SUMMER 1999 - ISSUE NUMBER 48

Patterns of Ownership
Downtown Traverse Cityand the Southern Malled Zones

This was Grand Traverse County in the 1990s: Backhoes moved dirt, builders constructed sprawling stores and asphalt workers laid parking lots for a growing number of retail outlets whose owners sit in corporate offices far away. Corporate retail surged into the region, providing jobs, new places to shop and, to some minds, economic prosperity. Yet, there is unsettled doubt among area residents that their economy is really strong. According to the 1997 Quality of Life Index for the Grand Traverse Region, 83 percent of residents in Grand Traverse County were somewhat or very concerned about the economic health of the community. In a differently worded question, 34 percent said the community's economic health was below average or poor. Only 19 percent ranked it above average or excellent.

One effect of having a large influx of national chains is the loss of local ownership and, as a result, long-term stability and local control over a community's economic life. Residents of the Grand Traverse area face choices today about whether or not to keep their local economy vital.

Research conducted by the Neahtawanta Research and Education Center shows that the best way for residents to support local businesses with their consumer dollars is to shop as much as they can downtown. Out of 200 merchants researched in the downtown area of Traverse City along Grandview Parkway, Front Street and State Streets from Division Street to Railroad Street and South to Eighth Street, 90% percent of the businesses are locally owned. The property that these businesses are located on are 85% locally owned as well.

In contrast, a review of the mall, national chain and big superstore area on South Airport Road, including Grand Traverse Mall, Grand Traverse Crossings, Grand Traverse Commerce Center, OfficeMax, Circuit City, ABC Warehouse and Sam's Club, shows only about 16% percent of these businesses are locally owned and almost none of the property where these businesses are located is owned locally.

A database created in the spring of 1999 enables residents to determine which establishments in these two areas are locally owned. It is hoped that the list can be updated periodically, and perhaps expanded geographically. It is available on this CD and in mid-1999 will be on the Neahtawanta Center's web site http://www.nrec.org, where it can be updated and unknown data can be completed.

National chain retail stores, restaurants and services are undoubtedly here to stay, but the mix of merchants still can be weighted so that, in the balance, there is more of a local economy. Work is already being done, but there is more to do and more awareness needed.

Downtown: Old and New Challenges

In 1991, Traverse City faced the same bleak trend that was turning the downtowns of small towns and cities across the country into empty storefronts. Malls, strip malls and discount stores were moving in. The long-time downtown anchor department store Penney had closed and was opening the next year in the new Grand Traverse Mall 3 miles south of downtown on South Airport Road. Locally owned Hamilton's, the largest of only two men's clothing stores, also closed. In subsequent years, downtown lost other landmark merchants and some of the mix of stores that are important to the daily lives of area residents and businesses, as opposed to just tourists. Some were nationally owned businesses that nonetheless provided diversity. The Woolworth's store with its traditional cafeteria closed. The State Theater, downtown's 46-year-old movie theater, was closed in 1995 by GKC Theaters, which owns a chain of other theaters in the county. Like other communities, Traverse City faced the prospect of losing a strong, historic base of locally owned businesses, its owners unable to compete with the national chains that offered residents discounts but took much of their money out of the area and, with absentee owners, had no direct investment in the community.

There is good news. Downtown merchants made a strong effort to survive, and, as a result, area residents have a base on which to support and build a strong local economy. The merchants, in 1991, hired Hyett Palma, a Washington, D.C., consulting firm, to give them recommendations so they would not repeat the mistakes of other towns. In many regards they have succeeded. The downtown district associated with the Downtown Development Authority/Downtown Traverse City Association has a vacancy rate that hovers at less than 1 percent, compared to 3 percent prior to the construction of malls and about 8 percent in the years immediately after they opened. Almost all of the 128 merchants in the association are locally owned and the local ownership of the 260 downtown buildings has increased from 30 percent prior to 1991 to 60 percent now, according to the DDA. Horizon Books, a 38-year-old locally owned bookstore moved from a small storefront into the empty, 28,000-square-foot Penney store and offers coffee, food, entertainment and community meeting space as well as a wide selection of books. In summers, downtown closes off the main shopping area to traffic on Friday evenings for Friday Night Live, featuring street entertainment and food. Downtown also invested money to improve its summer-fall Farmers Market on Wednesdays and Saturdays and now also offers an Artists Market at the same site on Sundays. Many locally owned businesses that were outside the downtown district agreed to move downtown. The concept of "clustering" businesses by interest to consumers evolved, with entertainment, leisure and restaurant businesses locating near each other on the east end of Front Street, gift shops opening throughout much of the central district and specialty take-out food locating in clusters on the west end. While there still is no movie theater downtown, the State Theater is the focus of a major community project to transform it into a performing arts center. Five large office and commercial projects totaling about 400,115-square-feet are now opening, under construction or planned. Three of them -- River's Edge, Red Mill and Harbor View -- include a total of 107 planned residential units in the design, part of an effort to revitalize downtown by having residents live in walking distance of jobs, stores and services. All these new projects are locally owned. The downtown association currently represents 500,000 square feet of retail and restaurant space with businesses employing about 1,500 people.

