The Economic and Fiscal Impact of Lowe s Located in Silverthorne, Colorado. Prepared for:

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1 The Economic and Fiscal Impact of Lowe s Located in Silverthorne, Colorado Prepared for: February 2010

2 The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado February West Belleview Avenue Suite 100 Littleton, Colorado

3 TABLE OF CONTENTS EXECUTIVE SUMMARY... i INTRODUCTION... 1 PURPOSE OF THE IMPACT STUDY... 1 ECONOMIC AND FISCAL IMPACT ANALYSIS... 2 LOCAL GOVERNMENT BENEFITS AND COSTS... 2 STUDY SPECIFICS... 3 CONSTRUCTION ACTIVITY IMPACTS... 4 DIRECT ECONOMIC IMPACTS... 4 CONSTRUCTION MATERIALS AND SOFT COSTS... 4 CONSTRUCTION EMPLOYMENT AND PAYROLL... 4 DIRECT FISCAL IMPACTS... 5 LOCAL GOVERNMENT BENEFITS... 5 LOCAL GOVERNMENT COSTS... 5 TYPICAL ANNUAL IMPACTS... 6 BUSINESS OPERATIONS IMPACTS... 6 DIRECT ECONOMIC IMPACTS... 6 BUSINESS SPENDING... 6 EMPLOYMENT AND PAYROLL... 6 RETAIL SALES... 7 DIRECT FISCAL IMPACTS... 7 LOCAL GOVERNMENT BENEFITS... 7 LOCAL GOVERNMENT COSTS... 8 EMPLOYEE IMPACTS... 8 DIRECT ECONOMIC IMPACTS... 8 RETAIL SALES SPENDING... 8 DIRECT FISCAL IMPACTS... 9 LOCAL GOVERNMENT BENEFITS... 9 LOCAL GOVERNMENT COSTS... 9 TOTAL ANNUAL ECONOMIC AND FISCAL IMPACTS REFERENCES The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado

4 EXECUTIVE SUMMARY Lowe s Companies, Inc. (Lowe s) is one of Colorado s largest home improvement retailers. While a majority of Lowe s stores are concentrated along the Front Range, the proposed 111,400- square-foot Lowe s store in Silverthorne, Colorado is expected to serve the surrounding mountain region. Silverthorne is a small mountain community located in Summit County, approximately 65 miles west of Denver on Interstate-70. The proposed Lowe s store will create jobs and generate income for residents of the Town of Silverthorne and the surrounding mountain communities. Lowe s estimates that the proposed Silverthorne store will employ approximately 150 full-time and part-time workers. Construction Activity Impacts The total economic and fiscal impact in the Town of Silverthorne from construction activity of Lowe s is estimated at nearly $1.6 million, which consists of a total direct economic impact of $937,000 and a net direct fiscal impact of $661,000. The total direct economic impact of $937,000 includes $774,000 in construction materials and related purchases, $45,000 in soft costs, and $118,000 in construction payroll and benefits. Construction of the proposed Lowe s store is estimated to cost $15 million. Construction is expected to begin in 2010 and continue throughout the year. About $819,000 of construction materials and project soft costs will likely be purchased from Silverthorne suppliers. Lowe s construction activity is expected to result in $4.5 million in salaries and benefits for 75 fulltime equivalent workers. As these workers will be drawn from throughout the mountain region, conservative estimates suggest $118,000 in salaries and wages will be earned by Silverthorne residents. The net direct fiscal impact of $661,000 includes an estimated $63,000 in general fund benefits and $598,000 in various other construction-related taxes and fees flowing to the capital improvement projects (CIP) fund, the housing 5A special revenue fund, and water and sewer enterprise funds. Local construction materials purchases will generate about $31,000 in sales tax revenue for the town. Lowe s will also be paying a variety of building permit, site plan, and plan review fees totaling about $41,000. Adding these revenues to a $223,000 affordable housing building impact fee and $366,000 in water system and sanitary sewer development fees results in total general fund and other fund benefits from construction activity of $661,000. Annual Business Operations Impacts The total economic and fiscal impact of business operations of Lowe s in the Town of Silverthorne is estimated at $1.3 million per year, which consists of a total direct economic impact of $382,000 and a net direct fiscal impact of $953,000. The total direct economic impact of $382,000 includes $79,000 in local operational expenditures and $303,000 in payroll per year. Retailers purchase furniture, fixtures, computer equipment, utilities, and other operational materials to operate their businesses. Lowe s local purchases of tangible personal property and other operational materials will total about $79,000 each year. Lowe s will employ approximately 150 full-time and part-time workers earning an average annual retail salary of about $22,200, resulting in total payroll of over $3.3 million per year. As Lowe s is committed to hiring local workers to the extent possible, Silverthorne residents will conservatively earn about $303,000 in salaries and wages each year. The net direct fiscal impact of $953,000 includes $692,000 in general fund revenue impacts and $261,000 in CIP fund revenue impacts. The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page i

5 EXECUTIVE SUMMARY Lowe s estimates that retail sales at the proposed store will average about $30 million per year, of which about 90 percent of total annual retail sales are taxable, generating nearly $1.1 million in sales tax revenue for Silverthorne. Sales tax from business purchases and other governmental funds revenue estimated on a per employee basis totals about $62,000 per year for Silverthorne. Offsetting the total fiscal benefits with the cost of providing governmental services of $189,000 results in a net direct fiscal impact of $953,000 per year. Annual Employee Impacts The direct economic and fiscal impacts of Lowe s employee spending in the Town of Silverthorne total an estimated $58,000 per year, which consists of a total direct economic impact of $82,000 and a net direct fiscal impact of negative $24,000. Local Lowe s employees are expected to support about $1.5 million in housing in Silverthorne. Spending on taxable goods and services by local Lowe s employees is expected to total $107,000, of which approximately $82,000 will be spent in the Town of Silverthorne. The net direct fiscal impact of negative $24,000 includes an estimated negative $12,000 in general fund revenue and negative $12,000 in CIP fund revenue. The Town of Silverthorne is expected to collect $12,000 in sales tax and other government revenue from local Lowe s employees, including $11,000 in general fund sales tax and other government revenue and $1,000 in CIP fund revenue. The cost of providing governmental services to the employee residents is estimated to be about $36,000, resulting in a negative net direct fiscal impact of $24,000. It is not unusual for a municipality in Colorado to have higher costs for residential services than revenue from its residents, especially at lower wage levels. Given municipal tax structures that tend to rely heavily on sales tax revenue, business activity generally subsidizes the residents. Total Annual Economic & Fiscal Impacts The typical annual economic and fiscal impact of the proposed Lowe s store in the Town of Silverthorne is estimated to be about $1.4 million per year, including the total direct economic impact of $464,000 and the net direct fiscal impact of $929,000 per year. The net direct fiscal impact includes an estimated $680,000 in general fund revenue per year and $249,000 in estimated CIP fund revenue per year. The fiscal benefits of Lowe s are estimated to total $1.2 million per year for the Town of Silverthorne which includes all fees, sales tax, and other governmental funds revenues. Of the total $1.2 million per year in fiscal benefits, an estimated $824,000 in general fund revenues and an estimated $330,000 in CIP fund revenues will be generated each year. The cost of providing local governmental services to the business and the residents associated with Lowe s totals $225,000 per year, including $144,000 in general fund costs and $81,000 in CIP fund costs. The expected net direct fiscal impact of Lowe s operations in Silverthorne is $929,000 per year. Assuming no changes to the tax structure, market conditions, and development patterns, it is likely that similar impacts will occur annually. The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page ii

