theless points out that independent business concerns have not been keeping pace with multiple unit operations in getting their share of new locations, in and out of shopping centers. The special Census tabulation presents only a single-year look at the shares of new business locations for retailers of different unit size, rather than a multiple year picture from which a trend might be inferred. However, Table 1 reveals that between 1958 and 1963, the proportion of single unit firms declined in every line of retail business, while the percentage of firms with eleven or more units increased in every line. A much more expensive tabulation for each year would be required to determine whether the failure of single unit independents to open stores in new locations at the same pace as multi-unit operations is associated with the decline in the proportion of single unit operations between 1958 and 1963. The absence of many small firms from shopping centers is partly explained by the reliance of most shopping center developers on a few basic lines of retail business, mostly dominated by national chains or other top credit firms, as the core for their shopping center projects. Developers have relied on general merchandise, apparel, convenience and personal service tenants to fill out their centers regardless of size. The author's field observations of the five largest centers in Louisville, Kentucky, which varied in size from 150,000 to over 400,000 square feet of building area, revealed that the department store and variety store tenants occupied 44 per cent of the total space on the average. About 10 per cent of the space was occupied by supermarkets, while drug stores and personal service establishments accounted for over seven per cent of the building area. Various men's and women's apparel stores, including shoe stores, accounted for nearly 13 per cent of the total space. Only seven per cent of the total building area was occupied by a wide variety of small space, limited line retail stores. The remaining 19 per cent of the space was occupied either by nonretail tenants, or was vacant. Out of 142 retail tenants in the five major centers in a prime national credit rating, and 59 were local independent operations with no national credit standing. Not one department store, variety store, supermarket or drug store tenant, the categories which together accounted for 58 per cent of the building area, lacked a million dollar net worth and AAA credit standing. Of the small space tenants, only three out of 14 women's wear tenants, two out of seven men's wear retailers, and one out of 10 shoe stores were independent operations. Although eating or drinking and personal service establishments were invariably independents, the developers of the major Louisville shopping centers overwhelmingly relied on national chains and other financially strong retailers for the backbone of their tenant-mixes. Louisville is not an isolated case. The Urban Land Institute study of tenant characteristics for 259 shopping centers scattered throughout the country, revealed that the larger centers simply had more of the same type of retailers than the smaller community center. As might be expected, apparel and general merchandise retailers occurred with greater frequency in the larger centers than in smaller centers, but developers did not cut down on convenience and personal service retailers in the larger centers. Limited line retailers, which are traditionally independent operations, trailed general merchandise, apparel and convenience retailers in frequency of occurrence regardless of the size of center. This suggests that developers have allocated space in the large centers to supermarkets and other convenience or personal service facilities, rather than leasing space to limited line retail shops which add variety to the center's merchandise offering. In contrast, limited line retailers typically occupy more space in the core area of the downtown business district than convenience retailers. The Urban Land study also indicated the relative occurrence of chain to independent retailers in shopping centers. In the 259 centers surveyed, only 14 of the 288 supermarket tenants were classified as being one or two unit independent operations; only 15 out of 245 variety stores were indepen The Dollars and Cents of Shopping Centers, 1966, (Washington, D. C., Urban Land Institute, 1966), pp. 12-41. dents, and 18 out of 235 junior or full line department stores were independent operations. While about 37 per cent of the women's apparel retailers were independents, fully two-thirds of the family shoe stores were classified as national chains." Thus, developers throughout the nation have relied on national chains to fill their centers. In another survey conducted by the International Council of Shopping Centers, national chains represented 48 per cent of the gross leased area, while local chains accounted for 20 per cent and independents occupied 24 per cent. Another eight per cent was occupied by nonretail tenants or was vacant. The study also reported on the extent of direct competition within the center between independents and chains in the same line of business. One hundred and six centers out of 113 centers with less than 100,000 square feet reported that no businesses were in direct competition with one another in their centers. Only 22 centers with more than 200,000 square feet of space did not have tenants in direct competition, while 61 centers of this size had two or more tenants in direct competition in the same center. A Comparison with the Position of Independents in U. S. Retailing As a percentage of stores and retail sales accounted for by independent retailers in 1963 in lines of retail trade which are frequently located in shopping centers, independents account for more than 60 per cent of retail sales in every kind of business with the exceptions of department stores, food stores with more than $500,000 in annual volume, and variety stores. A comparison between the percentage of independents in shopping centers and their proportion nationally reveals that, in most merchandise fields, independents appear in shopping centers roughly in proportion to their importance in U. S. retailing. However, independents are conspicuously absent from shopping centers in certain lines of retail trade as compared with their numerical and sales volume importance nationally. The discrepancy is most apparent among supermarkets, variety stores, family shoe stores and paint 6 Ibid. lesser extent among junior and full-line department stores, candy shops, and drug stores. For example, the Urban Land Institute study revealed that two-thirds of the supermarkets and family shoe stores in both community and regional centers were national chains. These chains were designated as national organizations because they operated in four or more metropolitan areas in three or more states. Two-thirds of the paint and wallpaper outlets in centers were national organizations, while 93 per cent of the variety stores in regional centers fit this classification. Fully one-half of the candy-nut shops and full-line or junior department stores were national chains. Invariably, the kinds of businesses dominated by chains include the largest space using tenants in the shopping center-the supermarket, department store and variety store. There is little doubt that small retailers in many linesnotably but not limited to food, drug, variety stores, apparel and shoes-are rarely successful in obtaining shopping center or other prime retail locations when in competition with national chains. These classifications of stores are the principal types that developers seek as their anchor tenants. The need for tenants in key lines of business is recognized alike by the merchants, developers and lenders. This means that leases or firm commitments from satisfactory tenants in these classes must be obtained by the developer as a prerequisite for attracting other tenants and for procuring mortgage financing. Where the mortgage requirements of lenders might have tended to exclude independent merchants and favor national chains in the past, the SBA lease program is designed to help overcome this obstacle. THE FEDERAL LEASE GUARANTEE The major objective of the federal lease guarantee program is to elevate the credit status of small business concerns seeking prime business locations. This chapter reviews the legislative history and major provisions of the lease guarantee program, and then examines the prospects and principal obstacles facing the success of the program in assisting small business, particularly retailing, to obtain desirable locations. Legislative History of the Lease Guarantee Program The government program for lease guarantee insurance traces its history to the Congressional hearings in 1959 which explored the need for a federal program to assist small firms seeking space in suburban shopping centers.1 A subcommittee of the Senate Small Business Committee heard complaints from small retailers about discrimination in leasing. The testimony indicated that small firms were either overtly excluded from contention for prime retail space, or that they encountered unfavorable lease terms because their financial positions were not comparable to those of national chains. The subcommittee recommended that an intensive review be made of the feasibility of expanding the authority of the Small Business Administration to make it possible for that agency to insure lease bonds written by private surety companies.2 Hearings were again held in 1961 by the Senate Small Business Committee to explore further the feasibility of a 1 Shopping Centers, 1959, Hearings before Select Committee of Small Business, United States Senate, 86th Congress, First Session, April 28-29, 1959 (Washington: Government Printing Office, 1959). 2 The Impact of the Suburban Shopping Center on Independent Retailers, Report of the Select Committee on Small Business, United States Senate (Washington: Government Printing Office, 1960). |