News & Updates
Check back for regular updates on Art Pope’s presence in the news.
In a recent announcement, Variety Wholesalers stores announced that Bruce Efird will join the business as President and CEO. Longtime Variety veteran Wilson Sawyer has been promoted to President of the parent company, Variety Wholesalers Inc. The leadership transition was covered in Triangle Business Journal and prompted questions of a potential strategy change. Variety Wholesalers Chairman, James Arthur ‘Art’ Pope answered the speculation. The article appears in its entirety below.
Former Dollar Express CEO named CEO of Roses parent Variety Stores
By Lauren K. Ohnesorge – Staff Writer, Triangle Business Journal
Aug 22, 2017, 14:47pm
A management change announced Tuesday at Variety Wholesalers will help accelerate the discount retailer’s brick-and-mortar growth strategy, execs say in an interview.
Bruce Efird, the former CEO of Dollar Express and Fred’s, Inc., will be the new president and CEO of Henderson-based Variety Stores – the company behind Roses and Super 10 – effective Sept. 11.
Wilson Sawyer, currently president of Variety Stores, will take a new role as president of the parent company, Variety Wholesalers Inc. Hours after the announcement, Efird, Sawyer and Variety chairman Art Pope answered questions about the management moves, as well as Variety’s accelerating growth plans.
Efird, who learned he’d been selected for the job two weeks ago, says the opportunity for growth helped lure his interest. Efird characterizes the discount retail sector as having “an incredibly bright future.” And he plans to leverage his experience to take advantage of its tailwinds.
He – like the management team he’s entering – isn’t worried about the emergence of e-commerce. While online retailers like Amazon are disrupting brick-and-mortar firms across the globe, Variety has – at least so far – been protected from most of those pressures, says Pope.
“We still have customers who want to look, touch and feel and shop when they need items, when they need to buy for their family,” Pope says. “At this point in time, we don’t see the need [for e-commerce], nor do we see the need to go into the e-commerce competition with Wal-Mart and Amazon and others.”
Sawyer says price is also a factor in keeping Variety’s focus in-store.
“We buy in all kinds of different quantities,” Sawyer says. “We buy everything from multi-truckloads to small quantities, so it’s very difficult to buy something online the way that we buy … And this provides our customers with savings they will not be able to find on the internet.”
Pope says the plan is to continue to expand the brick-and-mortar way. Plans are in place to infill “in places where we are already doing business.” And he expects to take advantage of opportunities to expand in adjoining areas, as well.
“We are growing and we have been growing on a controlled pace, and we do expect to accelerate that in the coming three to five years,” he says.
It’s that kind of thinking that helped lure Efird.
“It’s the consistent growth that the company has demonstrated over the past several years, with exceptional plans to continue,” Efird says.
Efird started his retail career at Food Lion, going on to oversee the strategic direction of more than 700 stores as CEO and president of Tennessee-based Fred’s, Inc.
Sawyer was president and CEO of Maxway Stores when Variety acquired the chain in 1990. Over the years, he’s held multiple roles at the firm, including chief operating officer of Variety Wholesalers.
Variety recently opened a second 1.4 million square foot distribution center in Newnan, Georgia, to help accommodate its growth plans.
In July 2017, Variety Wholesalers Chairman Art Pope sat down with Business North Carolina magazine’s David Mildenberg to discuss his career, the future of Variety Wholesalers, and his Roses and Maxway stores. The article appears in its entirety below.
Art Pope’s Variety Wholesalers comes up Roses amid recent retail tumult
Business North Carolina magazine: By David Mildenberg Posted July 3, 2017 In July 2017
Retired carpenter James Caulder walks six blocks to the Roses store in west Charlotte three or four times a week looking for “odds and ends.” On a recent weekday afternoon, he left the store with some cookies, mothballs and trash bags. “I don’t know what I’ll end up buying, but if I see something I want, I buy it.” Several steps away, shopper Grace Coleman drops two large bags of clothes into the trunk of her late-model Lincoln Continental. “I live in Roses,” she says with a laugh. “I come about twice a week, and I know where everything is at. Could you just tell the owner that they need to take coupons?”
Maybe that’s a good idea, though owner Art Pope, whose family has been selling “odds and ends” in North Carolina since Calvin Coolidge’s presidency, clearly knows a thing or two about retailing. Yes, that Art Pope, the Raleigh businessman whose $50 million-plus of financial backing, political acumen and hard work paved the way for the Republican takeover of state government.
