P3
                                 POLICY REPORT
                            DEVELOPMENT AND BUILDING

                                            Date: May 3, 1996
                                            Dept. File: 95043-PEM

    TO:       Vancouver City Council

    FROM:     Director of Land Use & Development

    SUBJECT:  Wholesale Clubs in Industrial Districts


    RECOMMENDATION

         THAT an application by the Director of Land Use & Development to
         amend the definitions of Furniture or Appliance Store, Grocery or
         Drug Store, and Retail Store in Section 2 of the Zoning and
         Development By-law to include retail or wholesale clubs, be
         referred to a Public Hearing, together with draft By-law
         provisions generally in accordance with Appendix A and the
         recommendation of the Director of Land Use & Development to
         approve the application;

         AND FURTHER THAT the Director of Legal Services be instructed to
         prepare the necessary By-law for consideration at Public Hearing.

    GENERAL MANAGER'S COMMENTS

         The General Manager of Community Services RECOMMENDS approval of
         the foregoing.

    COUNCIL POLICY

    Industrial Lands Strategy:  On March 14, 1995 Council adopted a policy
    framework to guide future decisions on industrial land.  The objective
    of the Strategy is to "retain most of the City's existing industrial
    land base for industry and service businesses to meet the needs of
    port/river related industry, and city-serving and city-oriented
    industries."

    Implementation of the strategy will involve an update of the industrial
    zoning district schedules.  Staff will soon report back on proposed
    amendments to the Zoning and Development By-law.

    CityPlan Directions:  On June 6, 1995 Council adopted a broad vision
    for Vancouver to guide City policy decisions, work priorities, budgets,
    and capital plans.  CityPlan directions for neighbourhoods include the
    creation and strengthening of neighbourhood centres in all
    neighbourhoods as places where people can find shops, jobs, and
    services close to home.

    CityPlan directions also include a commitment "to make sure decisions
    about increasing retail space in the city support the creation of
    neighbourhood centres, strengthen the downtown, and protect industrial
    land". (page 30)


    PURPOSES AND SUMMARY

    This report recommends amendments to the Zoning and Development By-law
    to clarify that "wholesale club", "warehouse store", "discount
    warehouse" and "factory outlet" are Retail Uses.  An amendment is also
    proposed to make retailing which is ancillary to a Wholesale Use in
    industrial districts a conditional approval use and subject to a
    development permit requirement.

    Wholesaling and retailing are increasingly undertaken within the same
    business premises with no distinction between them, i.e., selling to
    both other businesses and institutions as well as to households and
    individuals.  This gradual change has made the Zoning and Development
    By-law's differentiation between Wholesale and Retail Uses a difficult
    one to ascertain and enforce.  This difficulty is exacerbated in the
    case of wholesale clubs, warehouse stores, discount warehouses, and
    factory outlets which claim to be Industrial Uses when they are Retail
    Uses in everything but name.  
    Staff therefore recommend amendments to the Zoning and Development
    By-law to prevent any further subverting of the intent of the By-law
    and the objectives of the Industrial Lands Strategy.

    BACKGROUND

    Proposed Costco Outlet:  On June 22, 1995, Council approved an overview
    planning process for the False Creek Flats.  During the subsequent
    preparation of a preliminary concept plan for the Flats, staff received
    inquiries about a proposal to locate a "wholesale club" in this area. 
    It was subsequently confirmed that Costco has obtained a large site,
    38.4 hectares (9.5 acres) in size and comprised of three contiguous
    lots, at 1660 Station Street and 455 Industrial Avenue (see map on the
    next page).

    In discussion with Costco representatives, staff advised that any
    Retail Use exceeding 1 000 m2 (10,764 sq. ft.), including ancillary
    retailing, cannot be approved under M-2 zoning, and that a rezoning
    would be necessary.  Staff further advised that a decision on any
    rezoning application in the Flats would not be made until overview land
    use and transportation planning was completed.  In their last
    conversation with staff, Costco representatives indicated they would
    likely submit a development application for Wholesaling.

