03. Estimate of Economic Impact of Proposed Target StoreESTIMATE OF ECONOMIC IMPACT OF PROPOSED TARGET STORE
Northfield, Minnesota
Report prepared by:
Kennedy Lawson Smith, Director a ® '2- " .� �'' ' �o (5 o <3
National Main Street Center
National Trust for Historic Preservation
1785 Massachusetts Avenue, NW
Washington, DC 20036
r 13
The following report summarizes an examination of retail sales in downtown Northfield,
Minnesota and an analysis of the potential economic impact of the proposed Target Store
on downtown Northfield. The methodology used in these analyses is consistent with
methodology used in Main Street revitalization throughout the United States to estimate
the economic condition of a historic commercial district and the potential impact of
various proposed new commercial development activities.1
The report's specific objectives were as follows:
I . To estimate the likely economic impact of the proposed Target Store on downtown
Northfield; and, if it appears there is likely to be significant economic damage,
2. To determine whether the economic damage likely to occur in downtown Northfield
will put historic buildings at risk of deterioration and, if so, to estimate the likely cost
of returning downtown Northfield to a state of economic equilibrium.
After conducting this analysis, we have concluded that the proposed Target Store would,
in fact, cause serious economic damage to downtown Northfield and that this economic
damage would put numerous historic buildings at risk of physical deterioration. In brief
19 businesses (employing 311 people) would be severely damaged by the proposed
Target Store. It is likely that all of these 19 businesses would close within 18-24
months of the Target Store's opening.
24 additional businesses (employing 189 people) would be moderately damaged by
the proposed Target Store. It is likely that half of these 24 businesses would close
within 18-24 months of the Target Store's opening.
30 additional businesses (employing 133 people) would suffer minor financial
damage as a result of the proposed Target Store. It is likely that most of these
businesses could survive with significant retooling of their marketing and
merchandising plans.
The community would experience an estimated $6.7 million in lost indirect
economic activity as a result of the loss of 31 downtown businesses (19 experiencing
severe fiscal damage + 12 experiencing moderate damage)
I Over 1,500 communities have participated in the Main Street program since 1980.
The community would need to spend approximately $15.2 million in the five years
following the opening of the Target Store to return the Northfield main street district
to its current state of economic performance.
Healthy businesses are the economic foundation of historic main street districts:
businesses must be able to generate net sales sufficient to pay the rent levels which
property owners need in order to rehabilitate and maintain the buildings.
If businesses suffer, the historic buildings which house them suffer, as well. The historic
buildings themselves, because of their unique, one -of -a -kind nature, provide a distinctive
marketing identity for the district as a whole which helps differentiate it from other
commercial areas. If a large number of businesses — and therefore a large number of
buildings — suffer a significant economic decline, the overall marketing identity of the
district suffers. It is this "cycle of disinvestment" which has affected thousands of
communities throughout the United States over the past several decades. If the impact is
small, a community can usually — with considerable financial reinvestment and
considerable commitment of programmatic resources — return the historic main street
district to a state of "economic equilibrium." If the impact is large, such recovery is
sometimes impossible, and historic main street buildings — and the businesses they
contain, the jobs they provide, the retail and property tax revenues they generate, the
business -to -business relationships which they support throughout the community, and the
quality of life they impart — are lost.
Many different demographic factors influence (and predict) peoples' decisions about
what retail goods and services to buy, how much to spend, and where to shop. Larger
households are more likely to prefer family -oriented restaurants than smaller households,
for example, and younger households are more likely to spend money on furniture and
appliances than older ones. But, household income is the most reliable factor in
predicting how people are likely to shop.
As Table 1 shows, Northfield's residents are relatively affluent for a community of its
size: over half of all households within the City of Northfield have household incomes
above $40,000. The percentage is similar for Rice County residents and residents of the
55057 zipcode area (which extends slightly beyond the municipal city limits). By
comparison, only about 38 percent of all Minnesota households have incomes above
$40,000.
Table 1: Estimate of numbers of households, by household income, in Northfield, in
the 55057 zipcode area, and in Rice County
Household income
Northfield
%
Zip 55057
%
Rice County
%
Under $5K
85
2%
94
_
2%
425
2%
$5-10K
409
8%
437
7%
1,177
7%
$10-15K
441
9%
463
8%
1,356
8%
$15-20K
367
7%
418
7%
1,328
8%
$20-30K
659
13%
777
13%
2,670
15%
$30-40K
525
11%
660
11%
2,342
13%
$40-50K
483
10%
617
10%
2,020
11%
$50-70K
918
19%11
1,157
19%1
3,141
18%
$70K and over
1,024
21%
1,320
22%1
3,251
18%
Total households: 1 4,911 11 5,9431 11 17,710
The populations of both Northfield and Rice County grew at a steady pace throughout the
1990s and are expected to continue to grow modestly in the next few years. Claritas, Inc.
projects that Northfield's population will increase by 7 percent between 1998 and 2003
(from 15,621 to 16,711) and that the County's population will grow by 4 percent over
that same period of time.