Loads of stories have explored Pope’s political history, most notably a 9,500-word New Yorker piece in 2011 that detailed how his support for conservative Republicans and public-policy groups steered North Carolina in a pro-business, limited-government direction. Our interest focuses on how Pope’s Variety Wholesalers — the holding company whose flagship chain is Roses — is faring amid unprecedented retail tumult.
Pope won’t share financial specifics for his company, which has no public stock or debt, so Variety’s performance is hard to measure. But the optimistic tone he and President Wilson Sawyer express in a rare media interview, confirmed by talks with retail-industry observers, suggests that Pope’s retail empire of about 370 stores in 16 states is doing just fine. Based on conservative estimates of industry sales per square foot, annual revenue almost certainly exceeds $700 million and possibly tops $1 billion. Pope offers this much: “Our returns on investment and margins are very healthy. We’ve been able to buy companies that are in distress and achieve a good return on investment, or buy bankrupt companies and turn them around” — though Variety hasn’t made an acquisition in more than a decade.
But wait: Isn’t brick-and-mortar retailing collapsing? In recent years, Charlotte’s Belk, Dickson and Levine clans have sold the family jewels, namely Belk department stores, Harris Teeter supermarkets and Family Dollar shops. Co-owned Sears and Kmart operate about 1,400 stores — 2,000 fewer than in 2012. Shares of Macy’s have plummeted more than 50% below peak levels. Dollar Tree traded at $96 when it bought Matthews-based Family Dollar in July 2015; it traded for about $73 in mid-June.
Art Pope, left, and Variety Wholesalers’ President and Chief Operating Officer Wilson Sawyer | Photo: Christer Berg, Business North Carolina
The big winner crushing the competition is online retailer Amazon.com Inc., whose stock has quadrupled over the last five years. The Seattle-based company was valued at $470 billion in mid-June, about twice as much as Bentonville, Ark.-based Wal-Mart Stores Inc., which has more than 5,200 U.S. stores and revenue of $486 billion last year.
Art Pope, as cool, calm and collected a guy as you’ll ever meet, shows no sign of panic. He likes Roses position of offering low-priced goods in stores that are smaller than Walmart or Target, but bigger and stocked with more variety than Dollar General or Dollar Tree. Roses stores lack panache, offering a feel that is more dollar store than department store. The aisles are filled with discount apparel, basic food, health and beauty items, and an ever-changing assortment of seasonal items such as air-conditioner units, lawn chairs or whatever company buyers pick up in liquidations or close-outs.
“As times change, products change, pricing changes, the economy changes. You can stay competitive and stay in business if you keep up with the times and are willing to change,” Pope says.
What’s noticeable about Roses, though, is how little it is changing. There is no e-commerce. No acquisitions since 2003. No newly constructed stores, only rehabs. No customer-loyalty program. Same CEO and same chief operating officer since 2006. The company headquarters is in the same downtown Henderson space where P.H. Rose opened his third store.
Moreover, the company’s strategy hasn’t changed (cheap, cheap, cheap!) enabling customers to “improve their lifestyles at a price they can afford,” Sawyer says. “If you focus on buying at the right price, controlling your costs and giving great value to your customer, you can be successful.”
Finding great value is a must, not a choice, for folks of limited income, of course. Many Variety stores are in neighborhoods where median household income is less than $40,000. Like other Pope critics, Democratic political analyst Gary Pearce of Raleigh notes the irony that Variety relies on people who benefit the least from reduced taxes and government spending — the principal positions of Pope’s favored lawmakers and think tanks. Efforts by Democrats and the NAACP to boycott Variety in protest of Pope’s politics have fizzled, particularly as his public profile has faded in recent years, says Mac McCorkle, a former political consultant who now teaches public policy at Duke University.
About 42 million Americans are on food stamps, or the Supplemental Nutrition Assistance Program. That’s a third more than a decade ago. About 10% of shoppers at dollar-store chains use SNAP, versus 7% at Walmart and 3% at Costco, according to market researchers Kantar Retail. Variety wasn’t included in the survey, though its clientele is akin to the dollar stores, two retail-industry officials say. Being poor in America is a growth industry, making Variety and other discount-oriented retailers increasingly valuable.
