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Big box impacts being felt

Cliff Thompson
Surrounding Avon businesses are seeing a loss of customers to The Wal-Mart Supercenter and The Home Depot in the Village at Avon. The pain is also being felt by the town government, which is suffering a drop in sales taxes.
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When Avon’s two big box retailers, Wal-Mart and Home Depot, opened last summer as retail anchors for the 1,800-acre Village at Avon, the town and retailers county-wide braced for the impacts.

While most retailers won’t disclose specifics of how much business they’ve lost, some of those impacts have been quantified by the town in its sales tax receipts during the first month of operation of the retail giants.

The town’s budget, however, also reflects the impacts of a national recession.

In 2002, the town had a total operating budget of $22.9 million and this year the combination of a national recession and impacts of the big boxes have forced the town to scale back the budget total to $18.1 million this year and virtually the same for 2004. That’s a 21 percent reduction.

Much of that reflects the loss of business from Avon’s two core retailers, City Market and the old, smaller Wal-Mart now being remodeled for a trio of national retailers. That change in shopping patterns is referred to in economic and other circles as “migration” of dollars.

“We’re not totally surprised by the the amount of sales tax migration from City Market,” said Larry Brooks, Avon town manager. “They’re pretty well paralleling what we were anticipating.”

The impacts to the town budget and to retailers are two-fold. The town of Avon gets no sales tax from the retail giants for 20 years. The developers instead get to use the sales tax dollars to pay off development bonds. It’s part of an annexation agreement forged to keep the retailers under Avon’s rather than Eagle County’s jurisdiction.

At the same time, customers are migrating from Avon businesses to the big boxes, cutting the town’s sales tax receipts.

Tighter budgets

But in the face of a new economic reality, getting Avon’s 2004 budget to balance has been tough, Brooks acknowledged. He said the town is consolidating a handful of positions and is slimming its organization.

“We’re not going to be responding to everything as quickly as you’ve seen in the past,” he said. “We’d rather have to cut back on things than ask for a tax increase.”

Sales tax received by the town through July 2002 totalled $2.63 million while those received through July 2003 totalled $2.65 million. Next year, the receipts are expected to remain flat, said Scott Wright, Avon Finance director.

In some circles, the town has been criticized for being “out negotiated” by Traer Creek – the developer of the Village at Avon – and July’s sales tax receipts will provide ammunition for that point of view.

A July to July comparison, however, paints a somewhat darker picture.

July 2002 sales tax receipts totalled $399,000 but July 2003’s receipts dipped 15.3 percent to $338,000. That’s a reflection of the closure of the old Wal-Mart and erosion of the sales tax to the big boxes, Wright said.

It also reflects the fact the developer’s compensation to the town for lost sales tax revenue from the old Wal-Mart did not begin until August.

Complex negotiations

The complex annexation negotiations require the developer to compensate the town with up to $1 million annually for sales tax revenue lost when Avon’s existing Wal-Mart closed and local operations were taken over by the new superstore.

The town’s sales tax collections will be down “several hundred thousand dollars, in 2003,” Brooks said, adding the town’s 2004 budget will be pared by $800,000.

Brooks said the migration of customers from Avon’s City Market to Wal-Mart’s grocery section could amount to 40 percent of City Market’s customer base. The town’s 4 percent sales tax contributes just over half of its annual revenue.

But it’s not the first time Avon has encountered economic impacts from retailers outside its boundary.

“This isn’t something new,” Wright said. “In 1997-98, a new City Market opened in Vail and the Village Market had opened in Edwards and Columbine Market opened in Gypsum. We saw a dip (in sales tax receipts) and then a gradual recovery.”

Wright said the town expects to see a gradual “pull-back” of sales tax and the shoppers the dollars spend during the second quarter of next year.

“Sales tax migration will deepen over the next 12 months,” said Brooks. “But we expect it to return at the rate of about 10 percent per year as people who shopped the new store will gradually return to shop at City Market.”

Growth too

The sales tax receipt picture isn’t completely bleak. Other taxable Avon sales, Wright said, are offsetting negative impacts of the arrival of the big boxes.

Avon gets a significant portion of its sales tax from out of town through sales transactions occurring here, and this year those sales are growing.

“Year-to-date those sales are up 8 percent. By the summer of 2004 we should be coming out of all this,” Wright said.

The town conducted a survey of two dozen businesses in and around the old Wal-Mart building and concluded they would suffer a 4 percent decline in business as a result of the loss of traffic from Wal-Mart moving east, Wright said.

But that traffic will be replaced next year when the old Wal-Mart building is remodeled and its new tenants – Gart Sports, Pier 1 Imports and possibly an Office Depot – draw new business. When that happens, business is expected to rebound by 4 percent, Wright said.

“It’s a non-scientific analysis,” Wright said.

The big boxes appear to have brought additional business into Eagle County. Sales tax receipts from the county’s 1 percent sales tax show a $28,000, or a 28.5 percent increase, said Mike Roeper, finance director.

“We’re pretty sure it’s because of the big boxes,” he said.

The figures reflect a full month of sales activity at Home Depot and no sales activity at Wal Mart, which opened in August.

Cliff Thompson can be reached at 970-949-0555 x450 or cthompson@vaildaily.com


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