Proposition G - Limitations on Formula Retail Stores

What it does

The measure would require any "formula retail use" (as defined by the San Francisco Planning Code) desiring to locate in any neighborhood commercial (NC) district to obtain a conditional-use permit prior to starting a business. A conditional-use permit request is granted or denied by the Planning Commission and requires a public hearing. Granting the conditional use is discretionary, which means the Planning Commission is not required to grant the request. This measure requires only a simple majority to pass.

Why it is on the ballot

In 2004, the Board of Supervisors enacted legislation governing the location and planning-approvals process for formula retail businesses. Under this existing ordinance, any time there is a change of use from one type of business to another (such as from a clothing store to a restaurant) within a neighborhood commercial district, and where the new business is a formula retail business, this triggers a review by the Planning Department for consistency with the Planning Code and any adopted neighborhood design guidelines. This measure also requires notification to nearby property owners in the NC district, as well as to occupants and neighborhood groups that have requested to be notified. It also requires on-site posting regarding the proposed application. Any opponents of the application have 30 days to request that the Planning Commission review the application under its discretionary-review authority. These provisions do not exist in circumstances where there is not a change of use, such as when a local coffee shop closes and a Starbucks wants to open in the same location.

Neighborhood commercial districts include all the major commercial corridors in the city such as Valencia Street, Irving Street, Geary Boulevard, Polk Street, Chestnut Street and Castro Street. There are no NC districts downtown.

Following that citywide legislation, other supervisors introduced new measures for specific neighborhoods, such as outright bans on formula retail in North Beach and Hayes Valley, and classifying all formula retail as a conditional use in the Upper Haight, along Divisadero Street between Haight and Turk streets, in western SOMA, and around Cole and Carl streets and Parnassus and Stanyan streets. A future zone requiring CU is being considered for the Showplace Square/Potrero Hill/Central Waterfront area. In each of these cases, the district Supervisor brought forth legislation at the Board of Supervisors and received support from colleagues that resulted in either the outright ban on formula retail or the CU requirement. The current legislation appears to be working as intended and there have not been any circumstances in which a supervisor who sought to impose a CU requirement has not been successful.

Pros

Those who support this measure claim:

• San Francisco's distinctive aesthetic character is one of our most important assets, but it will be lost if chain stores take over our neighborhoods. Nationwide, there is a growing loss of uniqueness among communities as each city has a nearly identical set of cultural icons, signs and shops. If our city offers the same stores and shops as all other cities in the country, we may lose a part of what draws people to our city as visitors and residents.
• Competitive pressures from formula retail and chain stores often put small businesses out of business. Chain stores are better able to tightly control their supply chains, pushing down purchase prices, and often use regional warehouses to bring new products to their stores more quickly than smaller stores that have to rely on individual orders. These economic advantages to chain stores make it difficult for smaller businesses to compete. The more chains that come in, the greater the threats to small, mostly locally owned business.
• Chain stores provide fewer local economic benefits than locally owned stores, which tends to keep money within the local economy more (by greater use of local vendors and by keeping profits local).
• The existing ordinance places the burden on residents to petition the Planning Commission to exercise its discretionary-review powers. This measure would shift the burden on to the chain store to establish that it is appropriate for the neighborhood. Neighbors would have the opportunity to be proactive in participating in the location decision.
• Chain stores are different from other types of stores and have the resources to go through a conditional-use process to establish that they will not have a detrimental effects on the neighborhood. Many chains and formula retail businesses are part of larger, sometimes multinational corporations, which exert disproportionate power upon the state and local communities.

Cons

Those who oppose this measure claim:

• This measure wipes out neighborhood choice regarding chain stores and imposes a citywide, uniform set of rules. Until now, all legislation about chain stores has been done one neighborhood at a time, respecting the distinct problems of each shopping street. This measure imposes a one-size-fits-all template over the entire city. As written, there is no way to opt out - except, perhaps, to rezone the area to take it out of an NC district. This may be a particular concern for lower-income neighborhoods that are struggling to bring in any type of business.
• This is another example of ballot-box planning - asking the voters to weigh in on a citywide land-use rule change that would be best solved through real community planning processes. When measures such as this are enacted at the ballot, there is no opportunity for debate or compromise, no space for nuance and no ability to fix mistakes later. Ballot-box planning means that the policy is locked in place by the voters and cannot be amended by either the Planning Commission or the Board of Supervisors.
• This type of measure will clog up the Planning Commission with conditional-use hearings, even in neighborhoods where there is no opposition to the formula retail. That is costly for the city.
• This measure will stop successful small businesses in their tracks. Any business that reaches 10 stores will be effectively cut off from growing further in San Francisco - just when it's becoming successful. Many of these businesses are small, run by families and do not have the resources to endure the conditional-use process. This would prevent the growth of innovative, socially responsible firms such as American Apparel as well as successful homegrown companies such as the San Francisco Soup Company or Martha Brothers Coffee. Other local businesses, such as Squat and Gobble, are soon to have five stores - all in San Francisco. If they were to grow up to 10 stores, this law would effectively halt their continued growth in San Francisco and force them into the same restrictive process as an international chain such as Starbucks, Blockbuster or Pizza Hut.
• The measure would impede the growth of such locally owned and locally started businesses from becoming much larger, locally owned headquarter firms such as Jamba Juice, Williams Sonoma or The Gap. All of those businesses began as neighborhood shops but have grown to become large firms with many high-paying, export-oriented local jobs.
• This measure does nothing to help small businesses. Instead, it tips the balance toward wealthier chains with thousands of stores that can wait out the slow process of getting approvals. Most landlords would be unwilling to rent to a local store that happens to have more than 10 stores for fear it would not make it through the conditional-use process. But landlords might be more willing to work with the large chain stores that can afford to sign a contract before all operational approvals are granted.
• The Board of Supervisors has been successful in passing legislation that increased the burden on formula retail. This legislation should also have gone through the Board of Supervisors process.
• This reduces the ability of the Planning Department to do its basic mission of planning. Planning should be done in a flexible way that allows for neighborhood variety and diversity. Whenever there are more requirements, it becomes more difficult for the planning staff to provide what is best for each neighborhood based on its specific context.
• This ordinance is a case of the supervisors with existing controls in their districts trying to force it on other districts, a position that belies the ongoing support for district elections and the importance of allowing residents of each district to decide matters in their district. If citywide voters place new burdens for formula retail in all neighborhood commercial districts, a district that is open to chain stores or formula retail may not ever get such businesses.
•  The conditional-use requirement triggers the California Environmental Quality Act, which can make the process much longer than the three months claimed by the proponents.

