September 20, 2012
Urban Outfitters’ Opening Rates Local Incentives
Local officials last week awarded incentives to support the opening of a store to drive traffic and support local business. But in Knoxville, TN, that retailer is not some huge anchor, it’s the trendy teen apparel chain, Urban Outfitters.
The Knoxville city council unanimously approved a $250,000 grant to incentivize Urban Outfitters to locate in the Arnstein Building at Market Square as well as to fund renovation work at the 106-year-old building. If Urban Outfitters stays in the location for at least five years, the grant, structured as a deferred loan, will be forgiven. Should the retailer depart earlier, it would have to pay a prorated portion of the loan at 6 percent interest.
The funds are a loan to the group behind the Arnstein redevelopment, not to Urban Outfitters itself, and came from a federal Urban Development Action Grant that the city received in the late 1970s designed to be used for "blighted urban development."
Typically, such opening incentives – including loans and tax breaks – have been provided to destination stores such as Bass Pro and Cabela’s or major traffic-driving anchors like Walmaart or Costco. Whole Foods is also receiving incentives to open its first stores in Detroit. But many other smaller locations appear to increasingly qualify for such incentives.
As in the case of the anchors, the Urban Outfitters location, set to open next spring, is expected to benefit many other largely independent retailers and restaurants downtown.
"I think Council understands for downtown’s success to continue, it needs more retail, and a great way to do that is to bring in a major tenant like Urban Outfitters," council member Marshall Stair told Knoxville’s Metro Pulse.
Critics wondered why a national chain was gaining a benefit from something they could easily afford. Many also wondered why local businesses weren’t getting the support.
Speaking to knoxnews.com, Scott West, whose family owns several businesses on the Square, believes the money could have been used to support a star local business and retain the character of downtown.
"Why not incentivize the very businesses that make us unique, instead of the national chains that will make us Anywhere U.S.A.?" he questioned. "To argue a local entrepreneur couldn’t be successful in drawing people downtown, that you have to get a national chain, is a bankrupt idea."
But other stores saw a benefit coming from Urban Outfitters bringing in a younger and hipper crowd. Scott Schimmel, co-owner of Bliss and Bliss Home, told knoxnews.com, "They’re hitting a different demographic. I think it’s one of those all boats will rise."
Eddie Mannis, the city’s chief operating officer, told Metro Pulse the board hopes Urban Outfitter’s arrival will encourage other major retailers to open up in the city. He added, "To be honest, it’s not like there’s a long list of national retailers knocking on our door. We wanted to do everything to accommodate them."
- Retailer Urban Outfitters is Coming Downtown With City Funds. Why Did They Need The Money? – Metro Pulse
- Downtown retailers have mixed emotions about Urban Outfitters – Knoxnews.com
- Why Have So Many Cities and Towns Given Away So Much Money to Bass Pro Shops and Cabela’s? – The Atlantic Cities
- MEDC awards $1M incentive for Whole Foods store in Detroit – Mlive.com
- City OKs incentive deal for Mast – Winston-Salem Journal
- Kohl’s further delays Galesburg project – The Register Mail
- DSW pledges 200 new jobs in exchange for tax break – Columbus Business Journal
- Council OKs tax incentive for Walmart – Columbus Business First
- Costco to open in Cedar Park – Austin Business Journal
BrainTrust
Recent Discussions
Discussion Questions
Do cities generally benefit from providing incentives to support the opening of national chains? Should they be reserved for anchors or could a specialty chain such as Urban Outfitters qualify?
Poll
It all depends on the municipality’s objective. If it is to get the incentive to payout eventually in tax revenue, the big boys are the way to go. Other objectives, such as Knoxville’s stated objective of revitalizing an older downtown building and attracting a younger crowd, make sense on a different, non-financial level.
The nature of the municipality itself also matters. My local urbanhemoth (Chicago) uses TIF zones as political weapons primarily, and I seriously doubt that any financial breakeven is contemplated — much less achieved.
My beloved native Asheville however, favors only businesses of local flavor to preserve and promote its arts & crafts, and craft brew pub flavor.
Knoxville is stuck in the middle of those two extremes as the mid-size urban center of East Tennessee. It needs to have businesses that will attract other businesses and professionals. Urban Outfitters would seem to fill the bill for at least one segment.
Businesses asking for incentives is standard operating procedure for every site selection process. The ones who almost always lose out are local small businesses as they are rarely offered incentives. A city, county or state may offer incentives early on, to get the ball rolling for new development. Today, many incentives are being offered to anyone creating jobs. Fact is, government rarely recovers their investment. It is a common ploy politicians use to prove their worth to voters.
Sometimes they do and sometimes they don’t. It has to be evaluated on a case by case basis. Any viable business can be “an anchor,” as long as it attracts enough traffic. The real question is to cities want to reward local businesses or are they better off signing long term deals with somebody that’s more collectible?
Most cities are like Knoxville, caught between the rock of local character and the hard place of demand for increasing revenue.
Formerly distressed areas of my city have been transformed by the opening of key stores like Target and Safeway. These projects are a win-win for the chains and also for the areas they serve. Go Knoxville!
