shoppers Want or Just Plain Evil?

May, 2011

The critics’ story is familiar: Giant stores move into an American community and destroy its small businesses, local values and sense of place.

The same story is being told now in Hawaii, as shoppers abandon longtime neighborhood businesses to buy at the big-box stores owned by outside corporations.

The truth is that this retail trend has been occurring in Hawaii for almost a century and the outcome is more complicated than this simplified tale suggests.

“Success depends on the whim of the consumer,” says Carol Pregill, executive director of the Retail Merchants Association of Hawaii. “Stores show up, are great for a while, then they disappear.”

Shoppers always like extra options, Pregill says, and whether you like them or not, the big boxes have brought “excitement” into Hawaii’s retail market.

Big boxes often present a difficult choice for local shoppers: supporting Island businesses vs. saving money. The state government has not acted against big boxes, but there has been action and concern at the local level:

• Kauai County Council has banned “super-stores”;

• Maui County Council had considered a similar proposal but it’s on the back burner for now;

• On Oahu, some Kailua residents tried to stop a Target store there, but the landowner has signed a lease to move the project forward.

Back in 2003, state legislators asked the Legislative Reference Bureau to study the impact of big retailers on small and medium businesses in Hawaii. Researcher Peter G. Pan took on the study, largely using data from the state Department of Business, Economic Development and Tourism.

It was clear that the arrival of Costco, Home Depot and Walmart coincided with the decline of smaller, independent retailers. For instance, after Barnes & Noble and Borders came to Hawaii, the Honolulu Book Shops chain folded.

But was correlation causation?

After studying the issue, Pan was not sure.

“This is a demanding if not impossible task,” he reported. “Businesses close for a host of reasons aside from competition from big boxes.” Such reasons range from land, inventory and labor costs to family decisions, leasing costs, insurance and more.

“Even if the DBEDT could identify small and medium locally owned retailers that claimed big-box competition caused them to close down, there is no reason to guarantee those claims were true.”

From an overall state economic standpoint, DBEDT said, the impact of big boxes is minimal, with consumers shifting spending from one place to another but not increasing or decreasing it dramatically. “The winner in this new retailing era would, thus far, appear to be the consumer.”

More recently, DBEDT analysts considered taking a fresh look at this issue but decided it was a nearly impossible assignment.

“From our point of view,” says analyst Eugene Tien, “the (total) of state income is fixed. If you spend at this store, you will not spend at another. That means to some extent the big-box stores will force out the smaller ones, but it is hard to quantify.”

Some at DBEDT wondered if the decline in small, individual stores might be more associated with generational change, shifting priorities and the fact that many established locations are worth more as real estate than as retail operations.

“There is disagreement among economists about whether a small shop went out of business just because Sports Authority or Walmart was there,” says one DBEDT official. “Just to say so many mom and pops have gone away since the big boxes came in is not enough to (persuade) our economists.”

A 2010 study commissioned by Sarasota County in Florida was not so equivocal. The city wanted to know the impact of big boxes on property taxes, and J. Patrick Whalen and Joseph Minicozzi of Public Interest Projects (a group that promotes, among other things, “smart growth”) concluded that dense, mixed-use urban development generates much more property tax revenue per acre than big boxes or isolated shopping malls.

“What is most surprising to me is that it’s taken planners so long to ask such questions and begin looking at the data in this way,” says Peter Katz, director of urban planning for Sarasota.

A 2007 report by Elena G. Irwin and Jill Clark of Ohio State University, published in the Journal of Regional Analysis and Policy, looked at the many other studies of big boxes around the nation. They said these various other reports concluded:

• Big boxes force some existing retailers out of business.

• Consumers save a lot of money when grocery superstores open in their community. Competition from the superstore drives down prices at other grocery stores, so all local households – not just those who shop at the superstore – save an average of 25 percent in food expenditures.

• Retail wages at the county level decline by about 7.5 percent as a result of the opening of a Walmart store.

• Higher infrastructure costs occur due to traffic congestion and other factors.

The threat of bigger stores is old news for the Mainland and Hawaii. From the time the S.H. Kress Department Store opened in Hilo in 1932, local people have worried that big outside retailers would destroy our Island economy and bankrupt countless mom and pops. The same arguments were heard when Sears, Longs and Safeway first entered the market. In each case, they changed the retail landscape and pushed a few stores over the edge, always because local customers wanted to shop at the new stores.

When Ala Moana Center opened after statehood, the downtown Honolulu shopping district centered around Fort Street slumped. Who would go into a local dress shop when there was a huge Sears nearby, with long hours and plenty of free parking? Many people see big-box stores as simply another turn of the wheel in the hyper-competitive world of retail sales.

Kauai County councilwoman JoAnn Yukimura, who led the successful effort to ban superstores there, recently attended a conference in Florida at which researchers Whalen and Minicozzi spoke.

“They would have put our small businesses out of business,” Yukimura tells Hawaii Business. “There was also a question of scale. We have a four-story height limit on buildings, but the square footage still would have been immense. It just didn’t fit with our community.”

Maui County Council has considered an ordinance similar to the Kauai ban. Riki Hokama, then serving as Maui Council’s chair, says he introduced the legislation at the request of constituents. The proposal would forbid stores of greater than 90,000 square feet of retail space if they either stocked more than 25,000 different products or devoted more than 20,000 square feet to groceries. That’s language similar to other anti-big box proposals in Hawaii and on the Mainland.

While the issue remains alive, it is not at the top of the Council’s agenda now, Hokama says, in part because of the weak economy.

“With the bad economy right now, everybody is looking for a bargain,” Hokama says. “I hope we will still see value and support our local businesses, but people have to make tough choices.”

