February 12, 2014
Economists: Formula Retail Controls Could Hurt Consumers/Economy
Prepared in response to proposed legislation which would further expand formula retail controls in San Francisco, San Francisco's Office of Economic Analysis (OEA) has concluded that formula retail controls could actually hurt consumers and the local economy.
Research by the OEA suggests that local retailers charge prices that average 17% more than chain stores. From their full report:
"Restricting chain stores will therefore likely increase the average cost of retail distribution in the city. Higher costs usually have two effects on markets: higher prices and reduced sales. Businesses pass their higher costs on to consumers in the form of higher prices, who react by spending less in the local economy.
Higher prices harm consumers, and reductions in sales harm other businesses."
Anecdotal evidence does suggest, however, that non-formula retailers may spend up to 9.5% more within the local economy than chain stores on business services. That being said, "the economic cost of higher prices on local consumers outweighs the potential benefit of greater local spending by non-formula retailers, and the net local spending impact is somewhat negative."
The OEA was unable to quantify or account for the impact of formula retail on perceptions of "neighborhood quality," the economic value of which is priced into neighborhood rents and housing values.
In the end, the OEA concludes that "expanding the definition of formula retail in the city will not expand the local economy;" a new chain store "could benefit the economy without benefitting existing [local] businesses by offering lower prices to consumers;" and that Planning decisions with respect to allowing or blocking formula retailers should "explicitly consider the views of residents and whether a proposed store could prevent blight."
∙ Expanding Formula Retail Controls: Economic Impact Report [sfcontroller.org]
∙ The Formula For Success Or Protectionism In San Francisco? [SocketSite]
First Published: February 12, 2014 4:30 PM
Comments from "Plugged In" Readers
This is not a surprise due to economies of scale of a chain store. I thought that is why local establishments have cheaper rents because there's less competition for commercial spaces.
Do the economists account for increased land prices because the culturally rich neighborhoods are more desirable? There is certainly no shortage of people willing to pay the increased prices at brunch on a weekend morning.
[Editor's Note: See second to last paragraph above (or page 20 in the report).]
Posted by: Jeff at February 12, 2014 4:50 PM
This is plain as daylight. The net result of formula retail bans are higher prices for consumers and diminished choices, not to mention vacant, blighted buildings. The chain store limits are a weird combination of protectionism and aesthetic snobbery - enough is enough.
Posted by: zzzzzzz at February 12, 2014 5:25 PM
@ zzzzzzz: I agree. Our San Francisco elected leaders and many SF citizens are full of aesthetic snobbery. The rhetoric and hate directed toward chain stores is loud and never-ending.
I find it disgusting, and embarrassing. While our city leaders still cannot, after decades of programs and dollars, still clean up the Tenderloin and rid our streets of homeless (by helping them), yet our leaders can spend time debating on whether a Chipotle should occupy a prominent vacant restaurant space.
We have a bunch of brainless bureaucrats running out city.
Posted by: Futurist at February 12, 2014 5:46 PM
They needed a study to know this? Heck, I figured it out years ago and now an increasing percentage of my retail dollars head to Washington State (home of Amazon.com). No meed to waste gas and time "shopping"--just get everything delivered to my door for less.
Posted by: BTinSF at February 12, 2014 6:02 PM
I was born, raised and currently live in San Francisco and am by no means rich (made less than 50K last year) but would much prefer to spend a little extra at a locally owned business. Locally/family owned shops and restaurants are a MAJOR element of what gives SF its charm. Take a look at what has happened in the suburbs. There is no way of differentiating most of the towns in between here and Tahoe because the same fast food and retail chains have COMPLETELY taken over. Everything is Burger King, Mcdonalds, Subway, Best Buy, Home Depot etc. Would you prefer to live in a San Francisco where Tony's Pizza Napoletana, El Farolito and Ike's are replaced with Dominoes, Chipotle and Subway. Part of what makes SF expensive is that people WANT to live here because its unique. Let the big guys take over and watch SF turn into Houston TX, a city devoid of character.