The US Department of Labor's Bureau of Labor Statistics conducts a periodic survey of
Americans' spending habits, which it compiles and publishes in the Consumer
Expenditure Survey. The Consumer Expenditure Survey provides detailed information on
how much money households of different demographic types (income, ethnicity, age,
size, region of residence, number of earners, etc.) spend on a wide range of products and
services, making it possible to estimate how much money people in any community are
likely to spend annually on retail purchases.
Table 2 summarizes how much money people who live in Northfield, in the 55057
zipcode area, and in Rice County are likely to spend annually on various types of retail
goods and services, based on their household income levels.
Not surprisingly, more affluent households spend more money than �ess affluent
households on similar goods and services. Therefore, most of the Northfield area's
buying power is concentrated in households with annual incomes above $40,000. For
instance, $6.4 million of Northfield's estimated $8.7 million in "buying power" for
furniture and home furnishings comes from households earning $40,000 or more
annually; only $2.3 million in "buying power" for these items is generated by households
earning less than $40,000.
` Sources: 1990 Census of Population, US Census Bureau; "Rice County Housing Study, " Minnesota
State Demographer; "Marketview Comparison Report, " Claritas, Inc.
Table 2: Estimates of "buyingpower" of Northfield area residents
Category
I Northfieldl
Zip 550571
Rice County
Retail: Hardware, bldg materials'
2,776,000
3,557,000
10,734,000
Retail: General mdse°
8,858,000
11,228,000
32,306,000
Retail: Food/groceries
15,447,000
18,987,000
55,416,000
Retail: Auto dealers, svcs5
21,596,000
26,859,000
77,821,000
Retail: Apparel, accessories
9,781,000
12,170,000
34,707,000
Retail: Furniture, home furnishings
8,698,000
10,865,000
30,647,000
Retail: Eating/drinlang
10,638,000
13,263,000
37,708,000
Retail: Miscellaneous
17,343,500
21.544,500
61,403,000
Personal services
2,960,000
3,655,000
10,579,000
Business services
n/a
n/a
n/a
Automotive services6
3,940,0001
4,890,000
13,991,000
[Unless otherwise noted, all estimates have been calculated using the household
demographic information in Table 1 and the Consumer Expenditure Survey.]
Retail sales in Northfield and in Rice County have been increasing at a healthy pace in
recent years. The Minnesota Department of Revenue reports an overall increase of 12
percent from 1995-1996 in the categories of merchandise most often sold in downtown
businesses, and overall retail sales in Rice County increased by 31 percent between 1992
and 1997, from $318 million to $417 million.
Table 3: Estimates of actual retail sales for the City of Northfield, 1995-19967
CategoEZ
1996
1995
%.Ch 95-96
Retail: Hardware, Bldg materials
$
9,016,000
$
7,430,000
21%
Retail: General mdse8
$
21,242,000
N/A
N/A
Retail: Food
$
29,973,000
$
27,603,000
9%
Retail: Auto dealers, stations
$
57,858,0001
$
49,158,000
18%
Retail: Apparel, accessories
$
2,247,000
$
2,009,000
12%
3 From Claritas, Inc.
' From Claritas, Inc.
5 Calculated from household demographic information (previous page) and from the Consumer
Expenditure Survey, using data for vehicle purchases and gasolinelmotor oil.
6 Calculated from household demographic information (previous page) and from the Consumer
Expenditure Survey, using data for TransportationlOther Vehicle Expenses/Maintenance and Repairs.
'sources: MN Dept. of Revenue; 1997 Census of Retail Trade, US Census Bureau
B Because there were only two stores in Northfield classified as "general merchandise" stores in when the
1997 Census of Retail Trade was conducted, the Census of Retail Trade did not report actual sales figures,
as this might violate the confidentiality of those two businesses. Therefore, this estimate has been based
on average sales per "general merchandise" store in Minnesota, as reported in the 1997 Census of
Retail Trade.
Retail: Furniture
S
3,979,000
S
3,903,000
2%
Retail: Eating, drinking
S
16,142,000
S
12,717,000
27%
Retail: Miscellaneous
$
32,754,000
S
32,601,000
0%
Personal services
S
1,539,000
S
1,294,000
19%
Business services
S
5,765,000
S
4,387,000
31%
Automotive services
S
5,979,000
$
5,614,000
7%
Total:
$
156,236,000
S 139,286,000
12%
SALES LEAKAGE AND SURPLUS
Comparing a community's potential sales — the amount of money people are likely to
spend on something ("buying power") — with the community's actual sales makes it
possible to analyze how well (or how poorly) the community's businesses are doing in
attracting the retail purchases of area residents. If businesses in a particular retail category
sell significantly more than local residents are expected to spend, the community has a
sales surplus. Conversely, if a category of businesses sells less than local residents are
likely to spend, it probably means that local residents are shopping elsewhere — and the
community has a sales leakage.
