Nike is coming to Ontario in a big way, bringing millions of dollars in sale tax revenue and hundreds of jobs.
But there is a catch.
Yes, the world’s largest sports apparel manufacturer agreed to do business in a large e-commerce warehouse near the city’s southern border for 11½ years, designating Ontario as the point of sale for receiving sales tax dollars from online sales.
But in order to coax the Oregon-based company to locate in Ontario, the city agreed to pay back to Nike 50% of the sales tax revenues generated by online sales from the Ontario warehouse.
In short, Nike agreed to locate and stay in Ontario for nearly 12 years, generating sales tax revenues for the city’s general fund. But Ontario only keeps half of that revenue. The rest gets paid back to Nike in quarterly payments, city officials said.
The agreement was ratified by the Ontario City Council on Sept. 15.
The city estimated that over the 11½-year term, it will have paid back about $17.25 million to Nike, or half the $34.5 million in sales tax paid to Ontario over the same period. In addition, the city will realize $52,000 per year in property taxes and $60,000 in annual business license taxes.
In late 2019 and early 2020, the city of Ontario responded to a solicitation from Nike looking for an e-commerce warehouse in Southern California to receive and distribute shoes and apparel generated by consumer online purchases, the city reported.
With sales tax dollars — a key component of a city’s budget — way down due to the coronavirus pandemic, a bidding war ensued.
“It is a competitive environment, that is important to stress,” said John Andrews, director of economic development for the city. “They were talking with other cities.”
A city report stated it bluntly: “Without an agreement, Nike would not consider locating its distribution center in the city and possibly not in the state of California.”
Nike did not return several phone calls made to its media representatives in Beaverton, Oregon, its headquarters. Also, Luc Hooybergs, Nike Retail Services Inc. vice president of logistics in North America, who was listed in the city report, did not return phone calls.
Deals to sweeten the pot to land a major sales tax generator were more common 10-15 years ago, when cities and counties had more dollars to use as leverage. But tight budgets and the loss of redevelopment powers have made them rare today, said Brad Jensen, director of public policy for the San Gabriel Valley Economic Partnership.
Ontario is a member of the partnership, which follows business trends in eastern Los Angeles and western San Bernardino counties.
“The city (Ontario) is unique,” said Jensen, a former analyst with the Rose Institute in Claremont, on Thursday, Sept. 24. “It is so big and has such a strategic location as far as movement of goods. One of the great things they have is access to Ontario airport and also they are near the 10 and 15 freeways.”
Nike is putting the finishing touches on a 580,000-square-foot distribution center at 5331 S. Carpenter Ave. in the Colony Commerce Center, located in the Ontario Ranch development off Merrill Avenue, Andrews said.
The center is scheduled to begin operations in December, he said.
“Nike could have gone to Moreno Valley or Riverside or Victorville,” Jensen said. “Ontario is rolling the dice, saying it will forgo this revenue to get this big business in our city.”
The logistics warehouse will function as the point of sale for all of Nike’s e-commerce sales in the state and possibly the entire West Coast, the city reported.
After three years, the distribution center will have created 325 permanent jobs, the city reported.
Several months ago, the deal would have been more of a gamble, Jensen said. Nike saw sales plummet at the start of the coronavirus pandemic. But analysts say Nike has recovered.
On Tuesday, Sept. 22, the company reported a net profit of $1.5 billion in the three-month period ending Aug. 31, up 11% from the same 2019 quarter. Business analysts say Nike has ratcheted up direct-to-consumer online sales, which now make up at least 30% of its revenue.
“It is probably a win for the city overall,” Jensen said.
The Associated Press contributed to this story.
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