2009 retail: Tighter belts, fewer sales in Hampton Roads

In 2009, consumers in South Hampton Roads bought less clothing and garden supplies and wholesalers sold fewer major appliances than in 2008, an analysis of state sales-tax data shows.

Information from the Virginia Department of Taxation showed that taxable retail sales fell 4.5 percent across Chesapeake, Norfolk, Portsmouth, Suffolk and Virginia Beach.

Norfolk showed the steepest decline, at 7.5 percent, while Portsmouth showed a 7.6 percent increase thanks to a huge jump in transportation-related sales.

It's little surprise that consumers spent less during the recession. But the data shed light on the highs and lows in the region, the types of businesses that have suffered the biggest blows, and the distinctions between cities.

Last year, the five cities had 279 fewer businesses that reported taxable sales than in 2008, a drop of 1.8 percent from 2008.

Suffolk added 10 businesses - the only city without a net loss of businesses last year.

Norfolk lost $210.5 million in sales in 2009 - more than the decline in Virginia Beach, which had almost twice the number of businesses. Yet Virginia Beach lost four times as many businesses as Norfolk.

Portsmouth's net sales increase mostly came from a category called Support Activities for Transportation. That includes an array of businesses providing services to the port, railroads, and the trucking and towing industries. They accounted for an additional $61.1 million in sales in 2009 in the city. Without that, the city would have lost about 2.9 percent in total taxable sales last year.

Some economists argue that taxable sales data provides a limited look at the region's economic health and an incomplete picture of consumer spending. For one thing, the data includes businesses that aren't traditional retailers. For another, it doesn't include online purchases, a rapidly growing portion of consumer spending.

"We used to look at retail sales as a barometer of how people spend their money," said Greg Grootendorst, chief economist for the Hampton Roads Planning District Commission.

Household expenditures, though, include mortgages, car loans and payments for services such as hair salons, auto mechanics and attorneys - none of which are taxable sales, he said.

In looking at consumer spending in an individual city or region, businesses that do that work have to be considered. Norfolk, for example, has a heavy concentration of banks and law offices downtown.

"Some cities are going to be more service-oriented," Grootendorst said.

 Across the five cities, food and beverage stores, restaurants and general merchandise retailers - likely including stores such as Walmart and Dollar Tree - experienced some of the biggest jumps in retail sales over 2008.

Providers of credit mediation services saw a 55 percent jump in taxable sales, and sales reported by manufacturers of beverage and tobacco products climbed 70 percent.

Sellers of furniture, clothing stores, building materials and garden equipment dealers, and wholesalers of durable goods took the biggest hits last year.

Clothing stores in the five cities together lost $80.6 million, or almost 12 percent. Yet those retailers in Portsmouth tallied an increase of $3.96 million, or almost 37 percent, even as that category lost four businesses. The data befuddled Portsmouth officials.

Economic development officials in both Portsmouth and Suffolk attributed their cities' slightly better sales performance in general last year to growth in their retail sectors in recent years. Residents both in and out of those cities have discovered those new stores and restaurants and shifted more of their spending to them.

"For years and years, Portsmouth didn't have much retail," said Mallory Kahler, business development manager for the city's Department of Economic Development. "We have probably seen an increase in these categories because we have established ourselves as a place for retail shopping."

In Suffolk, a new Harris Teeter opened on Harbour Towne Parkway in June, helping to boost the city's food store sales by $6.6 million, or 6.7 percent, last year. Kevin Hughes, the city's economic development director, also pointed to Suffolk's population growth - up 28 percent between 2000 and 2008 - as a contributor to consumer spending.

Norfolk officials think their city fared better than the state data indicates. Their assessments show steady or growing retail activity downtown, around Southern Shopping Center and in Wards Corner, said Chuck Rigney, an assistant director in Norfolk's economic development department.

The 46 percent loss in the electronics category probably was related to last year's closure of Circuit City, the city's only big-box electronics store, Rigney said.

As for the 17 percent drop in clothing sales, Rigney said, "We seem to be down a little bit more than I would have anticipated."

 Taxable sales in Virginia don't come only from businesses classified as retail stores. Businesses selling anything that requires the state's 5 percent sales tax must report sales to the tax department.

The state uses the categories established by the North American Industry Classification System, or NAICS, which is the standard used by federal agencies working with data about U.S. businesses.

The list of business categories that report taxable sales in Virginia includes Fabricated Metal Product Manufacturing; Real Estate; Social Assistance; Private Households; and Heavy and Civil Engineering Construction.

Many types of businesses have to collect sales tax only for some of their revenue. Under Personal and Laundry Services, for example, a laundromat might have to include sales tax when it sells small boxes of detergent. Under the Educational Services category, which includes all types of schools, a college might collect sales tax for the sweatshirts, mugs and other products it sells at its on-campus store.

Here's where the data gets dicey: Let's say a college runs its own coffee shop and reports those sales under Educational Services. Then, the college outsources the coffee shop to Starbucks as an independent operator, which would probably classify its sales under the Food Services and Drinking Places category.

The coffee shop's sales would shift from one category to another - causing sales to rise under Food Services and fall under Educational Services - but the reason wouldn't show up in the data.

This occurs all the time in many categories, said Carolyn Johnson, a manager in the revenue forecasting office of the state tax department. Businesses choose their own classifications in their reports and often change categories for various reasons, she said.

Adding to the confusion are two vague categories: No NAICS Information, and Miscellaneous and Unidentifiable. Businesses end up under No NAICS Information if they provide no classification category on their sales report, Johnson said.

The Miscellaneous and Unidentifiable category includes businesses that the state chooses to leave uncategorized. Within a given municipality, if a particular category includes fewer than four businesses, the state considers those businesses possible to identify. Because state law requires taxpayer records to remain confidential, the department couldn't allow individual businesses to be identified, so it shifts those three or fewer businesses to Miscellaneous and Unidentifiable.

Portsmouth, for example, had 10 fewer unclassified businesses in 2009. If some of those 10 businesses ended up in categories that saw sales growth last year, they could have contributed to that growth.

The tax department puts together the data for localities to gauge retail activity within their jurisdictions, Johnson said. It gives city and county leaders a general sense of what's happening among business.

"It is not to be considered exact or perfect," Johnson said. "It's just for them to use as a measure."

 Pilot writer Amy Jeter contributed to this report.

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com 2008 $3,048,122,835 3,279