6 INTRODUCTION Lowe s Companies, Inc. (Lowe s) is one of Colorado s largest home improvement retailers. While a majority of Lowe s stores are concentrated along the Front Range, the proposed Lowe s store in Silverthorne, Colorado is expected to serve the surrounding mountain region. Silverthorne is a small mountain community located in Summit County, approximately 65 miles west of Denver on Interstate-70. Lowe s began in 1946 as a small hardware store in North Carolina growing to the world s second largest home improvement retailer and seventhlargest retailer in the nation. The modern Lowe s store began in 1994, offering home improvement products ranging from building supplies, hardware, and tools to supplying appliances, lumber, and nursery products. On average, Lowe s stores stock nearly 40,000 products and have more than 500,000 products available by special order. Lowe s company-wide sales totaled $48.2 billion in Fiscal Year 2008 (FY 2008) and can be classified into five categories of products and their associated services. The percent of total company-wide sales represented by each of the categories is listed below: Appliances 9.1 percent Building materials, lumber, and millwork 29.0 percent Hardware and seasonal 22.8 percent Paint, flooring, and wall covering 16.1 percent Plumbing, electrical, and kitchen 17.6 percent Weekly sales at the average Lowe s store in FY 2008 totaled over $562,000 with sales per square foot of about $258. The average Lowe s store in FY 2008 was 113,000 square feet with an average garden center size of 30,000 square feet. Lowe s has continually expanded its operations to meet the increasing demand in Colorado and to keep up with the most modern home improvements. With over 1,600 stores in North America, 26 Lowe s stores are located throughout Colorado. The proposed 111,400-square-foot store with an outdoor garden center of 26,600-square feet is expected to be located north of I-70 in Silverthorne, at the intersection of Buffalo Mountain Drive and Adams Avenue. Construction on the proposed Lowe s store is expected to begin in 2010 with completion planned by the end of the year. The proposed Lowe s store will create jobs and income for residents of the Town of Silverthorne and the surrounding mountain communities. Lowe s estimates that the proposed Silverthorne store will employ approximately 150 full-time and part-time workers. According to the Lowe s FY 2008 Annual Report, nearly 229,000 associates in over 1,600 stores were employed by the retailer in FY 2008, implying an average of 139 employees per store. Purpose of the Impact Study The purpose of this study is to estimate the direct economic and fiscal impacts of the proposed Lowe s store in the Town of Silverthorne while highlighting the importance of Lowe s to the town and its businesses and residents. While the analysis herein is limited to reporting on the impacts specific to the Town of Silverthorne, it is assumed that the The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 1

7 INTRODUCTION surrounding region is also positively impacted by the proposed Lowe s because some business purchases are made outside of Silverthorne and some of Lowe s customers are from outside the town. This analysis does not attempt to calculate the impact on areas beyond the Town of Silverthorne but does recognize that these impacts occur. This analysis recognizes that the economic and fiscal impacts may change as store buildout occurs. Economic and Fiscal Impact Analysis Economic impact analysis is the analytical approach used to assess the measurable direct and indirect benefits resulting from a project over a specific time period. Only those benefits that can be measured or quantified are included. Intangible benefits, such as enhancement of community character or diversification of the job base, are not included in the quantitative analysis. Further, the economic impacts include only that spending which occurs in the local area. In this analysis, the economic impact includes only that spending directly transacted with businesses, organizations, or individuals located in the Town of Silverthorne. Fiscal impact analysis is a narrower concept that measures only the direct, public (governmental) costs and public revenues associated with development. In other words, economic impacts measure the effect of spending by businesses, employees, and residents on other businesses, whereas fiscal impacts measure the effect of this spending on the local government s budget. In this analysis, only potential impacts on Silverthorne s general fund and the capital improvement projects (CIP) fund are considered. Local Government Benefits and Costs The Town of Silverthorne receives governmental funds revenue from a variety of sources, including sales tax, other taxes, fines, fees, charges for service, investment income, and other revenue. In return, the town provides a variety of governmental services such as judicial, police, public works, culture and recreation, and other services for all businesses and residents located within the town s boundaries. Some of these revenues and costs are tied more closely to resident populations and others more closely to businesses. The technique used in this analysis to allocate revenues and expenditures between residential and nonresidential populations is the per capita technique suggested by the Urban Land Institute. The basic assumption of the per capita technique is that local government costs and revenues increase with the intensity of land use, and property value is a reasonable indicator of intensity of use. A review of current property valuation in Silverthorne indicates that about 19 percent of the town s valuation is nonresidential and 81 percent is residential. Therefore, it is assumed that 19 percent of the town s governmental funds costs and revenues are associated with nonresidential uses (estimated on a per employee basis) and 81 percent are associated with residential uses (estimated on a per resident basis). Based on an analysis of the Town of Silverthorne s 2008 general fund plus the CIP fund, the following cost and revenue figures are used in this study to estimate local government benefits and costs: Local Government Benefits and Costs Calculations General Fund + Capital Improvement Projects Fund, 2008 Per Employee and Per Resident % of Total Property Value Current Employees & Residents Total Revenues Other Revenues* Total Expenditures Total Revenues Other Revenues* Total Expenditures Nonresidential 19.2% 2,125 $2,305,343 $677,819 $2,678,646 $1,085 $319 $1,261 Residential 80.8% 4,203 $9,701,650 $2,852,487 $11,272,633 $2,308 $679 $2,682 Total 100.0% $12,006,993 3,530,306 $13,951,279 *Other Revenue includes total revenues less sales tax and lodging tax revenue as these values are calculated within the model. The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 2

8 INTRODUCTION Study Specifics The economic and fiscal impact analysis described in this report was completed using the SiteStats model, a proprietary impact model developed by Development Research Partners. The economic and fiscal impacts herein are reported in 2010 dollars within the framework of three categories: construction activity, business operations, and employee spending. Construction impacts are one-time impacts, in that the impact of construction activity accrues only in the years in which construction activity occurs. If there is no construction activity in a given year, there are no associated economic and fiscal benefits. Horizontal infrastructure and other non-building activities are included in the construction impacts. study recognizes the reality of retail leakage, thus reports specifically on the impacts of retail spending only in the Town of Silverthorne. Employee spending impacts also consider taxes paid to the local government. This study is not a market analysis and does not project the success or failure of Lowe s or any related retail operation in Silverthorne or the surrounding area. Project specific data for the study was provided by Lowe s and the Town of Silverthorne. Development Research Partners made every attempt to collect necessary additional or missing information and believes the information used in this report is from sources deemed reliable but is not guaranteed. Development Research Partners specializes in economic research and analysis for local and state government and private-sector businesses. Founded in 1994 in Jefferson County, Colorado, Development Research Partners provides clients with reliable consulting services in four areas of expertise: economic and demographic research, industry and workforce studies, fiscal and economic impact analysis, and real estate economics. The business operations section analyzes the impacts of the Lowe s business operations in the Town of Silverthorne, including employment, materials purchases, personal property, and real property expenditures. These operational impacts are discussed as typical annual impacts after the store opens and are not specific to any particular year. Employee spending impacts also are included as typical annual impacts and are based on the taxable expenditures of Lowe s employees. This The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 3

