Outside the Box
Community-owned department stores
an alternative to big-box chain stores
By Jane Livingston
Editor’s note: Livingston is a freelance
writer based in Maine with extensive experience
writing about cooperatives
cross the United States,
residents of many rural
towns have to travel 20
miles or more to buy
underwear, jeans,
sneakers, a toaster, towels or an
inexpensive watch. Their locally owned
department stores closed years ago,
unable to compete with chain stores.
Then, many of the chains faltered and
faded as out-migration cut the customer
base while regional “big-box”
superstores kept pulling people farther
away from home town Main Streets.
In other cases, communities with no
place left to buy everyday clothing and
small appliances have tried to attract a
big-box retail store to locate in their
town, but lack the population base to
lure one. This was the case in Powell,
Wyo. With a population of 5,500, the
community—located 20 miles north of
Cody, Wyo., and 90 miles south of
Billings, Mont.—simply did not offer
the economy of scale sought by a bigbox
retail chain.
Sharon Earhart, director of the
Powell Chamber of Commerce, can
laugh now as she remembers the situation.
"I'm so glad that when we asked
the big stores to come open up in our
town, they said, 'Are you kidding? Get
a life.' So we did! And a much better
one. I'm grateful to them that they all
said no, or we never would have started
down the road of this great adventure."
Powell takes the plunge
That adventure began five years ago,
when some local business people and
other Powell residents incorporated as
The Mercantile and began selling $500
shares in the company to their
neighbors. Within months, they had
raised $400,000 in start-up capital.
They opened the door of their
new store in the summer of 2002.
Community response was enthusiastic.
Residents with special expertise
stepped forward to help when asked.
"Nobody ever turned us down,"
Earhart says. They were fortunate
to have a retired department store
buyer and manager, Mike Reile, in
their midst. His willingness to work
pro bono until the company was
formed enabled them to move ahead
and begin buying inventory sooner
than they had planned to do.
"He's very bold," she says. "You
have to be that way because the rag
industry is tough and very fickle. You
can't let your feelings get hurt, or buy
just what you like."
The three or four potential competitors
already established in Powell were
very supportive of the project and all
have benefited from The Merc's presence.
Earhart notes that the town had a
precedent for this sort of commercial
cooperation. When one of Powell's two
car dealers closed, the remaining dealer
was the strongest advocate for attracting
another one. "His business fell off
because people perceived that without
competition the prices would go up.
When the original dealer who'd closed
re-opened, both businesses did better
right away."
Earhart says people come from as far
as Billings, Mont., a city of 95,000 people
nearly 100 miles away. "All the malls
are like cookie cutters, they all sell the
same thing," she explains. "Here, you
don't know what you're going to find,
but it will be something you won't find
at the mall. People like that."
Five consecutive profitable years
A good merchandise buyer is key to
a store's success, Earhart stresses.
Powell was prepared to mount a national
search until they found Mike Reile.
But, she adds, a community may not
have to look that far. While meeting
with a group in Upstate New York, a
steering committee member recalled
that her employer's wife was a buyer.
"When the idea gets to the point where
it becomes real and people see its validity,"
she notes, "people step forward."
And step forward they did, in Powell.
Within months of selling the first $500
shares to local residents in early 2002,
The Mercantile raised $400,000 in
start-up capital. They opened the door
of their new store that summer. They
have had five straight profitable years,
and in 2006 they purchased the store
next door in order to double their size.
"We've become a tourist destination,
who'd have thought it!" Earhart
exclaims.
Similar efforts have started in a number
of rural communities in Wyoming
and Montana, and are now sprouting in
the Northeast. One of the first towns to
take a hard look at community ownership
of a retail department store is
Greenfield, Mass. A group of
Greenfield citizens have been pursuing
the idea of starting such a store for two
years. This past November, in partnership
with the Cooperative Development
Institute (CDI), they invited Earhart to
share her town's story. As of this writing,
they were awaiting state approval
to launch their stock sale.
Co-op oriented town
Greenfield has more than three
times the population of Powell, but—
sitting halfway between the thriving
Hampshire County college area of
Northampton-Amherst, Mass., and the
popular tourist destination of
Brattleboro, Vt.—competition for retail
dollars is fierce. There's even a department
store on Main Street already, but
it deals mostly in more upscale, pricier
products.
Greenfield also has certain advantages.
It is the county seat of rural
Franklin County and received national
attention about 12 years ago when it
mounted a successful referendum campaign
that prevented a big-box chain
store from opening there. Three years
ago when an Ames department chain
store closed, the strong undercurrent of
loyalty to local businesses remained
undiminished.
Despite Greenfield Mayor Christine
Forgey openly courting a big-box store,
the “buy local” sentiment keeps growing,
as witnessed by the farmers markets
and community-supported farmers’
associations that dot the county. The
town supports several thriving retail
grocery stores that include—in addition
to a multinational-owned chain store—a
well-established, family-owned store
and Green Fields Market, a natural
products cooperative on Main Street
owned by its 1,400 consumer-members.