Posted by: SF Native at February 12, 2014 8:18 PM
Not that San Franciscans ever gave an F about facts. A real city can accommodate both formula retail and non formula retail, while letting consumers choose who to patronize.
San Francisco's effete aesthetic objection to chains is driven by district supervisors who appeal to the lowest common denominator, and powerful local lobbys which wish to maintain their price controls on San Franciscos captive audiences - hello cole hardware! The reality is that the local populace votes on emotion, and could care less about the real life effects of their feel good policies
Posted by: bob at February 12, 2014 8:31 PM
So let me get this straight...
sf rent control bad
sf architecture bad
sf planning commission bad
sf big box retail ban bad
sf long timer attitudes bad
sf middle class bad
sf lower class bad
sf artists bad
sf freaks bad
sf politicians bad
sf politics bad
so nobody wants to live here, right?!
oh wait... oh f**k... you mean... no way... like, maybe a little spice and fire and a funky hand tossed ceramic platter in an artsy shack makes for a nice meal? Whooda thunk...
go to Carlsbad, go to Mountain View, enjoy your Elephant Bar
Posted by: snobby mcGoogle at February 12, 2014 8:38 PM
SF Native - The next time you drive up to Tahoe you should try venturing further from the freeway and away from where the BigBox and DriveThru stores congregate. You'll find that Sacramento and the like have plenty of mom and pop shops despite having no formula retail prohibitions.
Posted by: The Milkshake of Despair at February 12, 2014 11:20 PM
The city that gave the world GAP stores, Banana Republic, Pottery Barn, Old Navy, Williams Sonoma, Pasta Pomodoro,and Peets Coffee has a problem with Nike, Intelligensia Coffee, Ralph Lauren, West Elm, J Crew, etc. etc.
So if the chain store did not originate in San Francisco it is "bad", but if it started here it is "good"?
Posted by: FedUp at February 12, 2014 11:41 PM
Your question bares no relevance to the previous sentence, I think youre missing a logical step there.
People like small shops, we're willing to pay a bit more to have them. Shouldn't be big news to anyone really.
Posted by: sam at February 13, 2014 7:53 AM
"People like small shops, we're willing to pay a bit more to have them. Shouldn't be big news to anyone really."
Then why not let chain stores set up shop? Surely they'll be driven out of business by people that prefer to patronize mom and pop shops.
Posted by: g at February 13, 2014 8:35 AM
I think the point is that large national chain stores that started here seem exempt from the restrictions, yet many are no longer even based in California. Pasta Pomodoro started in the Marina, but now is a national chain no longer locally owned, so while San Franciscan's think it is a local "small shop", it is actually a chain store, yet nobody protests when new locations open. The same for Peets Coffee which San Franciscans still think is local but is now national and owned by a larger corporation. I think FedUp's point was, what if other cities banned chain stores that started or are based in San Francisco?
Peets just opened their new flagship store on Chestnut and everyone was celebrating, but this Peets must be their 100th store. What if it was a coffee store from Chicago like Intelligensia, would everyone protest that it was a "chain store" even though Intelligensia is more high end and only has 15 locations nationwide?
If other cities started banning chain stores that originated and may still be based in San Francisco we would feel it economically. To add to the short list posted earlier: Apple, Gap, Banana Republic, Pottery Barn, Williams Sonoma, Old Navy, Peets, Smith & Hawken, Il Fornaio, and more all started in the Bay Area.
The prohibition is stupid and should be removed.
Posted by: anon94123 at February 13, 2014 8:47 AM
"Take a look at what has happened in the suburbs. There is no way of differentiating most of the towns in between here and Tahoe because the same fast food and retail chains have COMPLETELY taken over. Everything is Burger King, Mcdonalds, Subway, Best Buy, Home Depot etc."
Wrong. Head down to Fremont and you'll find that the strip malls are populated with NUMEROUS non-chain restaurants. Indian, Afghani, Chinese, most of which blow away their San Francisco equivalents. The chain stand-bys are located at freeway exits, so that's what you see, especially if that's what you want to see.
