Exposing the Big-Box Swindle

Date: 9 Nov 2006 | posted in: Retail | 0 Facebooktwitterredditmail

The following interview appeared in Bookselling This Week.

BTW: In Big Box Swindle, you note that, “to a scandalous degree,” big box retailers are a product of public policy and that government policy fuels corporate retail expansion. How did this happen, and what can be done to change government policy?

Stacy Mitchell: The first thing we need to do is expose the injustices. Most people are unaware of these rigged policies. I titled this chapter of the book “Uncle Sam’s Invisible Hand,” because the government’s role in chain store proliferation is very much in the shadows. Every politician in this country talks about the importance of small business. We need to expose the point at which rhetoric diverges from policy.

One of the most significant ways government favors chains is through development subsidies. Cities provide hundreds of millions of dollars worth of tax breaks and incentives each year to underwrite the construction of chain stores. Changing Hands Bookstore in Tempe, Arizona, for instance, has to compete against shopping centers like Tempe Marketplace and the Chandler Fashion Center, both of which are home to a Barnes & Noble and both of which received over $40 million in public subsidies.

Another way that the chains get a leg up is through tax regulations that undercut independent businesses. Booksellers are very familiar with the unfair advantage given to online retailers with regard to sales tax. Many may not know that about half of the states have a loophole that allows multi-state retailers — but not local retailers — to escape paying their corporate income taxes. This loophole is so heavily utilized by the chains that tax experts have nicknamed it the “Geoffrey Loophole,” after the Toys R Us mascot, Geoffrey the Giraffe.

We also need to continue to present elected officials with the studies that show that chain stores and shopping centers do far more harm to the local economy than good. Many of the subsidies and tax advantages are driven by a mistaken belief that corporate retail development will increase employment and tax revenue. Empirical studies show otherwise.

One of the most important things independent booksellers can do is to talk to their elected officials. Local business owners often underestimate the influence they have. Talk to your state lawmakers about legislation to prevent TIF (tax increment financing) from being used to underwrite retail development and about adopting combined reporting to close the Geoffrey Loophole.

It’s also crucial to organize an independent business alliance in your community that can begin to develop some political clout. For too long, most business organizations in this country have claimed to speak for both large and small businesses while pushing a big business agenda. Independent retailers need to develop an independent political voice.

BTW: How do you respond to those who contend that the Wal-Marts of the world are merely successful examples of free market enterprise?

SM: I start by pointing out that Wal-Mart and other chains have been aided and abetted by government policy. It’s not a level playing field.

Then I note that the chains impose a variety of hidden costs on society — costs that do not show up on their price tags. A number of states, for example, have disclosed that taxpayers are spending a fortune every year providing Medicaid and other assistance to underpaid employees of Wal-Mart, Target, and other chains. Meanwhile, the number of jobs that pay a middle class income is on the decline thanks to the big boxes, which are driving manufacturing jobs overseas and decimating small businesses (not just retailers, but, as I document in Big-Box Swindle, the local banks, small manufacturers, and other enterprises that depend on independent stores). All of the extra miles we are now driving for our daily errands thanks to the sprawling boxes — the number of road miles the average household logs for shopping has shot up more 40 percent since 1990 — entail a significant cost to the environment, in terms of air pollution and global warming, and to human health. We might also count the public cost of the dark malls, empty shopping centers, and vacant storefronts that now blight many of our cities because the big boxes have built far more retail than we need or can support.

These are just a few of the hidden costs of mega-retailers. Shifting these costs onto society distorts the free market, producing false winners. What would happen if we forced chains like Wal-Mart to bear the full cost of their business model?

BTW: Consumers take it for granted that big box stores offer lower prices, but you argue that this idea is more perception than reality. How so?

SM: When I started working on this chapter of the book, I expected to find many studies comparing prices at chains and independents. But there are in fact very few. And those that have been done come to some intriguing conclusions. Consumer Reports, for instance, conducted a nationwide survey last fall and reported that the best place to buy appliances was not Best Buy, Home Depot, Costco, Target, or even Wal-Mart. The lowest prices are at independent appliance dealers. Similar studies of hardware stores and pharmacies have likewise found that independents often match or even beat chain store pricing.

This flies in the face of conventional wisdom. How is it that independents in some sectors are able to beat the chains? Part of the answer is that many independents belong to buying co-ops, enabling them to attain the volume and distribution efficiencies that the chains enjoy.

The other part of the answer is that the chains employ a number of sophisticated strategies to create the impression that their prices are lower than they are. For instance, they often come into new markets with very low prices and then, once people have switched to shopping in their stores and local competitors have closed, the prices begin to inch up. Most shoppers never notice. Studies in Maine and Nebraska have found that Wal-Mart charges 15 percent more at outlets where it faces little or no competition.