9 CONSTRUCTION ACTIVITY IMPACTS Construction activity results in an increase in the real property value of the company. Construction activity also generates tax revenue for the local government, payroll for construction workers, and sales for construction goods and services vendors. The total economic and fiscal impact in the Town of Silverthorne from construction activity of Lowe s is estimated at nearly $1.6 million, which consists of a total direct economic impact of $937,000 and a net direct fiscal impact of $661,000. Construction impacts are one-time impacts that occur only during the construction period. Direct Economic Impacts The total direct economic impact of $937,000 includes $774,000 in construction materials and related purchases, $45,000 in soft costs, and $118,000 in construction payroll and benefits. Construction Materials and Soft Costs The construction of the proposed 111,400-squarefoot Lowe s store is estimated to cost $15 million, or about $135 per square foot. Construction is expected to begin in 2010 and continue throughout the year. Construction spending is divided into three major activities: purchases of construction materials, soft costs, and labor. The analysis assumes that 60 percent of the total construction cost is for purchases of building materials, totaling $9 million. Not all of these purchases are expected to be transacted with suppliers located in the Town of Silverthorne. An estimated nine percent of the materials purchases will come from Silverthorne vendors and suppliers, totaling about $774,000. Soft costs include all design, planning, and engineering. Soft costs are estimated to represent about 10 percent of the total project cost, or about $1.5 million. Not all of these costs represent an economic impact in the Town of Silverthorne. An estimated three percent of the spending on soft costs, or $45,000, will be transacted with Silverthorne businesses. Construction Employment and Payroll The analysis assumes that 30 percent of the total construction cost will be for construction labor and employment. According to data from the Colorado Department of Labor and Employment, the average hourly wage for construction workers in Summit County is $ Construction workers will be drawn from Summit County and the surrounding mountain counties including Clear Creek, Eagle, Grand, Lake, and Park Counties. In addition, benefits add about 30 percent to the total cost of construction labor. Therefore, Lowe s construction activity is expected to result in $4.5 million in salaries and benefits for 75 full-time equivalent (FTE) workers, defined as one person working full time for one year. The number of discrete construction workers on the job will be higher, as the store s completion is likely to require about 30 electricians, 20 concrete workers, 20 framers, 10 HVAC workers, 10 sprinkler system workers, and others. Workers within these various skilled trades will generally be on-site for fewer than the 210 total days of construction. Therefore, the 75 FTE workers are representative of the total hours of construction on the store; there will actually be more workers on-site at various points in the project. Not all of these construction workers are residents of Silverthorne. Based on the distribution of construction workers throughout the mountain region, this analysis assumes that only 3.4 percent of Direct Economic Impacts of Construction Activity Total Silverthorne Direct Economic Impacts Construction Materials $9,000,000 $774,000 Soft Costs $1,500,000 $45,000 Payroll $3,462, ,000 Benefits $1,038,000 Total Direct Economic Impacts $15,000,000 $937,000 Employees (FTE) 75 3 The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 4

10 CONSTRUCTION ACTIVITY IMPACTS the construction workers reside in Silverthorne. However, Lowe s is committed to hiring construction workers locally to the greatest extent possible so this represents a conservative estimate of local workers. With all benefit spending assumed to take place outside of the town and adjusting the total salary for the estimated three percent of the construction workers who live in Silverthorne, local construction payroll is expected to total nearly $118,000 for three full-time equivalent workers. Direct Fiscal Impacts The net direct fiscal impact of $661,000 includes an estimated $63,000 in general fund benefits and $598,000 in various other construction-related taxes and fees. Local Government Benefits The Town of Silverthorne receives a two percent sales tax on all items purchased in the town, of which 40 percent goes to the general fund. The remaining 60 percent of the two percent sales tax goes to the CIP fund which provides resources for capital improvements such as the public pavilion, recreation center, and infrastructure. In addition, Silverthorne receives 100 percent of the two percent Summit County general sales tax generated by Silverthorne businesses. The town s entire share of the county sales tax flows into the general fund. Therefore, in effect, the primary source of revenue for the general fund is a 2.8 percent sales tax and the primary source of revenue for the CIP fund is a 1.2 percent sales tax. Silverthorne does not have a use tax, so the total four percent sales tax applies only to construction materials purchased from Town of Silverthorne suppliers. It is estimated that about $774,000 of construction materials will be purchased from Silverthorne suppliers, generating a total of $31,000 in construction sales tax revenue which includes $22,000 in general fund revenue and $9,000 in CIP fund revenue. Lowe s will also be paying a variety of building permit, site plan, and plan review fees. These fees also support the town s general fund and are estimated to total about $41,000. Further, the project requires an affordable housing building impact fee of two dollars per square foot, totaling an estimated $223,000. This revenue flows to the town s housing 5A special revenue fund. In addition, Lowe s will also be required to pay water system and sanitary sewer development fees totaling about $366,000. These fees represent revenue to the town s water and sewer enterprise funds. Total general fund and other fund benefits generated from construction activity totals $661,000. Local Government Costs The Town of Silverthorne provides various governmental services including judicial, police, and public works services for all employees who work within the town s boundaries. Due to the transitory nature of construction activity, it is assumed that no government service costs are directly related to the project during the construction phase. Direct Fiscal Impacts of Construction Activity Silverthorne Direct Fiscal Impacts General Fund Benefits Sales Tax on Construction Materials $22,000 Permit, Review & Application Fees $41,000 Total General Fund Benefits $63,000 Other Fund Benefits Sales Tax on Construction Materials (CIP Fund) $9,000 Affordable Housing Impact Fee (Housing 5A Fund) $223,000 Water & Sewer Tap Fees (Enterprise Funds) $366,000 Total Other Fund Benefits $598,000 Total Fiscal Benefits $661,000 Total Fiscal Costs $0 Net Fiscal Impacts $661,000 The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 5