Posted by: 4h clubber at February 13, 2014 9:03 AM
@FedUp: West Elm is a division of Williams-Sonoma Inc. that also runs its namesake and Pottery Barn.
There's never going to be a consensus on this issue, so enough already. The main argument should be that SF doesn't have a consistent policy towards formula retail, allowing many neighborhoods to decide for themselves. Chipotle was turned down in the Castro, but not CVS. Starbucks are on every corner, but independent coffeshops seem to do just fine.
Only a few years ago there were many more Gap stores in the city than there are now (Market/Dolores, Haight, Kearny all closed). Williams-Sonoma shuttered two of its four SF outposts in the past two years. There can be a co-existence and healthy balance of both.
Posted by: Mark at February 13, 2014 9:40 AM
I am as pro-development as they come and I think formula retail rules are ESSENTIAL for the thriving SF scene.
Look, the attraction of Valencia, Hayes/Gough, Columbus, Chinatown, etc are the numerous local restaurants, bars, coffee stores, etc. What is really important to keep in mind is that chain stores have economies of scale that allow them to handedly outprice local businesses.
Let's take Hayes/Gough corridors in Hayes Valley, one of the most celebrated retail corridors in the city, for the dense concentration of unique and local boutiques, coffee stores, restaurants, bars, etc. Are you telling me that Starbucks, Urban Outfitters, J. Crew, Apple Store, etc would not be salivating at the mouth to cash in on the "trendy cool" factor and displace the local businesses that gave the area its flavor?
Part of the reason why I love San Francisco, and pay outrageous amounts of rent to live here as opposed to the suburbs, is that I can walk to a street that is full of independent and local stores. If every commercial corridor in the city was a Starbucks/Gap/Chipotle/Chili's type of thing, absolutely no way would I live here. Without a shadow of a doubt.
Now, when we get to areas of the city that are blighted with significant vacant storefronts, then the conversation is different. But banning formula retail restrictions in the areas that are thriving BECAUSE of those restrictions is a depressing thought. North Beach with Olive Garden? Chinatown with Panda Express? Come on now.
This is not protecting independent stores from competition, they compete with each other. But there is no way even successful restauranteurs, store owners, etc can compete with the big dog chains.
There IS an intangible quality of life factor that goes into keeping a city vibrant and desirable, and IMO, San Francisco's strongest corridors are because of the fact that they are all one-of-a-kind streets.
Posted by: JWS at February 13, 2014 11:01 AM
Posted by: snobby mcGoogle at February 13, 2014 11:50 AM
@ JWS: I call your bluff when you say you couldn't live here in SF if "every commercial corridor was Starbucks, Gap..etc..".
You're fear mongering, projecting a negative future, with no facts. How many people here and in SF do NOT ever go to Starbucks? own a pair or more of Gap jeans? never eat at Chipotle?
Plenty do. And they still love and enjoy SF. Your comments come off as elitist, and self-centered.
More competition, as an example in the Castro for restaurants would up the ante for better food. If people don't like Chipotle, it would close.
The free market system is a better choice, but our Socialist/Communist BOS don't see it that way.
Posted by: Futurist at February 13, 2014 12:41 PM
@ Futurist - It is hardly elitist to want to live in a city with stuff I can't do anywhere else. Sometimes I eat at Kokkari, sometimes I grab shabu on Geary in the Outer Richmond. The point is that one of the key attractions to SF is the thriving local restaurant, coffee, bar, boutique, etc scene. These restaurants on a whole cannot compete for rent with bigger chains.
Valencia, Hayes, Columbus, etc are THRIVING right now. I would argue they are thriving because of their concentration of unique offerings.
The Castro is a whole other story, and if you read my post in full, you can see that for blighted areas, I am for the removal of restrictions. But it baffles me when people don't get the distinction that it is not that people don't support, for example, Gap. It is that large chains can easily outprice smaller tenants for the same spaces due purely to economies of scale.
