HomeMy WebLinkAboutEconomic Impact Study Woodland Lakes Mall 1986IMA Inc.
Economic Consulting Services
Professional Services Report
ECONOMIC IMPACT STUDY
Stillwater, Minnesota
June 30, 1986
)MA Inc.
1819 University Avenue
P. O. Box 11295
Green Bay, Wisconsin 54307 -1295
414/435 -6999
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Professional Services Report
The Economic Impact of the Woodland
Lakes Mall on the City of Stillwater, Minnesota
by
JMA Inc.
June 30, 1986
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Table of Contents
Shopping Mall Impact Study
Stillwater, Minnesota
Page
I.
Introduction
I
- Purpose
I
- Approach /Methodology
I
- Overview
I
II.
Evaluation of Developer's Market Research
I
- Introduction
I
- Project Description
2
- Critical Evaluation
3
- Twin City Area Profile
3
- Competitive Shopping Facilities
4
- Retail Sales Potential
4
—Trade Area Definition
5
- Peripheral Development
7
- Conclusions
7
III.
Review of Other Studies
9
- Summary of Findings
9
- Applications to Stillwater
12
IV.
Inventory of Existing Activities
14
- Description of Downtown
14
- Retail Trade
16
- Commercial Mix
18
V.
Trend Analysis
19
- Retail Trade
20
- Retail Establishments Downtown
21
- Non - Retail Establishments Downtown
26
VI.
Activities Likely To Be Impacted
28
- Introduction
28
- National Standards
28
- Regional Standards
33
- Summary and Conclusions
37
VII.
Verification of Impacts
40
- Introduction
40
- General Observations
41
- Market Area
42
- Estimated Impact on Business
44
- Relocation to the Mall
47
- Other Issues
48
- Summary
49
a
i
VIII. Net Impact Analysis
IX. Future Considerations
Table of Contents
(continued)
Page
50
52
II. Introduction
A significant mixed use development is being proposed for Stillwater,
Minnesota. Located at the western edge of the City, near the junction of
Highways 5 and 36, the first phase of the development will include a major
hotel and a regional shopping mall which will be the "centerpieces" of the
overall project. Future development on the 72 acre site will include office
1 buildings and a variety of other retail service uses. The developer of the
property has already received several approvals on the process for the project
and a groundbreaking has been tentatively set for late 1986.
Because of the scale of this development, there is potential for significant
impact on the community of Stillwater. In particular, business owners and
operators in downtown Stillwater have expressed concern that the proposed
development may have negative effects on the downtown area (reduced sales
volumes, store closings, vacant buildings, job losses).
The purpose of this study is to isolate and quantify these impacts and to
determine the overall "net" impact of the project. To accomplish this,
several major efforts were undertaken. These efforts included: the eva-
luation of the developer's market research; the review of other studies of
economic impact; an inventory of existing activities; downtown activity trend
analysis; identification of vulnerable activities; verification of impacts;
and the final statement of economic impact. This report presents the methodo-
logies and findings for each of these major topical areas.
II. Evaluation of Developer's Market Research
Introduction
The first step in the impact study was to review the retail market analysis
prepared by James B. McComb & Associates of Minneapolis. Market research is
-1-
importance.
Project Description
The proposed shopping center is part of a planned mixed -use development
located near the junction of highways 36 and 5 in southwest Stillwater. The
market study basically defines the Woodland Lakes Shopping Center as a two-
level enclosed mall containing 320,000 square feet of gross leasable area
(GLA). The center is planned to have three major tenants, including a depart-
ment store. Other aspects of the overall development are identified: 120
room Radisson Hotel located adjacent to the mall, and peripheral development
including 35,000 square feet of office space, a restaurant, and several ser-
vice businesses in freestanding buildings. However, the analysis does not
address the market for uses other than the shopping mall.
-2-
more of an art than a science. Although
there are certain "scientific"
our primary
methods which can be used in conducting
market research, the number of
define the proposed project, to understand
uncontrollable and unpredictable factors
which affect the ultimate economic
and then to determine the legitimacy of the assumptions upon
activity require assumptions to be made
and a certain amount of intuition to
sions are based.
be used. Good marketing research should
be systematic to the extent that it
could be duplicated by someone else, but
the important thing is that the
that is of
marketing researcher be able to explain
and document the information and
assumptions used in the research process,
and that he /she remain as objective
as possible during the research process.
importance.
Project Description
The proposed shopping center is part of a planned mixed -use development
located near the junction of highways 36 and 5 in southwest Stillwater. The
market study basically defines the Woodland Lakes Shopping Center as a two-
level enclosed mall containing 320,000 square feet of gross leasable area
(GLA). The center is planned to have three major tenants, including a depart-
ment store. Other aspects of the overall development are identified: 120
room Radisson Hotel located adjacent to the mall, and peripheral development
including 35,000 square feet of office space, a restaurant, and several ser-
vice businesses in freestanding buildings. However, the analysis does not
address the market for uses other than the shopping mall.
-2-
Our objective was
not to criticize the McComb study. Rather,
our primary
focus has been to
define the proposed project, to understand
its magnitude,
and then to determine the legitimacy of the assumptions upon
which the conclu-
sions are based.
Admittedly, there may not be much of a functional
difference
between the two;
rather it is the "attitude" of the approach
that is of
importance.
Project Description
The proposed shopping center is part of a planned mixed -use development
located near the junction of highways 36 and 5 in southwest Stillwater. The
market study basically defines the Woodland Lakes Shopping Center as a two-
level enclosed mall containing 320,000 square feet of gross leasable area
(GLA). The center is planned to have three major tenants, including a depart-
ment store. Other aspects of the overall development are identified: 120
room Radisson Hotel located adjacent to the mall, and peripheral development
including 35,000 square feet of office space, a restaurant, and several ser-
vice businesses in freestanding buildings. However, the analysis does not
address the market for uses other than the shopping mall.
-2-
Following the rather generic definition of the shopping mall early in the
report, there is no further detail until tenant mix recommendations are pro-
vided in the concluding chapter. The analysis states that Maplewood Mall is
expected to be the strongest competitor of the proposed Woodland Lakes Center.
Maplewood Mall has 597,000 square feet and includes Sears and Donaldson's as
anchors. Maplewood has a "moderate price orientation" and "good merchandise
operation ". We have assumed that the planned tenant mix for the Woodland
Lakes Mall will be similar to that of Maplewood Mall, with a similar price
orientation and merchandise presentation. Our analysis of the impact on the
downtown will be based on that assumption, as well as the tenant mix recommen-
dations provided near the end of the McComb report.
The lack of specificity in defining the mall project caused us a considerable
amount of concern because the type and size of stores will greatly influence
the ultimate demand by trade area residents.
Critical Evaluation
Our major concerns about the market research are discussed below:
Twin City Area Profile - Chapter 2 of the study is an economic profile of
rthe Minneapolis -St. Paul area. The narrative describes recent trends,
current conditions, and projections for employment, population, and income
for the ten - county Twin City Metro area plus St. Croix County, Wisconsin.
The information presented in the profile shows a healthy and growing eco-
nomy and good potential for future growth. Stillwater and Washington
County are on the far eastern edge of the Twin City Metro area and the
anticipated trade area will not include very much of that metro area.
Rather, the primary trade area will include Washington County (and,
realistically, the northern and eastern parts of the county) and St. Croix
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County, Wisconsin. We feel too much emphasis was given to analyzing
socio - economic characteristics of the larger Twin Cities area, and not
enough attention given to providing a profile of the trade area itself.
Competitive Shopping Facilities - Ten shopping centers, plus the Maplewood
Mall periphery development, are identified as competition for the proposed
Woodland Lakes Center. Downtown Stillwater is not identified as com-
petition for the Woodland Lakes. In the narrowest sense, the central
business district may not be considered "competition" because it is not an
enclosed shopping center. However, because downtown Stillwater provides
many of the same retail goods and services that will be provided in the
mall, and because it is so close, we feel it is a mistake not to include
the downtown in the assessment of competitive facilities.
The study does not identify the proposed Woodbury mall as potential com-
petition, nor could it be expected to, given the announcement of the plans
for the Woodbury facility were made only recently. However, given the
size of the proposed Woodbury mall and the proximity of its location to
the Woodland Lakes site, to ignore it would be wrong. The Woodbury pro-
ject, if developed, would encroach significantly on Woodland Lakes primary
market area.
Retail Sales Potential - A large part of the report is spent defining
socio - economic trends and then retail sales volume, suggesting about
$550,000,000 in retail sales potential within the primary trade area. It
does disaggregate the potential among the various type of retailing to
demonstrate, for example, that the purchasing power for restaurants is
$72,000,000 versus $2,320,000 for variety stores.
-4-
1
While these are impressive statistics, these are demand side figures
exclusively. These simply state that the 142,000 people who reside in the
primary trade will probably spend $550,000,000 for retail goods in 1987
'
(about $3,900 per person). What the research does not at all address is
the supply side of the equation. What is the dollar volume of retail
sales already being provided within the primary trade area? This fact is
essential to properly understanding the likely impact of the mall on the
economy.
It is one thing to say there exists $550,000,000 in demand and only
$300,000,000 in existing supply. It is quite another to say that current
retailers are selling $650,000,000 in goods. The former scenario indica-
tes tremendous opportunities for additional stores, while the latter
implies an operation of the magnitude being proposed will certainly cause
other stores to fail if the mall is successful. According to one source,
Sales & Marketing Management's Survey of Buying Power, there was an esti-
mated $690 million in retail sales in the two - county primary trade area,
suggesting something similar to the latter scenario.
