This is the first of what I hope to be an interesting, monthly column pertaining to economic development activity in Morgan Hill. This column will be similar to the real estate/business digest columns in other publications.
I’ll be discussing business trends or happenings of interest in the community as well as insight into why businesses choose to come to Morgan Hill. Today’s column will focus on retail buying trends in the community during the past 3 years.
What are we buying or not buying?
During the 2005-06 fiscal year, Morgan Hill collected its most ever in sales tax revenue about $6.1 million, which equates to about $600 million in taxable sales (the city receives 1 percent of the sales tax collected). About 75 percent of all the sales tax revenue is generated from 50 businesses in town which include enterprises which sell to others as opposed to individual consumers. Another interesting fact is that restaurants and gas sales represent 23 percent of the total sales tax revenue. So our motto could be “Eat here, get gas!”
The top two sectors of sales tax revenue are the transportation and general retail sectors. However, the sectors are moving in opposite directions. The transportation sector, which includes vehicle and gas sales, grew by almost 68 percent from 2003 to 2006. This is more impressive when you consider 2003 was the previous highest year for sales tax revenue from the transportation sector. The increase in gas prices and “employee discounting” by car dealers have, obviously, had a beneficial impact on city revenues. In comparison, general retail declined by 16 percent since 2001, which was the highest year in retail sales. All general retail categories such as department stores, apparel stores, furniture/appliance, and drug stores experienced all time low in sales sometime between 2004 and 2006. With the dot.com bubble burst, consumers in general cut back on spending, but it hasn’t rebounded in Morgan Hill. As the regional economy has recovered, retail opportunities have expanded in communities to the south and north of Morgan Hill, but we stayed stagnant. Specifically, Morgan Hill loses about $100 million annually in sales tax leakage. What that means is that we are shopping outside of Morgan Hill for much of our retail needs. If we captured 90 percent of that leakage, we would almost double the revenue ($900,000)/year) currently generated in the general retail sector.
New Businesses
In an effort to capture a large part of our sales tax leakage and provide the community with more shopping amenities, a new retail center is under construction at the northeast corner of Cochrane Road and Highway 101. When completed, the center will be about 650,000 square feet or almost 2.5 times larger than Cochrane Plaza. As most of you are probably aware, Target is moving to the new Center. The existing Target is about 80,000 square feet. The new Target will be about 125,000 square feet and be similar to the Gilroy Target (no grocery store, no garden center). The design theme is art deco and a conscious effort is being made to make it pedestrian friendly (e.g., shade structures and landscaping by pathways). So who’s going into the center besides Target. Here’s what the developer confirms: Petco (with pets and fish!), Circuit City, Cost Plus, Staples, Sleep Train, a drive-thru Starbucks and a Starbucks/Pizza Hut in Target (that will make seven in town, I guess you can’t have too many Starbucks – Side Note: Pete’s Coffee will be in the smaller center under construction just west of Chevron along Cochrane Road), Chili’s, Red Robin, Jamba Juice, and Cold Stone Creamery.
Over the next several months I plan to cover a variety of topics including downtown, mixed-use concepts, trends in retail and commercial development, the development approval process, affordable housing, and redevelopment.
Quote of the month:
“You do not lead by hitting people over the head-that is assault, not leadership”
Dwight D. Eisenhower
34th President of the United States
Garrett Toy is the director of business assistance and housing services for the City of Morgan Hill and is responsible for the city’s economic development, redevelopment and affordable housing activities. Contact Garrett at garrett.toy @morganhill.ca.gov.
