Daily Egyptian

Cities are feeling the ‘Net effect

Last week, it was Toys R Us.

Earlier this year, it was Payless ShoeSource, Gordmans and Gander Mountain — to name just a few of the major retailers that have filed for bankruptcy protection in 2017.

Each time, the reasons given are similar: increased competition from online sales and specialty retailers.

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C-U hasn’t escaped this trend, and as spending shifts online, the cities might have to adjust to flattening sales tax revenue.

This past fiscal year, both Champaign and Urbana reported slight declines in sales tax revenue, according to the Illinois Department of Revenue, and neither is expecting big increases this year.

In her most recent five-year forecast, Champaign City Manager Dorothy Ann David said the rate of increase in sales tax revenue has declined.

“Since (fiscal 1988-89), sales tax revenue has grown about 4 percent a year on average. However, in the last 10 years, the average increase has dropped to 3 percent,” she wrote.

“Since sales tax represents almost half of all recurring revenues in the General Operating Fund, a change of just 1 percent has a significant impact on available funds. Every 1 percent represents approximately $360,000.”

When buyers purchase products online, such as through Amazon, state sales tax is collected. Illinois distributes that money back to municipalities based on population, not on where the purchase was made, Urbana Finance Director Elizabeth Hannan pointed out.

“It’s not equivalent for us,” Hannan said.

“Both Home Rule and State sales taxes are underperforming in (fiscal 2016-17) and both are projected to grow by only 1 percent in (fiscal 2017-18),” according to Urbana’s latest budget report. “Without significant new retail development, it is unlikely that sales tax growth will exceed the rate of inflation” in the long run.

Along with cities, both big-box stores and mom-and-pop shops will have to adjust. Some already are.

“That’s the name of the game. Keep changing, keep adapting,” said Dan Epstein, co-owner of Champaign Surplus.

This year, the specialty outdoor retailer founded in 1947 expanded its price-match program, comparing prices automatically instead of the customer having to ask for it.

“People love it,” co-owner Shira Epstein said.

When customers purchase any item over $30, Champaign Surplus automatically checks the price at other online retailers and will match it — up to 40 percent off. The goal: to make shopping in person as convenient as it is online.

Convenience is key, said Frank Liu, a business administration professor at the University of Illinois.

“Moving online is only the surface of the problem. The truth is that consumers are actually moving toward shopping convenience,” he said. “In the future, if another venue of shopping becomes more convenient, consumers may change to the new venue again.”

Amazon has nailed this with one-click purchasing and speedy delivery. Prime members are guaranteed two-day delivery, and last year at the Illini Union bookstore, Amazon opened a pickup location where certain items can be delivered the same day they were ordered.

Liu expects big-box retailers to stick around in this new environment, but said they’ll have to adapt.

“Consumers may not need retailers,” he said. “What they need may be experience, convenience and service.”

He compared the situation to movie theaters, which some expected to go out of business when TVs first became popular.

“At that time, many people believed theaters could no longer compete with TV since audiences can sit comfortably on their living room sofas. However, if we look at the movie theaters today, many theaters are doing pretty well,” he said, with many now offering a deluxe experience with comfortable seating and alcoholic beverages, along with tickets that can be ordered on a smartphone.

Liu suggested that toy retailers add places for kids to play with their toys and computer stores add areas for customers to play with their computers.

Unlike smaller specialty stores, big-box retailers are often burdened by large, expensive physical footprints that make it harder to adapt, Dan Epstein said.

He said Champaign Surplus is constantly changing its product line to accommodate consumers’ changing demands.

“If you look at our product mix versus what it was last year, it’s completely different,” he said. “And that’s a hard thing for a retailer to do.”

Jane Addams Book Shop, founded in 1984, has adapted to the Amazon threat by selling on Amazon.

“We don’t really have to fight against Amazon because we sell through their marketplace, so our books are being seen by all their customers as well,” manager Judy Elmore said. “We’re using them, in a sense, and we’re able to be here for our community for the books that they want.”

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(c)2017 The News-Gazette (Champaign, Ill.)

Visit The News-Gazette (Champaign, Ill.) at www.news-gazette.com

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