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BIG RETAILERS MULL RESPONSE TO CHICAGO WAGE ORDINANCE

By Dees Stribling

The reaction to the Chicago City Council’s surprise passage of the so-called big-box ordinance last month has been as quick and noisy as a summer thunderstorm. The ordinance is very specific in targeting big retail, if not big boxes. It applies to companies that post annual sales of at least $1 billion and whose Chicago stores measure over 90,000 square feet, which would include department stores. Starting next July, under this law these companies will have to pay workers at least $9.25 per hour (from the current, state-mandated $6.50 an hour), plus $1.50 in benefits. And this will increase to $10 and $3 by 2010.

If the ordinance withstands a mayoral veto — only 34 members of the council are required to override, and the measure got 36 votes — it will certainly be tested in court. The Illinois Retail Merchants Association says it is prepared to sue, arguing among other things that the law violates the equal-protection clause of the 14th Amendment to the U.S. Constitution.

But is the measure merely a passing squall, or will it have a lasting impact on the retail world? Temporarily at least, it has already had an impact. “All the big-box projects in the city that I know of are now in a wait-and-see mode,” said Peter Graham, a retail specialist at the Chicago office of CB Richard Ellis.

Already, the ordinance seems to have stopped Los Angeles-based Primestor Development’s 445,000-square-foot retail development on 32 acres on the city’s South Side. “Target is an anchor, and now they’ve put their projects in the city on hold,” said Eric Salcido, the development’s project manager. “We just did demolition on the site, but the project has come to a halt because of the uncertainty caused by the ordinance.” Lowe’s too has halted plans to build two stores.

“The ordinance puts big-box retailers in a tough position, so I’m not surprised at Target’s move,” said Larry Lund, a principal at Chicago-based Real Estate Planning Group. “If retailers caved in on this right away, that would give activists ammunition to try it elsewhere, which they’re doing anyway.”

In some ways, however, the big-box ordinance is a product of Chicago’s Byzantine politics. For years Mayor Daley has dominated city politics, and city council members have generally been afraid to oppose him. Now, with a number of his associates under federal indictment or having been convicted of crimes, the mayor is weakened politically, and his long-standing feuds with labor leaders have come home to roost. Organized labor was among the movers behind the ordinance.

But if this law survives every challenge, will it stymie big-box growth in Chicago? Such development has been brisk in recent years as retailers have reassessed urban markets and discovered deep pools of underserved but sufficiently affluent consumers. It is by no means clear that higher labor costs will put a stop to the trend.

Salcido says he thinks some sites will indeed go undeveloped or at least remain underdeveloped because of the ordinance. “The places most at risk, unfortunately, are neighborhoods that really need the jobs,” he said.

But others say certain parts of the city are just too enticing for big boxes to opt out of completely. After a cooldown period, retail giants will probably start locating in the city again, says Bruce A. Kaplan, president of Chicago-based Northern Realty Group. “The big boxes will find ways to get into the city and make it profitable,” he said.