    There are presently three Costco locations in Greater Vancouver:
    Burnaby (3550 Brighton), Richmond (9151 Bridgeport), and Surrey (7423
    King George Highway).  Costco has also purchased Price Club, a
    "wholesale club" at 3585 Grandview Highway.






























    Existing Price Club Outlet:  Since 1987, three wholesale clubs in
    succession have occupied the 11 334 m2 (122,000 sq. ft.) building on a
    29 092 m2 (7.2 acres) site at 3505-3585 Grandview Highway.  A
    development application (DA205490) was submitted in February, 1987 on
    behalf of Titan Wholesale Club, to alter and change the use of an
    existing building to accommodate a "general-merchandise wholesale
    club".  Outright approval was sought under M-2 zoning for Wholesale use
    with Accessory Retail use, but it was proposed to  combine storage and
    display space, and wholesaling and retailing, within the same floor
    area without any separation between them.

    The proponents described the proposed business as selling goods for
    resale (i.e., to smaller stores), business use (e.g., restaurants and
    hotels), and personal or household use.  It was also stated that
    customers must hold a membership, either as "business members", or
    "group members" which belong to qualifying associations, groups, or
    companies.  The proponents stated that in their experience to date, in
    Ontario, about 80 percent of sales were to wholesale customers.  They
    acknowledged that retail customers made far more than 20 percent of the
    visits, since their retail purchases were significantly smaller than
    wholesale purchases.
    In April, 1987 Planning staff sought Council's advice on "large-scale
    retail uses" in industrial districts.  They recommended that this
    application be refused because the proposed hybrid retail/ wholesale
    premises, with most of the floor area accessible to the general public,
    was potentially a Retail Store in both perception and operation.  With
    no distincdtion between retail and wholesale floor area in the plans
    and on the premises, staff would be unable to enforce By-law limits on
    the amount of retail floor area.

    Given this potential to be predominantly retail, and also the very
    general membership qualifying criteria, staff concluded that the
    proposed use was similar to retail.  Council approved the staff
    recommendation, and also requested a By-law amendment for restricting
    the size of retail premises in industrial districts.

    The development application was subsequently refused, but this decision
    was appealed at the Board of Variance and overturned.  The Board
    allowed the proposed use for a period of 10 years (up to May 1, 1997). 
    Titan Wholesale Club was subsequently replaced by the Canadian
    Wholesale Club, and then Price Club (which was subsequently purchased
    by Costco).

    The succession of businesses confirms a staff observation to Council in
    1987 that while Titan might be able to claim, and demonstrate, that 80
    percent of revenue is from wholesaling, a possibility always remains
    that the premises could be acquired by a different business which
    operates with a different ratio, a ratio over which the City has no
    control.

    Zoning By-law Amendments:  Following the experience with Titan
    Wholesale Club, in August, 1987 City Council approved By-law amendments
    to industrial district schedules to limit the size of all retail floor
    area on any site to 10,000 sq. ft.  This was subsequently amended to
    1 000 m2 (10,764 sq. ft.).

    Following some additional experience with furniture stores in
    industrial districts which, like wholesale clubs, also blurred the
    distinction between retail and wholesale floor areas, and between
    showroom and storage areas, in June, 1989 Council approved further
    By-law amendments, requiring that any floor area in accessory uses
    accessible to the general public be separated by a wall from floor area
    in other uses. 

    DISCUSSION

    1. City Concerns about Large-Scale or "Big-Box" Retail

    Staff advise inquirers proposing large-scale or "big-box" retail
    development of the following City concerns about such stores:

    -  conflict with CityPlan directions to create neighbourhood centres;
    -  the large sites required, representing a significant loss of
       industrial land;
    -  the large amounts of traffic generated and parking supplied;
    -  increases in industrial land values beyond the ability of industry
       to purchase; and
    -  impacts on existing stores and shopping districts.

    Given these significant potential impacts, any large-scale retail
    development proposed in an industrial district should be evaluated
    through the rezoning process, and according to criteria established in
    Council policy for large-scale retail uses, and other pertinent
    policies (e.g., Clouds of Change Task Force Recommendations).

