Possibility of 6,100 new Michigan workers is tempting, but Sears deal isn't worth it
Don’t go shopping for Sears, Gov. Snyder. It’s a bad bargain.
Sears Holdings Corp. reportedly is considering moving its headquarters out of suburban Chicago, and is eyeing Michigan and a handful of other states for a possible new home base.
The Detroit Free Press recently reported that the state, led by the Michigan Economic Development Corp., is offering Sears a $50 million incentive package to move its 6,100 corporate employees to metro Detroit.
Sears spokeswoman Kimberly Freely said the retail giant is considering “options and alternatives” to its current headquarters location, but said the company has no immediate plans to move.
“Speculation about whether Sears will remain in Hoffman Estates is not fair to our associates, particularly so early in this process,” she said.
An Illinois Economic Development Area that gives Sears various state and local tax breaks in Hoffman Estates expires next year, prompting the company to consider a possible relocation.
MEDC spokesman Mike Shore declined to comment on the $50 million incentive package reportedly being offered to Sears.
“As a matter of policy, we don’t comment on deals that may or may not be in the works,” Shore told me.
Gov. Rick Snyder came into office this year promising to end the state’s system of costly tax incentives by cutting business taxes across the board, which he said would be a better way of creating jobs.
He delivered. His plan to swap the tax-credit-laden Michigan Business Tax with a simpler 6 percent corporate income tax sailed through the Legislature in May.
Snyder and lawmakers also budgeted $100 million to help the MEDC attract new businesses and blunt talk that Michigan was unilaterally disarming in the economic development war among the states.
But it would be disappointing to see the governor retreat so quickly from his plan to minimize the use of tax incentives to go after Sears, a tarnished retail icon.
Sears Holdings, formed in the 2005 acquisition of Sears, Roebuck & Co., by Kmart Holding Corp., has struggled for years.
The merger resulted in the relocation of Kmart’s Troy headquarters to Sears’ headquarters in Hoffman Estates, resulting in the elimination of nearly 2,000 Michigan jobs.
Kmart’s headquarters, which once housed 6,000 workers, still stands vacant. It no longer is owned by Sears Holdings.
Sears and Kmart stores have seen combined revenues fall $9.5 billion, or 20 percent in the past five years, according to Fitch Ratings.
Sears Holdings posted a net loss of $170 million in the first quarter, prompting Fitch to downgrade the company’s credit rating to five steps below investment grade this month.
“The magnitude of decline in profitability and the lack of visibility to turn around operations remain a major concern,” Fitch said.
It’s also possible, maybe even probable, that Sears simply is threatening to leave Illinois to get a better tax deal from its home state.
Dozens of other companies have done the same thing since the financially strapped Land of Lincoln boosted its corporate income tax rate from 4.8 percent to 7 percent in January.
In all, 69 companies have extracted $272.7 million in tax breaks from the state since it hiked its corporate income tax rate, according to the Chicago Sun-Times.
Sears Holdings’ 6,100 jobs are an enticing prize to pursue. But the company is no Apple or Google. Its best days likely have passed.
Snyder should stay his economic course and resist approving the tax equivalent of a Blue Light Special for Kmart’s parent company.
Email Rick Haglund at haglund.rick@gmail.com.
Comments
deb
Thu, Jun 30, 2011 : 7:09 p.m.
Ray, The statement that about the film credits that "Michigan's investment was in infrastructure to produce movies, and not in one time filming expenses." Is 100% false, they are for time filming expenses, you obviously have no clue what you are talking about. Granholm hoped the movie production companies would come here, build infrastructure and shoot movies. Instead they came here and shot movies, taking our money with them when they left. Why? because the movie industry is a transient industry, it does not need much/any infrastructure, with most shooting done out of the back of a semi. That is why the industry follows the tax breaks/incentives, to any state willing to provide them. Ray please stop providing false truths or become educated on the subject.
Britain W.
Wed, Jul 6, 2011 : 4:48 p.m.
Deb, I wasn't sure which of your four [four!] replies to Ray I should respond to, but there are tons of auxiliary businesses that serve a movie shoot, many of them locally owned. <a href="http://www.freep.com/article/20110705/BUSINESS06/107050365/Once-growing-movie-business-now-shrinking" rel='nofollow'>http://www.freep.com/article/20110705/BUSINESS06/107050365/Once-growing-movie-business-now-shrinking</a> It's not like they pull everything out of one big "Universal Studios" truck, then load it up again and drive it back to Burbank.
John Q
Fri, Jul 1, 2011 : 3:18 a.m.
"Ray please stop providing false truths or become educated on the subject." False truths? That's what being provided by the person claiming that the film industry hasn't created any infrastructure in the state. Several film production facilities have been established in the state.
deb
Thu, Jun 30, 2011 : 7:25 p.m.
that, that shouldn't be there, and thats that
RayA2
Thu, Jun 30, 2011 : 4:32 p.m.
