Sioux Falls Mayor Paul Ten Haken has $283,897,735 reasons to like retail sales in South Dakota over the next five years.
Ten Haken has earmarked that much money as part of his 2020-2024 Capital Improvement Plan.
The mayor’s plan would use $283,897,735 in the second penny portion of sales tax specifically dedicated for capital improvement use. That amount accounts for 37% of the roughly $776.5 million five-year plan.
Ten Haken’s capital improvement budget is based on a 4% increase in second penny retail sales in 2019 and 2020 and 5% each year in 2021, 2022, 2023 and 2024.
The city’s monthly financial report for October shows an 8.2% increase in sales tax from the prior year. The city has a penny tax that is geared toward city operations and another penny geared toward capital improvements. A third is dedicated to entertainment purposes. Retail sales include sales of gifts, clothes, and similar items.
Shawn Pritchett, the city’s director of finance, said the city has had sustainable growth in sales tax over the past few years.
“There were periods we didn’t have a lot of growth, where we had growth of less than 1 to 2%,” Pritchett said.
And in large part, how sales tax goes in Sioux Falls is how the state of South Dakota goes.
Sioux Falls generated 31% of state’s retail revenue in 2018, according to the 2020 Sioux Falls Community Profile from the Sioux Falls Development Foundation.
The city had $6.4 billion in taxable sales in 2018, according to its 2018 Comprehensive Annual Financial Report. The same report shows growth in single penny sales tax revenue from 2010 through 2018.
The tax rate in Sioux Falls is 6.5% which includes the 4.5% state tax rate and the city’s tax rate of 2%.
While the agriculture economy is the biggest economic driver in the state, retail sales are not far behind, said Nathan Sanderson, the executive director of the South Dakota Retailers Association.
According to a 2014 study by the South Dakota Retailers Association, retail sales in the state had $6.7 billion impact on the state’s Gross National Product.
1 in 4 employees in the state are employed in retail sales, the association said.
In Sioux Falls, retail employs 11% of the metro labor force, the 2020 Sioux Falls Community Profile said.
The DOR shows that reported taxable sales revenue in South Dakota grew in the traditional shopping month of December 2018 from December 2017. The DOR data is not based on city tax collections or remittances.
In December of 2018, the city of Sioux Falls had a reported $41,657,787.53 in taxable sales to the state in the retail category which includes sales at gift stores, book stores and similar stores.
In the same month another $18,924,462.85 in taxable sales in Sioux Falls was reported to the state for clothing items.
Part of the money needed for the mayor’s capital improvement plan will come during the holiday shopping season which traditionally starts next week.
As Sioux Falls, South Dakota and the nation head into that season, a recent report from the U.S. Census Bureau could cause some optimism.
The Nov. 15 report from the Census Bureau said that retail and food sales in the U.S. in October increased by .03% from September at $526.5 billion
The increase compared to one year ago was greater at 3.1%.
From August through October of this year sales increased by 3.8% over the same period in 2018.
Where are the sales coming from?
“Right now, retail is in a state of change,” said Nathan Sanderson, the executive director of the South Dakota Retailers Association.
Shopping in the 1980s is not like shopping in 2019, he said.
But, Sanderson said, the retail industry is always changing.
Take Sioux Falls as an example. Mom and pop store retail shopping shifted to malls and shifted to big box retailer and now, the shift seems to have come full circle.
“We are seeing the resurgence of main street,” Sanderson said.
It’s not just local residents who shop in Sioux Falls.
Sioux Falls draws shoppers from a four-state area and has a market area of more than 680,000 consumers, according to the 2020 Sioux Falls Community Profile.
The shopping experience
“In the 1990s it was about going to the mall, like the Empire Mall, which is still doing very well,” Sanderson said. “Today, people are drawn to main street and downtowns for smaller stores and a different type of shopping experience,” Sanderson said.
“Shopping is a form of entertainment,” Sanderson said. The entertainment includes the act of shopping but also eating lunch or having coffee, he said.
Jaciel Keltgen, a professor at Augustana University and a marketing professional, agrees that shopping is entertainment choice and a way to socialize.
“I just spoke with a friend who said she and her book club went thrifting together after they finished their book,” Keltgen said. “It was a fun way to spend time together with friends because time is precious, but also have fun and complete some shopping lists. This is one of the ways Millennials tend to behave: They like to turn events into memorable group experiences.”
Shoppers seek online options
“We are seeing the rise of online sales,” Sanderson said.
Although there has been an increase in online retail sales, Sanderson said national data shows that 10% of retail sales are online. The majority are still in brick and mortar stores.
A Nov. 15 report from the U.S. Census Bureau said e-commerce sales increased by 5% from the third quarter of this year compared to the second quarter. The report said retail e-commerce sales for the third quarter of 2019, adjusted for seasonal variation, but not for price changes, was $154.5 billion.
The third quarter 2019 e-commerce sales estimate increased 17.3% from the third quarter of 2018. Total e-commerce sales in the third quarter of 2019 accounted for 10.5% of total sales. Total retail sales increased by 4.4% in the same period.
South Dakota has been collecting sales tax from online retail sales for about a year. The first tax requires online providers to $100,000 in sales and 200 transactions in the state. Sellers such as Amazon and Wayfair began paying sales tax in March of 2018.
In October of this year, the state collected about $6.9 million in sales tax from remote sellers, according to the South Dakota Department of Revenue.
That’s an increase of about $1.3 million over last October.
The overall city sales tax reported by remote sellers in October was about $2.6 million which is an increase of $519,962.
How do we shop?
In Sioux Falls, shoppers have options and while online may pose a challenge to some retailers, there are ways to counter it, and even embrace it, Sanderson and Keltgen said.
“Smaller, locally owned stores have quite a few powerful and effective reactions to online retailers. For example, boutiques focus much more on the atmosphere of their stores to invite shoppers in and encourage them to linger,” Keltgen said. “One of the oldest and most effective ways to increase sales is to offer rewards or points for frequent shoppers.”
Sanderson said brick and mortar stores have been expanding their own online presence. Many have websites or social media pages.
Sanderson said as big-box retailers are offering apps which allow people to order items online for store pickup or delivery, smaller stores are doing the same. Think of how people order lunch online with their phones, he said.
Shoppers are also using their phones to compare prices, Keltgen said. “As consumers we pay attention to who is offering the best deal and it’s easier than ever to compare with our phones,” she said.
Why the big push?
At least this year, it hasn’t been unusual to see holiday sales ads and promotions in November. Some mentioned Black Friday, which is the Friday after Thanksgiving. According to Merriam Webster online, the origin of Black Friday is uncertain. It may have been named that because of traffic congestion on the day after Thanksgiving or because it was viewed as the day retailer’s bottom lines went from red to black. Whatever the case, it’s become a holiday shopping tradition in the U.S.
“Retailers usually depend on sales in the fourth quarter of the year to bolster their annual numbers,” Keltgen said. “Extending a sales period, both in stores and online, helps to extend the length and frenzy associated with sales promotions.”
The National Retail Federation said an estimated 163 million people are expected to shop from Thanksgiving Day through Cyber Monday, Dec. 2.