“There’s always going to be that segment of the market,” says Roger Beahm, a Wake Forest University marketing professor. The Popes “have always been very singular in their pursuit of value. And cost savings is the key.”
Variety isn’t the only, or most successful, retailer targeting people looking for low prices. Starting with a Charlotte store in 1959, Leon Levine built Family Dollar Stores Inc. into a much larger business before the sale to Chesapeake, Va.-based Dollar Tree Inc. for $9 billion in 2015. Ollie’s Bargain Outlet Holdings, which has stores of similar size to Roses, has nearly doubled in size over the last five years. The Harrisburg, Pa.-based chain had 239 stores in 20 states east of the Mississippi River and a stock-market value of $2.5 billion in mid-June, having more than doubled since issuing public stock in early 2015.
Variety hasn’t grown as fast, but it remains a rare survivor that thrives by constant cost cutting and improved efficiency, says Andy Ellen, president of the N.C. Retail Merchants Association, a Raleigh-based trade group. “Art is wicked smart at every facet in both politics and business.”
A graduate of the Asheville School prep academy, Pope earned a political science degree at UNC Chapel Hill in 1978, spurning his dad’s advice to major in business. Then he got a law degree at Duke University, after his father urged him to seek an MBA. Raleigh lawyer John Skvarla gave Pope his first job after law school, making him the fourth associate at the firm now called Wyrick Robbins.
He represented business clients for a couple years, then worked briefly for Gov. Jim Martin before joining Variety as general counsel in 1986. He has led the company since 2006, succeeding his dad, who died that year at age 81 after running the business for more than 50 years. Pope stepped back from Variety to work as state budget director in 2013-14 in Gov. Pat McCrory’s administration, joining his former boss Skvarla, who also held key posts.
By 1986, Variety was already among the Southeast’s largest discount chains, mostly operating small-town stores cobbled together through about a dozen transactions. The Popes have never hired an investment banker for acquisitions. Rather, the company’s deal-making relied on relationships with other Southern retail families. “When the founder was ready to retire, my dad was one of the first ones they’d call to ask if he wanted to buy the business,” Pope says. “Or my father would call them if he heard they might be selling.”
The company’s first big transaction occurred in 1971 with Eagle Stores, a publicly traded Charlotte-based company that had 52 sites in seven states ranging from Florida to Maryland. Variety’s growth revved during the rocky economic times of the late ’70s and early ’80s, with seven acquisitions of companies that operated a total of 382 stores as far west as Louisiana. The largest deal, the 1981 purchase of financially stressed Super Dollar, based in Raleigh, involved 143 stores and doubled the company’s size.
But the company’s most important deal — “the reason we are here today,” Pope says — was the 1997 purchase of Roses, the Henderson-based chain that at its peak had 260 stores and $1.5 billion in sales. The Popes were longtime friends of the Rose family, watching as Walmart’s entry into the Southeast in the 1980s slammed the North Carolina discounter. Roses filed for bankruptcy protection in 1993, restructured to fewer than 120 stores, and sold to Variety in 1997. The Popes paid less than $20 million for the business, or less than $200,000 per store. They also gained a large distribution center and office space in low-cost Henderson, which is 40 miles northeast of Durham.
Twenty years later, the company has 169 Roses and Roses Express stores, which tend to be from 15,000 square feet to 50,000 square feet, 149 Maxways and 51 Super 10s. About 8,500 people work for the company, including about 500 at the Henderson distribution center and 372 at the company headquarters.
Growth at Roses has come by converting to an everyday low-price strategy and by taking over sites abandoned by other retailers. The pricing change, coupled with reduced advertising, cut revenue but boosted profits, Pope says. Costs are contained as Variety operates its own trucking and construction divisions.
As for abandoned sites, Roses has jumped in as other retailers retrench. An example is Wilson, where Roses, a K&W Cafeteria and a pawnshop are remaining tenants of the city’s now-shuttered enclosed mall that once included Belk, JC Penney and dozens of smaller retailers. The mall’s common area closed in 2013 and its owner, Georgia-based mall developer Hull Property Group, is contesting the county’s $6.4 million property valuation.