If we are to truly understand the potential impact, the "supply" side of
the equation needs to be determined. Having omitted this critical element
in their market research weakens its veracity. There are other comments
that could be made that are tangential to this, such as:
1. No correlation between locational supply and demand;
2. No analysis of "supply" conditions within the retail category they
are defining as the mall's orientation (i.e. "shopping goods ").
rTrade Area Definition - We question the definition of the trade area for
the proposed mall. We agree that the primary trade area should include
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Part of the rationale for the project's success is that it can /will cap-
ture people on their way into the Twin Cities. This implies the mall is
not a destination point, but rather a "distraction ". Stillwater is the
gateway to the Twin Cities area for pepole from northern St. Croix County
and Polk County, Wisconsin, for example, and the mall will be able to cap-
ture a large share of trade from residents of that area. However, to
expect people in the southern portion of the trade area to "detour"
approximately five miles on their way to another destination is largely
unrealistic. It goes against human nature. Therefore, the trade area
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Washington County and St. Croix County, Wisconsin, except that a high rate
of penetration of the area south of 1 -94 in Washington County is not
likely. The population of Washington County south of I -94 was 46,900 per-
'
sons, according to April 1, 1985, estimates from the Metropolitan Council.
This is about 37.6 percent of the County's total population. Additionally,
there will probably not be penetration in communities in western
Washington County (such as Oakdale), because they are closer to the more
densely developed St. Paul area and have established centers closer by.
Thus, perhaps as much as 50 percent of Washington County's population does
i
not legitimately belong in the primary trade area.
The bulk of sales at the proposed mall would likely be made to residents
of the greater Stillwater area, northern and eastern Washington County,
and in Wisconsin. The map on page 45 of the report shows the primary and
secondary trade areas extending well south of I -94 in Wisconsin, and we
question including these areas. Persons traveling to Minnesota from any
distance in the Wisconsin portion of the trade area south of a line from
Baldwin to Bloomer are likely to use I -94.
Part of the rationale for the project's success is that it can /will cap-
ture people on their way into the Twin Cities. This implies the mall is
not a destination point, but rather a "distraction ". Stillwater is the
gateway to the Twin Cities area for pepole from northern St. Croix County
and Polk County, Wisconsin, for example, and the mall will be able to cap-
ture a large share of trade from residents of that area. However, to
expect people in the southern portion of the trade area to "detour"
approximately five miles on their way to another destination is largely
unrealistic. It goes against human nature. Therefore, the trade area
-6-
boundaries should be adjusted to the north where travelers are more likely
to go to Stillwater as a destination or go through Stillwater on their way
to the Twin Cities.
' The Cub Foods Store is a major magnet � g et for persons living in the antici-
pated primary and secondary trade areas of the proposed mall. The pre-
sence of Cub close by can be expected to help the Woodland Lakes mall,
just as it is presently helping St. Croix Mall and other businesses in the
community. Stillwater, and especially the downtown area, is a destination
for many people because of its location on the river, its historic image,
and the offerings downtown (e.g., restaurants, shops). These factors (Cub
and downtown) tend to extend the trade area farther than it might other-
` wise go, but we feel that the previously - mentioned factors outweigh the
extra drawing power and that the trade area is overestimated.
Peripheral Development - Perhaps the final criticism would be that the
' market research ignores the market potential for the "satelite" sites of
the overall development. Doing so indicates the current developers have
no desire to develop these on their own (i.e., they'll sell these sites to
1 those who wish to build on them) or their plans for the foreseeable future
do not include such developments. Either scenario suggests that the
jactive use of these remote sites is quite a few years into the future.
Consequently, these sites for which office development has been targeted
appear to pose no immediate threat to the office space in the CBD.
Conclusions
Despite the problems we have identified, we feel that the market research
provides sufficient justification for added retail space in the Stillwater
community, currently and for the foreseeable future. The Stillwater Area is
growing as a retail hub. There was 85.8 percent growth in retail sales, unad-
justed for inflation, between 1980 and 1984 in the Stillwater Area, according
to the Minnesota Department of Revenue. Also, the Stillwater Area, including
Bayport, Oak Park Heights, and Lake Elmo, has had an increasing share of all
retail sales in Washington County from 1980 to 1984. In 1980, the Stillwater
Area had 32.5 percent of the County's total retail sales, and in 1984 it had
37.5 percent of the County total.
The market is expanding as well, as demonstrated by population trends and pro-
jections. However, we foresee a smaller overall trade area and, therefore, a
smaller population /household base from which to draw. In our opinion, the
primary trade area would be that portion of Washington County north of I -94
and St. Croix County, WI. The secondary trade area would be a portion of
Washington County south of I -94, plus Barron, Dunn, Pierce, and Polk Counties
in Wisconsin.
e The market analysis recommends a range of retail square footages that can be
supported in the Stillwater community based on sales potential which, in turn,
was based on the larger trade area. Because we feel the trade area is over-
tstated, and for other reasons, we feel that the research's recommended range
of retail space which can be supported (365,000 to 408,000 square feet) is
considerably higher than the amount which can actually be supported.
It is worth noting that there are two other major retail developments planned
in the immediate Stillwater Area. These are the expansion of the St. Croix
' Mall (approximately 130,000 square feet) and the conversion of the former Cub
Foods store to a multi -store retail center (approximately 80,000 square feet).
These developments are not yet a reality, but it would appear that the market
-8-
Iforces are working and that current and short -term projected needs are
' apparently on the way to being met. However, the proposed St. Croix Mall and
former Cub store developments may not have the drawing power of the proposed
Woodland Lakes development.
'
In summary, we agree with the
basic findings of the market
analysis: that a
sizeable amount of new retail
space can be supported in the
Stillwater com-
munity. However, we feel that
the amount of new space that
can be supported
is considerably less than the
amount of space proposed in the
Woodland Lakes
developed.
IIII. Review of Other Studies
Summary of Findings
It is useful to look at the results of other research on the impacts of
' shopping centers on communities and their downtowns. The results of three
recent studies are summarized below:
jTitle - The Impact of Shopping Centers on the Downtowns of Rural Communities
' Authors - Robert A. Chase and Glen C. Pulver,
University of Wisconsin Extension
Date - December, 1981
jApproach - This study evaluates the economic impacts of shopping centers
on the downtown of 12 rural Wisconsin communities (population 2,500 -
15,000). The authors analyzed secondary data to determine: 1) whether
shopping centers were located in communities with growing markets (it is
assumed that the impact will be less in communities with growing markets),
and 2) whether the shopping centers expanded the communities' ability to
icapture growing markets. A survey of 326 businesses in the twelve com-
munities was conducted to determine specific effects of shopping centers
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on downtowns. The authors acknowledge possible limitations of the study
are the relatively small number of communities analyzed and the short time
period analyzed (1 -6 years between 1972 and 1977).
Key Findings - The authors conclude that "shopping center development has
a substantial effect on downtown businesses." More specifically, they
provide the following conclusions.
- The presence of a shopping center does not assure a community that
it will capture its potential retail market. Smaller communities
appear to be losing retail customers to their larger urban neighbors.
- A shopping center's ability to attract customers depends upon the
types of stores it contains. In some trade categories, shopping
centers may help a community realize its trade potential, but in
other categories, they merely introduce more competition for a sta-
tic market.
- The number of downtown retailers remains about the same after a
shopping center is built.
- A large majority of downtown merchants who rented their space had
their rental payments decline (in real terms) after the opening of
the shopping center.
- More than sixty percent of merchants responding to the survey per-
ceived the new shopping center as increasing business competition.
Over half reported relatively constant (43 percent) or declining (9
percent) gross sales since the center's opening. However, these
figures were not adjusted for inflation.
- More than two- thirds of responding merchants indicated that the
shopping center either had a positive effect or no effect whatsoever
on their business.
- Two - thirds of downtown merchants changed store policy, merchandising
strategy, or remodeled facilities as a direct result of increased
competition from the shopping center. Individual responses were
more common than cooperative actions.
- The more frequently negatively affected lines of business were
general merchandise, apparel and accessories, furniture and fur-
nishings, and miscellaneous retail.
Title - An Economic Analysis of the Effects of Shopping Centers on the
Downtowns of Cities in Wisconsin and Iowa
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Date - June, 1982
Approach - This report examines retail sales patterns of downtown shopping
districts, and shopping centers in sixty medium -sized cities (mostly
ranging from 10,000 - 90,000 population and with a minimum trade area of
40,000) in Montana, South Dakota, North Dakota, Nebraska, Iowa, Minnesota,
-11-
Authors - G.C. Pulver, K.E. Stone, and R.A. Chase,
North Central Regional Center for Rural Development
Date - NA
Approach - This study looked at six Iowa cities with shopping centers and
24 outlying villages. Three of the Iowa cities had populations in the
7,500 - 10,000 range and the other three were between 25,000 and 30,000
people. The study followed an approach similar to the Wisconsin study.
Key Findings - In general, the findings are consistent with the Wisconsin
study.
'
- All six Iowa cities experienced real growth in retail sales after
their shopping centers opened, but "trade -area capture" actually
'
decreased in two of the six.
- About 27 percent of the merchants surveyed said they were negatively
affected by increased competition from the new center, while 22 per-
'
cent said they had been affected positively. The downtowns of the
larger cities were more likely to be negatively affected.
