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September 29, 2020

Store closures burden Gilroy’s finances

Top sales tax generators close due to COVID-19

The empty parking lots surrounding Gilroy’s major retailers paints a distressing picture for the city’s future financial health.

The Gilroy Premium Outlets are closed through April 7 following Santa Clara County’s order to cease all “non-essential” operations to combat the spread of COVID-19.

The outlets, which stretch along San Ysidro Avenue, Leavesley Road and Arroyo Circle, consist of nearly 120 stores, such as Forever 21, Nike Factory Store and Levi’s Outlet Store.

Owner Simon Property Group announced the closure on March 17, and the next day said it would close all of its retail properties in the country through March 29, including malls, premium outlets and mills. The Indianapolis, Ind.-based company is billed as the largest shopping mall operator in the country, with more than 200 properties.

Simon has not announced how Gov. Gavin Newsom’s March 19 order to shelter-in-place across the state indefinitely will affect its properties.

“The health and safety of our shoppers, retailers and employees are of paramount importance and we are taking this step to help reduce the spread of COVID-19 in our communities,” said Simon Chief Executive Officer David Simon.

According to financial data from the City of Gilroy, the outlets generated nearly $600,000 in sales tax revenue per quarter in 2019. Those dollars head into the city’s General Fund, which is used for public safety, recreation, community development and other operations.

In the days leading up to the county’s March 16 order, most stores in the Gilroy Premium Outlets had either closed or reduced their hours. Hours after the order was announced, a handful of shoppers browsed the stores, while workers continued construction on the outlets’ new restaurant, BurgerIM.

“We must all adhere strictly to these governmental orders—these are not merely advice or guidance, but instead mandatory legal requirements,” a posting on the outlets’ website stated.

It is unknown how many employees are affected, as Simon representatives did not respond to a request for comment as of press time.

Gilroy’s top 25 sales tax generators, which include gas stations, auto dealerships, outlets stores and big box retailers, make up a little more than half of the city’s $20 million in annual sales tax revenue, according to budget reports.

‘NON-ESSENTIAL’ BUSINESS Kohl’s in Gilroy is shut tight with not a single vehicle in its parking lot. Photo: Erik Chalhoub

Among those closed are Kohl’s, Ross and the Nike Factory Store. Auto dealerships, which account for nearly $1 million in sales tax revenue per quarter, have limited their sales departments but remain open for vehicle service. Many other stores are operating at reduced hours.

Other large stores closed include Marshalls, Old Navy, Burlington and others.

Interim City Administrator Jimmy Forbis, who was the city’s finance director for four years prior to assuming his position March 13, said his concern lies in the “long-term prognosis of our overall economy.”

“Most economists are predicting that this is the start of the recession,” he said. “As a city that relies heavily on sales tax revenues, a recession will have a significant impact.”

Costco, meanwhile, has been experiencing the opposite effect.

A long line of customers, hoping to stock up on items in bulk, spill outside the store’s entrance on a daily basis with the parking lot at nearly full capacity.

In its most recent financial report, Costco reported an uptick of sales at the end of February at its stores nationwide, which it attributed to “concerns over the coronavirus.”

“As many of you have noticed, we’ve experienced a surge of business during this time,” Costco President and CEO Craig Jelinek said in a statement. “As a result, we’ve taken steps to control the number of members in our warehouses and asked that members and employees practice social distancing. We’ve also reduced some services.”

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