Eminent Domain, Imminent Problem?

Retail analysts speculate on benefits to big-boxes following Supreme Court ruling

WASHINGTON -- The U.S. Supreme Court's ruling allowing governments to take private land for business development may benefit big-box retailers, according to a CNN/Money report. Some of those retailers may also sell gasoline.

Retailers such as Target, Home Depot and Bed, Bath & Beyond, have kept the "eminent domain" issue under the radar and sidestepped a public relations problem even as these companies continue to expand their footprint into more urban residential areas where prime retail space is not readily available.

Eminent [image-nocss] domain allows the government to take private property for a "public use," such as a school or roads and bridges, in exchange for fair compensation.

Local governments have increasingly expanded the scope of public use to include commercial entities such as shopping malls or independent retail stores, the report said. Critics of the process maintain that local governments are too quick to invoke eminent domain on behalf of big retailers because of the potential for tax revenue generation and job creation.

The Supreme Court's decision clarified that local governments may seize people's homes and businesses, even against their will, for private and public economic development, said the report.

Some industry observers, however, said that the decision thrusts the issue into the national spotlight, and that companies using eminent domain risk a very public backlash.

Craig Johnson, president of retail consulting group Customer Growth Partners, told CNN/Money that retailers should not interpret the decision to be a green light to aggressively expand even into those neighborhoods where a big-box presence is unwelcome. "Even with the Supreme Court's decision potentially in their favor, smart retailers would rather go into communities wearing a white hat rather than a black one.

The appropriate move for companies would be to selectively use eminent domain as a last resort, he said, not as a first course of action. "I think companies have learned a few lessons from Wal-Mart's public relations struggles," he said.

"Wal-Mart and Target have both been criticized for their eminent domain use," Burt Flickinger, a consultant with the Strategic Resources Group, told CNN/Money. "Target has used eminent domain in some cases because it made the stupid mistake of not relocating its [underperforming] box locations in the late 1990s. As a result, it has fallen behind some of its key competitors in terms of growth."

Meanwhile, eminent domain opponents called the high court ruling a "big blow for small businesses."

"It's crazy to think about replacing existing successful small businesses with other businesses," Adrian Moore, vice president of Los Angeles-based Reason Public Policy Institute, a nonprofit organization opposed to eminent domain, told CNN/Money. "There are many, many instances where we've found that the cities that agreed to eminent domain use not only destroyed local businesses but the tax revenue that the local government had hoped to generate did not come to pass," Moore said.

But at least one retail industry analyst sees things a little differently. "Expanding for big-box stores is a challenge, especially in the Northeast; therefore, retailers will have to devise a strategy for using eminent domain," Candace Corlett, a retail analyst with WSL Strategic Retail, told CNN/Money. "Local communities may oppose Wal-Mart and Target coming to their area but as consumers, they also want to shop at these stores and they complain when they don't have these stores nearby," she said. "The fact is that shoppers ultimately vote with their dollars and retailers are very well aware of that."