- Nearly 97 percent of the downtown stores added merchandise lines and
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60 percent modernized their stores as a direct result of increased
competition. Roughly 40 percent increased their advertising.
However, very few Iowa or Wisconsin downtown stores increased the
hours they are open (7 and 3 percent, respectively).
1
Title - Shopping Centers and Medium -Sized Cities: The Upper Midwest
Experience
Authors - Joan Finch, Upper Midwest Council
Date - June, 1982
Approach - This report examines retail sales patterns of downtown shopping
districts, and shopping centers in sixty medium -sized cities (mostly
ranging from 10,000 - 90,000 population and with a minimum trade area of
40,000) in Montana, South Dakota, North Dakota, Nebraska, Iowa, Minnesota,
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e
Wisconsin, and Upper Michigan. Four periods were analyzed: 1960's the
Y ,
' early 1970's, late 1970's, and past 1979.
- Downtown merchants differ from their shopping center counterparts in
several respects:
1. Downtowns have more activity in furniture and home furnish-
ings and less in apparel and accessories.
2. Downtown businesses are often older, less likely to be
branch or franchise operations, and more likely to be
single - proprietorships or family -run operations.
- In cities with shopping centers opening between 1967 and 1977,
there was greater improvement in sales capture in general merchan-
dise, apparel and accessories, and furniture and home furnishing
categories than in cities without new development.
- Shopping center stores have considerably higher median gross retail
sales and sales per square foot than downtown stores. However, in
the eastern sub - region, which includes Minnesota, shopping center
establishments tend to have lower gross -sales levels than the region
as a whole.
Applications to Stillwater
It is impossible to apply the results of these three studies to draw specific
deductions about the effects of the proposed Woodland Lakes Center on downtown
Stillwater. However, these studies provide an indication of what might happen
in Stillwater if the new mall is built.
A growing market appears to be a primary consideration. If the community's
trade area is growing and will continue to grow, the downtown is less likely
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Key Findings
- This study concludes that, in
general, the effect of
shopping center
development on retail sales in
downtown shopping districts
'
appears to be
negative, but usually only for
the short term. The longer
that shopping
center competition is present,
the greater the downtown's
median sales
foot
per square of retail space.
Other findings include the
following:
- Downtown merchants differ from their shopping center counterparts in
several respects:
1. Downtowns have more activity in furniture and home furnish-
ings and less in apparel and accessories.
2. Downtown businesses are often older, less likely to be
branch or franchise operations, and more likely to be
single - proprietorships or family -run operations.
- In cities with shopping centers opening between 1967 and 1977,
there was greater improvement in sales capture in general merchan-
dise, apparel and accessories, and furniture and home furnishing
categories than in cities without new development.
- Shopping center stores have considerably higher median gross retail
sales and sales per square foot than downtown stores. However, in
the eastern sub - region, which includes Minnesota, shopping center
establishments tend to have lower gross -sales levels than the region
as a whole.
Applications to Stillwater
It is impossible to apply the results of these three studies to draw specific
deductions about the effects of the proposed Woodland Lakes Center on downtown
Stillwater. However, these studies provide an indication of what might happen
in Stillwater if the new mall is built.
A growing market appears to be a primary consideration. If the community's
trade area is growing and will continue to grow, the downtown is less likely
-12-
to be negatively impacted by a new shopping mall. Stillwater's trade area is
growing and is expected to continue to grow in the future, although we have
already stated that we feel the anticipated trade area for the Woodland Lakes
development is overstated.
Although a growing market is necessary for both a downtown area and a shopping
mall to prosper in the long term, a growing market does not assure Stillwater
that it will be able to capture its potential market. The Wisconsin study
showed that smaller communities appear to be losing retail customers to their
larger urban neighbors. Stillwater's proximity to the Twin Cities, and
numerous competitive shopping areas, would make a prediction of a higher cap-
ture rate more risky. As expected, there is also a correlation between the
types of stores in a shopping center and the ability to attract customers.
This remains a major unknown in the Woodland Lakes development.
If the Wisconsin study's findings hold true in Stillwater, we can expect
little, if any, change in the number of stores downtown. According to one
source, there were 94 retailers in downtown in 1985, up from 77 such
establishments in 1980 and 59 in 1975.
While the number of stores may stay about the same, the studies say other
changes can be expected. Rental rates may decline for downtown retail space.
This decline in a key fixed cost could help merchants who rent to remain pro-
fitable or at least to remain in operation. It could also tend to deflate
property values for rental properties downtown as revenue generating abilities
diminish. There are likely to be changes made by merchants in merchandising
strategy, store -front or interior improvements, or increased advertising.
-13-
Downtown Stillwater already has at least two groups in place to identify
necessary changes and to coordinate changes among downtown merchants (i.e.,
the Downtown Council and the newly formed Economic Development Corporation).
The benefits of merchants acting jointly are obvious, as in a mall setting,
but there is likely to be a strong urge among merchants to act individually.
The studies show that general merchandise, apparel and accessories, and
miscellaneous retail are more likely to be affected by the shopping mall.
Apparel and accessory stores and miscellaneous retail establishments are
important in downtown Stillwater, and they are analyzed in another section of
this report. General merchandise retailing is not present in downtown
Stillwater, but is present in the St. Croix Mall development.
IV. Inventory of Existing Activities
Description of Downtown
For the purposes of this study, the downtown area of Stillwater has been
defined as the area within the boundary on Map 1. The downtown includes all
or parts of nineteen city blocks and a total land area of roughly sixty acres.
There is a wide variety of economic activities occurring in Stillwater's down-
town. A survey conducted in April, 1986, identified 192 employers with 1,300
workers downtown Stillwater. Downtown employers represent approximately 34
percent of all employers in Stillwater and 23 percent of all employers in the
Stillwater Area (includes Stillwater, Bayport, Oak Park Heights, Lake Elmo,
and the townships of Stillwater, Grant, and Baytown). In terms of employment,
about one -fifth of all jobs in Stillwater are in the downtown area.
' Table 1 presents a breakdown of the number of employers and employees by
Standard Industrial Classification (SIC) division. Retail trade has both more
-14-
employers (90) and more employees (676) than any other category of activity
present in downtown Stillwater. There are 51 employers with 212 employees in
the "Services" category. Services includes a broad array of activities
including personal services (e.g., laundries, barbers), business services,
repair services, health services, and professional services. Although
"Finance, Insurance and Real Estate" (FIRE) has far fewer establishments than
Services, it has considerably more employees (260). Retail Trade, Service,
and FIRE together account for more than 85 percent of downtown establishments
and employment. However, downtown Stillwater is home to 26 employers within
the broad categories of Construction, Manufacturing, Transportation,
Communication and Public Utilities, and Wholesale Trade.
Table 1
Dowtown Stillwater
Number of
By Major Category
1986
SIC
Description
15 -17
Construction
20 -39
Manufacturing
40 -49
Transportation, Communi-
cation & Public Utilities
50 -51
Wholesale Trade
52 -59
Retail Trade
60 -67
Finance, Insurance &
Real Estate
70 -89
Services
ALL ACTIVITIES
Number of Employers Number of Employees
5 26
9 103
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4 24
8 23
90 676
25 260
51 212
192 1,324
Retail Trade
Because of the significance of Retail Trade as an economic activity in down-
town Stillwater, the distribution of retail establishments and employment by
2 -digit SIC is provided in Table 2. Almost half (47 percent) of the retail
establishments in downtown Stillwater are in the Miscellaneous Retail category
(SIC 59). Miscellaneous Retail includes a variety of stores which do not
readily fit in with another retail category. For example, Miscellaneous
Retail includes drug stores, liquor stores, florists, newsstands, sporting
good stores, book stores, jewelry stores, and other "specialty" stores, many
of which sell "shopping goods" (for which comparison shopping is important).
Miscellaneous Retail stores are typically small (in terms of floor space,
number of employees, and gross sales). In downtown Stillwater, the average
Miscellaneous Retail Store has 2.5 employees. Collectively, Miscellaneous
Retail employs about sixteen percent of all retail employees in downtown
Stillwater.
Table 2
Downtown Stillwater
Retail Establishments and Employment
1986
SIC
Description
52
Building Material & Garden
Supplies
54
Food Stores
55
Automotive Dealers & Service
Stations
56
Apparel & Accessory Stores
57
Furniture & Home Furnishings
58
Eating & Drinking Places
59
Miscellaneous Retail
ALL RETAIL
Number of
Establishments
-16-
4
12
6
15
42
Number of Employees
88
115
15
49
26
277
106
90 676
There is some evidence that downtown Stillwater has more Miscellaneous Retail
activity than might be expected in a "typical" downtown. Roughly one -third of
total Miscellaneous Retail employment is in establishments in the downtown
area. By comparison, downtown has about one - fourth of all retail employment
in the Stillwater Area. Much of the Miscellaneous Retail activity in downtown
Stillwater is oriented to "tourists" or visitors to Stillwater from outside
the immediate area. Miscellaneous Retail in the downtown area is particularly
dominated by antique stores, gift shops, and toy stores.
The largest retail category in terms of employment is Eating & Drinking Places
with 277 employees (15 establishments). Eating & Drinking Places as a cate-
gory includes all restaurants and bars which prepare food and drink primarily
for consumption on the premises. There is considerable variety among Eating &
Drinking Places in downtown Stillwater in terms of type of establishment,
size, bill of fare, price orientation, etc. As with Miscellaneous Retail,
there is more activity in Eating & Drinking Places in downtown than might
otherwise be expected, and a large portion of the market for downtown Eating &
Drinking Places is outside of the Stillwater Area.
