Mitchell Schnurman: Big hype yields little at Cabela's
By Mitchell SchnurmanFort Worth Star-Telegram Staff Writer
The giant Cabela's store in far north Fort Worth is impressive by many measures. It's a retail paradise for sportsmen and a feast for the eyes for anyone who loves the outdoors.
But it was supposed to be a lot more, which is why city leaders agreed to give Cabela's up to $42 million in incentives over a 20-year period. They even went to court to defend the tax breaks.
Fort Worth doesn't usually give retailers a shot at so much public money. Unlike a corporate headquarters or manufacturing facility, retail doesn't generate many high-paying jobs or attract suppliers.
But Cabela's was portrayed as an economic force by itself and a big-time catalyst. Proponents said it would pull in a hotel and more than $500 million of nearby retail and commercial development. The hype even claimed that Cabela's would rival the Alamo as a tourist attraction.
Promises, promises.
Two-and-a-half years after opening, Cabela's is falling short of projections. It's not even hitting the relatively low marks tied to its tax breaks.
As a result, the Sidney, Neb., firm has paid back more than $70,000 to the state because it didn't create the jobs it promised in Fort Worth and at a second store in Buda, south of Austin. An additional $200,000 in state funds, linked to new hires, is out of reach now, too.
Cabela's also lost out on $68,000 in tax rebates from Fort Worth last year because it didn't meet local goals. To get the full tax break, Cabela's was required to have at least 60 full-time employees from Fort Worth, including 10 from the central city, and spend $5,000 with minority- and women-owned businesses.
Those aren't exactly killer thresholds, and the shortfall gives an indication of the disappointing performance.
There's more.
In 2004, when the City Council was evaluating the elaborate incentive package for Cabela's, the staff described the scope of the project and the potential impact.
Cabela's was supposed to have about 500 employees in Fort Worth. The number last week was 340, including part-timers, a spokesman said.
It was supposed to generate $67.5 million in first-year sales; in 2006, the store did more like $41 million -- at least in taxable sales. The spokesman said Cabela's "is comfortable" with the early forecast, but city sales-tax records indicate that the total was much lower.
Cabela's arrival was projected to spur development on 125 adjacent acres, including a 234-room full-service hotel and eight restaurants. More than $573 million was forecast to be invested in that area in the next 20 years. So far, Cabela's has spent $51 million to build its store, but nobody else has stepped forward with another project.
It's still early, and Cabela's may eventually live up to the lofty expectations. For years, both the Alliance area and downtown Fort Worth seemed to have little activity after major investments were made there. Then, almost overnight, they exploded with development.
Even if Cabela's disappoints, it remains an important asset and a unique retail anchor. It adds to the momentum in the Alliance corridor, which has been a driving force behind Fort Worth's continual growth.
And it probably helped persuade J.C. Penney and Sam Moon to put stores at Alliance Town Center, a mall about three miles south.
The warning to heed from Cabela's -- and all economic-development projects -- is beware of the hype.
Last week, an Austin watchdog group, Texans for Public Justice, released a report on the incentives doled out by the Texas Enterprise Fund. About $359 million has been given to 38 recipients from the governor's "deal-closing" fund, and the report says that almost two-thirds of the grants went to companies that later announced layoffs or failed to create the jobs they promised.
The report cites Cabela's, which received $400,000 from the state in 2005. That was based on having 400 full-time employees in Texas and at least 160 in each store.
Cabela's fell short by 86 jobs that first year. In 2006, it was 126 jobs short, meaning the stores had a combined 274 full-time workers -- a far cry from the high hopes here.
The state used a clawback provision to require Cabela's to pay back $70,384, according to the watchdog report. And because Cabela's missed those numbers, it forfeits a shot at an additional $200,000 in 2009 that hinged on hiring another 200, said Phil Wilson, Texas secretary of state.
Cabela's spokesman John Castillo confirmed the clawback payment and said it was more important for the company to operate efficiently.
Shareholders won't argue with that, especially now. Cabela's stock (ticker: CAB) has fallen 40 percent since October and hit a 52-week low of $13.89 last week. Revenue and same-store sales are growing, albeit at a slower rate, but investors are most concerned about shrinking profits -- that Cabela's is growing too quickly.
It started the year with 18 stores and has since opened eight more. Next year, it plans seven new outlets with an important change: they'll be up to 40 percent smaller.
Cabela's does not break out sales by store. But the Fort Worth store's city sales taxes are public information, because they're the basis for the tax-rebate incentive. In 2006, Cabela's collected $406,000 in city sales taxes (excluding the T and crime-district levies), said Tom Higgins, economic-development director. That translates into taxable sales of $40.6 million, but Castillo says that total sales were much higher.
More than half of Cabela's $42 million in potential incentives is projected to come from a tax-increment finance district. If hotels, stores and restaurants are developed on adjacent land, their property taxes will be passed on to Cabela's to offset the costs of its store.
If development doesn't happen there, Cabela's doesn't get the money. Ditto for the sales-tax rebate; it's based on sales that Cabela's generates and how it meets goals.
On that score, Fort Worth structured the deal wisely, because Cabela's has to deliver before it collects public funds. But that's scant satisfaction over the long term. The bigger problem is that leaders are too willing to believe the big claims of big projects, and that usually leads to giving away too much.
