Price Co. to Anchor Mall in Alhambra

It came down to a choice between economics and aesthetics.

The City Council, sitting as the Alhambra Redevelopment Agency Monday night, opted for economics and selected the Price Co., which runs 25 Price Clubs nationwide, to develop the city’s new 19.2-acre shopping center at the corner of Palm and Commonwealth avenues.

The agency board voted 4 to 0 for the San Diego firm, which runs the large discount warehouses, over Costco Wholesale Corp., a Seattle-based company that owns 20 warehouse discount stores and is often described as a “clone” of the Price Co.

Mayor Michael Messina abstained from voting because he had applied for a personal loan from Downey Federal Savings & Loan, a partner in the Costco proposal.

Known for Discounts

Both stores are known for offering discount prices on a wide array of merchandise by buying everything from toothpaste to tires in bulk and selling them in “no-frills” warehouse-like stores.

Robert Price, the company’s president, said he was surprised by the agency’s decision, particularly after the city planning staff had recommended against the Price Co.’s project because of aesthetic problems and design flaws.

“I didn’t expect this; I was not confident about what was going to happen,” Price said, adding that his confidence also was shaken by an economic consultant’s report, which he contended overestimated the sales potential of Costco.

Although the Costco plan was more aesthetically appealing to the city’s staff, the Price Club was more economically attractive to consultant Calvin Hollis of Katz, Hollis, Cohen and Associates. The private consulting firm, retained by the agency, estimated that the Price project could net the city as much as $1.7 million more than the Costco proposal over the next 25 years.

Aided by Reputation

This, along with the reputation the Price Club has gained from its stores in nearby areas such as Azusa, Burbank and Cerritos, was the deciding factor.

“The Price Club is so well known throughout Southern California that there’s instant name recognition of the business by everyone in the shopping area,” said Councilman Talmage Burke, chairman of the redevelopment agency.

“I was not particularly influenced by aesthetic considerations,” he said. “I think that when people shop at a facility like that, they expect something that’s more plain because of the nature of the business.”

Councilman J. Parker Williams said the planning staff’s concern for aesthetics was “important, but for me it wouldn’t have outweighed the economic considerations for a minute.

Arguments for Costco

“I thought the Price Club experience would benefit Alhambra not only in a bigger way, but that they would see more action much more quickly than the other outfit . . . but the Costco project was very pretty,” he said.

In his report to the redevelopment agency, city Planning Director David Carmany recommended approval of the Costco project, hailing its superior appearance, parking and traffic flow design and its “linkage” of the warehouse store to 10 smaller businesses to be developed within the shopping center.

Carmany criticized the Price Co.’s project--which called for only seven other businesses in the center, unattached to the main store--for its “lack of amenities” and the awkward design of its parking lot and access from adjoining streets.

Before the agency voted, Joseph Kornwasser, a developer working with the Price Co., assured board members that the center’s design could be changed to make it more amenable to planning staff guidelines.

No Significant Difference

In his analysis of the two projects, Hollis said there was no significant difference in economic performance between the Price Co., which pioneered the warehouse discount store concept in 1976, and Costco, which entered the business three years ago.

“It was our conclusion that the two projects would generate the same sales tax revenue,” Hollis said.

“They would be part of the same market. Costco is essentially a clone of Price Club. . . . There’s essentially no substantive difference in the ability of the two firms to develop the project they propose.”

Hollis said that both firms eventually would be able to do about $130 million in business a year, but that Price Club--because it has already established a reputation in the market--would be able to reach this level of sales in two years, while it would take Costco three years to do so.

Financial Arrangements

The critical difference between the two projects, Hollis said, was their financial arrangements with the redevelopment agency.

The Price Co. will pay the agency $7.5 million of the $14.8 million needed to buy and clear the shopping center property. The firm will give the remainder of the purchase price to the agency in the form of an interest-free loan, to be repaid by sales-tax revenue generated by the shopping center.

The Price Co. will guarantee the agency minimum sales-tax revenue of $200,000 a year.

Costco offered to pay the agency $8.8 million up front and loan it the remaining $6 million at 7% interest. The firm also offered to guarantee the agency $250,000 a year in sales tax revenue, Hollis said.

Differing Tax Bases

Hollis’ report projected that the Price Co. loan would be repaid by 1997, while the loan from Costco would be paid off by 2001.

Another important factor was the percentage of taxable retail sales at each store. According to Hollis, 65% of the sales at Price Club’s California stores last year were subject to sales tax, while only 61% of Costco’s sales were taxable.

Based on these figures and the loan arrangements included in their offers, Hollis said that a deal with the Price Club would net the agency $5.94 million during the next 25 years, while one with Costco would have a net value of $4.25 million over the same period.

If Costco’s percentage of taxable sales were assumed to be the same as the Price Co.’s, an arrangement with Costco would be worth $4.7 million, he said.

Distressed at Selection

Jeffrey Brotman, chairman of the board for Costco, said that the consultant’s report was based on a preliminary offer made by his firm, not on the offer he planned to make to the board at its meeting.

He expressed dismay over the board’s decision, charging that his firm was misled about the selection process.

“Our offer was vastly superior to the Price Club’s offer, economically and aesthetically,” Brotman said. “Why a city would would do this is beyond me. It seems that with a project of this magnitude, you would want to set up a set of rules and abide by them.”

Costco, he said, believed Monday’s meeting would provide an opportunity for competitive bidding. Instead, Alhambra City Manager Kevin Murphy established a deadline of noon on July 24, after which no offer would be considered.

Asked for Reconsideration

Costco was not informed of the deadline until early on July 24, Brotman said. He asked the redevelopment agency to consider his company’s amended offer during its meeting, but the agency’s board voted 4 to 1 to abide by the established cut-off date.

At the meeting, Councilwoman Mary Louise Bunker said the city should consider the amended Costco offer to ensure against missing a good deal, but Williams sided with the majority in saying that each side had been given ample time to make an offer.

“I didn’t want to prolong it any further,” he said. “I know it wouldn’t have affected our decision. . . . We missed nothing, I promise you.”