In terms of number of establishments, the third ranked retail category is
Apparel & Accessory Stores (12 establishments). However, this category repre-
sents only about seven percent of all retail employment in downtown
Stillwater, and the average store has about four employees. There is a strong
orientation to women's apparel and accessories. There is not a store spe-
cializing in men's /boy's clothing, and there is only one shoe store. Apparel
& Accessory Stores are a major attraction of downtown Stillwater, serving both
local and "tourist" markets.
-17-
downtown Stillwater. Few shopping centers are developed without one or more
department stores as anchors because of their ability to attract shoppers.
Downtown Stillwater's retail mix includes a relatively small number of Apparel
and Accessory stores. Typically, 30 -40 percent of gross leaseable space in a
regional shopping mall is devoted to Apparel and Accessory stores. Apparel
and Accessory stores are important attractions in downtown Stillwater, but the
"underrepresentation" within this category places downtown at a relative
disadvantage in competing with planned shopping centers.
The mix of economic activities in downtown Stillwater also causes some
problems. For example, manufacturing and wholesale trade activities are not
always compatible with Retail Trade, FIRE, and Service uses in the downtown
area. Resulting land use conflicts (e.g., increased truck traffic, outdoor
storage, noise, etc.) may detract from the drawing power of the downtown.
Again, to compare the downtown area to a modern shopping center, such centers
are generally developed as a "planned unit" and uses which are incompatible
with retailing are not permitted. At the same time, the mixture and number of
' activities in the downtown area means a larger daytime population in the
central business district. Employees in an office setting (e.g., Cub Foods
home office) are able to shop during lunch hour or after work.
' V. Trend Analysis
' The purpose of the trend analysis is to determine what changes have taken
place during the past 15 -20 years in the community. In particular, the com-
mercial mix in the downtown area is analyzed. Based on data which document
past trends, as well as information and insights from merchant interviews,
' projections of future activity in the downtown can be made.
' -19-
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Retail Trade
Retail in Stillwater, as measured by volume of sales, has grown steadily
during the past 20 years. According to the Census of Retail Trade, total
retail sales in Stillwater was approximately $21.2 million. In 1982, total
retail sales volume was $104.2 million (see Table 3). The Census data inci-
date that Stillwater's share of Washington County's total sales declined bet-
ween 1967 and 1982. However, since there is a large amount of retail activity
in Oak Park Heights, Stillwater and Oak Park Heights should be considered one
trade center. The Census doesn't provide retail trade figures for Oak Park
Heights before 1982. The Minnesota Department of Revenue's retail trade
figures for Stillwater include data for Oak Park Heights. Retail sales
figures for Stillwater -Oak Park Heights for 1980 -1984 are presented in Table
4. These statistics show that Stillwater -Oak Park Heights, as a trade center,
is gaining a larger share of Washington County's total retail trade.
Table 3
Total Retail Sales (in thousands)
1967 -1982
Source: Census of Retail Trade, for years noted.
-20-
Percent
1967
1972
1977
1982
Change
Stillwater
$21,204
$ 29,918
$ 53,174
$104,170
+391.3
Washington Co.
69,748
128,506
237,780
411,134
+489.5
Stillwater as a
of County
30.4
23.3
22.4
25.3
--
Source: Census of Retail Trade, for years noted.
-20-
Stillwater &
Oak Park Hts.
Washington Co.
Stillwater /OPH
as % of County
Table 4
Total Retail Sales (in thousands)
1980 -1984
1980 1812 1982 1983
$ 80,226 $114,729
271,408 332,537
29.6 34.5
1984
$128,450 $138,660 $150,328
377,692 414,051 436,319
34.0 33.5 34.5
Source: Minnesota Department of Revenue
Percent
Change
87.4
60.8
Neither the Census of Retail Trade nor the Minnesota Department of Revenue
report retail statistics for separate shopping districts (e.g., downtown area)
in small communities such as Stillwater. In fact, little in terms of hard
data is available to analyze trends in downtown Stillwater. A major interest
is the mix of economic activity, particularly retailing, in the downtown area.
City directories were used to determine the number and type of activities in
downtown Stillwater in 1970, 1975, 1980, and 1985.
Retail Establishments Downtown
As shown in Table 5, the total number of retail establishments in downtown
Stillwater increased from 54 in 1970 to 94 in 1985 (74 percent increase). The
total number of retail establishments in Stillwater, reported by the Census of
Retail Trade was 119 in 1967 and 173 in 1982. So, in terms of number of
establishments, downtown appears to be gaining a larger proportion of the com-
munity total. There were very few vacant storefronts in downtown Stillwater
in 1970. The majority of the growth in number of retailers did not come from
new stores occupying vacant retail space, but rather from conversion of space.
-21-
1
1 This included conversion of non- retailing space (e.g., NSP building to Brick
' Alley and the railroad freight building to The Freighthouse Restaurant) and
conversion of retail space occupied by individual stores to house a number of
smaller shops (e.g., Ben Franklin to Main Street Square).
summarized below:
Building Materials, etc.
This category includes lumber yards, paint, glass and wallpaper stores,
hardware stores, garden stores, and related retailing. Within this cate-
gory, the trend has been to fewer establishments. Notable changes include
the loss of a lumber yard and a hardware store. Within the Stillwater -Oak
Park Heights area as a whole, there has been a decrease in the number of
stores in this category.
General Merchandise
General merchandise primarily includes department stores and variety
stores. In 1970, there were five establishments in this category (two
department stores, two variety stores, and a Sears mail -order outlet).
There is some question as to whether the two department stores ( Kolliner's
and Janda's) were, in fact, true department stores. Kolliner's is still
located on Main Street and Martin's has replaced Janda's, but both belong
in the Apparel category. Both variety stores and Sears are gone.
Food stores include grocery stores, as well as "specialty" stores such as
meat markets, bakeries, etc. While there was no net change in the number
of stores in this category, there was a significant change in the mix of
-22-
There have
been some very interesting
changes
in the number
of establishments
by 2 -digit
SIC within retailing (eight
major
categories).
These changes are
summarized below:
Building Materials, etc.
This category includes lumber yards, paint, glass and wallpaper stores,
hardware stores, garden stores, and related retailing. Within this cate-
gory, the trend has been to fewer establishments. Notable changes include
the loss of a lumber yard and a hardware store. Within the Stillwater -Oak
Park Heights area as a whole, there has been a decrease in the number of
stores in this category.
General Merchandise
General merchandise primarily includes department stores and variety
stores. In 1970, there were five establishments in this category (two
department stores, two variety stores, and a Sears mail -order outlet).
There is some question as to whether the two department stores ( Kolliner's
and Janda's) were, in fact, true department stores. Kolliner's is still
located on Main Street and Martin's has replaced Janda's, but both belong
in the Apparel category. Both variety stores and Sears are gone.
Food stores include grocery stores, as well as "specialty" stores such as
meat markets, bakeries, etc. While there was no net change in the number
of stores in this category, there was a significant change in the mix of
-22-
1
stores. For example, in 1970, there were three bakeries and in 1985 there
was one. In general, there has been a trend to smaller specialty food
stores.
Table 5
Number of Retail Establishments
By 2 -Digit SIC
Downtown Stillwater
1970 -1985
Source: Stillwater City Directory, for years noted
JMA Inc.
Automotive, etc.
This category includes auto dealers, service stations, auto supplies, etc.
The trend has been to fewer automotive - related retailers in downtown
Stillwater. The two biggest declines are in the number of gasoline ser-
vice stations and auto dealers.
Apparel & Accessories
There was a net gain of apparel and accessories establishments downtown
-23-
SIC
Description
52
Building Materials, etc.
1975
53
General Merchandise
Change
54
Food Stores
5
2
(5)
5
55
Automotive, etc.
2
56
Apparel & Accessories
3
57
Furniture & Furnishings
--
58
Eating & Drinking
3
59
Miscellaneous Retail
4
4
6
9
+5
ALL RETAIL
Source: Stillwater City Directory, for years noted
JMA Inc.
Automotive, etc.
This category includes auto dealers, service stations, auto supplies, etc.
The trend has been to fewer automotive - related retailers in downtown
Stillwater. The two biggest declines are in the number of gasoline ser-
vice stations and auto dealers.
Apparel & Accessories
There was a net gain of apparel and accessories establishments downtown
-23-
Net
1970
1975
1980
1985
Change
7
5
5
2
(5)
5
6
4
2
(3)
8
3
5
8
--
6
8
3
3
(3)
4
4
6
9
+5
3
3
5
4
+1
8
12
13
16
+8
13
18
36
50
+37
54
59
77
94
+40
Source: Stillwater City Directory, for years noted
JMA Inc.
Automotive, etc.
This category includes auto dealers, service stations, auto supplies, etc.
The trend has been to fewer automotive - related retailers in downtown
Stillwater. The two biggest declines are in the number of gasoline ser-
vice stations and auto dealers.
Apparel & Accessories
There was a net gain of apparel and accessories establishments downtown
-23-
1
between 1970 and 1980. Most of the increase has been in women's apparel
and "specialty" apparel (e.g., sweaters).
Eating & Drinking Places
The number of eating and drinking places downtown doubled between 1970 and
1985. In 1970, the mix of eating and drinking places was dominated by
taverns and cafes (presumably oriented to the local market). In 1970,
Vittorio's was the largest restaurant downtown, but by 1985 there were
several "large" restaurants, (Freight House, Esteban's) along with a
number of smaller cafes /grilles added during the late 1970's and early
1980's primarily to serve the tourist market.
