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JDEDZ PROJECT REVIEW SEPTEMBER 2017 I: COSTCO SALES FORECASTS Civic Economics first undertook to analyze the assumptions underlying the proposed payment schedule by revisiting forecasts of sales and sales tax revenues associated with the Costco. In this section, we do not evaluate whether sales and thus sales tax revenues are truly new to Pleasanton; that is discussed in Section III. It appears the City of Pleasanton has twice contracted for outside assistance in studying the finances of the JDEDZro osal: P p Figure 1 JDEDZ COSTCO SALES ESTIMATES BY CITY CONSULTANTS (2015 Dollars, Millions) Consultant Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Century Urban $ 135.0 $ 155.3 $ 170.8 $ 184.4 $ 193.7 $ 201.4 - Annual Growth 15% 10% 8% 5% 4% ALH Econ $ 170.4 $ 175.5 $ 180.8 $ 186.2 $ 191.8 $ 197.5 $ 203.5 Annual Growth 3% 3% 3% 3% 3% 3% Sources: For Century Urban:http://www.cityofpleasantonca.gov/civicax/filebank/blobdload.aspx?BIobID=30733 For ALH Econ:http://admin.cityofpleasantonca.gov/civicax/filebank/blobdload.aspx?BIobID=27508 Century Urban Century Urban was retained to provide an analysis of the extent to which Costco (or the site developer Nearon) would be able to absorb the costs required to make the site ready for such intensive uses, which entailed creating a sales forecast. Civic Economics has not been able to review the full Century Urban report, only its projections of Costco sales. The firm appears to have conducted its analysis when the most recent Costco annual report covered fiscal year 2014. Century Urban forecast that a Pleasanton store would generate first year sales 25% greater than the companywide average for stores opened in 2014. That produced an estimate of$135 million in the first year of operation. For subsequent years, annual sales increases appear to have been based on the optimistic assumption that slowing comparable store sales trends for Costco were an aberration. However, those trends have instead solidified in the years since. Analysis Costco stores consistently show a similar curve in same-store sales: the first year is well below company averages, subsequent years enjoy sizeable gains, and growth in out years flattens. This curve makes sense in the warehouse club market as area residents gradually purchase memberships and change shopping habits in early years, with a pronounced flattening in later years. The tables in Figure 2, drawn from Costco's own reporting, show this curve clearly. Century Urban based its starting point on Costco's own reporting of first year sales across the company in 2014, as shown in the chart above. While the general shape of that curve remains, what has changed since 2014 is magnitude. While yearly gains in excess of 10% were once Civic Economics 3