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July 13, 2005
Thinking Outside the Big-Box: Report Suggests Smart Growth for Retailer Siting Decisions
    by William Baue

Domini Social Investments and Christian Brothers Investment Services provide retailers nine recommendations, examples of best practice and cautionary tales, and helpful resources.

Last year, the National Trust for Historical Preservation placed the entire state of Vermont on its list of the Eleven Most Endangered Historic Places due to development by Wal-Mart (ticker: WMT) and other big-box retailers. Wal-Mart has created negative publicity through several unsuccessful attempts to skirt community zoning regulations. For example, it proposed building two side-by-side stores in Dunkirk, Maryland to bypass a size-limit, and it tried to circumvent an Inglewood, California ordinance requiring public review and approval of megastores through a referendum that was ultimately defeated by voters.

"We decided to move through a process that didn't go through city hall," said Wal-Mart CEO Lee Scott. "We paid a price for that . . . It comes across not as good business; it comes across as arrogance."

Addressing the increasing social and environmental siting risks facing major retailers, socially responsible investment (SRI) firms Christian Brothers Investment Services (CBIS) and Domini Social Investments issued a report yesterday recommending nine policies to mitigate such risks. What inspired report authors Julie Tanner of CBIS and Kimberly Gladman of Domini was the spate of media reports on controversies surrounding big-box retailer expansion plans.

"We started to do some research to see how prevalent these cases are, and we came upon so many stories about community opposition," Ms. Tanner told "We found all these restrictions that communities are imposing on retailers, and then we looked at how a lot of these retailers plan to grow by expanding."

The report cites a 2005 Bernstein Investment Research and Management report finding a 60 percent increase since 2000 in instances where communities successfully blocked retail store openings, with an annual blockage growth rate of 21 percent between 2002 and 2004. This trend runs directly counter to retailers' profit-growth-through-expansion plans.

"When we started to go on the company websites, we were not able to find guidelines or plans to address these risks, so we thought, hey, we'll do the first draft," Ms. Tanner said.

The report, entitled Outside the Box: Guidelines for Retail Store Siting, proposes nine policy guidelines. These include social and environmental due diligence; transparency; community consultation; relations with governments; respect for indigenous cultures; preservation of cultural heritage; environmental stewardship; protection of biodiversity and natural heritage; and smart growth.

Each guideline is accompanied by a series of best practice examples and cautionary tales, as well as a list of resources. An example of best practice in transparency is the "Sustainable Real Estate Development & Design" section of the Target (TGT) 2004 Corporate Responsibility Report, which outlines the company's environmental due diligence procedures, among other disclosures. However, even this best practice example falls far short of the comprehensive policy recommendation.

Companies who are not even this far could get up to speed with Target by reviewing the environmental due diligence report by the UK arm of KPMG, which surveys environmental and social risks at 105 of Europe's top 500 companies. As with many of the resources, it does not pertain directly or exclusively to retailers, but they can apply the findings to their own business models, just as Mss. Tanner and Gladman note that their guidelines are not intended to be proscriptive but rather advisory.

The report notes that even instances where retailers prevail over community opposition do not necessarily represent victories, as that opposition can translate into reputational risk. Take, for example, outgoing Supreme Court Justice Sandra Day O'Connor's dissenting opinion in the 5-4 Supreme Court decision to uphold the legality of a town's right to seize private property through eminent domain for commercial development, a tactic increasingly employed by big boxers.

"In her dissent, Justice O'Connor wrote that the decision's 'beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms,'" the report states. "If this is the case, community resistance to the practice is likely to continue."

On the other side of the coin, increased community opposition and regulation creates competition for diminishing development prospects, creating opportunities for retailers who can demonstrate best practice, for example through policies and practices such as those recommended. The report cites the example of Home Depot (HD), which is implementing a smart growth plan in Placerville, California by rehabilitating a former concrete plant site. The company restored Hangtown Creek from a concrete box channel to a creekbed whose banks are landscaped with native plants.

"The company was praised for turning an eyesore into an amenity, revitalizing an existing business district, and for not contributing to sprawl with a store on the outskirts of town," state Mss. Tanner and Gladman in the report.


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