The Wilson store, which used to house Belk, pays off for Roses partly because it is convenient for many customers in nearby working-class neighborhoods who don’t have cars, Sawyer says. When Walmart leaves a smaller store to open a larger one, or JC Penney announces a raft of store closings, “that’s a great opportunity for us,” he says. Kmart’s demise also opened space for Roses, though it typically doesn’t lease the entire store, sticking to its smaller format. “We’re trying to position ourselves so it is easy and convenient for people to shop and to get in and out quickly,” says Sawyer, who joined Variety after the 1990 purchase of Sanford-based Maxway.
For decades, Variety stores mostly served small towns, and one of the most recent Roses openings was in Nashville, Ga., a town of 5,000 that is 130 miles south of Macon. But the company also operates in bigger cities including Baltimore, Birmingham, Charlotte and Columbus, Ohio, with new stores planned for Atlanta, Greensboro and Memphis.
If finding talented workers is an issue with unemployment at its lowest level in a decade, Variety doesn’t let on. Pope-funded advocacy groups oppose increasing the minimum wage, a hot topic among retailers. Walmart and others have boosted compensation in recent years. Variety says its approach to wages is to “be competitive in the markets where we operate.”
The west Charlotte Roses is in a strip shopping center that includes a Value Village resale store and a Grifols plasma-donation center. Assistant manager Tim Mitchell asks if I need assistance as I push a cart through the aisles. (True confession: I filled my buggy with three pairs of Alexander Julian dress socks for $3, a bag of Lifesavers mints for $1.50 and Wrangler shorts for $10.) A former manager at Circuit City and Ross Stores who has worked at Roses for a year and a half, Mitchell says the store’s success is Retailing 101: keeping shelves filled with goods that customers want, including lots of seasonal items.
“We call it the ‘buy now, wear now’ strategy because our customers often want it today,” Sawyer says. “If it is hot for two or three days, we sell a lot of swimming pools.”
To encourage store visits, many chains emphasize the “customer experience.” For Roses, providing a treasure-hunt experience sparks impulse buys and complements the basic products that are always available, Sawyer says. The chain’s buyers are constantly looking for opportunities to buy surplus goods from struggling rivals.
The rotating specials strategy is similar to Ollie’s, whose senior vice president of merchandising, Kevin McLain, held the same post at Variety from 2011-14. While operating about 140 fewer stores than Variety, Ollie’s had net profit of $60 million and revenue of $890 million last year. McLain isn’t the only former Variety exec to make good: Dollar Tree CEO Bob Sasser was a Roses executive in the early 1990s.
Pope, who is 61 and has no children working in the business, is happy to grow at a measured pace. Efforts to buy stores affiliated with Texas-based Duckwall-ALCO Stores Inc., Memphis-based Fred’s Inc. and Iowa-based Pamida didn’t pan out over the last decade, he says, but Variety keeps looking for deals. In January, the company hired former Ross Stores executive Mark Katz as its general merchandise manager. Asked about the move to a much smaller company, Katz says Variety “provides a unique opportunity to service a broad demographic, using a discount-store approach and an off-price philosophy model.” The company’s “consistent sales, margin and store-unit growth” impressed him, he adds.
In March, Variety opened a distribution center in Newnan, Ga., a $10.5 million investment to fill 1.4 million square feet formerly owned by Kmart. Reflecting its deliberate approach, Variety studied adding a second center for eight years, Pope says. The 250-employee Georgia location will facilitate more growth in the Deep South. A third center, probably in east Texas, may be added in three to five years as the company enters the Lone Star State, Pope says
“We were impressed that Variety really understands their customers,” says Ed Kulik, a co-founder of New York-based LRC Properties Inc., which leases the Georgia distribution-center space to the retailer, adding that not everyone has a computer or cellphone for online shopping. “Variety knows what their customer base needs.”
A laser-like focus on details doesn’t surprise those close to Art Pope. “There are a lot of smart people out there, but few combine the level of intellect and level of preparation that Art brings to most discussions,” says Lee Roberts, who followed Pope as state budget director in 2014 and now is an investment manager in Raleigh. “He is a policy wonk in the best possible sense.”
Francis De Luca uses the same term to describe Pope. “People underestimate Art because they think he’s this rich kid who inherited the business,” says De Luca, president of the Civitas Institute, a public-policy group in Raleigh that the Pope family started in 2005 to promote free-market economics. (Pope disputes the “heir” title, noting he invested in the business and worked for more than 20 years before becoming CEO.) “He knows as much about policy, taxes and law as anyone you will ever meet.”