There's also a Greenfield Co-op
Bank, a farmers' cooperative exchange,
several worker-owned co-ops and some
cooperative housing in this town. So
when the idea of a communityowned,
retail department store
began to surface in Greenfield,
many people were quick to see
the possibilities.
Seminar plants seed
The idea for a communityowned
store was planted when
Bob Rottenberg, a local business
development consultant,
attended a cooperative-business-
development training
institute in 2003, where a
Montana retail store was presented
as a case study. The
training was conducted by
CooperationWorks!, a national
network of cooperative development
centers. Rottenberg was on the
staff of CDI at the time. CDI, the
Northeast region's development center
for cooperative enterprise, is a founding
member of CooperationWorks!
So it was only natural that when a
local resident came to Rottenberg and
asked what could be done to prevent
the big-box stores from becoming
established in their town, he suggested
they look into a group-based business.
A small group of active citizens began
working together. The group included a
couple of city council members, the
executive director of the county community
development corporation, a
bank president, a carpenter, an insurance
adjuster, a filmmaker and one
clothing retailer.
"Most of us were not experienced in
the retail business, and none of us had
ever been involved in selling stock,"
Rottenberg notes. But they had been
unsuccessful in attracting private entrepreneurs
who might back their endeavor,
so they were faced with creating
their own business.
The first step was to review the
options for incorporation. While many
were drawn to the co-op model, the
steering committee ultimately chose the
community ownership path. Their reasoning,
after many hours of discussion
and a considerable amount of research,
was that they needed to acquire start-up
capital within a set timeframe to get the
business off the ground.
Establishing the appropriate price for
a share was a challenge. The “one
member, one vote” principle of cooperatives
was seen as too restrictive,
because group members felt they would
need many people to buy more than
one share.
As a compromise, shares were priced
at $100, but were initially offered only
in blocks of five. Initial investors can
buy between $500 and $10,000 worth
of stock. If, and when, enough equity is
raised to open the store, they hope to
offer individual shares of stock, instead
of a five-share minimum investment. In
the meantime, the group is exploring
ways that local banks might use the
Community Reinvestment Act to set up
low-interest loans or outright grants to
help less-affluent residents become coowners
of Greenfield Mercantile.
Most dollars leave town
The Mercantile business plan lays
out key market numbers: of the $50
million local residents spend on these
types of retail items every year, $40 million is spent outside of Greenfield. If the Mercantile can
attract only 3 percent of this trade, it can be profitable, the
plan says.
Once the state approves the stock sale (which was expected
by about Jan. 1), the biggest challenges will be to select the
right store site and manager. Two sites are under serious consideration:
a former bank in the center of town and a nearby
furniture store. Rottenberg says the manager search involves
looking for a “rare bird”: someone who can serve not only as
a buyer of many types of merchandise, but who is also a good
operations manager.
A number of factors have kept the project moving forward.
"We drew a lot on Powell's experience," he says, commending
their generosity in how much and how readily they
shared important information. "But," he adds, "ultimately,
our circumstances are very different, and we had to do our
own homework."
Help came early from a board member contact at Suffolk
University, who provided them with valuable input for their
business plan. They applied for, and received, a Rural
Business Enterprise Grant (RBEG) for $23,000 from USDA
Rural Development. The grant was matched by a
$7,000 contribution from board members to help
with the early business development.
The key role played by Franklin County
Community Development Corporation’s (CDC)
executive director John Waite was critical, as was
the willingness of both his organization and CDI
to allocate some of his and Bob Rottenberg's time
and expertise to the effort.
The steering committee and, subsequently,
the board of directors worked tirelessly, meeting
weekly in the early months, forming subcommittees
that focused on location, market research, a
business plan, and other details. While some were
motivated by their opposition to big-box stores,
others simply wanted to find a way to revitalize the
town center.
Membership open statewide
"It was important from the beginning that
the community-ownership aspect not be obliterated
by people being able to amass major blocks of
shares," Rottenberg explains. "So we established a cap that
says no one can own more than 3 percent of the outstanding
stock. To amass anything like control, or an influencing
share, you'd have to put together a lot of people." The business
has also been structured with a clause that required
approval by a super-majority for a proposed sale or change in
the bylaws.
After much discussion, it was decided to open membership
to any resident of Massachusetts. As Rottenberg recounts,
"We thought there would be people interested in this idea
who might want to invest in it, but who wouldn't necessarily
ever shop there. They just might want to support what we're
doing.
“We originally restricted it to western Massachusetts, but
later realized that the odds of people from eastern
Massachusetts taking control of our store were pretty slim.
"And if people in the Boston area want to support this
'buy local' effort with their dollars," he says, "We'll take
'em!"
