Monday, May 04, 2009
Crain's Chicago Business
by Steven R. Strahler and Monée Fields-White

Chicago-area retail sales fell 4.8% last year, the first drop since 2002 and the biggest in more than 20 years.

The decline will continue this year and into 2010, says retail consultant John Melaniphy, who compiles an annual retail sales report based on sales tax data for the metropolitan area.

The report, provided exclusively to Crain's by Chicago-based Melaniphy & Associates Inc., offers the first comprehensive, detailed look at how the economic downturn is affecting retail sales in the region and its various municipalities.

During 2008, retail sales fell less in Chicago and suburban Cook County — despite a July 1 increase in the Cook County sales tax — than in DuPage, Kane and Lake counties. Only smaller, faster-growing Will and McHenry counties fared better, but they also reported declines.

Cook County raised its sales tax just as the deepening recession sent consumer spending into a tailspin. Although Mr. Melaniphy believes the added tax has affected Cook sales, he says it's too early to prove it with numbers, a feeling echoed by municipal finance officials and retailers.

Sales tax data from the Illinois Department of Revenue indicates retail sales in Cook County fell 10.8% in the fourth quarter of 2008, slightly more than declines in DuPage and Will counties but less than the 12.2% slide in Lake County.

Raising the countywide sales tax by one percentage point, making Chicago's the highest among major cities in the country at 10.25%, created a political firestorm that will be front and center in the looming campaign for Cook County Board president.

County commissioners are preparing to debate whether to roll back a quarter-point of the new tax or all of it in stages over four years.

The added 1% tax was expected to raise $420 million annually — about double the first-year budget gap — but receipts for the year ending in June, affected by the slumping economy, are now projected to be as low as $360 million. A spokesman for Cook County Board President Todd Stroger could not be reached for comment.

However, a look at county-by-county sales trends shows little difference in shopping patterns since the tax hike. Big-ticket sales fell 18% in Cook County during the fourth quarter, more than the 15% decline in Will and the 17% decline in Lake, but less than the 21% drop in DuPage.

But the higher Cook County tax may be having an impact along the county's perimeter, especially in communities that straddle the border, where the tax-rate differential is as high as two percentage points.

Wheeling shoppers have a choice between a Wal-Mart and a Sam's Club on the Cook County side of Lake Cook Road and a Target on the other. A row of restaurants lines Milwaukee Avenue on the Cook side.

"It has affected our sales tax revenue. It's affected the restaurants. Most of them are hurting very badly," says Dean Argiris, acting village president of Wheeling.

Steven Hartenstein, chief financial officer of Phil Stefani Signature Restaurants, believes the tax hike is hurting sales at the company's Tuscany restaurant in the Cook County section of Wheeling: "When (the tax) first went into effect, we heard about it."

Similar patterns are emerging along Cook County's southern border with Will County. Customers often call ahead to find out which sales tax rate applies at Scott's U-Save Tires Inc. in Steger.

"I've had a lot of people call (and ask), 'You're in Will County, right?' " store manager John Reichenbach says.

Among the 20 Chicago-area communities with the most retail sales, Orland Park, which straddles the Cook-Will line, trailed only Downers Grove for the biggest decline last year, according to the Melaniphy study. Bolingbrook, mostly in Will County, was the sole municipality to register an increase in retail sales last year; they were up just 0.2%.