Shortly after Roberts took the budget job, Pope gave him a memo related to an issue that involved arcane state law dating to the early 1900s. “I asked Art who wrote the memo, and he said, ‘Well, I did.’ But who did the legal research? ‘Well, I did.’ That sums up his thoroughness.”
Photos: Christer Berg
A new Roses store in Brewton, Ala., is expected to open on July 27 and employ about 20 people. The store will be located in a former Wal-Mart’s building. Roses is a store of Henderson, N.C.-based Variety Wholesalers, Inc, led by Chairman and CEO Art Pope. A news story about the new store ran in The Brewton Standard on July 12, 2017.
Roses to open July 27
Story by Tori Bedsole |The Brewton Standard | July 12, 2017
The opening of the new discount store in Brewton is just around the corner.
Roses has announced that it will open its doors on July 27. The grand opening will be Aug. 3.
Management is confident that the store will be a success.
“There is nothing like it in Brewton,” management said. “Everyone loves Roses.”
Located in the former Wal-Mart building in the Douglas Square Shopping Center, the company will occupy half of the building. The city announced the store’s July opening in February, and staff are working to stock the store.
The store is part of a North Carolina-based corporation, Variety Wholesalers Inc. Company officials expect to hire 20 people. According to the company’s website, Variety Wholesalers owns several discount retail chains. The Super 10 Division consists of 85 stores ranging in size from 5,000 to 10,000 square feet and operates under the names “Super Dollar,” “Bill’s Dollar Stores,” “Super 10” and “Bargain Town.”
Brewton’s store will be one of the some 160 stores in the company’s Rose’s Division and will offer an extensive assortment of retail merchandise including both hardlines, which consists of toys, health and beauty aids, housewares, furniture, sporting goods, snacks, etc., and softlines such as clothing, accessories, jewelry, etc.
Shipp said previously the site’s configuration allows for a third retailer to locate in the building.
“You have Farmer’s Furniture on one side, then the Rose’s store,” he said. “The company elected to split the space to allow for another tenant on the old garden center side.
“We know these projects take time, but it’s going to be a great thing for Brewton once it’s up and running,” Shipp said of the project.
Tuesday, Shipp said the city has issued the “go ahead” for the site’s official certificate occupation.
In March 2017, Variety Wholesalers, Inc., led by CEO James Arthur ‘Art’ Pope, announced the opening of a new company distribution center in Newnan, Georgia. The space had been vacant since January 2015 when a former Kmart distribution center closed. As the new tenant of the space, Variety Wholesalers, parent company of stores like Roses and Maxway, is bringing valuable jobs to the Cowetta County region and again making the area a hub for distribution. The Newnan Times-Herald covered the economic impact in this recent article.
Distribution center forms the hub that supplies jobs, stores, consumers
By: Kandice Bell | June 28, 2017
Every day, nearly three dozen trucks pull up to loading docks at a massive building in a tree-lined Newnan industrial park. Few local consumers realize how that building affects their daily lives.
Among the freight are household products manufactured all over the world, including plastic pitchers, baskets and trash cans from Leominster, Mass.
The building is a waypoint in the journey each product makes from raw material to manufacturers to distribution centers like the one in Newnan and then to the stores where consumers select them for their final trip to individual homes.
Experts call it the supply chain, and it stretches thousands of miles for each unique product. Recent innovations have sought to streamline the process, such as containerized freight and automated sorting. Even the lowly barcode, a strip of printed lines, has been instrumental in improved efficiency because it allows machines to scan the codes to keep track of inventories.
One of the most significant innovations, experts say, is the modern distribution center. Instead of every manufacturer having to haul its products to every retail outlet, the centers consolidate shipping and receiving, saving consumers in the process.
As the population of the Southeast continues to grow, distribution centers must be built to supply the stores popping up to sell to the new residents. Georgia handles more than $900 billion in cargo each year, much of it consumer goods moving through distribution centers, according to the Georgia Department of Economic Development’s Center of Innovation for Logistics. Even transactions that don’t occur in stores require distribution centers to handle the growth in e-commerce.
Mike Willem, Variety Wholesalers senior vice president of distribution and transportation, holds clothing that is being sorted at the distribution center in Newnan. The clothing will shipped to Roses stores throughout the Southeast. Photo courtesy of The Newnan Times-Herald.
