Big Box Stores - Core Insights

Big box stores are the logical outcome of a centralized economy and regulatory environment that advantages the kind of efficiency that comes from scale. The outcome is reinforced locally by property tax and sales tax systems and a mindset that labels community members as "consumers" instead of "citizens."

Adding a big box store may be a transaction that, considered on its own, is cash flow positive for the community in the short-term. This is especially true if the store pays for the installation of its own infrastructure. The financial shortfall for the community may happen in the first life cycle, but it generally becomes most acute during the second life cycle, when infrastructure needs to be repaired and replaced and the tax base is not adequate to funding those improvements.

This is because, on a square foot basis, big box stores are inexpensive to build and operate compared to other styles of commercial development. Thus, the overall financial productivity (value per acre) of a big box store is low, while the costs for the community to provide ongoing service and infrastructure maintenance is comparatively high. The property tax system, which discounts investments in land development and taxes inexpensive buildings less than high-quality construction, encourages big box development.

Unlike traditional commercial development, big box stores lack adaptability; it is difficult to turn a big box store and site into another use. Big box stores are built to last 15 to 20 years before needing major renovations. The inexpensive construction, short lifespan, and lack of adaptability, often make it easier for the owner to abandon a big box store in favor of a new location than to undertake rehabilitation.

Local communities that pursue big box development often cite sales tax revenue and job creation as their primary motivation. Sales tax revenue and job creation come in two varieties: (1) those that are merely displaced from other businesses within the community, and (2) those that are displaced from other businesses within the region. The second may have some positive impact for the receiving community (though typically not enough to offset the community's costs), but the first merely moves transactions and jobs from one local business to the big box store.

The gains to local government tax revenue are negated, not only by the increase in long-term liabilities from the site and not only by the distress caused to native businesses, but by the velocity of money leaving the community through the big box store. Cities rely on money being circulated multiple times within an economic ecosystem in order to have a stable and prosperous local economy. Little of what is sold at a big box store, and none of the value added or the profit, creates financial flows within the community. Big box stores are an exit point for local capital.

Courts have upheld that once a big box store is closed, and sometimes even before activity has ceased, the owner can successfully argue that, since their buildings are cheap, difficult to reuse, and not generating any revenue, their property is worth far less than they are being taxed at. This is sometimes called a "dark store" approach. 

Cities concerned over big box stores can, among other things, choose to not zone properties for large lot commercial development, not extend utilities for negatively-returning investments, require form-based architecture that requires fragmented storefronts, require a restoration bond for rehabilitating the property once the store is closed, invest in walking and biking infrastructure that reinforces local economic ecosystems, and use a land tax to properly account for the value of land development.