11 TYPICAL ANNUAL IMPACTS Business Operations Impacts The total economic and fiscal impact of business operations of Lowe s in the Town of Silverthorne is estimated at $1.3 million per year, which consists of a total direct economic impact of $382,000 and a net direct fiscal impact of $953,000. The economic and fiscal impacts associated with the on-going operations of the proposed store are estimated based on employment, occupied real property, business personal property, and operational purchases. Direct Economic Impacts The total direct economic impact of $382,000 includes $79,000 in local operational expenditures and $303,000 in local payroll per year. Business Spending Lowe s purchases a wide variety of goods and services, including purchases of capital equipment and operational materials. This spending creates sales tax revenue for Silverthorne as well as revenue for Silverthorne vendors and suppliers. Lowe s retail business operations in the Town of Silverthorne are expected to begin in Lowe s estimates that its initial investment in capital equipment, furniture, fixtures, and computer equipment will total about $4 million. Lowe s will also purchase new personal property each year to replace deteriorating or obsolete equipment. This study assumes that businesses annually replace 12.5 percent of the value of their furniture and fixtures and 33.3 percent of the value of their computer equipment. Given Lowe s initial investment level, the company will need to spend about $750,000 per year to maintain its capital equipment and other personal property. Not all of these purchases will be transacted with Silverthorne businesses. Based on an analysis of the availability of local suppliers using Dun & Bradstreet data, local purchases of tangible personal property may total nearly $30,000 per year. Other operational materials and purchases are necessary for business operations. Lowe s operating expenditures, other than tangible personal property, are expected to total over $336,000 per year. Based on an analysis of the availability of local suppliers using Dun & Bradstreet data, local operational purchases are anticipated to total $49,000 per year. Lowe s purchases telephone, water, sewer, natural gas, and electricity services for its daily operations. Average annual utility purchases are anticipated to total over $284,000 per year. As these providers are generally located outside of Silverthorne, there is no direct economic impact from this spending but the town does receive sales tax revenue from this spending. Employment and Payroll Lowe s will employ approximately 150 full-time and part-time workers, or about one employee per 742 square feet of retail space. According to data from the Colorado Department of Labor and Employment, the average annual wage for all retail trade employees (including part-time and full-time workers) in Summit County was $22,165 in Based on this average annual wage, payroll for Lowe s employees is expected to total over $3.3 million per year. Many of these workers are expected to commute to Lowe s from outside of Silverthorne. Based on 2008 U.S. Census Bureau data, about nine percent of the 2,100 employees working in the Town of Silverthorne also live in the town. Therefore, an estimated $303,000 wages will be paid to Lowe s Annual Direct Economic Impacts of Business Operations Total Silverthorne Direct Economic Impacts Capital Expenditures $750,000 $30,000 Other Operating Expenditures $336,000 $49,000 Utilities $284,000 Payroll $3,325,000 $303,000 Total Direct Economic Impacts $4,695,000 $382,000 Employees (full-time and part-time) The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 6

12 TYPICAL ANNUAL IMPACTS employees residing in the Town of Silverthorne. However, Lowe s is committed to hiring workers locally to the greatest extent possible so this represents a conservative estimate of local workers. Retail Sales All retail businesses in Silverthorne generated over $251 million in taxable retail sales in Lowe s estimates that retail sales at the proposed store will average $30 million per year, of which about 90 percent will be taxable. The retail activity generates revenue for the retailer, which in turn is used to purchase operating materials, other business-related purchases, and payroll. The retail activity also generates a fiscal benefit to the Town of Silverthorne as detailed in the next section. Direct Fiscal Impacts The net direct fiscal impact of $953,000 includes $692,000 in general fund revenue impacts and $261,000 in CIP fund revenue impacts. Local Government Benefits The total fiscal benefit of Lowe s business operations includes sales tax revenue on business purchases, sales tax revenue from retail sales, and other fees and taxes calculated at a per employee rate. In return, the Town of Silverthorne provides city services to businesses and employees. These local government costs are subtracted from the total fiscal benefit, resulting in the net direct fiscal impact to the Town of Silverthorne. The proposed Lowe s facility will occupy about 9.7 acres of land, including the store and parking area. The total market value of this proposed property is $7.1 million. Since 1994, the Town of Silverthorne has not collected property taxes and as a result, Lowe s will not pay real or personal property taxes to Silverthorne. Lowe s will pay real and personal property taxes to Summit County, Summit County School District, the Lake Dillon Fire District, Colorado Mountain College, the Colorado River Conservancy District, and other special districts. This study excludes the value of property taxes paid to other jurisdictions. As described in the Construction Activity Impacts section, the Town of Silverthorne receives a two percent tax on all items purchased in the town, of which 40 percent goes to the general fund and the remaining 60 percent goes to the CIP fund. In addition, the Town of Silverthorne receives 100 percent of the two percent Summit County general sales tax generated by Silverthorne businesses which flows into the general fund. All taxable goods sold at Lowe s would be subject to the total four percent sales tax, including 2.8 percent for the general fund and 1.2 percent for the CIP fund. As previously noted, Silverthorne does not have a use tax, but sales tax is imposed on purchases of many goods and services including tangible personal property, operating materials, and other retail sales. Sales tax revenue generated from the $363,000 of business purchases of personal property, operating materials, and utilities is expected to total $14,000 per year, including an estimated $10,000 in general fund sales tax revenue and $4,000 in estimated CIP fund sales tax revenue. In addition, assuming that about 90 percent of Lowe s total annual retail sales are taxable, retail activity results in an estimated $1.1 million in sales tax revenue each year for the Town of Silverthorne, including an estimated $756,000 in general fund sales tax revenue and $324,000 in CIP fund sales tax revenue. The Town of Silverthorne collects other governmental funds revenues from businesses. These other revenues, including various fees, fines, investment income, other taxes, and charges for service, are estimated on a per employee basis. Excluding sales and lodging tax, the per employee average of other revenue in the Town of Silverthorne is about $319, including $312 for the general fund and $7 for the CIP fund. Based on Lowe s 150 employees, other revenues total an estimated $48,000 per year, including $47,000 in general fund revenue and $1,000 in CIP fund revenue. The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 7

13 TYPICAL ANNUAL IMPACTS Annual Direct Fiscal Impacts of Business Operations Capital Improvement Projects Fund Silverthorne Total General Fund Direct Fiscal Impacts Sales Tax from Business Spending $10,000 $4,000 $14,000 Sales Tax from Retail Activity $756,000 $324,000 $1,080,000 Other Governmental Funds Revenue $47,000 $1,000 $48,000 Total Fiscal Benefit $813,000 $329,000 $1,142,000 Total Fiscal Cost $121,000 $68,000 $189,000 Net Fiscal Impacts $692,000 $261,000 $953,000 The total fiscal benefits from Lowe s business purchases, sales tax on retail sales, and other governmental funds revenue is expected to total over $1.1 million per year, including $813,000 in general fund revenue per year and $329,000 in CIP fund revenue. Local Government Costs The Town of Silverthorne provides a variety of governmental services such as judicial, police, public works, culture and recreation, and other services for all businesses and their employees located within the town s boundaries. Based on an analysis of the Town of Silverthorne s 2008 general fund plus CIP fund expenditures, the town spends an average of $1,261 per employee per year on business-related services, or $189,000 for Lowe s 150 employees. This figure includes an estimated $121,000 in general fund expenditures and $68,000 in CIP fund expenditures per year. Therefore, the net direct fiscal impact of Lowe s business operations totals $953,000 per year which includes an estimated net direct fiscal impact to Silverthorne s general fund of $692,000 and a net direct fiscal impact to the CIP fund of $261,000. Employee Impacts Employees at Lowe s receive paychecks that are then used to purchase goods and services to support their households. Employee spending creates sales tax revenue for the local government and generates sales revenue for local goods and services vendors. of negative $24,000. The direct economic and fiscal impacts of Lowe s employee spending in the Town of Silverthorne total an estimated $58,000 per year, which consists of a total direct economic impact of $82,000 and a net direct fiscal impact Annual earnings are expected to total nearly $3.3 million for the 150 Lowe s employees. As the bulk of employee spending tends to occur closer to an employee s place of residence, this study focuses on those workers that both live and work in Silverthorne. As noted previously, an estimated nine percent, or 14 Lowe s employees, live and work in the Town of Silverthorne. Direct Economic Impacts Retail Sales Spending Earnings by Lowe s employees that both live and work in Silverthorne total $303,000, not including benefits and other non-wage compensation. Lowe s employee earnings can be spent on a number of things including savings, investments, taxes, and goods and services. Based on an analysis of the Consumer Expenditure Survey from the Bureau of Labor Statistics, individual spending on taxable goods and services represented 35.4 percent of total income in Changing spending habits and changes in tax structure may influence this value over time. Spending on taxable goods and services by local Lowe s employees is expected to total $107,000 per year. Not all of this spending will be transacted with the Town of Silverthorne s businesses. Based on a retail leakage analysis for the Town of Silverthorne from the Colorado Department of Revenue sales The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 8

