Expansion of SF chain store regulations would be bad for business, report says 

click to enlarge Subway
  • Mike Koozmin/the S.F. Examiner
  • Chain stores, like Subway, tend to have prices 17 percent lower than local businesses, like Munch Haven, according to a report.
In 2009, residents of the Mission banded together to stop clothing retailer American Apparel from opening a store on Valencia Street. But in 2010, a Target was approved to move in to the Metreon building in South of Market and the following year, another Target was OK’d for a location at Masonic Avenue and Geary Boulevard — both meeting few objections.

San Francisco’s relationship with chain stores is fickle, and the debate is far from settled over whether existing regulations, from bans to special permits, are not only necessary but in need of strengthening. A new economic impact report from the City Controller’s Office provides a fresh analysis on the issue. It generally favors fewer chain store regulations and considers these businesses — defined by The City as having 11 or more locations in the U.S. — as a positive for the local economy. The report suggests that increased regulations on chain stores will not have a positive impact on the local economy and instead could be detrimental.

Proponents of additional restrictions, such as broadening the chain store definition, are seemingly not dissuaded by the findings.

The report said that “local retailers may spend up to 9.5 percent more within the local economy than chain stores, but charge prices that average 17 percent more. On balance, the economic benefits of greater local spending by non-formula retailers are outweighed by higher consumer prices.”

The report concluded that broadening San Francisco’s definition of a chain store to capture more businesses “will not expand the local economy.” And it noted that a new chain store “could benefit the economy without benefitting existing businesses, by offering lower prices to consumers, for example.”

San Francisco enacted its first ban on chain stores in 2004, for the Hayes Valley commercial corridor. Soon, restrictions grew from other bans in North Beach and Chinatown. In 2006, voters approved a ballot measure requiring a special conditional-use permit to open in commercial areas of neighborhoods. The permit requires increased public notices and meetings, and any approval can be appealed to the Board of Supervisors.

Russell Pritchard, president of the Hayes Valley Merchants Association and owner of Zonal Home Interiors, was among those fighting the opening of Swedish-owned Gant Rugger last year. It skirted that neighborhood’s chain store ban because its multiple locations are outside the U.S. That has led to one proposal to count a business’s worldwide locations in determining whether it falls under the chain store umbrella.

Pritchard said chain restrictions are necessary for “protecting the integrity of the small-business community.” He said that he and others began 23 years ago to revitalize Hayes Valley and would hate to fall victim to gentrification from the chains.

“I wouldn’t think the main part of our residential base would prefer to shop at chain stores,” Pritchard said, suggesting that sales at chain stores are outpacing other retailers, as the study found, because of media and advertising persuading “them to shop there.”

Currently, San Francisco’s chain store regulations apply to 12 industries, including retail sales, restaurants, banks and movie theaters. Supervisor Eric Mar is proposing to expand them to 27 to include such things as business and professional services, wholesaling and light industry, and administrative services.

Mar said the study was flawed, in part, because it was “not looking at displacement of small businesses that make up the character of The City and that many people come to The City because of the unique neighborhood business corridors.”

The Planning Department in the coming months also intends to issue a study on formula retail.

Chain stores make up 32% of city retail sales

Chain stores, or formula retail, account for a large portion of San Francisco’s retail sales despite being just 16 percent of the total such businesses here, according to a City Controller’s Office economic impact report released Wednesday.

Of San Francisco’s $13.8 billion in retail sales in 2012, 32 percent was attributable to chain stores, otherwise called formula retail and defined by The City as businesses with 11 or more locations in the U.S. In 2012, one out of six retailers likely fell under The City’s existing formula-retail controls, the report said.

From 1993 through 2012, formula-retail businesses watched their sales grow at a much faster rate than The City’s mom-and-pop businesses, according to the report. The largest growth disparities were in the sales of apparel, industrial and business sales, and building materials.

When it came to food markets and liquor, sales at nonchain stores expanded at a greater pace than formula retail.

While sales are rising at these chain stores at a faster rate compared to more independent shops, Supervisor Eric Mar, a proponent of increased restrictions, said residents are asking for more controls over the business makeup of their neighborhoods.

“Many people expressed to our office that they won’t want our neighborhood corridors becoming strip malls, overwhelming neighborhood districts with chain stores,” Mar said. “I think people feel more comfortable with a mix, but especially a strong economy with small businesses as the back bone of that economy.”

Economic impact of formula-retail controls

Controls on formula retail uses could potentially affect San Francisco’s economy in the following ways:

Impacts on the cost of retail distribution, retail prices and consumer spending

Impacts on spending by retail businesses in the local economy

Impacts on employment

Impacts on commercial vacancy rates and rents

Impacts on neighborhood quality

Source: City Controller’s Office

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