The warehouse vacancy rate fell to 5.4 percent nationally in May, the lowest in 30 years, according to the Center for Logistics. Warehouse wages continue to rise. Both trends reflect the soaring demand for distribution centers to keep the supply chain running smoothly.
“Poised to play an ever-increasing role in moving goods from producer to customer, Georgia’s businesses and residents are well-positioned to benefit from our world-class transportation infrastructure and emerging technology trends in logistics,” wrote Jannine Miller, director of the innovation center in a May column for The Augusta Chronicle. “… While logistics has been refined and perfected over time, we’re seeing the emergence of new technologies that will make it more efficient than ever to move goods from one place to another. And there are many exciting new things ahead.”
Logistics is a major employer locally
Nearly 50,000 people in the Coweta area work in the transportation and warehouse sector of the economy, according to the Georgia Department of Labor. That’s roughly one in every 20 people who have jobs.
A huge warehouse that helped establish Newnan’s reputation as a distribution hub is once again housing hundreds of jobs and acres of merchandise.
The Herring Road facility built for Kmart had been vacant since that company moved out in January 2015. Variety Wholesalers announced last August it had signed a lease with the building’s new owners for 1.4 million of the 1.9 million square feet of space.
The area Variety is using, equal to 29 football fields, has space for 80,000 pallets of goods that will be shipped to stock 180 stores across the Southeast for the Roses, Roses Express and Maxway brands. That includes a Roses Express store in Newnan’s Merchant’s Crossing shopping center that recently opened. Among those pallets are plastic items from United Solution’s plant in Massachusetts.
It will also serve future stores the company has planned in Georgia and neighboring states, according to CEO Art Pope.
“This, for us, was a major undertaking,” said Variety President Wilson Sawyer at the company’s ribbon-cutting event earlier this year.
The company was attracted to Newnan because of its location near major highways in all directions. But it was also considering other sites around the Southeast.
“I knew they had a lot of options available, but they chose us,” said Greg Wright, president of the Coweta County Development Authority.
The building’s size and readiness were major factors in the decision, as was use of the racks and conveyor systems that Kmart left in place, according to executives who say there are few buildings of that size available anywhere in the country. The equipment simply allowed Variety to move in faster and get up and running sooner than other sites.
Variety currently has over 300 employees, some of whom had worked at the same building for Kmart, according to Mike Willems, senior vice president of distribution and transportation. And the company is still hiring, currently for truck drivers.
Having former Kmart employees is helpful because they are already familiar with the building and its mechanics.
Willem said the process of getting the product to stores, especially Roses Express in Newnan, is simple but hard work. Employees can be seen throughout the day sorting and moving products to the correct area.
Material in and material out
The distribution center receives 35 shipments per day in and ships out to 35 stores per day, with 90 percent of the shipments being sent to the Roses chain.
Once the items are received, they are sorted, labeled and scanned to be stored in the correct zone. For instance, when a truck is unloaded from United Solutions, the clothes baskets might be stored in one section of the massive Herring Road structure while the tubs and pails are stored in another.
Once the items are put away in the zone, they are ready to be pulled for shipping when needed.
“Everything in the building is scanned to a certain zone, depending on the product,” Willem said. “We have zones for clothing, food, etc. We have thousands and thousands of products.”
Information from the scanner feeds a computerized inventory that helps them keep up with the products, which range from clothing to household goods, food, and other supplies.
When a store needs to replenish its inventory, the store’s computer talks to the distribution center’s computer, then the required products are automatically sent by conveyor belt to the correct truck for shipment. He said technology really helps the company stay efficient.
“This is what we do every day,” he said.
He said any damaged items that are not repairable are sent back to North Carolina where Variety has its original distribution center and headquarters.
Willem said the staff at Variety has been great, making the entire process work to make sure it runs smoothly and on time.
In the years since Kmart built a warehouse here, other companies have followed suit, including PetSmart and SYGMA.
(Walter Jones contributed to this story)
Video courtesy of Carolina Journal
Article courtesy of North State Journal
By Donna King | April 12, 2017
RALEIGH — In a press conference Tuesday, the N.C. Retail Merchants Association warned of high prices for consumers and job loss across the state if a border adjustment tax passes as part of the national conversation on tax reform.