Please show me why Polk, Valencia, Hayes, Columbus, etc are struggling and need to invite chains to push out local retailers. There are 45 minute waits for most of those restaurants.
Posted by: JWS at February 13, 2014 1:06 PM
Those who think that relaxing the chain rules will ruin SF and make it Anywhere, USA should really get out of the 7x7 once and a while and see what really happens in less restrictive environments. It won't end up like that scene in Demolition Man where all restaurants are Taco Bell (If you've never seen that scene, it is worth the minute to watch).
A better way to preserve what really matters is to regulate on form: size, parking, street interface, signage, opening hours, mix, etc. For example a dense city should discourage drive-thrus and single story parking encircled big box forms. Go ahead and let In-N-Out do business here if they're willing to fit in.
Posted by: The Milkshake of Despair at February 13, 2014 1:31 PM
And so we all pay more because we feel that it's beneath us to grab a coffee at Starbucks or a burrito at Chipotle, or buy some jeans or a couple of t's at the Gap.
You can eat at any and all of those places you mentioned. that's cool. But I want other choices at times, not that I can't afford to eat expensive all the time. But I don't.
I bought 3 pairs of jeans recently at the Levi Store on Castro. Great jeans, great price, great people.
Should I have gone instead to the Self-edge store on Valencia and paid $195 for one pair? or a similar "boutique" store.
Would that make me a better San Franciscan? Am I more hip, more cool, more self-aware if I do that?
Posted by: Futurist at February 13, 2014 1:32 PM
@ MOD: we don't often agree on issues discussed here, but your comments are spot on. I agree completely.
The 'sky is falling" rant that we here so often here, because of CHANGE to San Francisco, can reach hysterics at times.
And I think In-N-Out would do a fab business here in SF. It's certainly not beneath me to chow down on a nice burger, fries and shake now and then.
And I can still live here and enjoy SF.
Posted by: Futurist at February 13, 2014 1:52 PM
This thread demonstrates how the readership (or just commenters) of this blog are out of step with San Francisco voters. These restrictions exist because San Francisco voters want their small business community to thrive. If you don't like that, there are so many communities where you would be more at home. Especially in Texas.
Posted by: lark at February 13, 2014 1:58 PM
@MOD. I have mixed feelings on the topic, although I will note that earlier this week I walked down State St. in Santa Barbara. It was extremely pleasant with a mix of local retailers, restaurants, and also a number of national chains and dept. stores. To my knowledge, there is not a Formula Retail ordinance in that city.
Posted by: woolie at February 13, 2014 2:21 PM
I was hesitant to give any word at all to lark's rather dismissive comment, however.
But essentially saying "if you don't love it, leave it", effectively adds nothing to the dialogue, but only shows complete resistance to ANY change, whatsoever.
Posted by: Futurist at February 13, 2014 2:31 PM
Agree with "woolie" regarding State Street in Santa Barbara. Santa Barbara is secure enough in its identity that it can allow a Ralph Lauren or anther national store like APPLE and still have unique thriving retail districts . I think all of the people who worry about the so-called special quality of San Francisco retail need to travel more. Other areas seem to be able to have both without all the silly laws we have.
Posted by: anon at February 13, 2014 2:55 PM
I meant to add agreement to the second part of @MOD's post. Santa Barbara is known for intense controls on form and architecture. State St. is extremely uniform -- wide sidewalks, zero setback, generally 1-2 stories, retail frontage, and Spanish architectural style. While I could take or leave the particular stylistic requirement, all of the other form-based controls provide an excellent basis for producing a very pleasant atmosphere. And while there are a number of national chains, in both large and small spaces (Macy's, Old Navy, CVS, Apple, etc.), they all adapted well to the local requirements. Finally, the road is also narrow, 1 lane each way, with very low traffic speeds that make it safe for pedestrians, strolling, limiting noxious exhaust, etc.
Posted by: woolie at February 13, 2014 3:05 PM
I chose In-N-Out as an example because they actually do have a store in SF (Fisherman's Wharf). It is the only In-N-Out I've found without a drive-thru and certainly the worst "In and Out" access from the freeway. Yet the chain bent their own formula to fit into SF. Bully for them.
