Major Retailer Challenges Targeted Tax Incentives

Published July 1, 2006

In a rare development, a major retailer is challenging lucrative economic development incentives frequently sought by two of its competitors. It’s a revealing episode full of public policy lessons.

Gander Mountain, the Number 3 outdoor sporting goods retailer in the nation, has launched a national lobbying and public relations campaign to deny incentives sought by number 1 competitor Cabela’s and number 2 firm Bass Pro Shops for their huge “destination” stores. Such subsidies typically include tax increment financing, property tax abatements, infrastructure aid, land value write-downs, and corporate income tax credits.

Top Firms Seek Subsidies

The stakes are enormous. Since becoming a publicly traded firm in 2004, Nebraska-based Cabela’s has gone on a store-building binge. Already, a dozen communities have agreed to subsidize Cabela’s stores to the tune of more than $300 million, according to Good Jobs First, a national policy research organization that promotes corporate and government accountability in economic development. The company plans to build at least 11 more stores in addition to those in the dozen communities mentioned above, most with fresh subsidy requests.

Missouri-based Bass Pro is privately held. According to Gander Mountain’s research, Bass Pro’s 32 current facilities have benefited from at least $214 million in incentives. It too is in an aggressive growth mode, with 20 more stores slated. The firm is seeking subsidies for most of the planned new stores.

Cabela’s and Bass Pro defend the incentive packages by arguing their stores are tourist destinations. The stores are huge, covering 100,000 to more than 200,000 square feet. Featuring stuffed big-game animals, aquariums, and gun libraries, they attract millions of shoppers per year, ranking among some states’ top attractions.

“Our locations are museums, art galleries, aquariums, conservation-education centers. … And by the way they’re retail stores,” a Bass Pro spokesman told the Minneapolis Star Tribune for a March 2 article. A substantial share of shoppers come from long distances–even out of state, the companies say–creating jobs at hotels and restaurants and generating new sales tax revenues.

Fairness Is Questioned

However, Gander Mountain and its developer, Oppidan Investment Co., argue granting special favors to any one retailer leads down a slippery slope.

“If you give [a tax break] to a Wal-Mart, should you give it to Target? If you give it to Home Depot, then should you give it to Lowe’s? And if you give it to Bass Pro, shouldn’t you give it to Cabela’s and Gander Mountain? How about we just don’t give it to anybody?” Oppidan CEO Mike Ayers said to the Toledo Blade for a March 22 article.

Others are concerned about the effect on mom-and-pop stores. As the National Trust for Historic Preservation’s Main Street Program has long argued, subsidizing big box stores (usually at the suburban fringe) undermines existing retail districts, where local entrepreneurs generate bigger ripple effects for the local economy.

Need for Subsidies Doubted

Some economists ask why communities should subsidize retail at all. As input-output models used by development agencies demonstrate, retailing packs a poor bang for the buck compared to most other sectors. That’s because most of the “upstream” jobs manufacturing retail goods are overseas, and retail’s “downstream” ripple effects are paltry because store jobs are mostly part-time and low-wage.

Of course, bringing basic retail services such as groceries, drugs, and clothing back to under-served markets can help revitalize a neighborhood. But that’s not the case with hip boots and fly rods.

Market Becoming Saturated

For public officials weighing a “destination store” subsidy request from Cabela’s or Bass Pro, there is another key issue to watch for: Market saturation and the inevitable decline in shoppers coming from long distances.

Right now, Cabela’s and Bass Pro benefit from the fact that the outdoor sporting goods market is still highly fragmented and their stores are novelties. But as the two chains rush to build dozens of new stores, two things are likely to happen. The stores will become less novel as more people get their fill of dioramas with taxidermy; and with more stores located closer to more shoppers, fewer people will need to travel from afar. That would mean fewer tourism jobs and less sales tax revenue from out of state.

The early effects of saturation may already be apparent. For 2005, Cabela’s reported to shareholders its same-store sales (comparisons of sales in individual stores from year to year) declined 6.3 percent. In the first quarter of 2006, same-store sales were down 0.3 percent. Of course, declining sales also mean less direct sales tax revenue from the stores. Rising gasoline prices may also cut into long-distance shopping trips.

Pols’ Enthusiasm Waning

Some lawmakers apparently are catching on. The Kentucky and Idaho legislatures adjourned this spring without taking action on proposed subsidies for Cabela’s. Speaking on April 13, the day after Kentucky legislators adjourned, Gander Mountain CEO Mark Baker was upbeat.

“This is much bigger than Gander Mountain taking on the big boys,” Baker said, adding that many other small and regional retailers have expressed interest in joining the effort. Where retailers locate should be “about the market, the demographics, not community bribes,” Baker said.

In Indiana, Gander Mountain succeeded in getting $13 million knocked off a Cabela’s incentive package. In December 2005, Gov. Mitch Daniels (R) rejected sales tax increment financing (STIF) as part of a $65 million package Cabela’s sought in Hammond, bordering Chicago. But in May, a deal was announced of about $52 million, including road and infrastructure improvements, $25 million in property tax increment financing (TIF), and a revenue bond.

The incentive war rages on elsewhere, with current or recent debates also in Connecticut, Idaho, Illinois, Louisiana, Maine, Massachusetts, New Hampshire, Ohio, Pennsylvania, Texas, Washington state, and Wisconsin.

When Cabela’s had four or five very unique stores, said Gander Mountain’s Baker, “they were worth the drive.” But with so many more stores coming on line, he said, he is “incredulous” that Cabela’s “can keep convincing small communities that they are going to be the next Orlando theme park.”

Greg LeRoy ([email protected]) is author of The Great American Jobs Scam (Berrett-Koehler 2005) and executive director of Good Jobs First (