Miscellaneous Retail
The most dramatic change in retailing in downtown Stillwater has been in
the proportion of activity in the miscellaneous retail category. There
was almost a four -fold increase in the number of miscellaneous retail
establishments located downtown between 1970 and 1985.
For the most part, the same basic miscellaneous retail activities in the
downtown area in 1970 were still there in 1985 (e.g., drug stores,
sporting goods, liquor store, office supplies, jewelry). Since 1970,
there have been new establishments in some of these "basic" activities
(e.g., jewelry, sporting goods), but most of the new establishments have
come in activities which were relatively minor or were non - existent in
downtown in 1970. Most notable are the gains in the number of antique
stores, gift shops, and miscellaneous shopping goods.
In summary, retailing in downtown Stillwater has undergone a major transfor-
mation since 1970. Information on the volume of retail sales dontown is not
-24-
available, but the number and type of stores has changed significantly. The
downtown has lost some of its larger stores, but the space they occupied has
been filled in with smaller stores. The phenomenon is not unique to
Stillwater. The conversion of large vacant retail space to "mini- malls" or
specialty centers is occurring in many established shopping disricts through-
out the country. There has also been a conversion of a significant amount of
non - retail space to retailing. The total amount of retail space increased by
an estimated ten percent, while the number of stores increased by 74 percent.
Miscellaneous retail stores accounted for almost all of the net increase in
retail establishments. There was a significant growth in the number of eating
and drinking places and apparel and accessory stores. The growth in these
activities, combined with declines in most other activities has changed the
face of downtown Stillwater. Downtown Stillwater is clearly serving two
overlapping markets: a local market (perhaps a five -mile radius of downtown)
and a visitor or tourist market (which is highly seasonal). This trend has
coincided with a tremendous increase in retail activity along the Highway 36
corridor. This is expected to continue, although perhaps at a slower pace
than by turnover in stores, changing merchandising policies, etc.) is likely
as downtown Stillwater competes with tourist retail districts in other cities
and as the local market increase its spending at Highway 36 establishments and
elsewhere.
The retailers on Highway 36 have established themselves as serving the general
community market, and the retailers downtown are establishing themselves as
serving a market which predominantly comes from outside the immediate com-
munity. This crystallization of market patterns can be expected to result in
the closing or relocation of some of the basic retailers (including hardware,
-25-
available, but the number and type of stores has changed significantly. The
g
downtown has lost some of its larger stores, but the space they occupied has
been filled in with smaller stores. The phenomenon is not unique to
Stillwater. The conversion of large vacant retail space to "mini- malls" or
specialty centers is occurring in many established shopping disricts through-
(
out the country. There has also been a conversion of a significant amount of
non- retail space to retailing. The total amount of retail space increased by
an estimated ten percent, while the number of stores increased by 74 percent.
Miscellaneous retail stores accounted for almost all of the net increase in
retail establishments. There was a significant growth in the number of eating
and drinking places and apparel and accessory stores. The growth in these
activities, combined with declines in most other activities has changed the
face of downtown Stillwater. Downtown Stillwater is clearly serving two
overlapping markets: a local market (perhaps a five -mile radius of downtown)
and a visitor or tourist market (which is highly seasonal). This trend has
coincided with a tremendous increase in retail activity along the Highway 36
corridor. This is expected to continue, although perhaps at a slower pace
than by turnover in stores, changing merchandising policies, etc.) is likely
as downtown Stillwater competes with tourist retail districts in other cities
and as the local market increases its spending at Highway 36 establishments
and elsewhere.
The retailers on Highway 36 have established themselves as serving the general
community market, and the retailers downtown are establishing themselves as
serving a market which predominantly comes from outside the immediate com-
munity. This crystallization of market patterns can be expected to result in
the closing or relocation of some of the basic retailers (including hardware,
-25-
furniture, drugs, food) now operating in downtown Stillwater, even if the P ro-
posed Woodland Lakes shopping mall is not built. It has been and will con-
tinue to be increasingly difficult for these "cornerstones" of downtown
Stillwater retailing to attract the number of people downtown necessary to be
profitable.
Non - Retail Establishments
Downtown Stillwater is a diversified economic center, not just a retail
trade district. There is a wide variety of non - retail establishments in
the downtown covering a broad range of economic activities. Table 6 pre-
sents the distribution of non - retail establishments in downtown by major
category of economic activity.
The number of non - retail establishments increased between 1970 and 1985,
but the increase was considerably smaller than that exhibited by retail
establishments. The most notable trends are summarized below:
1. A 75 percent increase in the number of manufacturing establish-
ments downtown (from 8 to 14). Manufacturing activity is charac-
terized by small operations dispersed through the downtown area.
2. A dramatic decline in the number of Transportation, Communication
and Public Utilities operations. Two large buildings housing such
establishments in 1970 were converted to retail use during the
1970's (Freight House and Brick Alley).
3. A slight decline in Finance, Insurance and Real Estate establish-
ments between 1970 and 1985. Although there was a 50 percent
increase in such establishments during the 1970's, there was a
significant decline during the early 1980's.
4. A significant increase in the number of service establishments
(from 47 in 1970 to 71 in 1980). There were declines in personal
services establishments (e.g., beauty /barber shops, laundries) and
health services and increases in legal services, social services,
and miscellaneous services.
5. A 50 percent decline in the number of wholesale establishments
(including bulk storage, warehousing, etc.).
-26-
Table 6
Downtown Stillwater
Non - Retail Establishments
By Major Category
1970 -1985
The downtown area remains strong in activities which complement retailing
(e.g., services and finance, insurance and real estate). Trends in the
number of non - retail establishments show a movement to a more "consumer -
oriented" downtown (fewer wholesale, transportation /utility activities).
This suggests an improved land use pattern downtown, as well. However,
there has been an increase in the number of manufacturing activities down-
town. This helps to keep the downtown's daytime population up (which may
help retailers), but may also cause problems (e.g., truck traffic, noise,
parking problems) which may detract from the downtown's shopping
atmosphere.
-27-
Net
SIC
Description
1970
1975
1980
1985
Change
15 -17
Construction
1
1
2
4
3
20 -39
Manufacturing
8
13
9
14
6
40 -49
Trans. Comm. &
Public Utilities
14
10
10
4
(10)
50 -51
Wholesale Trade
12
9
5
6
(6)
60 -67
Finance, Insurance &
Real Estate
14
15
21
12
(2)
70 -89
Services
47
45
39
71
24
- --
Other (includes non -
classifiable)
5
4
2
3
(2)
All Non - Retail
101
97
88
114
13
Source:
City Directory, for
years noted
JMA Inc.
The downtown area remains strong in activities which complement retailing
(e.g., services and finance, insurance and real estate). Trends in the
number of non - retail establishments show a movement to a more "consumer -
oriented" downtown (fewer wholesale, transportation /utility activities).
This suggests an improved land use pattern downtown, as well. However,
there has been an increase in the number of manufacturing activities down-
town. This helps to keep the downtown's daytime population up (which may
help retailers), but may also cause problems (e.g., truck traffic, noise,
parking problems) which may detract from the downtown's shopping
atmosphere.
-27-
IVI. Activities Likely To Be Impacted
Introduction
The process of identifying activities in the Stillwater economy that are, or
potentially could be overdeveloped, is summarized in this sector. This pro-
cess consists of two steps. The first looks at those activities which exceed
expected levels of employment based upon national standards of economic per-
formance while the second defines activities at or near saturation levels
based upon regional standards.
Both techniques, while having their own unique limitations, enable a fairly y
concise conclusion as to what economic activities would be most vulnerable to
corrective reductions should an expansion /new location of these activities
occur. Since the primary need for Stillwater is to understand the likely
impact of the Woodland Lakes development, the majority of the analysis will
concentrate on specifying what retailing activities are most vulnerable due to
their "saturated" market condition.
National Standards
A comparison of the Stillwater economy to the national economy is done uti-
lizing employment statistics. These are perhaps the best data available for
such comparisons given the preferred alternative, income data, are difficult
to generate and control. Therefore, employment has become an accepted proxy
for income.
The technique utilized to facilitate the comparison between Stillwater and the
nation is Economic Base Analysis. This technique sets the national distribu-
tion of employment among all of the types of activities as the standard of
performance. Stillwater's distribution of employment in these same activities
is then calculated and compared to the national pattern. Where differences
-28-
I
exist, the City either has proportionately more employees than would be
"expected" or proportionately fewer.
In the former instance, the community is said to "export" the good or service
since local market conditions could not be expected to support such levels of
employment. In the latter case, Stillwater is said to "import" the product or
service since the local market has not responded to local demand conditions
forcing people to procure the good or service from other communities.
It is especially the concept of the export characteristics of the retail
industry of Stillwater that is of most importance. If, for example, the
Woodland Lakes development were to propose an activity that is already an
"export" dependent activity, then the additional activity will require that
all the stores within the overall activity become more dependent upon non -
local sales for their economic survival. While this is typically done, there
is obviously a limit to how extensive the penetration into the larger market
can be. Hence, they become, in total, more vulnerable to contraction.
For definitional purposes, the analysis was done on the Stillwater Area
including Bayport, Lake Elmo, and Oak Park Heights. Therefore, the derivation
of export activities encompasses those activities that depend on a relatively
higher degree on sales to people beyond the greater Stillwater area.