Table 4: Potential sales vs. actual sales, Rice County
Category
Potential sales
Actual sales
Gap
Retail: Hardware, Bldg materials
10,734,000
31,447,000
20,713,000
Retail: General merchandise
32,306,000
42,159,000
9,853,000
Retail: Food
55,416,000
79,012,000
23,596,000
Retail: Auto dealers, stations
77,821,000
134,001,000
56,180,000
Retail: Apparel, accessories
34,707,000
8,464,000
(26,243,000)
Retail: Furniture
30,647,000
13,111,000
(17,536,000)
Retail: Eating, drinking
37,708,000
43,114,000
5,406,000
Retail: Miscellaneous
61,403,000
63,899,000
2,496,000
Personal services
10,579,000
4,275,000
(6,304,000)
Business services
n/a
10,300,000
n/a
Automotive services
13,991,000
4,979,000
(9,012,000)
Totals:
365,312,000
434,761,000
69,449,000
Totals, without auto dealers/stations:
287,491,000
300,760,000
13,269,000
It is obvious that, in some instances, Rice County is almost certainly attracting shoppers
from outside the community — shoppers whose "buying power" would not be included in
estimates of the community's potential sales, since they do not live there and would not
be included in Census counts. The County appears to have sales surpluses in several
major retail categories: hardware/building materials; general merchandise;
food,/groceries; automobile dealers/stations; restaurants (eating/drinking); and
"miscellaneous retail" (which includes books, cameras, toys, luggage, pets, magazines,
floral arrangements, and numerous other smaller retail items).
It is impossible, without detailed research9, to know who the shoppers are whom Rice
County's businesses are apparently attracting. It is logical to assume that some of these
shoppers are tourists — possibly family and friends of students at the area's colleges,
people attracted to the region's outdoor recreational activities, or shoppers drawn to some
of the County's unique businesses and historic buildings. For example, there is a $5.4
million surplus in restaurant sales, without a corresponding sales leakage in groceries — a
combination which is almost always an indicator of the presence of tourists in a
community. But, it is also almost certain that quite a few non -County residents shop in
Rice County for some things: groceries, general merchandise, cars, and building
materials, in particular. These are not typically things tourists buy, which probably means
that residents of nearby counties are shopping in Rice County for these things. It is
logical to assume that some, if not most, of these surpluses can be attributed to the
discount superstores already located within Rice County.
It is also logical to assume that not all the retail "needs" of the County's residents are
being met by the County's businesses — it is a rare community that does not experience
some degree of "out -shopping," or of local residents who shop elsewhere for some things
from time to time. At first glance, it might appear that the County's residents are making
some of their apparel and furniture purchases outside the County — both of these
categories show sales leakages (see Table 4). However, it is almost certain that some
sales of items in these categories are taking place in stores categorized as "General
Merchandise" and "Miscellaneous Retail," and that some sales -- particularly in the
apparel category -- are taking place through mail order companies outside Minnesota.
Given the strong sales surpluses which Rice County enjoys, one can assume that Target's
goals in seeking to open a new store in Northfield are to fill some sales "leakages" in
apparel and furniture and, in other retail categories, to displace sales from existing stores.
Target's stores averaged about $26 million in sales each in 1998, with an average of
110,000 square feet per store. Rice County has a sales surplus of about $13 million (not
including its $56 million surplus in automotive sales and automotive service centers).
There is no doubt that the proposed Target will displace sales from existing businesses in
Northfield (and from businesses in other parts of Rice County).
Table 5: 1998 Target stores sales performance
Total 1998 sales
$ 30,951,000,000
Total 1998 retail square footage
130,172,000
Total 1998 #stores
1,182
Average sales/store
$ 26,185,279
Average sales/SF
$ 238
Average SF/store
110,129
9 This research would include consumer intercept surveys and analyses of sales leakages/surpluses in
surrounding counties.
Small, independent businesses can suffer significant financial damage when even a small
percentage of their gross sales are displaced. A small, main street business which loses 10
percent of its sales in one year is usually in serious financial jeopardy, and very few main
street businesses can survive sales displacement of 20 percent or more.
It is likely that the proposed Target will have a highly negative impact on 19 existing
businesses in downtown Northfield, affecting approximately 300 jobs. It is likely that it
will have a moderately negative impact on 24 additional businesses (with 189 jobs) and a
minor economic impact on 30 businesses (with 133 jobs).
Table 6: Likely impact of proposed Target on businesses in downtown Northfield
Level of negative im act
# businesses
S.F.