I agree with Ryan Mathews. Each city needs to review and understand what they are looking to accomplish. Some will benefit from a box store, others get far more value from a specialty retailer like Urban Outfitters. What is the city looking to accomplish, who do they want to attract to the area, how will a retailer impact local restaurants and small stores? Sounds like the move was great for everyone involved in this deal. Not many retailers want to restore a 106 year old building. That is a perfect fit for Urban Outfitters.
Whether such incentives generally benefit the city or not isn’t the most powerful insight for a specific city to base a choice on. Besides it must be very hard to quantify the halo benefits beyond the contribution of the individual retailer.
I don’t know the details behind this example, but I like the idea of the city making a strategic choice based on a fit with their population needs and future growth ambitions.
The answer here is simple: no…and I don’t think one needs to do a case-by-case basis, since the failure is ideological (government “picking winners” or favoring large outstate businesses over local ones), political (the likelihood of favoritism and corruption) and practical (cities simply bid against one another and erase any benefit that might theoretically exist). The problem of course is that downtowns compete against the subsidies (implicitly) offered to suburban/rural businesses (artificially low gas prices and subsidized roads. Walmart would not be what it is today if people were paying $6.50/gallon on that 20 mile trip to buy a loaf of bread). But the solution is to remove those subsidies, not superimpose another group. If two wrongs don’t make a right, three or seventy-three don’t either.
Cities benefit from chains opening in areas where development and increased traffic is needed. There is nothing new about this trend. Most companies looking to move either to new office space or, as in this case with Urban Outfitters to a new city, are going to ask for tax abatements, opening or moving expenses and possibly several months free rent.
I think cities can benefit from providing national chains incentives. They can also benefit by providing help to local merchants as well though, allowing each to grow and prosper in tandem.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
It all depends on the municipality’s objective. If it is to get the incentive to payout eventually in tax revenue, the big boys are the way to go. Other objectives, such as Knoxville’s stated objective of revitalizing an older downtown building and attracting a younger crowd, make sense on a different, non-financial level.
The nature of the municipality itself also matters. My local urbanhemoth (Chicago) uses TIF zones as political weapons primarily, and I seriously doubt that any financial breakeven is contemplated — much less achieved.
My beloved native Asheville however, favors only businesses of local flavor to preserve and promote its arts & crafts, and craft brew pub flavor.
Knoxville is stuck in the middle of those two extremes as the mid-size urban center of East Tennessee. It needs to have businesses that will attract other businesses and professionals. Urban Outfitters would seem to fill the bill for at least one segment.
Businesses asking for incentives is standard operating procedure for every site selection process. The ones who almost always lose out are local small businesses as they are rarely offered incentives. A city, county or state may offer incentives early on, to get the ball rolling for new development. Today, many incentives are being offered to anyone creating jobs. Fact is, government rarely recovers their investment. It is a common ploy politicians use to prove their worth to voters.
Sometimes they do and sometimes they don’t. It has to be evaluated on a case by case basis. Any viable business can be “an anchor,” as long as it attracts enough traffic. The real question is to cities want to reward local businesses or are they better off signing long term deals with somebody that’s more collectible?
Most cities are like Knoxville, caught between the rock of local character and the hard place of demand for increasing revenue.
Formerly distressed areas of my city have been transformed by the opening of key stores like Target and Safeway. These projects are a win-win for the chains and also for the areas they serve. Go Knoxville!
I agree with Ryan Mathews. Each city needs to review and understand what they are looking to accomplish. Some will benefit from a box store, others get far more value from a specialty retailer like Urban Outfitters. What is the city looking to accomplish, who do they want to attract to the area, how will a retailer impact local restaurants and small stores? Sounds like the move was great for everyone involved in this deal. Not many retailers want to restore a 106 year old building. That is a perfect fit for Urban Outfitters.
Whether such incentives generally benefit the city or not isn’t the most powerful insight for a specific city to base a choice on. Besides it must be very hard to quantify the halo benefits beyond the contribution of the individual retailer.
I don’t know the details behind this example, but I like the idea of the city making a strategic choice based on a fit with their population needs and future growth ambitions.
The answer here is simple: no…and I don’t think one needs to do a case-by-case basis, since the failure is ideological (government “picking winners” or favoring large outstate businesses over local ones), political (the likelihood of favoritism and corruption) and practical (cities simply bid against one another and erase any benefit that might theoretically exist). The problem of course is that downtowns compete against the subsidies (implicitly) offered to suburban/rural businesses (artificially low gas prices and subsidized roads. Walmart would not be what it is today if people were paying $6.50/gallon on that 20 mile trip to buy a loaf of bread). But the solution is to remove those subsidies, not superimpose another group. If two wrongs don’t make a right, three or seventy-three don’t either.
Cities benefit from chains opening in areas where development and increased traffic is needed. There is nothing new about this trend. Most companies looking to move either to new office space or, as in this case with Urban Outfitters to a new city, are going to ask for tax abatements, opening or moving expenses and possibly several months free rent.
I think cities can benefit from providing national chains incentives. They can also benefit by providing help to local merchants as well though, allowing each to grow and prosper in tandem.