    Since Council approved the rezoning of two M-2 sites for home
    improvement centres in October, 1994 (Home Depot at 900 Terminal Avenue
    and Eagle Hardware & Garden at 2750 Slocan Street), some inquirers have
    questioned the City's intent to discourage "big-box" retail.  On these
    occasions, it has been helpful for staff to recall that at Public
    Hearing, some Councillors saw home improvement centres as acceptable in
    industrial districts because they would sell primarily building
    materials and supplies that have traditionally been sold in industrial
    areas.  By contrast, grocery superstores and other "big-box" retailers
    located outside of neighbourhood-serving commercial centres, where
    grocery stores and other retailers are normally found, would have many
    impacts.

    2. Proposed "Wholesale Club"

    Given the comments made to Planning staff by Costco representatives
    about a proposed wholesale outlet in the False Creek Flats, staff fear
    that the rezoning process will be avoided for a new Costco store and
    that a development application will be submitted instead.

    If a proposed wholesaling development in an M-1 or M-2 district is to
    include some ancillary retailing, it would be an outright approval use
    and would have to be approved only if two requirements are met:

    -  the floor area of all accessory uses, if any, including both
       ancillary retailing and ancillary offices, cannot exceed 33  
       percent of total floor area; and

    -  accessory retail space, if any is provided, must be separated by a
       wall from floor area in wholesaling use so that only the retail
       floor area is accessible to the general public.

    All other applicable regulations would also have to be met, the most
    significant of these being the limitation in industrial districts on
    floor area in Retail Use.  Retail floor area, including accessory
    retailing, cannot exceed 1 000 m2 (10,764 sq. ft.) on any site and any
    development application which sought more than this would not be
    considered, or would be refused.

    Based on these By-law provisions, an application for Wholesaling -
    Class A, or B, which proposed to combine storage and display space
    within the same floor area without separating them, or which sought
    more than a third of the floor area in accessory use, would be a
    conditional approval use, and could be refused.  Indeed, such premises,
    which give both wholesale and retail customers access to the entire
    floor area, whether called  "wholesale club" or not, would very likely
    be refused.  (NOTE: Wholesaling - Class A refers to premises where
    goods are sold in bulk and storage area exceeds showroom area, while
    Wholesaling - Class B refers to premises where showroom area exceeds
    storage area.  See definitions for these and related use terms in
    Appendix B.)

    Given the foregoing, it can be speculated that a development
    application on behalf of Costco would be just for Wholesaling, i.e., to
    construct or renovate a building for Wholesaling - Class A, or B, with
    no ancillary retailing.  Proposing an outright approval use, the
    application would have to be approved and a permit issued, if all
    applicable regulations were met.  (NOTE: Given the popular perceptions
    of Costco stores, the applicant could be asked to describe how and why
    this particular proposed development will be different from other
    Costco locations, particularly if the amount of parking proposed
    significantly exceeds the number of spaces required for a Wholesaling
    use.) 

    If a development permit is issued for its Wholesaling premises, Costco
    might later seek to obtain Retail Dealer and Retail Dealer  - Food
    business licenses, in addition to a Wholesale Dealer license.  It might
    claim that it had changed the use of part of its premises to ancillary
    retail, with no development permit being needed for this change of use,
    (according to Section 5.14 of the Zoning and Development By-law).

    Whether or not a retail business license is obtained, property use 
    inspections of Costco premises might observe a significant amount of
    retailing.  By-law enforcement would then be necessary and would
    revolve around the matter of whether retailing was confined to a floor
    area not exceeding 33  percent of total floor area, or 1 000 m2, which
    ever is smallest, and also whether and how this floor area is separated
    from wholesaling area not accessible to the general public.  The use of
    portable walls and partial walls could frustrate the inspection and
    monitoring activities of Permits and Licenses staff and make By-law
    enforcement infeasible.

    3. Proposed By-law Amendments

    The scenario described above, admittedly speculative insofar as Costco
    actions are concerned, could lead to "de facto" big-box retailing in
    the False Creek Flats.  However, in the context of City concerns and
    policies about large-scale retail uses, it is not in the public
    interest to allow a "wholesale club" to become established in this
    manner in any industrial area.