14 TYPICAL ANNUAL IMPACTS data, the Town of Silverthorne will capture about 77 percent of the taxable purchases. The total direct economic impact of taxable spending from the local Lowe s employees in the Town of Silverthorne is estimated to be $82,000 per year. In addition, Lowe s employees will support about $1.5 million in housing, assuming that employees spend about 30 percent of their income on housing. Annual Direct Economic Impacts of Employee Spending Total Silverthorne Direct Economic Impacts Total Employees Annual Earnings of Employees $3,325,000 $303,000 Market Value of Employee Housing $16,742,000 $1,523,000 Total Taxable Retail Sales $1,177,000 $107,000 Local Taxable Retail Sales $82,000 Direct Fiscal Impacts The net direct fiscal impact of negative $24,000 includes an estimated negative $12,000 in general fund and negative $12,000 in the CIP fund. Local Government Benefits The Town of Silverthorne receives revenue from its residents through sales tax and other taxes, fees, fines, and charges for service. In return, the Town of Silverthorne supplies services to its residents. The cost of governmental services is subtracted from the total fiscal benefit resulting in the net direct fiscal impact to the town. Based on the current sales tax rate of four percent, the town is expected to collect $3,000 in sales tax revenue from taxable spending by local Lowe s employees, including an estimated $2,000 in general fund sales tax revenue and $1,000 in estimated CIP fund sales tax revenue. This estimate does not include potential spending by local Lowe s employees on taxable purchases at Lowe s, as all Lowe s retail activity is included in the business operations impacts. In addition to sales tax, the Town of Silverthorne collects other governmental funds revenue from its residents. These other revenues include various fees, fines, investment income, other taxes, and charges for service. Based on revenues reported in the Town of Silverthorne s budget, these other revenues are estimated as $679 per resident, consisting of $664 for the general fund and $15 for the CIP fund. Therefore, general fund revenue is estimated as $9,000 and CIP fund revenue is about $200. The total fiscal benefits from employee spending in the Town of Silverthorne including sales tax and other revenue totals $12,000. Local Government Costs The Town of Silverthorne provides government services such as judicial, police, public works, and housing and human services to its residents. Based on the Town of Silverthorne s 2008 budget, it is estimated that it costs the town about $2,682 to provide services to each resident, consisting of $1,721 for general fund services and $961 for CIP Annual Direct Fiscal Impacts of Employee Spending Capital Improvement Projects Fund Silverthorne Total General Fund Direct Fiscal Impacts Sales Tax Revenue $2,000 $1,000 $3,000 Other Governmental Funds Revenue $9,000 $200 $9,200 Total Fiscal Benefits $11,000 $1,200 $12,200 Total Fiscal Costs $23,000 $13,000 $36,000 Net Fiscal Impacts ($12,000) ($11,800) ($23,800) The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 9

15 TYPICAL ANNUAL IMPACTS fund services. Therefore, the total cost of providing residential services to the 14 Lowe s employees that live in Silverthorne is about $36,000 per year, including the cost of providing general fund services to Lowe s employees of $23,000 and the cost of providing CIP fund services of $13,000. The estimated net direct fiscal impact of the Lowe s employees that are also town residents results in a net direct fiscal loss of $24,000 per year. It should be noted that it is not unusual for a municipality in Colorado to have higher costs for residential services than revenue from its residents, especially at lower wage levels. Given municipal tax structures that tend to rely heavily on sales tax revenue, business activity generally subsidizes the residents. Total Annual Economic & Fiscal Impacts The typical annual economic and fiscal impact consists of business operations and employee spending impacts. The net direct fiscal impact includes an estimated $680,000 in general fund revenue per year and $249,000 in estimated CIP fund revenue per year. The fiscal benefits of Lowe s are estimated to total $1.2 million per year for the Town of Silverthorne which includes all fees, sales tax, and other governmental funds revenues. The total $1.2 million per year in fiscal benefits consists of an estimated $824,000 in general fund revenues and an estimated $330,000 in CIP fund revenues. The cost of providing local governmental services to the business and the residents associated with Lowe s totals $225,000 per year, including $144,000 in general fund costs and $81,000 in CIP fund costs. Therefore, the net direct fiscal impact of Lowe s operations in Silverthorne is $929,000 per year. Assuming no changes to the tax structure, market conditions, and development patterns, it is likely that similar impacts will occur on an annual basis. Total Annual Direct Economic Impacts of Lowe's The typical annual economic and fiscal impact of the proposed Lowe s store in the Town of Silverthorne is estimated to be about $1.4 million per year, including the total direct economic impact of $464,000 and the net direct fiscal impact of $929,000 per year. Total Silverthorne Direct Economic Impacts Business Operations $4,695,000 $382,000 Employee Spending $107,000 $82,000 Total Economic Impacts $4,802,000 $464,000 Total Annual Direct Fiscal Impacts of Lowe's Capital Improvement General Fund Projects Fund Silverthorne Total Direct Fiscal Impacts Business Operations $813,000 $329,000 $1,142,000 Employee Spending $11,000 $1,200 $12,200 Total Fiscal Benefits $824,000 $330,200 $1,154,200 Local Government Costs Business Operations $121,000 $68,000 $189,000 Employee Spending $23,000 $13,000 $36,000 Total Local Government Costs $144,000 $81,000 $225,000 Net Fiscal Impacts $680,000 $249,200 $929,200 The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 10

16 REFERENCES Colorado Department of Labor and Employment, Labor Market Information. Quarterly Census of Employment and Wages, Wage and Employment Tables, Annual Average Colorado Department of Local Affairs, Demography Office. Population Totals for Colorado Municipalities. Colorado Department of Local Affairs, Division of Property Taxation Annual Report. Colorado Department of Revenue. Retail and Food Services Sales Data. Dun & Bradstreet Marketplace, July-September Lowe s Home Improvement, Lowe s Home Improvement, 2008 Annual Report. ae3df411d525/2008-annual-report-bookmarked-_final.pdf Summit County, Assessor s Office. Town of Silverthorne, Finance and Administrative Services Department, Annual Financial Report. Town of Silverthorne, Finance and Administrative Services Department, 2008 and 2009 Budgets. U.S. Department of Commerce, Bureau of the Census. American Community Survey. U.S. Department of Commerce, Bureau of the Census. Local Employment Dynamics. U.S. Department of Labor, Bureau of Labor Statistics. Consumer Expenditure Survey. The Economic and Fiscal Impact of Lowe s in Silverthorne, Colorado Page 11

17 Economic and Demographic Research Industry Studies Fiscal and Economic Impact Analysis Real Estate Economics West Belleview Avenue Suite 100 Littleton, Colorado

18 THE MARKET POTENTIAL FOR, AND THE PROJECTED COMPETITIVE IMPACTS OF, A LOWE S HOME IMPROVEMENT STORE IN SILVERTHORNE, CO. Prepared for Mr. Dennis Linville Director, Real Estate The Lowe s Companies Inc Faraday Ave., Suite 140 Carlsbad, CA Prepared by Dr. David Rogers President DSR Marketing Systems Inc Commercial Ave., Suite 2 Northbrook, Illinois TEL: 847 / FAX: 847 / dsrms@sbcglobal.net March 22, 2010