Now, though, downtown faces another challenge. The "big box" or superstores including Borders, ABC Warehouse, Circuit City, OfficeMax, Sam's Club, Wal-Mart, Home Depot and Staples have moved in and are posing yet another challenge for downtown. The first major casualty is Professional Office Supply, a nearly 50-year-old downtown business (with different owners over the years) with two separate storefronts that closed in March 1999 because of the big boxes. Now, downtown no longer has an office supply store. At one point there were two. Cherryland Mall, which opened in the 1970s, is scheduled to be renovated into yet more large, stand-alone stores. The challenge downtown faces is reminiscent of what it faced in the early 1990s with the opening of Horizon Outlet Mall and Grand Traverse Mall, according to Bryan Crough, director of the Downtown Development Authority and the Downtown Traverse City Association.

"We are facing our biggest challenge since that time, and that is the big boxes," he said. "I regret the loss of Professional Office Supply. If I want to buy a box of paper clips, I have to drive out to South Airport Road. Is that good for the community? No -- especially with more offices expected to open downtown."

Actually, Professional Office Supply's demise happened earlier than 1999. Former owner Chuck Jaqua sold the company in 1996 to U.S. Office Products, a firm based in Washington, D.C., in the hopes that merging with a national company would preserve local jobs in the face of the big box stores. He is now the company's area manager in a new location away from downtown that offers only wholesale products. U.S. Office Products pledged to stay downtown for two years and then analyze whether it should stay in that location -- with retail sales in addition to wholesale. Jaqua hoped he could convince the company that downtown was a good place to be. U.S. Office Products, however, determined the bottom line didn't merit staying in the retail business downtown. Jaqua said he would have stayed downtown if he still were in control of the decision. It's an example of how a local merchant is more willing to take less of a profit in order to be a part of a community, and how outside corporations don't have that sense of history or community investment, he said.

"From their standpoint, I don't think they made the wrong decision," he said. "It just wasn't a local decision. We, collectively, as consumers run out to these big faceless corporations, give them all our money and they couldn't care less whether we live or die, for the most part, as consumers or employees."

Today, downtown is dominated by stores that largely appeal to tourists and to local residents for Christmas shopping, entertainment and as a unique place to take visitors shopping, Crough said. What is absent are aspects of a downtown for the everyday needs of local residents and businesses such as an office supply shop and more extensive hardware and grocery shops. Crough believes the pendulum will swing back to include those aspects as downtown sees an increase in downtown office workers and residents with the development of River's Edge and other projects.

Crough, though, faces some resistance to this vision. There are those in Traverse City who oppose the new high rise construction such as River's Edge that Crough promotes, saying it destroys downtown's small town, historic character and leads to too much density. Crough responds that the square footage of buildings in downtown now is one-third of what it was 60 years ago. Some buildings have been torn down for parking lots. Others that were five stories now are two stories because of fire. Despite the differences, the key here is that people on both sides of the debate want to keep downtown vital.

Still, many people aren't conscious about how their own actions affect that vitality. Crough recalled a neighborhood meeting in which residents expressed concerns about increased automobile traffic from high density building projects downtown. The neighborhood group published a newsletter and instead of having it printed at one of the copy shops in the city -- including one in its own neighborhood -- it took it to one of the big box stores on South Airport Road. The reason: It cost less. Not factored in was the extra money and time involved to drive to South Airport Road, the extra traffic caused by the trip, or the impact on downtown and locally owned businesses by taking business elsewhere for a relatively nominal savings.

