Vancouver Sun, Dec 12, 2002, by Kevin Potvin
A telling threshold has been reached in one of North America's most diverse neighbourhoods. More than half of Commercial Drive storefronts nw sell food, either as a restaurant, a take-out, a bakery, a cafe, or a convenience or produce store. Taken together, food outlets on The Drive, numbering 128, employ an estimated 550 people, and generate revenues of about $85 million annually.
A study of this local economy in The Republic also found that the famous street's identification with cafe culture might be misleading. Images of coffee cups on banners might hang from the lamp posts, but hair and beauty salons outnumber cafes on The Drive nearly two-to-one. There are 23 hair salons and only 12 cafes. The Drive's claim to a culture-rich environment may also be somewhat off the mark. There are nearly twice as many clothing stores (19) as book stores, magazine shops, music stores and video outlets combined (11). There are 41 other types of retail outlets on The Drive, selling merchandise ranging from gifts to furniture to soaps, but there are slightly more sit-down restaurants (49). There are four banks, tree travel shops, two billiard halls, and one newspaper office - The Republic's.
The 15 blocks of Commercial Drive from Venables to Broadway, almost exactly a mile, employ an estimated 1,500 people. First established as a commercial district in the 1900s, it wasn't until the 1930s that stores spread up and down the street from the earliest cluster of shops at First Avenue. Today, the street generates and estimated $156 million in sales annually, on about 250,000 square feet of retail floor space.
Commercial Drive's retail floor space is roughly 2.5 times the size of the average Walmart. Collectively, its stores earn just over twice the revenue of an average Walmart, which means The Drive almost equals the retailing behemoth's sales-per-square foot performance. The big difference is employment. The Drive employees more than seven times the number at an average Walmart. Another big different is found in property taxes. Commercial Drive businesses in total pay nearly $1 million in property taxes to the city each year. It's undetermined what a proposed Walmart on Southeast Marine Drive, for example, would pay in annual property taxes, but it's likely to be less than a tenth what Commercial Drive collectively pays.
The average Walmart discount store generates about $2.5 million in profits annually (calculated as a portion of the over-all Walmart company). Based on the current trading value of Walmart stock, the average store is worth about $120 million. Based on government statistics about the average profitability of independent stores in Vancouver, Commercial Drive businesses probably generate slightly more profit per sale than Walmart. Well-managed independent stores usually generate about four pre cent profit on sales, while Walmart generates about three per cent. Possibly, therefore, Commercial Drive businesses generate about $6.25 million in profits, which is about 2.5 times the size of a Walmart. With the financial performance being so equal you might expect the value of Commercial Drive businesses to also b about 2.5 times the value of an average Walmart. That would mean the average Commercial Drive store is worth about $1 million. That's certainly not the case, though. The value of stock in Commercial Drive stores would probably be worth something less than one-tenth the value of stock in Walmart.
Why the big difference?
One reason is risk. While Walmart stock may edge up of down based on the performance of one department, no single shareholder faces ruin if a department does poorly. A shareholder in a Commercial Drive business, however, could lose it all if a store, the equivalent of one department, fails.
Another factor is the ease of movement into and out of Walmart stock, opening up ownership to anyone in the world with capital to invest. By comparison, Commercial Drive stock is pretty much restricted to those who live in Vancouver and choose to do business on The Drive. Walmart shareholders can also incrementally increase or decrease their holdings based on their assessment of the stock's value. However, entry into or exit out of Commercial Drive stock is far more difficult -- it usually means buying or selling a whole business.
Which is to key, only because of built-in restrictions to capital flow is Commercial Drive stock worth less than 10 per cent of Walmart stock. Districts like Commercial Drive are disappearing all over North America, even while their customers recognize a great deal of intangible value in preserving the health of such neighbourhood retail districts.
But as this economic study of Commercial Drive points out, there is no purely economic reason why shuch districts should die. Their performance is generally as robust as the most celebrated kings of retail like Walmart. Furthermore, they employ far more people and generate for more civic tax revenue than their huge, consolidated brethren.
One radical idea to help save districts like The Drive is to remove the built-in restrictions to capital flow that choke off working capital from small business districts. This would help owners realize their true value and offer big incentives to persevere.
One way to remove restrictions to capital flow might be to convert all the businesses into units of a consolidated and publicly traded corporation. A corporate constitution could ensure that each former business owner continues to enjoy a similar level of autonomy when they become a vice-president within the corporation, wholly responsible of their own unit. This would be similar to the way owners of condos share in the over-all ownership of a building, yet enjoy much the same autonomy within it as an individual house owner.
The trick could be turned as easily as a stock swap: some negotiated amount of stock in Commercial Drive Inc. could be exchanged for all the stock an owner has in their own business. Then Commercial Drive Inc. gets listed on public stock exchanges, draws up its prospectus and begins offering shares to investors. Various corporate constitution rules could ensure that a majority controlling stake remains in the hands of actual store operators.
The benefit to small business owners might be a hugh increase in the value of their businesses, as they gain access to investors who would be able to invest as freely as they do in other stock market-listed companies.
Also, businesses could gain access to large amounts of working capital necessary to respond to evolving market conditions. Or they could incrementally increase or decrease their own stock in Commercial Drive Inc., based on personal requirements or opportunities, without having to either jump wholly in with a new business, or wholly out with a sale.
Furthermore, business owners, now capitalized and consolidated, could begin collectively purchasing the buildings they operate in, thereby taking control of rent, which is one of the biggest factors in the success or failure of a small business. Many thriving and long-successful small businesses on Robson Street, for example, were driven out of business only because rent, which they could not control, shot up too rapidly.
Most of all, independent business owners, now as managers within a much larger corporation, would gain an extraordinary level of clout at City Hall. If Commercial Drive, for example, were one corporation, it would easily be the biggest retail operation in British Columbia and would be one of the largest employers among the biggest companies around. It would be listened to.
It could also richly fund the political campaigns of candidates. Just as other comparably sized companies impose upon the civic and provincial governments for favourable tax and legal policies, so too could Commercial Drive Inc., acting as a whole, take a stronger hand in ensuring the survival of its many parts.
Kevin Potvin publishes The Republic newspaper in the back of his store on Commercial Drive