Staff
Hi h
19
90,000
311
Moderate
24
103,000
189
Minor
30
49,000
133
We believe it is likely that all of the 19 businesses which would experience a highly
negative fiscal impact as a result of the proposed Target Store would close within 18-24
months of the Target Store's opening, resulting in a loss of 311 jobs. We believe it is
likely that half of the 24 businesses which would experience a moderate negative fiscal
impact as a result of the proposed Target Store would close within 18-24 months,
resulting in a loss of about 90 jobs. We believe that the 30 businesses which would suffer
minor fiscal damage could survive, but would require some degree of market , 0
repositioning. An ` � Oj j �U
Table 7: Likely negative indirect economic impact of the proposed Target
Est. # of probable negatively affected businesses:
19
24
30
Level of impact:
High
Moderate
Minor
Indirect cost
Per business
Secondary retail sales
126,000
2,394,000
3,024,000
3,780,000
Salaries
26,880
510,720
645,120
806,400
Rents
11,200
212,800
268,800
336,000
Property taxes
1,176
22,344
28,224
35,280
Business profits
10,035
190,669
240,845
301,056
Bank deposits
8,512
161,728
204,288
255,360
Utility collections
5,600
106,400
134,400
168,000
Loan demand
24,080
457,520
577,920
722,400
Advertising revenues
1 3,584
68,096
86,016
107,520
Total indirect impact:
Total likely impact on Northfield:
4,124,277
5,209,613
6,512,016
4,124,277
2,604,8061
0
In addition to the loss of these businesses and jobs, it is likely that the community would
suffer additional indirect economic losses, as well. Each of these businesses has
relationships with other businesses within the community — with banks, advertising
media, utility companies, suppliers, and many others. Based on a study of the indirect
costs of a vacant 2,000 square -foot storefront in a historic main street district conducted
in 1987, we believe that the loss of the 19 businesses with the highest degree of fiscal
damage as a result of the proposed Target Store would cause the loss of approximately
$4.1 million in indirect economic activity for the City of Northfield, with an additional
$2.6 million in indirect economic activity lost with the likely closure of half of the
businesses which we believe will experience moderate fiscal damage as a result of the
Target Store.
Based on our experiences with hundreds of communities throughout the United States,
we conclude that it is almost certain that the proposed Target Store will, in fact, cause
significant economic damage to downtown Northfield and lead to the deterioration of
historic buildings within the district.
b�
It is possible that, with significant reinvestment, the community could return downtown
Northfield to its current state of economic performance and correct some or most of the
damage. However, such recovery would need to take place on a consistent, concerted
basis for at least five years following the opening of the Target, with ongoing
management of the district continually thereafter. And, it would be expensive. Because
the proposed Target Store would profoundly weaken the downtown's community -
serving, convenience -oriented businesses (like hardware stores, pharmacies, and grocery
stores), the downtown's businesses and its overall marketing strategy would ahnost
certainly have to shift to that of a specialty retail enclave attracting customers from a 30-
to 50-mile radius.
Table 8: Estimated five -year -costs of recovery for downtown Northfield
-Category
Recovery cost
One-on-one business assistance $50,000/ ear
250,000
Business development/recruitment $125,000/ ear
500,000
Business financing $1 million./year)
5,000,000
Marketing the main street district $100,000/ ear
500,000
Building rehabilitation: technical assistance $50,000/ ear
250,000
Building rehabilitation $200K/bld x 31 bldgs
6,200,000
Costs of additional parking
2,500,000
Total estimated five-year recovery costs:
15,200,000
This, in turn, would require existing businesses to retool their own marketing strategies;
would require development and recruitment of new businesses for the specialty cluster
(with concurrent business development costs); would require small business development
financing; would require development and implementation of a new and aggressive
district -wide marketing strategy; and, because of its reliance on bringing in customers
from greater distances, would increase parking demands on the district. In addition, there
would be significant costs associated with stabilizing and renovating buildings which
become vacant as a result of sales displaced by the proposed Target Store.
Sources of information for this report include:
At a Glance: Facts and Figures About St. Olaf
Carleton: Engage the Mind
Community Profile: Northfield, Minnesota (April 1999, Northfield Area Chamber of
Commerce)
Minnesota Sales and Use Tax reports for Northfield and for Rice County (1996) and
for Northfield (1995) (Minnesota Dept. of Revenue)
1990 Census of Population, Minnesota
1992 Census of Retail Trade, Minnesota
1992 Census of Service Industries, Minnesota
1997 Census of Retail Trade, Minnesota
1997 Economic Census — Accommodation and Foodservice
North American Industry Classification System
Marketview Comparison Report for Northfield, Zipcode 55057, and Rice County,
Minnesota (Claritas, Inc., August 1997)
"Indirect economic impact of a vacant main street storefront," Real Estate Services
Group, 1987