19 TABLE OF CONTENTS BACKGROUND AND PURPOSE... 1 Page RESEARCH APPROACH... 2 SUMMARY... 3 BUILDING MATERIALS STORE SALES/SPENDING... 7 THE MARKET AREA HOME CENTER COMPETITION ANALYSIS Appendix 1: ABOUT DSR MARKETING SYSTEMS INC. Appendix 2: WHY WE SHOP WHERE WE SHOP. Home Channel News. February 8, Appendix 3: MARKET DEMOGRAPHICS

20 BACKGROUND AND PURPOSE Lowe s proposes to open a new store on the southwest corner of the intersection of Buffalo Mountain Drive and Wildernest Road in Silverthorne, Colorado. Concerns have been expressed about the market s requirement for this store and its impact on pre-existing competitors in Silverthorne, and DSR Marketing Systems Inc. (DSR) was asked to assess these issues. This report presents the findings of our research. Our qualifications and expertise as consultants in retail location analysis are detailed in the accompanying Appendix 1. 1

21 RESEARCH APPROACH DSR visited Silverthorne and Summit County between February 20 and 24, 2010 in order to become familiar with the area and to review the proposed Lowe s site and its competitors. Our field research was supplemented by extensive in-office research, including access to the Colorado Department of Revenue web-site, the 2002 and 2007 Censuses of Retail Trade, and demographic data bases. The findings of our research are presented below. 2

22 SUMMARY Market Need 1. The market area estimated by Lowe s for the proposed store in Silverthorne is affluent and characterized by above average levels of spending on Building Materials, Lumber, and Hardware+. According to the 2007 Census of Retail Trade (conducted by the U.S. Census Bureau), sales by Building Materials stores (of all types) totaled $221 million in the combination of Eagle, Lake, and Summit Counties in that year*. 2. Based on the norms for the State of Colorado (again sourced from the 2007 Census of Retail Trade), a 40% proportion of the total Building Materials sales taking place within the three (3)- County Silverthorne market area, i.e. $88 million in 2007, would typically be captured by Home Centers such as Lowe s. The remaining $133 million per year in Building Materials sales (i.e. $221 million minus $88 million) are available to - and are captured by - other store-types such as Lumber and Building Materials Dealers (e.g. Ace/Bighorn), Hardware Stores (e.g. True Value), and Paint Stores (e.g. Bighorn Paint). 3. Relative to the total potential Home Center business in the Silverthorne market area ($88 million), the combined sales of the existing Home Depot in Avon (Eagle County) and the proposed Lowe s in Silverthorne would total $61.5 million per year - comfortably below the estimated Home Center potential of $88 million. It is, therefore, our conclusion that there is a market need for the proposed Lowe s home improvement store in Silverthorne. + Abbreviated to Building Materials in the rest of this report (unless noted otherwise). * No sales data is available from the 2007 Census of Retail Trade for Park County, Colorado. 3

23 SUMMARY (continued) Competitive Impacts 4. The sales losses produced by the Lowe s store will vary among the competitors currently operating in Silverthorne, and will ameliorate over time. The latter trend is consistent with our experience and will be due to (a) to the additional sales drawn into Silverthorne by Lowe s and (b) by changes in the products, services, and positioning of the affected retailers in response to Lowe s competitive proposition. Lowe s opening in Glenwood Springs in 2005 provides a case in point. There have been no subsequent competitor closings, and the sales of the competitors continued to grow through The estimates presented in the following Figure 1 are for the most important, albeit indirect competitors in Silverthorne, and are based on our 30-year retail research experience, together with an extensive literature review. They also reflect our visits to stores in Silverthorne and incorporate research by the Home Improvement Research Institute (HIRI) on why consumers shop at different types of stores (please refer to Appendix 2). 6. The estimates in Figure 1 are also supported by facts elsewhere. For example, the impacts of Walmart stores on other retailers in Iowa have been found to range between - 5% and -15%, depending on location and the retailer+. Impacts have proven to be less in the towns where Walmart located due to the latter attracting additional retail sales from + Impact of the Wal-Mart Phenomenon on Rural Communities. Kenneth E. Stone, The Farm Foundation. Chicago, Illinois

24 SUMMARY (continued) surrounding areas and towns. This is very much the scenario to be expected in Silverthorne where Lowe s will attract hard-lines sales to the town which will complement the current primarily soft-lines sales of the three (3) Factory Outlet shopping centers. 7. Finally, as happened in Glenwood Springs in , the Lowe s opening will retrieve Building Materials spending and sales by Summit County residents that is currently flowing out to Eagle County and the Denver area. By increasing the attractiveness of Silverthorne for these hard-line purchases, the presence of Lowe s will increase the pool of sales available to its indirect competitors in the town. 5

25 Figure 1 THE ESTIMATED INITIAL IMPACTS BY LOWE S ON SILVERTHORNE RETAILERS Competitors Estimated Initial Impact Comments Ace, Bighorn Materials % This retailer will be protected from impact by its Contractorfocus and well regarded brands (now including Craftsman).. Sanders True Value Personal relationships and a convenient shopping experience will be the strongsuits of this retailer. Sears Sears has strong private brands (including Kenmore) and offers a convenient specialist store shopping experience. Greer s This store offers personal service but - based on its very limited store hours - has a strong orientation to Businesses and Contractors rather than direct to consumers. Alpine Nursery Neils Lunceford zero to - 5.0% zero to - 5.0% The two (2) Nursery competitors will experience little impact because of their local knowledge with respect to climate and altitudinal conditions, high service profile, and live goods quality reputations. 6

26 BUILDING MATERIALS STORE SALES/SPENDING Our analysis of the 2007 Census of Retail Trade indicates that Summit County currently achieves a below-average level of annual Building Materials+ sales per housing unit: $1,785 in This was 38% below the State-wide average of $2,863 and 36% below the national average of $2,793 per housing unit. This indicates that there is un-met demand within Summit County and a strong leakage of spending and sales out of the County. Please refer to the accompanying Figure 2 which is sourced from the 2007 Census. However, the 2007 Census also identifies much above-average sales per housing unit in neighboring Eagle County ($5,967) and in the three (3) County market area as a whole ($3,608). This confirms that there is currently a strong leakage of spending from Summit County to Eagle County. The current out-flow of sales from Summit to Eagle County (and to the Denver area to the east) is also reflected in the per capita sales analysis presented in Figure 3. As of the 2007 Census of Retail Trade, Building Materials store sales in Eagle County represented $3,152 per year for every person in the County. The comparable figure in Summit County was only $1,810...$1,342 (or 43%) lower than in Eagle County. This situation is analogous to the relationship between Garfield and Mesa Counties in 2002 before Lowe s opened a store in Glenwood Springs in Garfield County residents were + That is, the NAICS 444 store-types. NAICS stands for the North American Industrial Classification System for retail store types. Building Materials stores include Hardware and Paint stores, as well as Home Centers, Lawn and Garden Equipment and Supplies dealers, and Lumber Yards. 7