Posted by: The Milkshake of Despair at February 13, 2014 3:09 PM
Good news for the pro-chain gang...
You can live in SF and have your Starbucks, Target, Burger King, McDonalds, Best Buy, etc.... right here in SF! It's all here, despite those big, bad restrictions that give you a sad.
See... all your doom and gloom about the restrictions is silly. Go on... I bet you can think of at least 5 Starbucks locations in SF off the top of your head. Stop yer whining.
Posted by: snobby mcGoogle at February 13, 2014 3:14 PM
I wonder how Walgreens gets away with a store on every other block?
Posted by: mow at February 13, 2014 3:35 PM
These restrictions exist because San Francisco voters want their small business community to thrive.
That doesn't mean the restrictions make sense or even accomplish the desires of San Francisco voters. Unintended consequences and all that.
Posted by: anon at February 13, 2014 3:39 PM
These restrictions are put in place largely by our elected city leaders who (generally) preach the Party line:
All of our comrades must work together to make sure the common man is allowed to live here, at any cost. We must all work for the good of the Party.
The common man shall only shop at locally owned shops with only grass fed, artisanal jeans. Even though these jeans cost more than the jeans offered by the evil corporate Gap (for example), the common man shall buy them.
We must keep out the evil corporate chain, even if that means our major streets have vacant spaces. We must uphold the Party.
If the common man cannot afford to buy these grass fed jeans, then we the People shall subsidize the cost of these jeans.
Posted by: Futurist at February 13, 2014 3:47 PM
The report doesn't seem to include online sales which may skew the numbers for some retail segments. And is kinda ironic given how many online retailers are located here.
I wouldn't be surprised if Amazon alone sold more than $200 million per year in SF, which might put it somewhere in the range of a Costco ($160M) plus a Best Buy ($20M) plus a Target ($40M).
Anyway, the growth of online sales delivered to home should factor into this policy at least for some segments.
Posted by: how to at February 13, 2014 3:58 PM
@how to - don't give the idiots on the BOS any ideas. They'll start banning transactions to Amazon and only allowing you to order from local small businesses online.
It's sad to think that in San Francisco, something this crazy isn't considered so.
Posted by: Toady at February 14, 2014 11:08 AM
I'm glad that "hurting the economy" is assumed to be a promordial evil, and anything that does so is automatically bad. Now that this is established we should get rid of all those other pernicious evils that "hurt the economy" and drive up costs for consumers and businesses, such as
1. Child labour laws
2. Minimum wages
3. Environmental protections
4. Health and safety for food establishments
We could good go on for-ever, but the important thing to bear in mind is that NOTHING should get in the way of the "economy", not people, nor lifestyle, children, the environment, basic human dignity, the will of the voter, NOTHING...the state and health of the economy should be the sole arbitrator for ALL decisions.
Posted by: Tom at February 14, 2014 2:26 PM
So ensuring that successful businesses cannot be allowed to open is equivalent to protecting children from being forced to work at 9 years old? Um, ok.
I don't really care about "hurting the economy", and agree that in many cases that is justified for other reasons. In this case, we seem to simply be supporting failed businesses for no particular reason other than sentiment. If it were based on actual studies showing that these laws have the intended effect, maybe I could be convinced. I've never seen anything that would support that though.
Posted by: anon at February 14, 2014 3:58 PM
I think the psf rental prices of retail space where stores from international companies are allowed such as union square, grant street and chestnut street vs areas where they are not such as 24th street show the true story of the so-called popularity of small local store shopping streets. I have no problem with a neighborhood APPLE store, or the Gant store that wanted to open its second west coast location but was blocked,or the Ralph Lauren store on Fillmore Street that was not. I personally believe the streets that allow national brands such as Fillmore and Chestnut seem more vibrant than protection zones such as Castro or 24th.
Posted by: Anonandon at February 14, 2014 4:29 PM