Pups Takes On the Wolf

By Tom Charlier
– The Commercial Appeal –

Don and Mary Livingston strolled into Wolfchase Galleria partly glad to be there and partly glad they’ll never have to come back.

For all its snazzy 1.1 million square feet of retail space, Wolfchase is a long trip for the Livingston’s who live in DeSoto County. But just nine miles from their Nesbit home, a regional retail center will open soon featuring some of the same stores the couple had traveled nearly 40 miles to visit in Wolfchase on a recent spring day.

“Obviously, we would go there,” Don Livingston said of the Southaven Town Center project.

People like the Livingston’s represent a potential nightmare for the cash-strapped City of Memphis and its retail establishments.

With major regional centers in Collierville and DeSoto County slated for completion this fall, and another DeSoto project still in the planning stages, retailers and government officials are bracing for a drain on the shopping traffic and tax revenues that traditionally flowed to Memphis.

Local malls recently cited competitive pressures from soon to open The Avenue Carriage Crossing in Collierville and Southaven Towne Center as they appealed for property tax relief.

And at a commercial property “forecast summit” conducted in February, attendees heard projections that Wolfchase could lose 20 percent of its business, at least temporarily, to the new competitors.

Additionally, Memphis officials say they plan to adjust their revenue projections downward for the coming fiscal year because of the new retail centers.

“We’re very concerned,” said Charles Williamson, finance director for the city.

“There will be some erosion happening. They’ll both have an impact on us.”

Memphis, which already has imposed painful cuts to balance its fiscal 2005 budget, depends heavily on sales and property taxes from malls like Wolfchase, Hickory Ridge, Oak Court, Raleigh Springs and Southland.

This fiscal year, the city expects to collect $98.6 million in local sales taxes from all types of commercial establishments. That’s nearly 20 percent of its total $495.7 million in projected revenues.

The problem facing Memphis is known as “retail leakage,” and it’s not entirely new. The city has been hemorrhaging retail business to suburban areas for decades.

But with the recent explosive growth of DeSoto and Collierville areas, more and more suburban shopping centers are “intercepting” traffic that used to come to Memphis, said Larry Henson, vice president of research at the Memphis Regional Chamber.

A chamber study a couple of years ago provided a glimpse of how much business has been lost.

Surveying license plates at a big-box retailer off Interstate 55 in Southaven, chamber officials found that shoppers had come from deep in the Delta.

“It was remarkable how far down into Mississippi that trade area reached,” Henson said.

“The growth of sales taxes in DeSoto County has been phenomenal. Of course, it’s been at the expense of Shelby County.”

And the type of regional centers planned at Southaven Towne Center and the Avenue Carriage Crossing will have even a “much greater reach” than big-box retailers, Henson said.

The extent of that reach was shown in projections made by Collierville officials last week that during the 2006-2007 fiscal years The Avenue Carriage Crossing will generate $2.7 million in sales, property and business tax revenues for the town.

“Sales tax revenues that would’ve gone to the City of Memphis will not go to another municipality,” said Jeff Wallace, a senior research association with the Sparks Bureau of Business and Economic Research at the University of Memphis.

As to which area of Memphis will be affected most, Wallace said his “gut feeling” is that the new centers will do the most harm to Hickory Hill. Its retailers stand to lose customers from both the east and south.

But Hickory Ridge Mall general manager Patrick Jacobs said he’s not too worried. Recent marketing efforts to recast the mall as a neighborhood retail hub, focusing on a smaller market area, should insulate it from the new center, he said.

“These new projects, because they’re outside that circle, so to speak, will have minimal effect on us,” Jacobs said.

How great of an effect the new centers will have on Wolfchase also is uncertain, although analysts agree the giant mall, which greets 10 million shoppers a year, will take a hit. Fritz Mattern, director of retail leasing for Boyle Investment Co. said The Avenue Carriage Crossing will do the most damage. It will siphon customers from Wolfchase’s current market area in East and Southeast Shelby County.

“It’ll be the new kid on the block. People will want to see it,” Mattern said.

Still, the losses should be largely temporary for Wolfchase, he said. The mall has great drawing power because of its location bordered by Interstate 40, U.S. 64, Germantown Parkway, and acres of outlying retail developments.

“They’ll be fine,” Mattern said.

“They’ll have a year where they’re hit hard. (But) they’re well positioned. This will be a short-term experience for them.”

Wolfchase officials concede the new centers particularly the one in Collierville will have an impact. In fact, general manager Keith Stewart told City Council members late last year that about 30 retailers in the mall already had signed up for sites in the Collierville center.

But, like Mattern, mall officials say losses will be largely temporary.

“People will definitely flock to it,” Wolfchase marketing director Naja Dollar said of The Avenue Carriage Crossing.

“But once the newness wears off, a great majority of that falloff will come back to Wolfchase.”

Still, fears about the new competition prompted the owners of Wolfchase, Hickory Ridge, Oak Court, Raleigh Springs and Southland malls to seek legislation allowing them to benefit from the same kind of tax breaks often given to commercial and industrial properties. The payment in lieu of tax initiative would freeze property taxes at the assessed value of the land.

Last month, Wolfchase, the most expensive property on the Shelby County tax rolls, also won modest reductions in property tax appraisals for three years ending in 2003. A state administrative judge ordered the appraisals reduced from an average of $132 million for the period to between $115 million and $124 million. Mall owners had wanted the appraisals reduced to an average of $73 million.

Dollar said that with the tax relief efforts, the mall is “proactively trying to be competitive and keep our costs in line with what they are across the nation.”

Analysts and local officials agreed that retail centers in Memphis are at a competitive disadvantage when it comes to taxes. Not only are property taxes higher in the city, but surrounding states have lower sales taxes – an inducement for shoppers to go there.

“We already have leakage of sales tax revenues to surrounding states,” said Williamson, the city finance director.

But Wallace, at the U of M wonders when retailers will discover there is a large market in Memphis that could support new retail establishments in the city.

“There is money in the city of Memphis, but sometimes it seems retailers aren’t willing to go after it,” he said.