27 BUILDING MATERIALS STORE SALES/SPENDING (continued) purchasing Building Materials and Hardware at The Home Depot and Lowe s (and other stores) in Grand Junction. As a result, per capita sales in Mesa County at the time of the 2002 Census of Retail Trade were $1,779, or 41%, higher than the $1,259 in Garfield County. Please refer again to Figure 3. However, once Lowe s opened in Glenwood Springs in 2005, Building Materials purchases by Garfield County shoppers were retrieved from Eagle and Mesa Counties. As a result, the 2007 Census of Retail Trade found that the Building Materials sales per capita in Garfield County were $2, % above the $2,294 in Mesa County instead of being 29% lower as they were in In our judgment, the opening of the Lowe s store in Silverthorne will similarly retrieve sales that are currently flowing out of Summit County to Eagle County and the Denver area. 8

28 Figure 2 BUILDING MATERIALS STORE SALES, 2007 Source: The 2007 Census of Retail Trade. County Building Materials Store Sales+ ($ million) No. Housing Units++ (2009) Building Materials Store Sales/Housing Unit ($) Eagle ,749 5,967 Lake 3.4 4, Summit ,046 1,785 Sub-total ,198 3,608 STATE 6, ,100,356 2,863 USA 320, ,375,500 2,513 + NAICS Source: Scan/US Inc., Santa Monica, California. 9

29 Figure TRENDS IN BUILDING MATERIALS STORE SALES PER CAPITA Building Materials Store Sales / $m (NAICS 444) Population Building Materials Store Sales Per Capita / $ County % Change Eagle N/A ,766 52,532 N/A 3,152 N/A Garfield ,012 55,063 1,259 2, Mesa , ,416 1,779 2, Summit ,995 28,611 1,430 1, STATE 4, , ,478,010 4,919,884 1,019 1,

30 THE MARKET AREA The primary trade area estimated by Lowe s for the proposed store in Silverthorne is identified on the following Map 1 and includes the majority of Eagle County, all of Lake and Summit Counties, and a small portion of Park County to the southeast. It does not include Clear Creek County because of the latter s orientation towards retail facilities in the Denver area. It is important to note that this primary trade area (PTA) definition accounts for only 70-80% of the store s anticipated total sales, as is the custom in retail market research. Additional sales will be drawn from areas beyond the PTA, particularly from Grant and Routt Counties to the north (via U.S. 9). As of 2009, the Silverthorne trade area is estimated to include 28,655 households and 57,446 housing units. Of the latter, 28,791 (50.1%) are vacant or seasonally occupied. A 60.9% proportion of the year-round housing units are owner-occupied. The trade area population (75,618 in 2009) is affluent with a median household income of $72,317 in much higher than the norms for Colorado ($61,760) and the (Continental) USA+ ($54,153). Please refer to Figure 4 and Appendix 3. + Excluding Alaska and Hawaii. 11

31 Map 1: Silverthorne Trade Area 12

32 Figure 4 COMPARATIVE MEDIAN HOUSEHOLD INCOMES Source: Scan/US Inc. Median Household Income, 2009 Summit County $71,498 Silverthorne Trade Area 72,317 State of Colorado 61,760 USA 54,123 13

33 HOME CENTER COMPETITION There are currently no Home Centers operating in Summit County. However, there is a Home Depot store in Avon (Eagle County) to the west which is located within the market area relevant to a Silverthorne s Lowes. This competitor is approximately 39 miles distant (in terms of driving distance) and estimated to achieve annual sales of $32.5 million...similar to The Home Depot chain average ($33 million per year). Because of the limited local shopping opportunities, considerable Home Center-oriented sales currently leak out of the market area to Home Depot stores in Evergreen and Golden to the east, and to Lowe s stores in Arvada (east) and Glenwood Springs (west). Within the Silverthorne market area, there are also a number of indirect Lumber and Hardware competitors, most notably the following stores:- Bighorn Materials (Ace) Located in Silverthorne, this 40,000 sq. ft. store is the most significant indirect competitor. It is focused on Lumber and Building Materials sales, has a 15,200 sq. ft. sales floor, and closes at 6pm weekdays, 5pm on weekends. It now incorporates the Bighorn Paint store formerly located in Frisco. As evidenced by its early closing times and sparse inventory in key DIY lines, Bighorn Materials is a contractor-oriented Lumber and Building Materials store (NAICS 44419) rather than a consumer (DIY)-oriented Home Center such as Lowe s (NAICS 44411). Over 75% of Lowe s sales are to consumers while the comparable proportion for an LBM store such as the Bighorn Ace is only 25% (please refer to Figure 5). 14

34 HOME CENTER COMPETITION (continued) Besides being protected from competitive impact by its customer differentiation, the Bighorn Ace will be supported by the appeal of its private brands...now including Craftsman. Breckenridge Building Center This retailer is located on Highway 9 to the south of Breckenridge and is a Lumber Yard affiliated with DoItBest, the hardware cooperative. Again, like Bighorn Materials, this is a different store-type than the proposed Lowe s and competes for a different market. The store has a sales floor of approximately 12,000 sq. ft. but closes at 5:30pm each weekday, 3pm on Saturdays, and is closed all day Sunday. These limited store hours again reflect a primary orientation to Contractors rather than private consumers. Sanders True Value Located in Silverthorne, this is a traditional hardware store with a 10,000 sq. ft. gross building area (yielding about 7,300 sq. ft. in sales area). This is also classified by the U.S. Census Bureau as a different store-type from the proposed Lowe s (NAICS 44413) because it offers a much narrower product selection in a smaller, more convenient facility. The True Value is open on Sundays (10am - 3pm) but, relative to industry norms, closes early on weekdays (6pm) and on Saturdays (5pm). Despite the reduced hours of 15

35 HOME CENTER COMPETITION (continued) operation, the store reportedly achieves annual sales of $2.1 million...50% higher than the industry average for hardware stores ($1.4 million)+. Please refer to Figure 6 for a listing of the indirect competitors serving the Silverthorne market area. These stores serve the wider Building Materials market rather than the Home Center submarket, i.e., the $133 million non-home Center market ($221 million less $88 million). Special note should be made of the seven (7) stores in the Town of Silverthorne itself which include two (2) Nurseries (Alpine, Neils Lunceford), two (2) Appliance stores (Greer s, Sears), and one (1) high-end Home Interiors store (MWA). Please refer to Map 2. +SOURCE: Hardware Retailing. National Retail Hardware Association. June

36 Figure 5 % CONSUMER (DIY) SALES BY STORE-TYPE NAICS Description % Consumer Home Centers Hardware Stores Other Building Materials Dealers Retail Lumber Yards 23.9 Source: 2002 Census of Retail Trade. U.S. Department of Commerce. NOTE: These statistics are not yet published from the 2007 Census. 17

37 Figure 6 INDIRECT COMPETITORS Location Competitor Store Type Breckenridge Breckenridge Building Center (DoItBest) Bighorn Paint Lumber Yard Paint Store Eagle Alpine Lumber Lumber Yard Edwards Edwards Building Center Lumber Yard Fairplay South Park True Value Hardware Fairplay Hutchison Lumber (DoItBest) Lumber Yard Leadville True Value Hardware Silverthorne Alpine Nursery Nursery/Landscaping Silverthorne Bighorn Materials (Ace) Hardware/Lumber Yard Silverthorne Greer s Appliances Appliances Silverthorne MWA Interiors Home Interiors Silverthorne Neils Lunceford Nursery/Landscaping Silverthorne Sanders True Value Hardware Silverthorne Sears Appliances Appliances/Catalog Vail Ace Hardware Hardware 18