According to the data, the Stillwater Area has 133 different employment groups
as defined by using the 3 -digit Standard Industrial Classification System.
These 133 groups represent about 700 different firms and just over 11,600 in
employment. For an area of the Stillwater area's size and location with
respect to a major metropolitan area, the local economy is quite diverse.
Perhaps even more diverse than would be expected given that the closer an area
-29-
is to a major urban center, the fewer the types of activities they can be com-
petitive with. This could indicate that Stillwater is yet a free standing
relativly self- sufficient economy.
The dominant employers in the area are Andersen, State government, County
government, Cub Foods, Medical facilities, and the school systems. Really,
apart from Andersen, the area does not have a high concentration of employment
in any one or two industries. This, too, reflects on the diversity of the
local economy which should enhance its overall stability /performance
throughout the economic cycles beyond the influence of Andersen (which is
understandably sizeable).
Of the 133 groups of economic activity, 52 of them are considered "export" in
that the percentage of local employment that they represent exceed the com-
parable percentage represented by these activities on the national level. For
these 52 industry groups, the local demand /market conditions could not justify
the levels of employment that they possess in the Stillwater area.
Some of these industries, such as manufacturing, are obvious examples of
exporting industries that ship their product to these non -local or distant
markets. Other industries, like the medical facilities, reflect situations
where the "customer" must come to them, where the "export" depends upon the
market coming to the community.
Obviously, the ability for the former group to expand its market size is con-
siderably greater than the ability of the second group to expand theirs. For
this reason, further expansion of the latter types of activities places the
entire group in the position of having to draw larger and larger market
segments into the community. Since travel costs, competitive locations, and
-30-
price all serve to limit the market size of a community, oo much expansion of
� ex P
an export industry will usually require a corresponding contraction within the
same industry to occur.
Given that the proposed development is predicated upon drawing people to
Stillwater and is to be largely retail, the remainder of the analysis will
focus solely on the Stillwater area retail -based economy.
In the Stillwater area, there are 30 retailing groups present. This repre-
sents about 23% of all the industry groups represented in the area's economy.
Similarly, these activities account for 23% of the area's total employment.
Consequently, retailing is a major force in the local economy.
However, retail industries are normally perceived as local support activities.
The stores, restaurants, etc. are normally perceived to support the residents
who work at the manufacturing plants in the area. They are considered secon-
dary sources of income to an economy vis -a -vis the primary sources of income
available through the manufacturing, mining, and construction sectors.
In the Stillwater area, this is not as true. Fourteen of the 30 retail groups
are export oriented, i.e. depend on a market larger than the Stillwater area.
Therefore, while retail activities account for 23% of all economic groups in
the area, they also comprise 27% of the export industries. This higher con-
centration of export versus total activity strongly implies that the
Stillwater area is the retail trade center for the area which may or may not
be of encouragement to the mall development.
Also, the fact that 47% of all retail activity is dependent in some way on
export (i.e. drawing customers to the area) suggests that the retail trade
-31-
sector is more dependent on outside traffic than the economy as a whole.
While this statistic could reflect on issues such as better - than - average
retail management in the area, it could also reflect on the amount of penetra-
tion the area is obtaining. The greater the current level of penetration into
the non -local market, the less likely it is that additional retail ventures
will significantly improve the drawing power of the area.
The following table lists the retail activities that are already dependent
upon non -local markets for their viability.
Table 7
Retail Activities that are
Export Oriented, Stillwater Area
Activity
Percent Total Employment in Export
Lumber and Building Materials
76.0%
*Hardware Stores
57.4
Nurseries, Garden Supply
83.3
Grocery Stores
31.8
Fruit and Vegetable Stores
98.4
*Auto Supply Stores
51.2
Motorcycle Dealers
42.9
Small Engine Rec. Vehicles
92.8
*Miscellaneous Apparel Stores
87.9
Appliance Stores
59.1
*Eating & Drinking Places
11.4
*Liquor Stores
20.7
Antique Shops
86.8
*Miscellaneous Retail
49.4
*Possible mall tenants
-32-
The preceding table strongly suggests that many of these activities rely on
q non -local demand for the majority of their sales /employment. Adding, there -
ii fore, similar new operations in the proposed mall would most certainly indi-
cate a resultant closure elsewhere. This may occur as a relocation from a
downtown store into the mall or it may take the form of a new entrant into a
market that cannot support one causing the failure of one. Either way, the
area nets new investment and as well as another vacant store front.
Where the vacancy occurs is a matter of judgement. But given that malls have
packaged many of the perceived retailing /consumer advantages, albeit at a
higher cost, it is most probable that the vacancies will occur in non -mall
settings such as the downtown.
Regional Standards
It can be argued that to compare the performance of the Stillwater area eco-
nomy with its high degree of commuting to the national economy which is nearly
closed is somewhat improper leading, therefore, to somewhat inaccurate
results. While the argument has merit, there is still more usefulness from
such a comparison than uselessness.
Nonetheless, to improve accuracy of the analysis, a technique of performance
evaluation based upon "regional" standards was utilized. This technique
acknowledges and incorporates the fact that smaller economic systems, like
that of the Stillwater area, are limited in their development potential by
five key constraints, none of which the community can alter to any significant
degree.
These constraints are:
I. Population
-33-
2. Income
3. Distance to Urban Centers
4. Transportation Linkages
S. Unique Characteristics
These comprise the factors of economic development that a community cannot
control. They are autonomous to the economy and, therefore, do exert a very
direct influence on the character, viability, and potential of the economy.
Since these constraints can be readily quantified, the understanding of econo-
mic performance potential is generated by attempting to duplicate these fac-
tors in other communities within a specific geographic region. Doing so
enables the Stillwater area to gauge its economy based upon the trends,
characteristics, and patterns of like or similar economies. Where noticeable
differences exist in this comparison is where special attention /analysis may
need to be focused.
With the primary purpose of this report to attempt to isolate sectors within
the economy that are most vulnerable to the mall's development, the emphasis
for this analytical tool will be, again, on the retail trade sector of the
Stillwater area economy.
After assessing the "constraints" of the Stillwater area economy, other areas
in the region were studied to determine if the characteristics of the
Stillwater area were shared. This process resulted in the selection of the
four areas listed below. While they are presented by major community, the
economic analysis also included the surrounding trade areas as well.
-34-
Regional Standard Communities
Stillwater
Hudson, WI
Red Wing, MN
Hastings, MN
All of these communities represent relatively major concentrations of above
average income residential development with a major urban center in close
proximity along a highly travelled four lane highway. They are all,
seemingly, constrained by similar factors. Consequently, these economies
should be evolving in like fashion, generating a "regional standard" of econo-
mic performance by which to evaluate Stillwater's economy.
The definition of what actually comprises a "regional standard" is a statisti-
cal definition that embodies the central tendency of like economies to evolve
on an industry -by- industry basis. This permits a sensitivity to variations
caused by such things as culture, differing State laws, and local leadership,
thereby eliminating the expectation that all these economies should be
identical.
Yet, differences beyond the defined central tendencies of economic performance
exhibited by these similar communities are things of special note. Either
they signal areas of new investment opportunities for the Stillwater area
(when Stillwater's employment is low when compared to the others') or they
signal areas where the Stillwater area is developed well beyond what is
reasonable given the performance of the other communities (i.e. they are
"saturated ").
Because the study is designed to isolate what activities locally are or may be
vulnerable to the development of the proposed mall, the focus will be on the
latter use of this technique.
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Utilizing the employment data by the 3 -digit SIC referenced previously, the
following activities in the Stillwater area have been identified as being at
or near saturation given the dynamics exhibited in like economies.
Table 8
Retail Trade Activities At or Near
Saturation in Stillwater Market
Activity Description
Lumber and Building Materials
Retail Nurseries, Lawn and Garden Stores
*Department Stores
Fruit and Vegetable Stores
*Auto Supply Stores
Small Engine Recreational Vehicle Dealers
*Shoe Stores
*Miscellaneous Apparel Stores
*Eating and Drinking Places
*Misc. Shopping Goods (Jewelry, Camera, Hobbies, Toys)
Antique Shop
*Miscellaneous Retail Stores
*Possible mall tenants.
Therefore, of the twelve retail trade activities isolated as being vulnerable
to contraction if the mall were to open, seven of them are likely mall
tenants. It is reasonable to suggest that such a development would, in time,
cause the demise of similar providers elsewhere in the economy. The analysis
suggests these activities could only "survive" if they could significantly
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enlarge their trade areas and penetrate them at a higher level. This, of
course, is likely but not to be counted upon.
It is, too, interesting to note that Department Stores is also on the list of
retail trade activities at or near saturation. In this particular instance,
the Stillwater area would be considered "near" saturation. Its economic per-
formance is above most of the other communities, but not so much so that it
would be considered "overdeveloped ". Yet, it is included on the list because
the announced location of Herbergers and the expansion of K -Mart, when
reflected in the data, would push this activity above the range of employment
expected, given market conditions.
This strongly suggests that the proposed mall with three anchors in the
department store activity would render the Stillwater economy considerably
overdeveloped. While there is evidence to suggest that the anchor locations
improve the market capture rates of all the anchors, the issue of concern is
can a market area support five department stores where it could support only
two in the past?
For all of the activities listed in Table 8, the question is can the
Stillwater economy expect to perform at levels well beyond what is sustainable
in other locations under similar economic forces? In the short run the answer
could be yes, but in the long run, the answer is no, it cannot.