    Staff therefore recommend some Zoning and Development By-law amendments
    to discourage inappropriate development applications and facilitate
    By-law enforcement (see more detailed draft amendments in Appendix A):

    (a)  Amend the industrial schedules so that ancillary retailing in
         conjunction with wholesaling would be permitted as a conditional
         approval use only.

    Wholesaling and retailing are increasingly undertaken within the same
    business premises with no separation or distinction between them, i.e.,
    selling to both other businesses or institutions as well as to
    households and individuals.  It is a hybrid format which is not unique    to wholesale clubs (e.g., office supplies).  There has concurrently
    been a trend to combine display/showroom and storage within the same
    floor area, which again is not unique to wholesale clubs (e.g., Ikea
    and Staples).

    These trends raise a problem in industrial districts because By-law
    limits on the amount of retail floor area cannot be enforced in hybrid
    retail/wholesale premises which do not have a separate area for
    retailing.  As staff indicated in 1987 when they reported to Council on
    the first proposed wholesale club in the city, there is a potential for
    these premises to be or become predominantly retail, contrary to the
    intent of industrial districts, objectives of the Industrial Lands
    Strategy, and CityPlan directions.  (NOTE: This problem does not arise
    in the C-2, C-2B, C-3A, HA, DD and other districts which permit both
    Retail and Wholesale uses.)

    The proposed amendment would require a development permit application
    in industrial districts for ancillary retailing in new development and
    or in a change of use in existing premises.  Such an application could
    be refused if the plans did not show a separate area for ancillary
    retailing.  (NOTE: A more restrictive provision in the I-1 district
    schedule permits ancillary retailing only with manufacturing.)

    (b)  Amend the definitions of Furniture or Appliance Store, Grocery or
         Drug Store, and Retail Store to include "any retail or wholesale
         club where customers are limited to members and their guests", and
         amend the definitions of Lumber and Building Materials
         Establishment, Wholesaling - Class A and Wholesaling - Class B to
         exclude "wholesale club".

    The operation of a Retail Store or Wholesale Establishment as a "club"
    that requires its customers to be members is not a characteristic which
    determines whether a business is a Retail or Wholesale Use. 
    Furthermore, such membership requirements might exclude the general
    public from the premises but, for purposes of Zoning and Development
    By-law enforcement, what matters is whether or not there are a
    significant number of customers making retail purchases.

    If the customers include individual "members" who can make purchases
    for personal or household use, then these premises are doing some
    retailing.  This type of membership was provided by the former Titan
    Wholesale Club and Canadian Wholesale Club, and is available from the
    present Price Club and Costco.  Since the premises of these wholesale
    clubs do not provide a separate and limited area for ancillary
    retailing, there is a potential for these premises to be or become
    predominantly retail. 

    (c)  Include the expressions, "warehouse store", "discount warehouse",
         and "factory outlet" in the By-law definitions of Furniture or
         Appliance Store and Retail Store.

    This amendment would remove ambiguity about the land use classification
    and applicable zoning regulations of these types of stores which all
    represent forms of retailing, notwithstanding the use of industrial
    terminology to describe them.

    CONCLUSION

    The presence in industrial districts of wholesale clubs, warehouse
    stores, discount warehouses, and factory outlets which claim to be
    Wholesale or Warehouse Uses when they are Retail Uses in everything but
    name would undermine the intent of industrial zoning districts, the
    objectives of the Industrial Lands Strategy, and CityPlan Directions.

    Planning staff therefore recommend amendments to the Zoning and
    Development By-law to clarify that "wholesale club", "warehouse store",
    "discount warehouse" and "factory outlet" are Retail Uses.  An
    amendment is also proposed to make retailing which is ancillary to a
    Wholesale Use in industrial districts a conditional approval use and
    subject to a development permit requirement.  The Director of Land Use
    & Development recommends that an application to amend the Zoning and
    Development By-law be referred to Public Hearing and approved.


                           *     *     *     *     *
                                                                 APPENDIX A



                            DRAFT BY-LAW PROVISIONS



    1.   Amend the IC-1 and 2, M-1 and M-2 zoning district schedules by
    adding the following to section 2.2.A:

              "but not including ancillary retail use in conjunction with
         wholesale uses".


