Can City Save Boston Store?
City subsidy will keep declining store open, but leaves controversial questions about its downtown strategy.
Across America, the downtown department store is dying.
Sears just announced it will close its downtown Chicago store. Last year, Macy’s closed downtown department stores in St. Louis, St. Paul, Honolulu and Houston. The company closed three other downtown department stores in the prior four years.
Some 30 American cities lack a downtown department store, from Houston, the fourth largest city, to Arlington, Texas, the 50th largest. For that matter, the idea of an enclosed, suburban-style downtown mall seems as dead as the dodo. In 2010, Columbus Ohio dismantled its downtown Columbus City Center and replaced it with a 9-acre park called the Columbus Commons.
Such is the environment in which Department of City Development Commissioner Rocky Marcoux announced a proposed agreement whereby the city would pay Bon Ton Stores Inc. $1.2 million over four years if the company keeps its downtown Boston Store open through January 2018.
Ald. Bob Bauman, whose district includes Downtown, is, to say the least, not sold on the idea. “There are a whole lot of issues here,” he thunders, “and I’m really rather shocked at the vacuum of questions in the coverage of this issue by the media.”
“What is the future of department stores?” he goes on. “Are we just propping up a wagon maker in the age of automobiles?”
But Marcoux who negotiated the deal, says that keeping Boston Store open, while important, is not the key issue. Rather it’s the fact that Bon Ton has its home office here (as well as in York, Pennsylvania), and has 750 jobs in the city.
“We’re trying to keep the 750 corporate jobs here,” Marcoux says. “There’s a significant risk to those jobs if they close the store.” The proposed subsidy would cost $400 annually per job, which in today’s climate of rampant corporate giveaways, is cheap.
The jobs, Marcoux notes, are “overwhelmingly” in the home office, with a minority at Boston Store. “These are very good jobs, they’re the kind of jobs cities compete for.” And should the department store close, he contends, some cities may make an offer to Bon Ton to move its home office elsewhere.
Of course, Bon Ton would still have Boston Stores at Mayfair and Bayshore malls, and it essentially pays no rent for its corporate office, Bauman says. WisPark, which owns the building where Bon Ton and its Boston Store are located, bases the rent on a percent of gross sales, and sales have been so low the rent has been nothing, the alderman says.
Bauman questions what kind of commitment Bon Ton has to Milwaukee. “I’ve never met an official from Bon Ton. They haven’t asked for this money, they haven’t made the rounds of the Common Council, they don’t seem to have a lot of local commitment, their CEO lives in Baltimore and comes here by plane.”
But in the current climate, where cities all compete to offer subsidies, CEOs don’t have to make the rounds of the Common Council. Bon-Ton Chief Executive Officer Bud Bergren has hinted that Boston Store needed help. At a 2011 event sponsored by the Business Journal, he told the audience that Bon-Ton isn’t committed to operating the Grand Avenue Boston Store “for the long run… Right now we’re staying open, but I wouldn’t necessarily guarantee you how long it’s going to be.”
So what’s to stop the company from pulling out of this agreement? “We’re going to look foolish if they file for bankruptcy in two years,” Bauman charges.
Marcoux, however, notes that “the money is based on the number of jobs they keep here. We will do this on a year-by-year basis.”
Bauman argues this sets a precedent for every other retailer in town to demand a subsidy. Marcoux counters that the city will turn down a straight money for retail deal. “We want it tied to jobs,” he notes, again pointing to Bon Ton’s corporate office.
Where the deal looks weakest is in its potential impact on Boston Store. Bon Ton, at first glance, seems like a retail colossus: it operates 270 department stories nationally under several names, including Bergner’s, Carson’s and Younkers, and that includes eight downtown department stores. But Bon Ton’s stock has dropped from a high of $56 in 2007 to just under $11 today, and Morningstar shows it’s debt is ten times higher than the industry average, and its revenue, net income and earnings per share have been in decline for years. TheStreet.com called the company “a retail train wreck.”
Bon Ton has told city officials its downtown Milwaukee Boston Store loses $600,000 annually and has sales of just $45 per square foot, well below $125 per square foot for the company’s average store.
But Bauman says the city is left to take the company’s word for it. “We don’t know how much money they’re losing. So how can you fix something if you don’t know what the problem is? Why are they performing so poorly there? And how will handing them that $300,000 help? They’re not promising to do anything, as I understand it, to improve the store.”
Marcoux says “they are going to make some improvements and we’re going to discuss that at the Common Council meeting.”
But he puts more stress on the fact that Bon Ton’s stores “are very successful at other venues. Their demographics, their customer base, is the kind of people who are moving downtown.” And if Milwaukee, he notes, you’ve got 22,000 people living near Downtown, when you include the Beer Line.” And two more residential developments, at 7th and Michigan, and in the Germania Building, at 135 W. Wells St., are coming.
But all those residents have clearly failed to turn around Boston Store and the Grand Avenue Mall. As I’ve written previously, the attempts of public and private sector leaders to revive W. Wisconsin Ave. have so far not led to any major breakthroughs.
Marcoux says he believes the days of enclosed downtown malls have passed, but the owners of Grand Avenue don’t see it that way, which ties the city’s hands, and stalls potential improvements. “We’ve agreed to disagree,” he says.
But Boston Store, Marcoux notes, has street entrances and could easily make the transition to a street retail strategy, should that day ever come. Meanwhile, Marcoux contends, “an empty store discourages people from coming Downtown. If this deal hadn’t happened, that would be a setback for the city.”
In that sense, the Journal Sentinel headline was exactly right: this is an attempt “to buy time to redevelop” the west side of Downtown. It probably won’t improve anything, but seems more palatable than having a huge, boarded-up store on the city’s main street.
-Bauman contends the plan is really more symbolic to help Mayor Tom Barrett politically “The mayor is running for reelection in a year-and-a-half. Don’t think that isn’t part of the equation.”
“Nonsense,” answers Marcoux. “That’s not how we do work here. I’ve been working on this deal for two years.”
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