Summary and Conclusions
Two different techniques were employed to assess the economic performance of
the Stillwater area economy. Both techniques, while useful for many other
pursuits, focused on identifying those activities in the Stillwater area that
could not support much additional development when national and regional stan-
dards of economic performance are considered.
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Table 9 presents those activities that were identified as being at or near
saturation on both lists (Tables 7 and 8).
Comparing the two lists yields interesting parallels that suggest the
Stillwater Area economy may not be able to support much additional development
in the activities that are contained in Table 9.
Table 9
Retail Trade Activities
Exceeding National and Regional Standards
Activity
Lumber and Building Materials
Nurseries and Garden Supply Stores
Fruit and Vegetable Stores
*Auto Supply Stores
Small Engine Recreational Vehicles
*Miscellaneous Apparel Stores
*Eating and Drinking Stores
Antique Shops
*Miscellaneous Retail Stores
* Possible mall tenants.
There exists a rather high degree of similarity between these lists which
should tend to justify the concern that there will be a negative impact asso-
ciated with the mall's development.
In addition, several of the activities that made only one of the two lists
should also be viewed with concern. Being on both lists removes all doubt,
but since the City is concerned with what could happen, it is sufficient to
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have an activity appear on only one list to justify City involvement in an
ameliorative "plan ".
Under this scenario, then, the target list of vulnerable activities should
also include department, shoe, appliance, and hardware stores, in addition to
hobby, craft, jewelry, and game stores; all of which are typical mall tenants.
As the developer has already disclosed information concerning the types of
tenants likely to be included in Woodland Lakes, the success of that venture
will impact on current providers of those goods. The extent of impact is yet
to be determined, but is likely to result in employment reductions at some
stores and the probable closing (or relocation) of others. Some of the
impacted categories are not currently represented in the downtown area. Yet
for the others (restaurants, miscellaneous retail, craft stores, jewelry,
apparel, etc.), they are in the downtown, and if they close and /or relocate to
the mall, the City will have more vacant store fronts to deal with.
While there is evidence to suggest that the mall will, in fact, draw more
people to Stillwater, they are not likely to frequent or patronize establish-
ments beyond those in or near the mall. A partial answer to the downtown's
viability may, then, be to be "linked" to the mall via special transit con-
siderations that would boost the tourist appeal of the entire area (e.g.
trolley cars ?). This is not a part of this study's objectives, but is raised
solely as a "think piece ".
It is certain that an impact which is likely to be expressed in increasing
rates of failure of retail ventures and in more vacant store fronts.
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VII. Verification of Impacts
Introduction
In the previous sections of this report, we focused on a statistical, quan-
titative delineation of the Stillwater market and a definition of those acti-
vities that appeared to be most vulnerable to the successful operation of the
Woodland Lakes Mall. This analysis led to the identification of several
retailing activities apparently at or near saturation, given the charac-
teristics of the Stillwater market.
The purpose of this section is to present the findings of the Verification
phase of the total project. In this phase, we met with owners /operators at or
near saturation. The intent was to obtain "hands on" opinions and facts con-
cerning the legitimacy of including their industry(ies) on the "vulnerable"
list and to obtain their projection of the impact of the mall on their busi-
ness.
In total, we met with fourteen businesspeople representing clothing stores,
shoe stores, restaurants, drug stores, gift shops, sporting goods, hotels,
department stores, and jewelry stores; the activities most vulnerable to the
mall's development.
The bulk of the conversations took place the week of June 9th, 1986, after the
Council had given final PUD approval to the mall. The timing caused moderate
amounts of disinterest in some businesspeople, feeling that the City basically
authorized the construction to begin so "what difference does our input make ".
As purely an editorial comment, the City's action on the PUD request did
increase the difficulty of obtaining useful information and has created a per-
ceived aura of disinterest by the City toward the downtown merchants.
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I
For the interviews, a series of five basic questions were asked of each busi-
nessperson. From there, the conversation was allowed to flow freely in order
to elicit opinions and /or facts unique to each of the respondents. On
average, about one hour was spent with each person.
The five main questions were:
1. General observations with respect to the mall.
2. Market area for their store.
3. Estimated impact of mall on their business and local industry.
4. Possibility of relocating to the Mall.
5. Availability of an income statement.
In addition, we also made time available for unique considerations which will
be summarized herein as well.
General Observations
It is fair to say that most, if not all, of the local businesspeople are
bewildered at the proposed project. Most believe that the area cannot support
a project of that scale feeling that the Stillwater economy is "over- retailed"
to begin with.
Compounding this belief was the frequent reference to the St. Croix Mall
expansion and former Cub Food renovation which, when added to the Mall, will
bring over 500,000 square feet of new retail space into Stillwater. This
represents about a 30% increase in retail space in a period of about one year.
A sizeable injection into the economy in a rather brief period of time.
The developer sponsored notion that the Mall will enlarge the market area,
draw significant numbers to Stillwater, and thereby, add to the traffic for
all of Stillwater's commercial sector is not a vision shared by the local
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businesspeople. Their opinion is that the retail "pie" will be cut again,
leaving everyone with a smaller piece. Traffic may increase, but not propor-
tional to the increase in supply.
To some, this inevitability brings concern, to others it represents a
challenge: one that will be met. Their overriding concern, though, was not
so much the question of could they "weather" the Mall, but rather, could the
downtown survive?
Several businesses suggested they would be far more vulnerable to a "major"
store closing in the downtown than by the advent of the mall. The loss of the
"magnet ", the loss of the resultant traffic would do far more damage than the
location of a facility several miles away. Yet, it must be recognized that
some of these magnets " are highly vulnerable, too, and these could easily
trigger the now famous ripple effect. Unfortunately, this scenario tends to
disguise the true source of the failures, i.e. the mall's location.
Their direct encouragement was to keep the downtown viable by solving key
problems of truck traffic, parking, and overall appearance. This, they
believed, would continue to provide a solid market base for them to access
since the "river" is such a drawing card for the downtown.
In conclusion, it is widely felt that the Mall is not justified based on
market conditions, but that some sort of development is likely to occur on the
"hill" anyway. Subsequently, they are preparing to compete and, with
assistance from the City, are prepared to accept the challenge to their
businesses.
Market Area
This question was asked, in part, to understand where the clientelle that
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patronize the downtown merchants originate, but also, in part, to test the
observations held by some that "no one in Stillwater shops downtown" and that
"downtown Stillwater is not competition for the proposed mall ".
It is somewhat obvious that the market area is determined by the type of store
being evaluated. Gift shops tend to have a much broader geographic market
while drug stores are rather concentrated. Nonetheless, it is possible to
develop a composite market area for the Stillwater downtown recognizing that
any one individual market may not share the same concept.
In general, it would appear that the primary market for the Stillwater down-
town is Stillwater, its neighboring towns and villages principally to the
north and south along the River, and the area defined by North Hudson, New
Richmond, and Somerset, Wisconsin. Selected activities have regularly
penetrated to River Falls and similarly more distant areas, but the major
market for Stillwater is about 15 miles almost in a semi - circle to the east of
the City.
Within this market area, the concentration of customers is found in Stillwater
and its immediate environs. With the obvious exception of the hotelling
industry, most of the businesspeople indicated that between 40 and 65% of
their market is comprised by Stillwater residents. This appears as true for
restaurants as it is for clothing stores. A fact that tends to refute public
comment on the role and usefulness of the downtown to Stillwater residents.
In the characterization of their market, there evolved one interesting comment
that deserves mention. While the demographic characteristics of each activity
is somewhat unique, the more established stores (as opposed to restaurants),
suggested their customer base tended to be older than the population at large.
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This phenomenon might reflect the lifestyles of the older population having
grown up basically totally oriented to the downtown as THE center of activity
while the younger adults have been nurtured on shopping centers and malls.
Eventually, this demographic reality will expedite the demise and /or further
the restructuring of the downtown. This will be true unless the merchants
succeed on a long term advertising campaign aimed at re- educating the younger
population on the uniqueness of the "downtown experience ". Doing so may be
the single -most important action to preserving the function of the downtown.
In summary, the market area for the Stillwater downtown is primarily
Stillwater and points largely north, south, and east, all within 15 miles from
the City. Stillwater residents comprise at least 50% of the sales experienced
by the majority of the merchants resulting in the downtown being a significant
source of goods for the area.
Estimated Impact on Business
This, perhaps, represents the most salient concern for the entire study.
Downtown retailers have already expressed concern over the ability of the
market to support additional retailing ventures especially the magnitude being
considered for the Woodland Lakes Mall. Therefore, it comes as no particular
surprise that the merchants believe the mall will significantly reduce their
sales.
What is perhaps more valuable is the fact that several of the retailers own
stores in other locations that, too, were impacted by new mall projects. This
gives them practical exposure to the impact of the mall on their sales.
Consequently, many of the answers as to the impact of the Woodland Lakes Mall
on their sales are rooted not in an emotional observation, but rather in the
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knowledge gleaned from similar experiences elsewhere. This tends to improve
the credibility of their estimates.
Actual estimates of the economic impact of the mall on downtown merchant's
sales varied depending upon the type of activity. Gift shops suggested the
impact would be rather minimal, perhaps reducing the rate of growth in their
sales or, at worst, causing a minor decline (5 %). Similar estimates were also
forwarded by the other miscellaneous shopping goods. In all these cases, the
respondents felt that they were typical of their industry and, therefore, did
not expect other like business plans to be much differently impacted.