Deb, So you think paying a struggling retailer to who's profits are highly correlated to the business cycle is a good compliment to Michigan's jobs portfolio? The movie industry is about as much unaffected by the business cycle as any industry. That makes it a fantastic compliment to the heavy automotive component of Michigan's jobs portfolio. Michigan's investment was in infrastructure to produce movies, and not in one time filming expenses. It took committment and vision to attract the investment partners that came to Michigan. This was former governor Granholm's genius. Slick's only idea is to throw money at rich people and hope they add a job here or there. For you cons who think Slick's talking out both sides of his mouth on tax incentives is OK, what about the race to the bottom he's using our taxpayer money to pursue?
deb
Thu, Jun 30, 2011 : 7:01 p.m.
I mean really your statement could not be further from the truth
deb
Thu, Jun 30, 2011 : 6:59 p.m.
Ray, You are completely mistaken "Michigan's investment was in infrastructure to produce moves, and not in one time filming expenses." In fact it was completely the latter, as each production filed for the money they spent and received its tax rebate. I do not even know what else to say, other then do a little research before you talk. I mean really, do you think that the films that came to Michigan in the past few years, came for the infrastructure rebates?? Not one bit, the came because they got a gigantic rebate on one time filming expenses. You have shown you have no clue about the film rebate the movie industry, being transient, is affected by those giving out the most handouts. Unless the state continues to give out handouts, that are better then other states, the movie industry will leave. the problem with the film industry, is the second the handouts are gone so is the industry. So there is no compliment because the industry will not be here
Susie Q
Thu, Jun 30, 2011 : 2:52 p.m.
Under the new Rick Snyder regime, it is my understanding that the tax credits for the film industry have been drastically cut to maybe $25 million per year; I believe they were formerly almost unlimited. I think the idea was that the state of Michigan was no longer going to "pick winners and losers". We were going to create a level playing field for our home-grown businesses so that all could flourish. The luring of Sears sounds like picking winners and losers again. Plus we already had a mess when K-Mart left Michigan some years ago.
deb
Thu, Jun 30, 2011 : 2:30 p.m.
I like the idea of it. We give huge tax breaks to film production companies that come here for three months (at the long end of the spectrum), why not give money for a business that actually might stay for a while? This is a much better use of money then the film incentive. I also want to point out "69 companies have extracted $272.7 million in tax breaks from the state since [Illinois] hiked its corporate income tax rate" I think (im not sure) that is around what Michigan paid out to films made in the state, and those productions (and the jobs they created during the time they filmed) have long since left the state. It would be interesting to know how many of the 69 companies are still in Illinois. I would be willing to bet its a much larger percentage then the film productions that are left in Michigan. (this is probably none, because they basically leave when they are done.) I like the idea of this tax break, because Sears is not a transient industry, this is the type of business opportunity that is deserving of a tax break.
Mike K
Thu, Jun 30, 2011 : 1:42 p.m.
I don't know about you guys, but I love Sears. All of my equipment is Craftsman. It is so easy when it comes to spare and replacement parts. Call them up, and it comes to your door. I popped a belt on my Simplicity roto tiller, and it took me two weeks to get a part from their local authorized dealer and at 3x the cost of a belt you could buy at Ace (no cross reference was available). Did you ever buy a hand tool from Sears? I broke a pick axe I bought there. I walked into the store, and laid it on the counter -- didn't say a word. The guy looked and said, "oh, we'll have to get this straightened out". Got me a new pick axe, signed the dotted line and walked out -- didn't say a word (maybe "thanks" at the end of the transaction). Here's the hitch, it was the second one I broke and returned!!! Sears may be dying a slow death, but I can't find an easier company to work with when it comes to tools and yard equipment. I'd love to have them here in Michigan.
DonBee
Thu, Jun 30, 2011 : 12:33 p.m.
An article based on rumors that have zero verification. Might as well say "Governor using incentives to attract Martians" it would get the story a better headline.
grye
Thu, Jun 30, 2011 : 12:21 p.m.
Dying a slow death? The same could have been used for GM and Chrysler. But both have bounced back. Sears would need to have a management team that has a vision to identify and exploit the market. I don't think they will go away but will most likely downsize their operation. The carrot at the end of a stick shouldn't be used until a thorough review of their operations along with an analysis of their potential as a going concern has been made.
snoopdog
Thu, Jun 30, 2011 : 11:49 a.m.
You are wrong Mr. Haglund, your liberal bias is so obvious. We sure as hell need to do everything we can to get Sears to relocate here. That would be 6000 more people paying taxes of all sorts for this state and sending kids to grade school, high school , college etc. Rest assured, Sears may be floundering but they are not going to go belly up any time soon, certainly not in the next year or two. Good Day
Mike K
Thu, Jun 30, 2011 : 7:10 p.m.
JohnQ - you are making things up now. I would welcome Sears to MI. I noted that new jobs in MI create taxes for MI. Boy, I'm a heck of an advocate!! In fact, here is what I said about government spending tax dollars. "I view any government "investment" skeptically, and any "investment" should have an acceptable return on investment and payback period versus agenda." States compete for business. Sorry. It is the way it is, and as long as it is good for the tax payers of the state, it is good. And good for Sears for looking around trying to find a suitor. Yes, getting jobs back from China is better, and they are coming back -- slowly and steadily. Many of my clients who had genuinely advocated China have come to the realization that, "China wasn't what it was made to be". The problem with MI is like that of a gambler - we had it and we lost it. We can argue the reasons, but the rebirth will be, and has been, painful.
