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Eminent domain: A big-box bonanza?
Court's ruling OKed land grab for business like Target, Home Depot, CostCo, Bed Bath & Beyond
June 24, 2005: 3:20 PM EDT
By Parija Bhatnagar, CNN/Money staff writer
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NEW YORK (CNN/Money) - The Supreme Court may have just delivered an early Christmas gift to the nation's biggest retailers by its ruling Thursday allowing governments to take private land for business development.

Retailers such as Target (Research), Home Depot (Research) and Bed, Bath & Beyond (Research) have thus far managed to keep the "eminent domain" issue under the radar -- and sidestep a prickly public relations problem -- even as these companies continue to expand their footprint into more urban residential areas where prime retail space isn't always easily found.

Eminent domain is a legal principle that allows the government to take private property for a "public use," such as a school or roads and bridges, in exchange for just compensation.

Local governments have increasingly expanded the scope of public use to include commercial entities such as shopping malls or independent retail stores. 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 Thursday clarified that local governments may seize people's homes and businesses -- even against their will -- for private and public economic development.

The ruling would seem to offer new opportunities to retailers. However, some industry watchers caution that with Thursday's decision thrusting the eminent domain issue into the national spotlight, companies using eminent domain risk a very public backlash.

Craig Johnson, president of retail consulting group Customer Growth Partners, said that retailers shouldn't interpret the high court's 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," said Johnson.

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.

Where's the space crunch?

According to industry watchers, retailers face a different type of expansion problem on the East Coast versus the West Coast.

"On the West Coast, land availability takes a back seat to labor union issues and that's why Wal-Mart has consistently run into problems in California," Johnson said. "On the East Coast, because of population density it's very hard to get big open space and the zoning is more restrictive," Johnson said.

Industry consultant George Whalin said that's one reason that Target, the No. 2 retailer behind Wal-Mart, (Research) has resorted to using eminent domain to set up shop in a few East Coast markets.

Target and Wal-Mart could not immediately be reached for comment.

"Wal-Mart and Target have both been criticized for their eminent domain use," said Burt Flickinger, a consultant with the Strategic Resources Group.

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," said Adrian Moore, vice president of Los Angeles-based Reason Public Policy Institute, a non-profit organization opposed to eminent domain.

"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 store is a challenge, especially in the Northeast. Therefore, retailers will have to devise a strategy for using eminent domain," said Candace Corlett, retail analyst with WSL Strategic nRetail.

"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."

Click here to read about whether the government can force you to sell your house in the name of new development.

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