For the majority, though, of the other stores contacted, their prediction of
impact on sales were startlingly consistent. Nearly all suggested sales
reductions of 20 -25% in the first year was all but assured. This was true of
the clothing stores, shoe stores, sporting goods stores, department stores;
they all shared this belief /expectation. Again, many of these had a com-
parable experience with operating a store where another mall had located.
It is quite reasonable to assume that such a sales drop would dictate
employment reductions in all these firms. For several, though, the prospect
of closing in the face of such severe reductions is all too real.
Income statements obtained from several of the participants tend to legitimize
this concern. Most indicated that their sales had been largely stable or even
declining in the last two to three years. This fact is cause for concern and
may be reflective of the condition that the Stillwater market is not growing
or is growing more slowly than the supply of retailing options. In either
case, the operation of the mall will exacerbate this erosion in profitabi-
lity, furthering the turnover and failure of firms in the downtown area.
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When collectively asked to speculate on which activities in the downtown, they
perceived as most likely to cease operations if the mall were to open, they
were in near total agreement suggesting restaurants, clothing stores, and
hardware stores would lose operations in the downtown. This, of course, does
not make it so, but the collective insights of such experienced businesspeople
are hard to dismiss as meaningess conjecture.
An appropriate question is when will the visual proof of these impacts be
experienced? For some operations, "closing the doors" and /or noticeable
employment reductions may occur within twelve months of the opening of the
mall. But for most firms we talked to, they are likely to be able to continue
in business for three to five years after the mall opens. The reasons for
this can be captured as follows:
I. Survival instinct of the owner.
2. Most own the building they are in and, hence, they can forego a
return on that investment for a period of time.
3. Some have their living quarters in the same building as their business
and can reduce overall costs to the owner;
4. As the owner, they can reduce their salary or even forego it to help
stabilize the business.
All of these factors, as well as additional ones unique to each owner of the
threatened business, will tend to temporaly remove the closing of their opera-
tion from the opening of the mall. This tends to lessen the apparent impact
of the mall although its location set into motion the events that culminate in
the loss of a business up to five years later. The City cannot lose sight of
this reality even though "closed" signs do not "spring up overnight" in the
downtown.
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In concluding this section, the mall's impact on downtown merchant's sales
vary by type of activity, but is likely to average about a 15% reduction for
the vulnerable businesses. For many reasons, this reduction will not imme-
diately cause store closings, although corresponding employment reductions
will tend to occur more quickly.
Relocation to the Mall
Another factor that will contribute to vacancies in the downtown is the relo-
cation of the business from the downtown to or near the mall. It is easy to
recognize that store failures will create vacancies, but the issue of reloca-
tion to or near the mall may be the most significant source of vacant store
fronts in the downtown.
Almost 40% of the businesses contacted had either been approached by the mall
to relocate or have contemplated such a move on their own. Some of these
would apt for an expansion to another outlet, but most are considering a pure
relocation to the "hill ".
Several reasons were given for this contemplative action, but they all focus
on the single issue of the "hill" being a superior location. Traffic volumes
are more favorable, parking is abundant and free, visibility is improved, and
there are more traffic generators there.
These are all normal economic incentives to the mobility of capital investment
- capital tends to seek the areas of highest return. In a sense, this has
been the force that the downtown has been fighting for 10 to 15 years now.
The location of the mall, then, is just another drawing card for the "hill"
which will increase the attractiveness of investing on or near it with respect
to the downtown furthering the functional change in the downtown witnessed
over the last decade or so.
1 -47-
By permitting such development, the City has created additional economic
reason to not be in the downtown. Several merchants are aware of this and are
testing the feasibility of shifting their investment from the downtown to the
"hill ".
The challenge, then, to the City is to attempt to somehow offset the economic
forces it has spurred on by channeling dollars, improvements, and assistance
to the downtown area. Such concentrated efforts will be necessary to minimize
the adverse impact on the downtown.
In summary, relocations of existing downtown merchants to the mall area may
have a more immediate and noticeable impact on the downtown than the impact
created by store failures. A significant number of downtown merchants are
looking at the "hill" as a better place to do business. The City can actively
participate to ensure the viability of the downtown.
Other Issues
The interview of each merchant needed to include the above concepts. Yet, as
we talked through the entire process, many other salient points were brought
up by the businesspeople. Some of these merit presentation herein.
- Many of the merchants were frustrated with the lack of information on
the mall project itself. As discussed earlier, this has definitely
thwarted their ability to develop a business strategy in light of the
new competition. This type of uncertainty will heighten risk and emo-
tional levels.
- Some who have more experiences with other mall projects /operations do
not believe it a reasonable assumption that the mall developer will be
able to attract up -scale anchors, unless they are completely new to the
Midwest.
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•- The success of Woodland Lakes may be more of a function of its ability
to stop Wisconsinites from going to the Maplewood Mall rather than
increasing the market area of the City. This implies they feel the mall
may enable the Stillwater economy to effect higher market area capture
rates than currently being experienced.
- Relatively low lease rates in the downtown will act to inhibit reloca-
tions. Some rates are as low as $3.50 per square foot per year, while a
"normal" rate might be considered to be between $9 and $11. Preliminary
lease rates at the mall are hypothesized to be between $15 and $18 per
square foot per year, which is 70 to 80% higher than existing.
- The City needs to be more proactive in helping the downtown merchants,
especially in constructively dealing with the challenges to be brought
on by the highway rework and eventual bridge relocation. Profit margins
are too slim to be able to absorb prolonged periods of lower traffic
volumes.
Summary
Based upon the verification process, the adverse impacts of the mall will
cause about 60 to 75 jobs to be lost in the downtown and will cause the
vacating of three to five storefronts due to failure of the business and,
perhaps, an additional two to four due to relocations.
Much of this will not occur immediately and, as a result, will not appear as
being severe. Rather, the impact is more likely to be expressed in higher
rates of turnover in ownership of businesses, an occasional closure, and
supressed property values for the downtown.
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The construction of the mall will accelerate the trend that the downtown has
witnessed over the last fifteen years - away from being the source of major
purchases toward a more tourist orientation.
VIII. Net Impact Analysis
The preceeding has set to establish the negative impacts likely to result from
the mall's opening. Given market conditions, it is reasonable to project
significant losses in employment and retail opportunities downtown. Yet, this
"cost" needs to be compared to the "benefit" derived from the mall before a
final determination of the wisdom of proceeding with the project can be made.
We have requested and received from the developer their statement as to pro-
jected levels of employment in the mall. When combined with the tax base
information contained in the TIF documents, enables us to present the antici-
pated positive impacts of:
- 390 new jobs
- $15,000,000 new investment
- $620,000 in tax revenue
Please recognize that these are estimations of a finished project. The pro-
ject scope has already been revised and is likely to be done so again - most
likely to be smaller. Consequently, these figures must be discounted somewhat
when estimating the net economic impact of the project.
However, even with this consideration in mind, the net economic impact will be
positive, as demonstrated on the following page.
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Table 10
Net Economic Impact
Jobs Investment Tax Revenue
Woodland Lakes ( +) 390 $15,000,000 $620,000
Downtown ( -) 75 - -- - --
Net Change 300+ $15,000,000 $620,000
If the mall succeeds (and this assumption is being seriously questioned by
many observers), the additions it will bring to the economy are likely to out-
weigh the costs. The magnitude of the difference is such that the margin of
error in either or both projections could be intolerably large and it would
still cause an overall net positive impact of the development.
There is, of course, more cost than just economic ones. For the people who
are forced to close their store, the loss is immeasurable, both financially
and psychologically. The City needs to be sensitive to this reality.
In addition, while no change is given to the downtown for investment and tax
revenues in the previous table, it must be recognized that tax delinquencies
are likely to increase as operating margins become increasingly stressed and
the City will likely suffer from stagnant property values in the downtown.
This will cause more longer term disruption to City revenues since inflation
will erode the value of the tax revenues coming from the downtown. The City
can establish a price or value that they feel fairly captures these impacts.
Finally, the location of the mall appears to bring with it related activities
that the City will, most likely, have to finance. This would be the financing
of major improvements to help keep the downtown viable. One might argue that
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these expenditures would have had to occur eventually anyway, but the mall
definitely establishes such expenditures as a near term priority for the City.
Yet, despite these realities, proceeding with the Woodland Lakes project will
have a positive economic impact on the City of Stillwater.
IX. Future Considerations
Without significant elaboration, we'd like to try to present action items that
can be undertaken to help to preserve a viable downtown. The City's planned
use of TIF dollars to pay for downtown improvements is a commendable action
and more such activities are necessary. In a similar fashion, the recent
organization of the Stillwater Economic Development Corporation (SEDC) by the
area businesspeople is a positive step to focus attention on the downtown.
Additional actions in this vein are presented below.
City
- Devise a downtown improvement plan.
- work with SEDC on needs
- public improvements by
location and cost.
- "theme" designation.
- facade improvements.
- seed capital fund.
- Adopt TIF plan.
- schedule improvements
- commit financing
- Assist in development of north
portion of dowtown.
- Enhancing waterfront.
- Informing SEDC of highway and
bridge project schedules.
- Traffic and parking.
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Merchants
- Organize Co -op marketing, adver-
tising program.
- Develop a capital pool to support
redevelopment efforts with area
financial institutions.
- Incorporate recommendations of
previous studies (business hours,
signage etc.).
- Identify entrepreneurial talent
for new ventures.
- Traffic and parking.