Having a local currency is one powerful way to help people realize how their actions affect the vitality of downtown and their local business community (see side-bar on Local Currency).

Jody Brown, manager of the Grand Traverse Mall, also supports a strong downtown, saying it is a selling point for him as he tries to lure national retailers. It proves to them the strength of the local market. Indeed, the malls are credited with doubling the Traverse City area's market region -- the area in which 90 percent of the shoppers live -- from 10 counties to 20 and luring others from as far away as Canada. Grand Traverse Mall, owned by General Growth Properties of Chicago, cites a market population of 421,000 that is expected to grow to 454,000 by 2002. The median age in this market is 38, while the average household income is $43,100. Electrical counters at the mall entrances indicate there are about 8 million customers a year. The 650,000-square-foot mall provides between 1,200 and 1,500 jobs and has an average 95-96 percent occupancy rate. According to Brown, expansion was built into the mall design, but there is no set time line to expand. Grand Traverse Crossings, a mall owned by Pioneer Development of Syracuse, N.Y., across the street from Grand Traverse Mall, has a similar market area and number of visitors, according to company officials. Its 385,000 square feet of retail space opened in October 1996 with Wal-Mart, Staples and Toys R Us. Now it is home also to Borders, Eastern Mountain Sports, Home Depot and some smaller chain stores. As of spring, the mall had 20,000 square feet available for expansion with 16,000 already earmarked for construction. Officials at both malls report the national chains sometimes have their biggest sales days in the country in Traverse City. The retail growth in the area since Grand Traverse Mall was constructed in 1991 has been phenomenal. ABC Warehouse also was constructed that year, while Sam's Club was built in 1993, the locally developed Grand Traverse Commerce Center in 1994, Grand Traverse Crossing and OfficeMax in 1996 and Circuit City in 1998.

The debate about whether national chains and malls are good for a community could be never-ending. Still, a growing number of communities and citizens groups across the country believe that supporting a local economy is important. According to the Institute for Local Self Reliance in Minneapolis, at least 10 city councils, including Baltimore, Detroit, Los Angeles, New York City and Seattle, allow their agencies to pay a slightly higher price for goods or services bought from local suppliers. Vermont's land use law, Act 250, allows a citizens board to thwart the construction of a very large retail store if it will have a substantially negative impact on local businesses. In Eugene, Ore., a woman created a service called "Buy Lane County" in which she asks businesses what they purchase from vendors or manufacturers outside the region, and then matches them with local suppliers if they agree it would be good to buy locally, according to the E.F. Schumacher Society in Massachusetts. One bank, for example, previously had its check deposit slips printed in California, even though there was a printer right down the street.

The goal overall is to support a diverse mix of businesses as a base for a strong local economy. A 1993 study of one neighborhood in Minneapolis, conducted by Crossroads Resource Center, showed residents spent an estimated $70 million each year buying essential goods and services that were not available from 247 neighborhood businesses, offices and service providers. This was four of every five dollars earned by residents, causing a severe drain on the local economy.

The reality in Traverse City is that it has a downtown working hard to thrive both as a commercial and cultural center. While it still faces challenges, its ownership pattern remains largely local, its storefronts nearly full and its community engaged in a lively discussion about growth, development and what makes a city vital. While there is no local ownership of the big box stores at the new Grand Traverse Crossing shopping center or the box stores located nearby, Grand Traverse Mall does have 30 of its 100 stores, restaurants and services locally owned. If the residents of the Traverse City area wish to support and build the strength of their locally owned economy, they can.

Sometimes the cost of a loaf of bread, a pad of paper or a pair of socks is slightly higher at the small locally owned store compared to the big national discount store. But small businesses and locally owned businesses spread the dollars around their community at a greater rate than large, national companies, according to both the U.S. Small Business Administration and the Institute for Local Self Reliance in Minneapolis, Minn.

A U.S. Small Business Administration study found that small companies donated more than twice as much to communities per employee than large businesses when in-kind contributions of products and services were added to cash donations. The 1990 study, conducted in four Oregon cities by Oregon State University, showed small businesses donated $789 in cash and in-kind contributions per employee compared to $334 per employee for large companies.