The border adjustment tax, or BAT, is billed as a way to boost U.S. manufacturing by exempting export revenues from federal tax. However it would also end the deductibility of import costs by corporations and retailers, making imports for production or resale costlier. Retailers say it’s fundamentally unfair to retailers over large corporations that primarily export, and would amount to a 20 percent increase on consumer goods. The cost is estimated to be $1,700 per family per year.
“It would tax virtually everything that N.C. families buy: groceries, prescriptions, gas, home goods, shoes, clothing — you name it,” said Andy Ellen, president of the N.C. Retail Merchants Association. “It would slap a giant 20 percent increase on any of those items that are imported. Every morning I drink a cup of coffee and eat a banana. My children eat strawberries year-round. Those products don’t grow here and last time I checked we can’t move the equator.”
“The biggest victims of BAT will be working class families who’ve seen wages stagnate in recent years but will be looking at a $1,700 increase in the cost of goods.”
Andy Ellen, president of the N.C. Retail Merchants Association
The BAT is part of a tax reform blueprint supported by U.S. House Speaker Paul Ryan. President Donald Trump is also working on a tax plan. The quest to revamp the tax code moved to the top of Trump’s legislative agenda after a Republican push to repeal and replace President Barack Obama’s signature health care law, the Affordable Care Act, failed in the U.S. House.
To tackle the biggest overhaul of the U.S. tax code since the Reagan era quickly, House Republicans are hoping to avoid the political fault lines in the party, so opposition among conservatives is raising a red flag in Congress.
“The total value of imports coming into N.C. was around $52.8 billion. That is equivalent to 11.1 percent of N.C.’s GDP,” said Donald Bryson, executive director of N.C.’s Americas for Prosperity. “A 20 percent BAT would lead to $10.57 billion in new taxes on N.C.’s economy, and on our citizens and businesses. To put that in perspective, in 2014 the state only paid $8.69 billion in federal income taxes. … That’s a significant burden.”
Art Pope, who served as a legislator and the N.C. State budget director under former Gov. Pat McCrory, is a force in GOP politics and said he has been in touch with N.C.’s representation in the Washington to oppose a BAT. He said it unfairly targets retailers, especially small ones, over other companies that are capital intensive and can still deduct capital goods like equipment and buildings.
“It’s not right, it’s not fair, it’s not tax neutral to let one group deduct all their expenses including capital expenses while retailers cannot even deduct their costs of goods sold,” said Pope.
Pope said some of the state’s delegation have decided to oppose it but others say it’s still on the table. The House Republicans hope to vote on a tax reform bill before they leave for summer recess at the end of July. Congressman Mark Meadows (R-N.C.), who leads the Freedom Caucus in Congress and was credited with coordinating opposition to the recent health care reform effort, said the tax reform debate boils down to a decision between the BAT plan, backed by Ryan and deficit-funded reforms. He did not take a position on Thursday but recently said his group could support reforms that are not revenue neutral.
“We can get it done before August as long as we are real serious about having real debate. … Debate has to be about changing policy,” said Meadows. “We need to go ahead and start having those discussions today. Let’s look at legislative text.”
Two conservative groups, Freedom Partners and Americans for Prosperity, issued results of a survey this week that ranked N.C. as the No. 22 state that could potentially be the most harmed by a BAT, primarily because the retail industry in N.C. is the largest private employment sector with one out of every four jobs tied to retail.
The study was sharply criticized by House Ways and Means Committee Chairman Kevin Brady, a Texas Republican who intends to include the BAT in tax reform legislation.
“That so-called study will be easily discredited and probably fits the definition of fake news,” Brady told reporters. “It takes one provision, pretends the economy freezes … applies it in our current tax code and comes up with fantasy figures.”
Proponents of the BAT refer to a macro-economic theory that says the U.S. dollar will appreciate in value by 25 percent to make up the cost. Pope disagrees.
“I live in the real world,” said Pope. “I have to negotiate with individual vendors on individual products ranging from pants, socks, handkerchiefs, each individual item. To imagine that the U.S. dollar is going to appreciate 25 percent overnight to offset that increase tax is not realistic.”
Tax reform negotiations are currently underway with hearings anticipated for the summer and action on a measure in August.
“We know it takes 500 messages to fill up the voicemail box of a U.S. senator,” said Bryson. “We filled up 24 last week and we are going to do another 24 this week and another 24 next week.”