How to Save Local Retail

Or how to start, anyway.

Photo credit: Alan Levine

🍁🍁 Happy Thanksgiving everyone! I am grateful this year and always for all of you who read this little project. 🍁🍁

This is Boondoggle, the newsletter about corporations ripping off our states and cities. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!

With the holiday shopping season upon us, it seems like a good time to consider local retail.

Small retailers are struggling: They’ve been punished by the pandemic, of course, but the root of the problem goes back much further to the active disinterest by the powers that be in doing anything to help safeguard local retailers against the rise of big box stores such as Walmart and Target or Amazon’s takeover of online commerce (and there’s a much longer history here dating back to the 1920s, when A&P and J.C. Penney came to prominence).

In fact, local lawmakers over the last three decades often actively helped entrench dominant, national retailers against smaller, local ones through policy decisions and their use of economic development dollars. Now, those big chains are using their power to circumvent the supply chain problems that are plaguing smaller businesses, when they’re not leaving dead and dying malls everywhere as they shuffle resources across the country or online.

And that’s leaving aside that many national chains we all recognize (think Toys R Us) were being pillaged by private equity firms at the same time that they were receiving state support, so everybody lost — taxpayers, workers, consumers — except financiers looking at spreadsheets thousands of miles away.

This misguided approach occurred despite the positive benefits local retailers bring, such as keeping more money in the community, employing more people per unit of sale and paying them more, and being more civically engaged. I know, I know, people like cheap stuff, but it comes at a cost to workers, suppliers, and ultimately the local community and its ability to stay independent and keep its wealth local.

But this is not meant to be a doom and gloom piece, really! Here are a bunch of ways state and local officials can take on the power of dominant retailers and do some good for the local folks:

1. Stop Subsidizing Big Chains: It may seem obvious, but this is a big one. Dominant retailers suck up the lion’s share of subsidies that go to retailers. Amazon leads the pack of course (more on that later), but Sears, Bass Pro Shops, Lowe’s, CVS, Walmart, Fresh Direct, and Target have all received hundreds of millions of dollars in public funding, giving them a leg up over smaller competitors. A simple thing to do is eliminate those programs outright, or put size caps on them so the money is redirected toward local businesses.

2. Regulate Dollar Stores: The fastest expanding chains aren’t actually Walmart or Target, though, but dollar stores: Specifically, Dollar General and Dollar Tree (which also owns the Family Dollar chain). Dollar Tree has received $105.8 million in public subsidies, while Dollar General has received $32.5 million. These stores cause all sorts of problems: They drive out local retailers and grocers, particularly in poorer neighborhoods. Their “low” prices actually come at a high cost, as they’re only possible through the chains’ absolute negligence about the safety or health of their employees or consumers. And like good monopolists, they intend to raise prices when their takeover is complete. In addition to cutting them off from public funds, cities can use zoning regulations to stop dollar stores from concentrating in certain areas.

3. Stop the ‘Food Desert’ Subsidies: What a city shouldn’t do is make dollar stores eligible for subsidies meant to entice grocery stores into particular areas so long as the dollar stores throw a head of lettuce in a cooler. But that’s actually part of the much larger policy failure based on grocery store incentives. I go into it in more depth here and here, but the short version is: Tax breaks can’t fix food deserts because they try to get at the problem from the wrong side. The issue is actually corporate consolidation in the grocery sector and lack of purchasing power for certain communities, not the high cost of operating in any particular area. If you want local grocers, you need to make sure community members are able to increase their purchasing power enough to actually shop there.

4. Rein in CVS: CVS is terrible. Everyone knows it. But it’s taken over the pharmacy sector (along with Walgreens) anyway because state and federal regulators have allowed it to purchase companies up and down the health care chain, which lets it preference its own stores and bury competitors, particularly the independent pharmacists that are cheaper, better for patients, and that most folks like more. Here are some things that can be done from me and my colleague Zach Freed to make pharmacies about actual patients again.

5. Ban “Dark Store” Theory: So-called “dark store”theory is a tactic big box stores use to lower their property tax payments by arguing that their locations should be valued not as thriving retailers but as empty husks. When that argument is successful — as it often is, though less so recently — it allows big box retailers to gain a leg up over local competitors who don’t get the same property tax favors. States and cities can straight up ban this tactic, and absolutely should.

6. Stop Subsidizing Amazon’s Network: Amazon is a huge impediment standing in the way of local retail, but not for the reasons you might think. It uses the distribution network for which it has received billions in public dollars as a cudgel against small businesses, forcing them to pay ever-increasing fees — which just went up again — or lose access to its mass of customers. For federal antitrust enforcers, there’s no reason Amazon’s distribution wing — known as Fulfillment by Amazon — needs to be connected to the same corporation that runs Amazon’s platform. But in the meantime, state and city officials can stop subsidizing the cost of burying their own Main Street shops and in-home businesses by cutting the subsidy spigot and redirecting the money.

This is for sure not a comprehensive list, but reflects my own interests, experience, and expertise.

For example, I didn’t get into lending at all, but I’m sure there are loads of things that could be done on the finance side to help smaller retailers access funding they’re currently denied and to build up local lending at community or public banks. I also don’t know much about local supply chain policy, though I’m attempting to learn.

Send me other ideas you’ve seen or leave thoughts in the comments on things I missed or need to know more about, especially if its about shipping ports and all the clog that’s happening there at the moment.

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BREAKING NEWS: As I was writing this edition, Samsung announced it is putting a new semiconductor plant in Taylor, Texas, which is about 30 miles outside of Austin. I haven’t had time to delve into the details yet, but I will for next week’s issue. The subsidies seem like they will be … a lot.

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SHAMELESS SELF-PROMOTION: I talked with Politico NJ about an ill-advised proposal to expand New Jersey’s film tax credit. You can give the piece a read here.

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ONE MORE THING: If you’ll forgive a brief foray into federal tax policy, I want to highlight this study by Grinnell University’s Eric Ohrn. He found that two federal corporate tax breaks — known by the super-dull names of bonus depreciation and the Domestic Production Activities Deduction — are used by corporations to juice executive compensation.

Ohrn wrote: “For every dollar the tax breaks generate for a firm, compensation awarded to the highest paid executives at the firm increases by between 15 and 19 cents. These magnitudes are much higher than the wage gains for average workers in response to comparable tax cuts. The divergence in executive and average worker responses suggests US federal corporate tax breaks increase income inequality between workers at the same firm.”

To sum up:

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Thanks again!

— Pat Garofalo