McHenry County municipalities weigh costs, benefits of providing retail incentives

As the rising tide of e-commerce threatens legacy retailers and big-box stores across the nation, local municipalities are working to lure new businesses and bolster existing establishments.

McHenry Economic Development Director Doug Martin said the city weighs the costs and benefits of providing incentives to prospective retailers that may help offset the “extraordinary” costs of moving in.

He said it has become more competitive between municipalities to attract retailers to their community.

“Retail stores bring sales tax dollars to their communities, so it’s definitely become more competitive over the past 10 years,” he said. “Economic incentives were not as common 10 years ago as they are today. They’re more widely used in today’s environment to attract and lure retailers to the community.”

Martin said McHenry has offered sales tax rebate agreements, implemented tax increment financing districts and reached property tax abatement agreements to help spur business.

“Typically the sales tax rebate agreements are on a reimbursement basis, so there’s no upfront payment issued. It’s not money given upfront. ... It’s for improvements to properties or a business that has to move into a [deteriorating] building.”

He highlighted Big R, 1860 N. Richmond Road, which moved into the space left vacant by Target, and Hobby Lobby, 2000 N. Richmond Road, which moved into the northern half of McHenry Commons left vacant by Dominick’s. Both businesses received incentive packages, he said.

Martin said he believes “store closings are part of the business cycle,” but he said brick-and-mortar stores could make a comeback.

“I think online retail is always going to be a factor ... but I think online retailers produce brick-and-mortar stores, which is one thing people don’t fully understand,” he said. “I think online retail will level off to some extent. At the end of the day, retailers will have to adapt and adjust to the market.”

Still, McHenry County has lost a Sears, Toys R Us, Best Buy, Kmart and Gander Mountain in recent years. Many legacy stores can’t compete with the prices and convenience of eBay, Overstock and Amazon.

In Crystal Lake, Economic Development Manager Heather Maieritsch said the city has made the development process smoother to encourage growth.

“The city has a streamlined the development process and excellent customer service, which encourages development, shortens review times and ensures quick responses. We continually receive feedback from customer service surveys and use that to improve our processes,” Maieritsch said in a statement.

In an effort to fill planned vacancies, she said, the city markets the community to prospective investors.

“The city is continually working to market the community and fill vacancies. We have a combined approach that works on investment attraction, lead generation and business retention,” Maieritsch said. “The city has developed a reputation for being a developer- and business-friendly community, which goes a long way in keeping existing businesses within the community and attracting new businesses to Crystal Lake.”

For example, during Tuesday night’s City Council meeting, city officials said they were informed that Barnes & Noble would close in the summer and worked to ensure that the large building at 5380 Route 14 would not become vacant.

Binny’s Beverage Depot will move into the space in the fall.

“As we have seen with Barnes & Noble, retailers in America may be making strategic decisions to resize their establishments in response to the growth of e-commerce; however, that in and of itself has not impacted our ability to attract them; they still find Crystal Lake a desirable place to do business, whether they are large or small,” Mayor Aaron Shepley said in a statement Wednesday night.

When asked whether the city provides incentives to new businesses, such as the new Mariano's at
105 Route 14 that was built in the former Sears building, Maieritsch said the city did not offer financial assistance.

“Crystal Lake has an attractive and competitive market, doing $1.15 billion in retail sales a year. Retailers know how strong our market is and seek out locations within Crystal Lake,” she said. “As for business retention, the city regularly meets with local businesses and works to connect businesses with resources and agencies that may be able to assist them.”

The city provides a list of incentive programs on its website, including the Retailer Façade and Commercial Tenant Improvement Program and the New or Expanding Manufacturer Job Creation and Equipment Investment Program.

“With regard to the nature of retail we can expect in the future (i.e., grocery vs. department stores, etc.), we do not have any way of forecasting how the retail market will be segmented, but that is what makes it fun and challenging,” Shepley said. “We will all learn the answer together. At the end of the day, what we say as a city is important some of the time, but what we do is important all of the time.”

Holiday season struggles

Nationally, online sellers relentlessly are growing their share of retail sales. In November, e-commerce and catalog sales jumped 10.8 percent from a year earlier, according to U.S. Department of Commerce data. Department store sales slipped 0.2 percent during the same period.

When Macy’s and Kohl’s reported lackluster numbers from the holiday shopping season, investors were taken aback, sending retailers’ stocks into a tailspin and calling into question whether such chains can compete in a changing landscape where shoppers are shifting more of their spending online.