New Walmart: Super for city or just another way to slice up the retail pie?
By Mike Danahey email@example.com October 26, 2011 8:34PM
Shoppers were able to try out the new Walmart on Randall and Bowes Road in Elgin during its grand opening Wednesday. | Michael Smart~Sun-Times Media
Updated: November 28, 2011 8:37AM
ELGIN — In the works since 2006, the Super Walmart at Bowes and Randall roads finally opened Wednesday.
While that might be good news for area shoppers, Northern Illinois University marketing professor Mark Rosenbaum says the city should be cautiously optimistic about what the new store will mean for Elgin’s economy.
“Elgin has been in a retail growth stage since 2005, so this retail expansion makes sense. Also, given the retail expansion along Randall Road, this opening is understandable,” Rosenbaum said.
Still, how much revenue the store and ensuing Sam’s Club next door will generate for the city remains largely uncertain, given the lingering sluggish nature of the economy, Rosenbaum said.
The city has been saying that the eventual opening of the two big-box spots and outlots on the 73-acre site will generate about $40 million in tax dollars over 15 years. The city expects Walmart will bring in $500,000 now through the end of the year. Sam’s Club is scheduled to open in the spring.
As for the long-term projection, “I wish that I could say that is realistic,” Rosenbaum said. “However, most retailers are expecting a flat holiday with miniscule growth. I just do not envision the northern Illinois market expanding in size or income in the very near future.”
Elgin Chief Financial Officer Colleen Lavery noted that so far this year, the city has brought in more than $9.5 million in sales tax revenues, compared to almost $9 million for the same time frame in 2010. About 40 percent of that money comes from the city’s auto dealerships, Lavery said.
Rosenbaum posited that “the opening of Walmart may simply shift funds around without generating new funds. The unanswered questions remain, is there pent-up demand for Walmart products, or does the opening of the store simply increase shopping convenience?”
Looking for retail
Elgin has about 110,000 residents but, except for car dealerships, it lacks some of the large-scale retail shopping compared to towns its size or even to smaller towns near it, such as South Elgin. Among bigger stores along its stretch of Randall Road are a Home Depot, a Target, a Burlington Coat Factory, the restaurant-intensive The Grove, a megaplex movie house, quite a few chain restaurants and a Meijer. In the rest of the city, Jewel has two grocery stores.
A Lowe’s on Randall closed this summer, and the existing Walmart at Randall and Royal Boulevard is closing as the new, larger location opens. According to a city analysis, about 13.6 percent of the 3.9 million square feet in available retail space in town currently sits empty.
“Walmart is opening up in a difficult economic time, when the average Illinois home value has fallen about 30 percent from its peak,” Rosenbaum said. “I do not believe that small, independent retailers will be affected by Walmart, as this segment has either learned how to conduct business given big-box retailers in the shopping area or they have closed. Rather, I believe that Walmart may cannibalize sales from nearby stores, as well as, steal market share from competitors such as Target and Meijer.”
That cannibalization also will impact the bottom line in neighboring South Elgin and its broad offering of retail not far from the new Walmart, according to Rosenbaum.
Tax boost expected
For the project to happen, Kane County required about $11 million in intersection and roadwork on Randall and Bowes. Elgin agreed to rebate Walmart a third of its sales tax revenue up to $8 million over 10 years after both stores are completed.
City officials expect sales tax revenues from the strip mall could generate about $3.3 million per year once it is built out.
“Clearly, road improvements and tax rebates are powerful incentives to attract retailers,” Rosenbaum said. “However, retailing success is linked to economic conditions, which are beyond the scope of small cities. As a result, if consumers do not feel that they have disposable income for discretionary spending, the benefits associated with improved roads and tax savings fall by the wayside.”
Noting that even strip malls along Route 59 in relatively well-off Naperville are having a tough time filling vacancies, Rosenbaum speculated that it could take some time for Elgin to find restaurants to open near the Walmart.
He expects the spillover from Walmart shoppers to existing nearby eateries to be minimal. The store will hold a Subway deli and a nail salon.
As for how Walmart is positioning itself in the still-shaky economy, Rosenbaum noted, “We truly see retailing dividing into luxury and to value-oriented stores. Perhaps the stress on the American middle-class is also mirrored in stores, such as JCPenney and Sears, which cater to America’s middle-class (and which are not performing as well).”
Walmart has been opening “small stores under the Neighborhood Stores brand in Chicago. So, this large big-box Elgin store deviates from the company’s overall Chicago strategy,” Rosenbaum said.
At the same time, the nation’s largest retailer “is reaching out to the Hispanic market with its Supermercado stores in Phoenix and Houston. I am confident that Walmart will extend these Hispanic-focused grocery stores beyond the Southwest as they test and refine the concept.”
As for the new Elgin store, with no more rooftops on the immediate horizon and the economy unsteady, “I truly believe that the unintended consequence of the opening will be the cannibalization of sales from surrounding stores as well as the moving of dollars from close competitors, such as Target and Meijer. Consumers will now be able to divide their wallets among a larger set of stores in a condensed retail area. If wallets aren’t expanding, then, in the long run, the retailers will suffer.”