Book buyers have been subject to this bait-and-switch tactic, too. In 1999, after Barnes & Noble and Borders had captured a substantial share of the market, the two chains quietly put an end to the across-the-board 10 – 20 percent discounts they had been offering on books. Today, both of my local bookstores, Longfellow Books and Books Etc., offer frequent buyer discounts that make them a better deal than shopping at the nearby Borders. But I bet many of my neighbors still think Borders has better prices and more discounts.

BTW: You note that one of the paradoxes of big box retail is that while superstores provide a greater selection, they actually reduce the range of products available. Could explain how a chain bookstore, for example, ultimately ends up decreasing the range and selection of books available to consumers?

SM: Although their individual stores are typically smaller than Borders and Barnes & Noble outlets, independent booksellers collectively stock a much broader range of titles. They each make their own decisions about which books to carry and, far more significantly, about which books to feature at the front of the store and recommend to their customers.

At the chains, the real estate at the front of the store has become so pricey that it’s hard for publishers to put that kind of money behind an unknown quantity — or to do so for more than a very brief window of time. It’s tough for a new author to find their way in this environment.

As I’ve been on the book tour, I’ve been asking my host booksellers what new titles they like. I have yet to get the same answer twice. Indeed, this is how many of our most important and beloved authors made a name for themselves: a relatively small number of booksellers fell in love with their first books and started thrusting them into the hands of customers. And, of course, for every blockbuster author, there are hundreds of modestly successful writers who would not have an audience at all if it weren’t for independent bookstores.

Chris Anderson, author of The Long Tail, argues that we will soon be reading, listening to, and watching a vastly broader range of works thanks to online purveyors, like Amazon and Netflix. I challenge his thesis in Big-Box Swindle. The issue is not so much about having access to a particular work, but rather how one learns about it in the first place. Thousands of independent owners — all sifting through what’s published every year, talking to their customers and making their own recommendations — adds up to so much more diversity than a centralized operation and a set of computer algorithms could ever deliver.

Although books and other works of expression have a special significance in a democracy, it’s worth noting that this same phenomenon is happening in every product category. I interviewed people in the toy industry, for example, who told me how product innovation has been strangled by the chains. Virtually all of the interesting toys being developed today are made by small manufacturers that depend entirely on independent toy stores.

BTW: A growing number of communities are banding together in efforts to stop big box expansion in their communities. However, some argue that small businesses and communities would be better off spending their energy finding ways to help locally owned businesses compete better in the marketplace as opposed to spending it on negative, anti-big box efforts. How would you respond to this?

SM: If we want to reverse the current trends, we have to do three things at the local level: use our land-use and zoning policies to set appropriate limits on corporate retail expansion; channel our economic development resources into initiatives that strengthen local businesses and help new entrepreneurs get started; and build public awareness of the benefits of choosing locally owned stores over chains.

We have to do all three at the same time. Plenty of communities have spent years trying to revitalize their downtowns while allowing endless shopping center growth on the outskirts. That doesn’t work. You end up spreading consumer traffic and dollars too thin to ever get a critical mass of activity in the downtown. Likewise you cannot simply say no to the big boxes without actively developing local retail to meet local needs.

Since 1990, the amount of retail store space in the U.S. has doubled — from 19 square feet per capita to 38 square feet. This growth is not in response to increased consumer demand: median household income over that period rose less than 10 percent. What’s propelling the explosion of stores is that the chains have learned that by flooding markets with an excess of retail capacity, it’s far easier to capsize local competitors and to grab market share from competing chains. They are engaged in what I describe in Big-Box Swindle as a kind of retail development arms race.

This over-development will continue unabated until we put a stop to it through our planning and zoning policies. Fortunately, grassroots groups in a growing number of cities and towns are doing so. They are persuading local officials to adopt store size caps, to limit what areas of town are zoned for retail, and to require economic impact studies for new development. These efforts are as much “pro-community” as they are “anti-big-box.” Citizens are acting not just out of a desire to support local retail, but also to protect their communities from the harmful effects of big-box stores, like toxic storm water runoff from the parking lots and massive increases in car and truck traffic.

BTW: There seems to be a growing backlash against corporate retail. Do you think the tide turning is in favor of independent retailers?

SM: I do think we may be seeing the beginnings of a major shift. There is so much more going on at the grassroots level now than even just a couple of years ago. Citizens have succeeded in stopping big box projects in some 200 communities since 2000. There’s a growing sense of the high cost of big box stores. Increasing numbers of cities are implementing size caps and other ordinances. There are now local business alliances working on buy-local campaigns in more than four-dozen communities. Some of these campaigns have been remarkably successful in making “locally owned” a selling point — something that residents actively seek in their shopping choices. I hope and anticipate that these kinds of initiatives will spread in the next few years and will begin to turn the tide in favor of local enterprise. —Interviewed by David Grogan

Avatar photo
Follow Stacy Mitchell:
Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.