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JDEDZ PROJECT REVIEW SEPTEMBER 2017 sales of$108.75 million dollars ($87 million company Figure 3 average plus a Bay Area adjustment of 25%). A MORE REALISTIC FORECAST Growth Rates g3Vt iy13:0iing Average Growth Growth Total Sales($ We next turn our attention to projecting sales growth in a Year Rate Millions) Pleasanton Costco. As we have seen, Century Urban 1 $ 108.8 derived its forecast for growth from an optimistic reading of 2 4.5% $ 113.6 the then-current company data, anticipating a quick return 3 5.7% $ 120.1 to previously high growth rates, while ALH instead applied 4 3.5% $ 124.3 a seemingly arbitrary annual increase of 3% infinitely into 5 3.5% $ 128.6 the future. 6 1.4% $ 130.3 7 2.6% $ 133.8 We would propose that a more realistic forecast can be 8 0.1% $ 134.4 derived from the Costco data for comparable store sales 9 0.5% $ 135.1 over time, much as Century Urban did but using more 10 0.5% $ 135.8 current information from the 2016 Annual Report. In order 11 0.5% $ 136.5 to hew to the data we know to be reflective of reality, we 12 0.5% $ 137.1 have applied a three-year rolling average to growth rates 13 0.5% $ 137.8 through year eight of the store operation. That produces 14 0.5% $ 138.5 growth rates tightly in line with recent Costco performance 15 0.5% $ 139.2 as shown in Figure 2. 16 0.5% $ 139.9 17 0.5% $ 140.6 For the early years, we would note, we project growth 18 0.5% $ 141.3 rates higher than ALH. For out years, we have 19 0.5% $ 142.0 incorporated a growth rate of 0.5%, which is consistent 20 0.5% $ 142.7 with recent flattening Costco trends. Of course, predicting 21 0.5% $ 143.4 economic trends 25 years into the future is a highly 22 0.5% $ 144.2 speculative and dubious proposition. Where public debt is 23 0.5% $ 144.9 concerned, it might be seen as irresponsible to rely on 24 0.5% $ 145.6 optimistic forecasts out of line with current trends. 25 0.5% $ 146.3 Figure 3 depicts the resulting forecast of Costco sales through 25 years. The ALH Economic Impact Analysis report makes no mention of the rise of online retail and how it might impact Costco in particular. Rather, it assumes Costco will claim its share of the market and grow healthily into eternity. Costco's own data suggests that competitive factors, certainly including the internet, are impacting comparable store sales. And this is not the only portion of its study in which ALH ignored the impact of online retail; Section IV of this report addresses the impact of that oversight on forecasts of local market demand. Civic Economics 6