Fresno looks to win cosmetics company’s distribution center – and jobs that go with it

NOVEMBER 15, 2016 3:12 PM

BY TIM SHEEHAN

ULTA Salon, Cosmetics & Fragrance Inc., a major retailer of cosmetics and fragrances, is eying Fresno as the site for a 670,000-square-foot distribution center that could employ as many as 1,300 workers and fulfill internet sales orders throughout the West.

And on Thursday, the Fresno City Council is being asked to approve up to $18 million in economic incentives over the next 30 years to help seal the deal with the Illinois-based company.

A 38-acre patch of vacant land at the northeast corner of East and Central avenues, in southern Fresno’s industrial fringe, is under consideration for the project, said Larry Westerlund, Fresno’s economic development director.

The financial incentives would be in the form of partial rebates of property taxes paid by ULTA Inc. on the improved site, as well as partial rebates of sales taxes on goods sold through the center. But the package is contingent upon ULTA not only developing the site at an estimated $110 million, but also making good on creating new, long-term, full-time jobs for workers at the site.

ULTA Inc. is the division of the company that deals with distribution centers and e-commerce. To qualify for the incentives, ULTA would have to create the equivalent of at least 500 full-time jobs; if the company fails to reach that mark by the end of 2022, ULTA would have to repay whatever rebates it had received to that point.

“The company estimates that their initial workforce would consist of 642 full-time employees with up to 700 part-time employees at peak times of the year,” according to a staff report to the City Council.

ULTA SALON, COSMETICS AND FRAGRANCE INC. IS THE LARGEST BEAUTY RETAILER IN THE NATION WITH MORE THAN 900 STORES IN 48 STATES.

The property is currently just outside the Fresno city limits. But Fresno County’s Local Agency Formation Commission last week approved Fresno’s application to annex the site, clearing the way for the city to offer the economic incentives.

An economic analysis commissioned by the city estimates that even after paying the incentives, Fresno stands to realize $42 million in additional sales and property taxes over the next 25 years.

“The thing that sometimes gets lost in the mix is that currently that property provides very little economic benefit to the county or to the city,” Westerlund said. “It’s an empty field. Everything we’re doing is contingent on having that property built up with a $100 million facility.”

“If we don’t do the project, the amount (of tax revenue) is still almost zero,” he added. “All of this is on a net-gain basis.”

The property is owned by G3 Development Co., which also built the nearby North Pointe Business Park, which was being pitched by the city as the site for Nordstrom to operate a much-sought-after e-commerce fulfillment center. But in June, Nordstrom cited “the pace of change in retail” in delaying its plans for at least four years.

Westerlund said the city has been working with the Parnagian family, owners of G3 Development, on the annexation plans. Earlier this year, the City Council approved “pre-zoning” the site from its agricultural designation under the county’s zoning rules to industrial purposes in anticipation of bringing the property into the city’s jurisdiction.

Consultants for ULTA reached out to the city several months ago to inquire about available sites, but Westerlund said officials didn’t learn who the potential client was until this fall. Of several sites that were examined throughout the western U.S., Fresno has now been deemed ULTA’s preferred site, setting the stage for the company’s request for the incentives.

“We’re first up,” Westerlund said. “If some of the contingencies don’t hit, they could go to a second or third site.” Among those other contingencies are coming to terms on a deal for the property; approval by Pacific Gas & Electric Co. for discounted energy rates for new or expanding businesses; and approval of $8 million in CalCompetes state tax credits by the Governor’s Office of Business and Economic Development. The CalCompetes committee is expected to approve those tax credits at a meeting in Sacramento on Thursday afternoon.

ULTA Salon, Cosmetics and Fragrance Inc. is the largest beauty retailer in the nation with more than 900 stores in 48 states. The company’s stock is publicly traded on Nasdaq under the stock symbol ULTA. Its net sales through the first six months of 2016 were more than $2.1 billion, a 22.8 percent increase from 2015’s first half. ULTA operates distribution centers in Illinois, Arizona, Pennsylvania, Indiana and Texas. Its net profit for the first half of 2016 was $181.9 million, compared to $141.1 million in the first half of 2015.

The company’s second-quarter earnings report also included ULTA’s projected outlook to grow its e-commerce sales by about 40 percent.

“When you look at them, you realize they’re pretty big, and they’re growing like crazy,” Westerlund said. “And one of the big things they’re working on is growing their internet business.”

The company told the city it expected sales through a Fresno e-commerce and distribution center to amount to about $66 million in the first year of operation in 2018, according to a staff report to the City Council.

The ULTA proposal is the first big project to come through the city’s development pipeline since the City Council approved Councilman Lee Brand’s Economic Expansion Act, which includes the tax rebates and other economic incentives for major job-creating projects that are being considered for ULTA.

The $18 million cap on incentives for ULTA shows just how far Fresno has come in the types of inducements it wields for big-time developments that hold the potential for creating hundreds, if not thousands, of jobs.

About 20 years ago, when Fresno was fighting to lure Gap Inc.