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; * * * * *