Volunteering also was higher at small companies, with 28.7 percent of employees from small companies volunteering compared to 5.6 percent from large companies. The top volunteers in small and family-owned firms were key executives and owners, who spent more than half their average 135 hours of volunteered time each year as members of boards or as fund-raisers. Volunteers in large companies contributed about double the average number of hours of their small business counterparts, but most of them held a full-time position specifically related to community service.

While no recent statistics are available, there is some evidence in Traverse City, also, that giving is higher among locally owned businesses than the national chains. Bryan Crough, currently the city's downtown director, did a tally in 1990 of program advertisements that year for Old Town Playhouse, where he then was director. Ads from downtown accounted for $18,000. Cherryland Mall, the only mall in existence here then, had ads totaling only $90. Crough also is auctioneer at most of the area fund-raisers for local nonprofit agencies. There, too, he sees local merchants donating goods at a much higher rate than stores in the malls. Chuck Jaqua, former owner of Professional Office Supply in Traverse City, said that as a member of the local Kiwanis chapter he sees about 90 percent of donations coming from locally owned businesses.

Jody Brown, manager of the Grand Traverse Mall, said the mall offers something else important to community groups -- space and exposure to 8 million visitors annually. Rather than make cash donations, the mall typically "partners" with nonprofit groups by offering them a spot for a table or kiosk for a day or a weekend, he said. Examples of those requesting space range from soccer teams to United Way.

According to the U.S. Small Business Administration study, the perceptions in businesses about their levels of generosity did not match the patterns of actual giving. Large businesses believed that they were more generous than small businesses perceived themselves to be.

While statistics are difficult to find on what percent of a dollar leaves the community when someone buys from a national chain, the Institute for Local Self Reliance offered these observations:

Payroll:
Both local and national firms have local payrolls where the money stays in the community. But payroll tends to make up a smaller percent of the budget of large national retailers because they do more sales per employee than local stores.

Cost of Goods:
Both generally purchase goods in national or international But local retailers tend to go through a local (or at least regional) wholesaler, while retailers like Wal-Mart operate own giant warehouses and only have a few scattered around the country.

Cost of Services:
National retailers obviously buy some services, like electricity, locally. But they centralize many services -- printing, financial, legal, accounting, etc -- at their head offices, while local merchants patronize other local businesses for these services.

Profit:
Obviously, profits from absentee-owned retail stores leave the community.

It is legal for communities to create their own currency and in fact there are many examples of this in the United States and countries around the globe. Communities have their own specific reason for creating currency: a shortage of federal currency -- a recession, a way to support locally owned businesses, a measure of local self-reliance, a means of supporting community service organizations and other place-based advantages.

There are several different local currency schemes which are referenced in Jim Crowfoot's article Developing Local Economies and Currencies: Resources for Sustainable Local Communities - Part Five on this CD ROM for further research into local currencies.

Ithaca Hours is one example of a local currency that has been successfully used in Ithaca, New York since 1991. "Ithaca Hours" is the local currency that is used as a means of exchange for some goods and services in Ithaca, New York. It is an example of printed currency that is related to the value of federal dollars. An Ithaca Hour is valued at ten US federal dollars, the average hourly rate of pay in their county.

Local businesses and individuals agree to accept Ithaca Hours as payment for some of the goods and services that they provide. For example, a locally owned restaurant may accept 50% of the payment for your meal in Ithaca Hours and the other 50% in federal dollars. In turn, the owner of the restaurant can go to the local farmers' market and pay for some of the produce in local currency. These transactions using local currency help consumers and businesses trade with local businesses and keep money local.

As not all a community's needs can be provided locally, there needs to be a mix of federal dollars and local currency and the amount of local currency that can be used in a community is an indication of that community's self-reliance or sustainable. The more local currency that can be used for the exchange of goods and services the more self-reliant the community is. It also helps points out opportunities for the establishment of potential business and services that don't currently exist in the community.

One of the main advantages of local currency for the local business owners is that they can accept local currency, while non-local businesses can't. The amount of local currency that a local business can accept is an indication of how much that business interacts with the local economy.

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