38 Map 2: The Silverthorne Site/Competitors 19

39 ANALYSIS The issues at hand are whether the Silverthorne market area can support the proposed Lowe s, and do so without excessive impacts on the existing competitors serving the local Building Materials, Hardware, and related markets. These questions have been addressed at two levels. First, the opportunity for a Home Center in Silverthorne. Second, the estimated impacts of the proposed Lowe s on the indirect competitors already operating in Silverthorne. Home Center Potential The total sales of Building Materials stores in the 3-County market area ($220.8 million) were first reduced to that proportion typically captured by Home Centers (40% of the total sales in Colorado). The latter estimate is again sourced from the 2007 Census of Retail Trade and is slightly below the U.S. norm of 42% (please refer to Figures 7 and 8). It produces a reduced sales potential of $88.3 million per year - typically available to Home Centers - within the Silverthorne market area. The sales of the existing Home Depot in Avon are estimated to be approximately $32.5 million per year. When combined with those projected for the proposed Lowe s in Silverthorne ($29 million in 2011), they total $61.5 million per year. This is well below the estimated Home Center sales potential of $88 million within the three (3)-County market area, and indicates the local market s current need for an additional Home Center. The market need for an additional Home Center is obviously even greater within Summit County itself - where none exists and shoppers are forced to travel to the Home Depot in Avon or to 20

40 ANALYSIS (continued) stores in the Denver area to the east. The opening of a Lowe s in Silverthorne would, therefore, have the obvious benefit of offering Silverthorne residents a local choice with respect to Home Centers. Competitive Impacts The sales losses to Lowe s will differ among the various indirect competitors operating in Silverthorne, and will ameliorate over time. The latter trend will result from (a) the additional sales drawn into Silverthorne by Lowe s and (b) by changes in the products, services, and positioning of the affected retailers in response to Lowe s competitive proposition. Lowe s opening in Glenwood Springs in 2005 provides a case in point. There have been no subsequent competitor closings, and the sales of the competitors continued to grow through We have researched the available literature concerning competitive impacts, and drawn upon our data and experience to produce the estimates presented in Figure 9 for the most important indirect competitors in Silverthorne. These estimates also reflect our visits to stores in Silverthorne and incorporate research by the Home Improvement Research Institute (HIRI) on the reasons why consumers shop different types of retailers (please refer to Appendix 2). The estimates in Figure 9 are also supported by facts elsewhere. For example, the impacts of Walmart stores on other retailers in Iowa have been found to range between -5% and -15%, 21

41 ANALYSIS (continued) depending on the location and retailer+. Impacts have proven to be less in the towns where Walmart located due to the latter attracting additional retail sales from surrounding areas and towns. This is very much the scenario to be expected in Silverthorne where Lowe s will attract and/or retrieve hard-lines sales to the town which will complement the current primarily soft-lines sales of the three (3) Factory Outlet shopping centers. Finally, as happened in Glenwood Springs where there have been no subsequent store closures, the Lowe s opening will retrieve Building Materials spending and sales by Summit County residents that is currently flowing out to Eagle County and the Denver area. By increasing the attractiveness of Silverthorne for these hard- line purchases, the presence of Lowe s will increase the pool of sales available to its indirect competitors in the town. Based on the above analysis, it is our conclusion that there is a market need for the proposed Lowe s home improvement center, and that the store will not have an excessive long-term impact on the pre-existing competitors. + Impact of the Wal-Mart Phenomenon on Rural Communities. Kenneth E. Stone, The Farm Foundation. Chicago, Illinois

42 Figure 7 BUILDING MATERIALS+ STORE TYPE SALES: USA Source: Census of Retail Trade, 2007 NAICS Store Type 2007 Sales ($ million) (% of Total) 444 Building Materials, Garden Equipment & Supplies Retailers 320, Home Centers 134, Paint & Wallpaper Stores 10, Hardware Stores 20, Other Building Materials Dealers 118, Lawn & Garden Equipment & Supplies 36, Building materials includes hardware, lawn and garden supplies, lumber, etc.

43 Figure 8 BUILDING MATERIALS+ STORE TYPE SALES: COLORADO Source: Census of Retail Trade, 2007 NAICS Store Type 2007 Sales ($ million) (% of Total) 444 Building Materials, Garden Equipment & Supplies Retailers 6, Home Centers 2, Paint & Wallpaper Stores Hardware Stores Other Building Materials Dealers 2, Lawn & Garden Equipment & Supplies Building materials includes hardware, lawn and garden supplies, lumber, etc.

44 Figure 9 ESTIMATED IMPACTS BY LOWE S ON SILVERTHORNE RETAILERS Competitors Estimated Initial Impact Comments Ace, Bighorn Materials % This retailer will be protected from impact by its Contractorfocus and well regarded brands (now including Craftsman).. Sanders True Value Personal relationships and a convenient shopping experience will be the strongsuits of this retailer. Sears Sears has strong private brands (including Kenmore) and offers a convenient specialist store shopping experience. Greer s This store offers personal service but - based on its very limited store hours - has a strong orientation to Businesses and Contractors rather than direct to consumers. Alpine Nursery Neils Lunceford zero to - 5.0% zero to - 5.0% The two (2) Nursery competitors will experience little impact because of their local knowledge with respect to climate and altitudinal conditions, high service profile, and live goods quality reputations.

45 Appendix 1 ABOUT DSR MARKETING SYSTEMS INC.

46 ABOUT DSR MARKETING SYSTEMS... DSR Marketing Systems, Inc. is a market research and consulting firm which specializes in retail research, including store location analysis and consumer research. It was established in 1979 Dr. David Rogers is the President of DSR Marketing Systems, Inc. He was formerly Head of Site Potential Statistics for J. Sainsbury PLC, the British supermarket chain. He has given presentations on market research topics for a wide variety of U.S. and British retail trade organizations, and is the Assistant Director of at the annual Retail Location Analysis seminar at Oxford University's Business School (Templeton College). Dr. Rogers is co-editor of Store Location and Store Assessment Research, a text-book published by John Wiley and Sons Ltd., the international publishers, and is a regular columnist for a variety of retail trade magazines in Canada, the USA and UK, including Canadian Grocer, Grocery Headquarters, and The Retail Digest. Dr. Rogers has consulted with an extensive number of retail, restaurant, and shopping center clients in Australia, Canada, France, Iceland, Mexico, Puerto Rico, Saudi Arabia, Sweden, the United Arab Emirates, the United Kingdom, and the U.S.A. His experience includes expert witness testimony at planning and traffic impact inquiries and in cases concerning Retail Competition and Eminent Domain. Dr. Rogers received his undergraduate degree from the University of Bristol (England), his M.S. from the University of Wisconsin (Madison), USA, and his doctorate from the University of Reading (England). All three degrees were in the field of Urban Studies. Further information on our services and expertise is available on our web-site,

47 Appendix 2 WHY WE SHOP WHERE WE SHOP. Home Channel News. February 8, 2010.

48

49 Appendix 3 MARKET DEMOGRAPHICS Source: Scan/US Inc., Santa Monica, CA

50

51