John Q
Thu, Jun 30, 2011 : 6:28 p.m.
"Competition is good JohnQ. It brings out the best in everyone." Your advocating for giving government handouts to Sears. How is that competition? Here's a great takedown of your viewpoint of the world. It shows how misguided and shortsighted it is in a global economy. <a href="http://globalmidwest.typepad.com/global-midwest/2011/04/the-wars-between-the-states.html" rel='nofollow'>http://globalmidwest.typepad.com/global-midwest/2011/04/the-wars-between-the-states.html</a>
Mike K
Thu, Jun 30, 2011 : 4:08 p.m.
Typical mindless liberal thinking John Q. How "fair" is picking specific industries that fit your agenda? Level the playing field for all and let companies compete to earn their business. Society benefits. Competition is good JohnQ. It brings out the best in everyone.
John Q
Thu, Jun 30, 2011 : 3:32 p.m.
Typical mindless conservative thinking. I love how conservatives attacked Granholm for "picking winners and losers". But the reality is that they believe companies are entitled to handouts from taxpayers, just as long as their guys are the ones getting and giving the handouts. The economic plundering that you endorse is foolish and short-sighted. There's no "growth" in shuffling companies around the various states and one is delusional to believe otherwise.
Mike K
Thu, Jun 30, 2011 : 12:34 p.m.
Johnnya2, it is supposed to be this way. The United States of America is a federation of sovereign individual states (making their own decsions aside from the federal government). Should Sears move from IL to MI it would be due to each states individual policy. As snoopdog points out, MI would gain "6000" income tax payers who will consume goods and services that will generate taxes. It's good. One can almost think of it as sales - you can steal some business from your competitor, develop a brand new market (hard and expensive), develop a product that solves a problem........, but at the end, it's all growth.
johnnya2
Thu, Jun 30, 2011 : 12:11 p.m.
This has been the problem for years. The so-called "UNITED" states have been fighting each other for jobs. Alaska and Texas can tell people how great it is, while they hold the rest of the country hostage to their resource (oil). It was not some great "plan" that go it for them. Michigan's gain of 6000 jobs would cost Illinois 6000 jobs. That my friends is a zero sum game. Next it will be Ypsilanti offering better deals than Ann Arbor, then the north side can offer better deal than the south side. How about trying to get Michigan to create or grow an industry. California did it with Silicon Valley. Michigan did it at one time with the auto industry, North Carolina has its research triangle.
Dr. Rockso
Thu, Jun 30, 2011 : 11:05 a.m.
Sears is a floundering fish likely to fail within the next year or so. Watch the 6100 jobs evaporate faster than the 1000 Google was going to being to Michigan.
RayA2
Thu, Jun 30, 2011 : 10:37 a.m.
If Sears headquarters was in China then I would say that attracting them here would be a victory. Paying them to move from Hoffman Estates is extremely stupid. Thousands of workers are displaced or worse and Sears is made weaker by the loss of critical employees. Michigan benefits only as long as no one else coughs up the bounty for Sears to move to their state, and Illinois becomes desparate to buy replacement jobs. By the way, any of the cons out there have anything to say about Slick's talking out both sides of his mouth here?
John Q
Thu, Jun 30, 2011 : 6:29 p.m.
"Simplify the entire system, reduce credits / deductions, and lower the tax rate." Did you even read what's been written about the Sears proposal? Sears wants fat taxpayer handouts wherever they end up locating. They aren't coming here without getting a big incentive package.
Mike K
Thu, Jun 30, 2011 : 4:01 p.m.
I view any government "investment" skeptically, and any "investment" should have an acceptable return on investment and payback period versus agenda. The act of taxation is to generate revenue for various governments. My preference is to not mix "policy" with this function via tax credits, deductions or "subsidies" as some like to call them. Simplify the entire system, reduce credits / deductions, and lower the tax rate.
John Q
Thu, Jun 30, 2011 : 3:30 p.m.
"The benefit Ray is that we would have x% of 6100 new taxpayers all consuming goods and services which are taxed and require people to supply; hence creating more new taxpayers and consumers of goods and services........." Then you were a supporter of the previous approach of handing out incentives to companies through tax credits, MEGA grants, etc. ?
Mike K
Thu, Jun 30, 2011 : 1:48 p.m.
The benefit Ray is that we would have x% of 6100 new taxpayers all consuming goods and services which are taxed and require people to supply; hence creating more new taxpayers and consumers of goods and services......... Now one can most certainly argue about return on investment, payback time..... In fact, that's exactly how it should be done.
Macabre Sunset
Thu, Jun 30, 2011 : 10:18 a.m.
I agree 100% with Rick on this, and I normally never agree with his economic politics. This is the wrong message to send to Michigan businesses. Create an economy where people want to do business on an even playing field. And, by all means, avoid getting used by Illinois businesses to bilk their taxpayers out of costly incentives.