    2.   Amend Section 2 of the Zoning and Development By-law by adding the
    following to the definitions of Furniture or Appliance Store, Grocery
    or Drug Store, and Retail Store:

              "and including any retail or wholesale club where customers
         are limited to members and their guests".


    3.   Amend Section 2 of the Zoning and Development By-law by adding the
    following to the definitions of definitions of Lumber and Building
    Materials Establishment, Wholesaling - Class A and Wholesaling - Class
    B:

              "but not including any wholesale club where customers are
         limited to members and their guests".


    4.   Amend Section 2 of the Zoning and Development By-law by adding the
    following to the definitions of Furniture or Appliance Store and Retail
    Store:

              "and including "warehouse store", "discount warehouse", and
         "factory outlet".


                                   * * * * *

                                                                 APPENDIX B
                                                                Page 1 of 2


    DEFINITIONS  EXCERPTED FROM  SECTION 2  OF THE  ZONING AND  DEVELOPMENT
    BY-LAW:


    1. From the list of Cultural and Recreational Uses:

       Club,  which means  the  use of  premises  by a  non-profit society,
       association or  corporation organized  solely for  the promotion  of
       some common object and which is operated  for club members and their
       guests only, but  does not include Church, Hospital, Social  Service
       Centre,  Special Needs  Residential Facility  or  premises used  for
       residential or administrative purposes;


    2. From the list of Retail Uses:

       Furniture or Appliance Store, which  means the use of  premises with
       a  floor area greater  than 500  m2 for the  retailing or renting of
       household  furniture,   major  household  appliances  or   household
       furnishings such as carpets and draperies;

       Grocery or  Drug  Store, which  means the  use of  premises for  the
       retailing of a full range  of food products and  ancillary household
       supplies, toiletries,  cosmetics, patent  medicines or  prescription
       drugs,  including  food  and  drugs which  are  manufactured  on the
       premises as an integral  part of the retail operation, but  does not
       include  Neighbourhood Grocery  Store  or  specialty shops  such  as
       bakeries,  butchers,  delicatessens,  candy  shops  and   ice  cream
       parlours where sales are limited to a particular type of food;

       Neighbourhood Grocery Store, which  means the use of premises with a
       maximum of  110 m2 [1,184 sq.  ft.] of retail  and storage area  for
       the  retailing of  groceries  and  ancillary convenience  goods  and
       services in any R District except FM-1;

       Retail  Store, which means the use of  premises for the retailing or
       renting of merchandise  including that which is manufactured on  the
       premises, provided  the total  floor area in manufacturing  use does
       not exceed 300  m2, but  does not include  any retail use  otherwise
       listed  in this  section 2  or  included in  a Manufacturing  Use, a
       Wholesale Use, or an Adult Retail Store;
                                                                 APPENDIX B
                                                                Page 2 of 2


    3. From the list of Wholesale Uses:

       Lumber and  Building Materials Establishment, which means the use of
       premises  for  wholesaling   and  retailing  primarily  of   lumber,
       plywood, millwork and related building materials;

       Wholesaling  - Class  A, which  means the  use  of premises  for the
       wholesaling or  renting of merchandise  in bulk  to retailers, other
       businesses, institutions  or government agencies  for their own  use
       or for  resale, where merchandise  for sale or rent  is kept on  the
       premises  and floor  area  in storage  space  exceeds floor  area in
       showroom or  display space, if any,  but does not  include any other
       Wholesale Uses included in this section 2;

       Wholesaling  -  Class B,  which means  the use  of premises  for the
       wholesaling   or  renting   of  merchandise   to  retailers,   other
       businesses, institutions  or government agencies  for their own  use
       or  for resale, where  merchandise for  sale or rent  is kept on the
       premises and floor area in  showroom or display space  exceeds floor
       area in storage space, but  does not include an office for an import
       agent or broker, manufacturer's agent, or  similar establishment and
       does not include any other  Wholesale Uses included in  this section
       2;


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