A group called Save Maui Now is circulating a petition that says, “These stores are an economic disaster most places, but in a place like Maui, they are especially destructive to the economy, environment, infrastructure, and island way of life that makes Maui the paradise it is.”

Hokama understands the dilemma of saving money vs. buying local. After all, he explains, he favors Maui-brand Roselani ice cream, but often picks it up at his local Big Box.

The Iwilei area of Honolulu, once solely an industrial and warehousing district, is now home to the largest concentration of adjacent big-box stores in Hawaii. It’s also home to a series of small businesses – almost all of them restaurants and fast-food outlets – that feed off the traffic that big boxes attract.

 

Survivors and Feeders

While big-box stores have killed some local competitors, others have survived.

Locally owned City Mill and Hardware Hawaii stores, for instance, have held their own despite mega-competitors such as Lowe’s and Home Depot.

Big boxes also sometimes act as magnets for small retailers who cluster around the mega-stores and feed off the traffic they generate. An entire retail neighborhood grew up around Costco after it opened in Salt Lake (now the site of a Target store). The same thing happened when Costco moved to Iwilei, where the satellites include Hawaiian Furniture and Lamp Co. and the fast-food restaurants Max’s of Manila, Quiznos Sub and L&L Hawaiian Barbecue.

“It’s a symbiotic relationship,” says Mike Manning, who has been with Costco for 19 years and was eating lunch at L&L recently. “L&L shops at Costco, so it works for everybody. Small mom-and-pop markets do the vast majority of their shopping at Costco, so it seems to benefit everyone in the community.”

 

Targeted Suburb

Old-timers in Kailua still call it Holiday Mart. But the all-in-one department/grocery store with its eccentric mix of Japanese, Hawaiian and standard merchandise, most recently called Don Quijote, is no more.

The Japanese owners sold out to Mainland giant Target, which intends to open a 130,000-square-foot store – somewhat smaller than other Targets in the Islands – by the summer of 2012.

The prospect delights many residents and riles others, who fear their once-sleepy beachside community is about to be further upsized and over-retailed out of its identity.

“What Target is doing, with the complicity of (landowner) Kaneohe Ranch, is planning a store that is much larger than what the community itself needs,” says Mollie Foti, a longtime resident and a leader of the Keep It Kailua group.

Various planning initiatives, including a sustainable communities plan for Windward Oahu (though never formally adopted by the City Council) designated Kailua as a residential, small-scale community. That plan, and a follow-on plan sponsored by Kaneohe Ranch, specifically rejected big boxes, Foti says.

“But Kaneohe Ranch turned around and spit on their own plan,” she said.

All of this frustrates Mitch D’Olier, CEO of Kaneohe Ranch. “I understand the concerns,” D’Olier says, “but this will not be much different from (Don Quijote).”

The Don Quijote outlet was a chain department store with a 90,000-square-foot footprint and outside ownership, in this case from Japan, D’Olier notes. The owners were uninterested in extending their lease or buying the land, and the run-down property has had few improvements in recent years. It is time for a change, he says.

Target promises to pump $40 million into its store, including at least $1 million in traffic improvements to Hahani Street. Hundreds of trees will be planted, the parking lot rebuilt with a permeable membrane that will allow groundwater to recirculate, and the architectural design will focus on Kailua’s identity.

In addition, Target has already given money to many causes in the local community, including a recent grant of about $200,000 to help build a new library at Blanche Pope Elementary School in Waimanalo.

In contrast, D’Olier says, the owners of Don Quijote gave virtually nothing back to the community.

What about Target’s impact on surrounding smaller retailers?

“Target will be a better neighbor for small business than someone like Costco,” he says. “It will cause more cross-shopping. They are as much like a Macy’s or Sears as they are like the big-box guys. For businesses in Kailua, it is way better to have Target in Kailua than far away.”

But Foti and other critics say their concern is not specifically about protecting small local businesses. Rather, it is in keeping the personality of Kailua as a residential community. Target and stores like it will draw traffic from throughout the Windward side, putting more congestion into an already congested town.

“With a store that large, it has to draw traffic from Kaneohe, Waimanalo and Hawaii Kai,” Foti says. “Our streets are impossible already. They are trying to put a size-11 foot into a size-9 shoe.”

Sarah Bakken, the Arizona-based manager of communications for Target, says her company has gone out of its way to respond to community concerns. That’s one reason the company downsized the Kailua store from original plans. She also says much of the additional space will go toward enclosing a loading dock as a consideration to neighboring apartments.

Bakken acknowledges Target’s target audience goes beyond Kailua. “We are looking at surrounding communities to support our store.” But Don Quijote did precisely the same thing, she says.

“It’s the same market.”

Drawing shows the planned Target store in Kailua.

 

What is a “BIG BOX?”

Big boxes are generally considered to be large, industrial-style buildings or stores of 20,000 square feet to 200,000 square feet.

Within that definition, the state Department of Business, Economic Development and Tourism offers at least four categories:

Category killers: specialty stores offering a variety of goods in a particular category, such as Sports Authority, Office Depot or Toys ‘R’ Us.

Discount department stores: stores such as Walmart that offer a wide variety of merchandise at low prices and operate at a high sales volume.

Outlet stores: where manufacturers and department stores offer discounted items, such as at Oahu’s Waikele Premium Outlets.

Warehouse clubs: Membership operations such as Costco and Sam’s Club, which offer a wide variety of discounted items.

There are other retailers that are technically not big boxes but still dominate their markets. These include chains such as McDonald’s or 7-Eleven, in which the large number of individual stores make up for the small size of each.

 

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Author:

Jerry Burris