CEO Makes Case Against Corporate Welfare: An Interview with Mark Baker

Published July 1, 2006

With nearly 100 stores in 18 states, Gander Mountain is the nation’s third-largest outdoors retailer. Unlike its two larger competitors, Bass Pro Shops and Cabela’s, Gander Mountain has achieved impressive growth without seeking targeted tax incentives from state or local governments.

In this interview, Gander’s chief executive, Mark Baker, tells us why he believes government officials should oppose retail tax incentives.

Ewald: Gander Mountain has launched a national campaign in opposition to government subsidies in the outdoors retail industry. What is wrong with subsidies?

Baker: Competitors of Gander Mountain have successfully convinced state and local governments in several states to provide large tax incentives in order to build stores in their communities. They portray their stores as “destination retail” in order to secure the incentives, claiming that by having their store in a community it will draw millions of tourists, and their wallets, to the area. However, these retailers are in the marketplace to sell product and turn profit, and like all retailers they analyze the markets to determine where their customers live and shop.

Playing one community off another, these retailers push for tens of millions of dollars from taxpayers to help finance their stores. Even more troubling, in some cases they are persuading states to give them favorable “nexus rulings” that are costing taxpayers even more in lost sales tax collections.

Cabela’s estimates that tax increment financing and other forms of government assistance [cover] about one-third of the cost of building new stores–or an average of $10 million to $20 million per location. However, the public financing packages can be larger. For instance, Cabela’s received a tax increment financing package totaling $40 million to build a mammoth 180,000-square-foot store in Kansas City, Kansas.

Neither Cabela’s nor Bass Pro would disclose the total amount of public money they have received over the years, but our estimates put the combined total at well over $400 million. When you add the value of the nexus rulings, the total goes even higher.

Ewald: What are you doing to oppose these subsidies?

Baker: We’ve put together and distributed a booklet and educational materials for state and local officials all across the country outlining our concerns. We are meeting with state and local officials directly, and communicating with the media and opinion leaders all around the country. We are building coalitions with taxpayer groups and other nonprofit organizations that share our concerns. We have worked extensively to identify and assist grassroots opposition in targeted communities.

We are building a network of like-minded individuals and think tanks that can defeat these proposals on the ground. We are doing everything in our power to encourage a discussion about retail subsidies and educate the state and local officials that will have the final say.

Ewald: Why doesn’t Gander Mountain join in and take the subsidies?

Baker: We believe in the American system of free enterprise and consider these demands to be anti-competitive and fundamentally inappropriate. We cannot in good conscience go down that road and maintain our integrity as a good corporate citizen. We think it’s wrong. So we are unwilling to accept the “everyone is doing it” argument and become part of the problem.

Ewald: What do you see as the negative impact of these subsidies on the communities involved?

Baker: Resources that could be used for education or true economic development are being wasted on private retail developments. Communities have been paying big money to bring in low-paying retail jobs. Buda, Texas, for instance, gave Cabela’s subsidies worth $61 million, or about $271,000 for every full-time job, according to our estimates. Reno, Nevada spent $54 million, or $208,000 for every job.

It also should be noted that incentives to lure retail into a community often do harm to businesses already located in the area. Local stores and other national firms like Gander Mountain, who don’t seek subsidies, are placed at a competitive disadvantage by this practice. Studies have also demonstrated that the promises of increased revenue, jobs, and economic growth are seldom fulfilled.

Ewald: Cabela’s and Bass Pro argue their stores are “destination retail” and are appropriate for governments to subsidize. How do you respond?

Baker: The idea of destination retail may have held some merit when you had a very small number of outdoors megastores in the country. But the industry’s exponential growth, with Cabela’s planning stores in all 50 states, makes these claims obsolete.

If they built 50 Disneylands, do you think they’d be as successful as three? I think Cabela’s and Bass Pro have really interesting stores, but when you get to 30, 40, or 50 of them, they become much less of a destination. There are already examples of these companies opening new stores within the purported drawing area of one of their existing stores.

Ewald: Do you consider any government subsidies for retail to be appropriate?

Baker: Yes. Sometimes, government infrastructure expenditures for improved roads or services may be necessary for the construction of a major new development. Modest expenditures of that kind may be appropriate, and Gander Mountain does not object to an appropriate level of government involvement.

But those are not the kind of expenditures we are objecting to. Our competitors are brazenly demanding that taxpayers finance a significant portion of their direct investment costs. Moreover, they ask for favorable tax rulings that exempt Internet and catalog sales from applicable taxes.

Ewald: Bass Pro and Cabela’s have criticized Gander Mountain for also accepting subsidies. How do you respond?

Baker: That argument is a red herring. In just a few instances, Gander Mountain or the project developer has received tax assistance of limited amounts for a limited duration, typically amounting to less than $85,000 per store for a five- to seven-year period. Compare this to the $500 million accepted by Cabela’s and Bass Pro for subsidy deals in total across the nation for both firms, not including the special tax deal Cabela’s has been securing on Internet and catalog sales.

Ewald: How does the explosion in outdoors retail construction over the past few years affect this debate?

Baker: Government policymakers need to understand what’s happening in the outdoors retail industry. In the past 10 years, the retail sporting goods industry increased square footage from 1 million to 14 million across the nation. There will be 77 Bass Pros and Cabela’s by the end of the year.

As these stores become less unique and more ubiquitous, arguments for government subsidies become ever more unsubstantiated. Gander has been opening about 20 new stores a year for the past two years and plans to open seven to nine more in the next year–all without government subsidies.

David Ewald ([email protected]) is president of Ewald Consulting in St. Paul, Minnesota.