Thursday, January 17, 2019

Shopko joins the list of Wisconsin store closings, which means higher tax bills for homeowners

After the Christmas season often comes a reckoning in the struggling retail sector, and we saw that again yesterday, with a major Wisconsin retailer announcing that they will close stores in large numbers as it can’t keep up with its debt payments.
Shopko has filed for bankruptcy -- and is closing 38 stores as part of its restructuring efforts.

The Ashwaubenon-based retailer announced Wednesday that it has obtained $480 million in financing from lenders led by Wells Fargo to fund and protect its operations while it goes through bankruptcy. Shopko has also asked the federal bankruptcy court in Nebraska to allow it to continue to pay wages, salaries and benefits, and pay vendors and suppliers during the bankruptcy process.

“This decision is a difficult, but necessary one,” CEO Russ Steinhorst said in a news release. “In a challenging retail environment, we have had to make some very tough choices, but we are confident that by operating a smaller and more focused store footprint, we will be able to build a stronger Shopko that will better serve our customers, vendors, employees and other stakeholders through this process.”

Court documents list the company's assets at between $500 million and $1 billion, with liabilities estimated between $1 billion and $10 billion.

Coming to a town near you?

Those 38 store closings are in addition to last month’s announcement of numerous other stores closing, and Shopko selling off its pharmacy business. 16 of those stores are in Wisconsin (you can see the list here), and all are scheduled to be shut in the next 3 months.

Sears is already in bankruptcy, and faced the prospect of a full liquidation with a loss of 45,000 jobs before CEO Eddie Lampert said he would bump up his offer to $5.2 billion. And like Shopko, excessive debt seems to be a main reason.
A creditor group had been calling for its liquidation, saying they would recover more in a wind-down and through lawsuits against ESL for deals it had done with Sears in the past. Lampert has said they were proper.

Sears had believed Lampert’s earlier bids fell short of covering the bills the retailer has racked up since filing for bankruptcy protection in October. A bedrock principle of bankruptcy cases is that those expenses must be fully repaid.

The retailer is one of the highest-profile victims of the financial carnage in retail to date as online shopping on sites including Inc soared in popularity.

Unlike Sears, which plans to remain in business, toy seller Toys “R” Us Inc and department store The Bon-Ton Stores Inc closed down last year after losing the support of debt investors or failing to find a buyer.
I know a lot of this is simple structural change as more people buy things online (I’m as guilty as the rest of you). But it’s going to mean a lot of vacant stores and properties taken off of tax rolls in communities. Which means homeowners will make up the difference in higher property taxes.

Even with stores that survive, there may be an impact on homeowners’ taxes due to the “dark store loophole”, which equates the assessment value of big-box retailers to these empty stores. This lowers the assessments on the retailers, which then moves more of burden onto homeowners.

In addition to those retail issues, let me add that other businesses are benefitting from a repeal of much of the personal property tax in the last state budget. This winter is the first time we saw that effect on our tax bills, although homeowners were somewhat protected due to $74 million in state payments of regular tax dollars that were sent to local communities.

Between the closings, the dark store loophole, and the personal property tax giveaway, it seems like a very good time for Governor Evers to propose some kind of shift back that benefits homeowners. By doing so, Evers would be following the will of voters in all corners of Wisconsin, who want the dark store loophole closed.

That, along with other forms of tax fairness, should be a centerpiece of Evers' first budget, as a way to reverse the one-sided structure put in place during the Age of Fitzwalkerstan.

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