SPUR's analysis

The proposed ballot measure is an amendment to the Planning Code that would extend the conditional-use requirement for "formula retail uses" to all NC districts citywide. It would leave in place the requirement for neighborhood notification and the potential for opponents to request a discretionary-review hearing. In essence, it would extend the conditional-use requirement that exists in the Upper Haight and several other streets to cover all NC districts in the city.

The existing ordinance defines "formula retail use" as one in which there are 11 or more stores in the United States that maintain two or more of the following features: "a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, a uniform apparel, standardized signage, a trademark or a servicemark." The ordinance defines each of these features as follows:

1. Standardized array of merchandise shall be defined as 50 percent or more of in-stock merchandise from a single distributor bearing uniform markings.
2. Trademark shall be defined as a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs that identifies and distinguishes the source of the goods from one party from those of others.
3. Servicemark shall be defined as word, phrase, symbol or design, or a combination of words, phrases, symbols or designs that identifies and distinguishes the source of a service from one party from those of others.
4. Decor shall be defined as the style of interior finishings, which may include but is not limited to, style of furniture, wallcoverings or permanent fixtures.
5. Color Scheme shall be defined as selection of colors used throughout, such as on the furnishings, permanent fixtures, and wallcoverings, or as used on the facade.
6. Facade shall be defined as the face or front of a building, including awnings, looking onto a street or an open space.
7. Uniform Apparel shall be defined as standardized items of clothing including but not limited to standardized aprons, pants, shirts, smocks or dresses, hat, and pins (other than name tags) as well as standardized colors of clothing.
8. Signage shall be defined as business sign pursuant to Section 602.3 of the Planning Code. "Retail sales activity or retail sales establishment" shall include the following uses, as defined in Article 7 of this code: "bar," "drive-up facility," "eating and drinking use," "liquor store," "restaurant, large fast-food," "restaurant, small self-service," "restaurant, full-service," "sales and service, other retail," "sales and service, retail," "movie theatre," "video store," "amusement and game arcade," and "take-out food."

The broad definition of formula retail captures a large number of businesses that currently exist within San Francisco's neighborhoods and may inadvertently result in a decrease in neighborhood services. For example, under this proposed law, if a local supermarket shuts down, this ordinance would prevent the neighborhood from getting a new supermarket for months, if not years. Recently, Supervisor Elsbernd introduced legislation to remove supermarkets from the definition of formula retail.

Unlike many other cities, most of San Francisco has a wide diversity of local businesses and a limited number of national and international chains. However, in particular neighborhoods that are struggling to receive investment, chain stores are often the only businesses that are willing to take financial risks and make new investments. By applying the conditional-use requirement citywide, this measure will place the same burden on all neighborhoods regardless of their local economic needs. It is also possible that the citywide CU requirement could be used by elected officials as a negotiating tool with future chains - by making the claim that their district is one of the only places where they can make it through the CU process due to the lack of opposition.

In addition to regular criteria required by the Planning Commission for all conditional-use requests, the existing ordinance requires the Planning Commission to apply the following additional criteria:

(A) The existing concentrations of formula retail uses within the Neighborhood Commercial District.
(B) The availability of other similar retail uses within the Neighborhood Commercial District.
(C) The compatibility of the proposed formula retail use with the existing architectural and aesthetic character of the Neighborhood Commercial District.
(D) The existing retail vacancy rates within the Neighborhood Commercial District.
(E) The existing mix of Citywide-serving retail uses and neighborhood-serving retail uses within the Neighborhood Commercial District.

The measure was placed on the ballot without any public hearings, public process or review of the measure. It was within the power of the Board of Supervisors to adopt this proposal without going to the voters. There is no provision in the measure to allow the Board to revise the legislation in the future with a two-thirds vote (as some other recent ordinance-level ballot measures have included). This might prevent a future Board of Supervisors from changing the aspects of the underlying ordinance, such as the definition of formula retail including small businesses with as few as 11 stores.

We recognize that San Francisco's local small-business sector is vital to our economic health and that our neighborhoods should retain their distinct character. But this measure goes too far and applies a citywide rule to what really is a local decision. The existing ordinance allows local supervisors to propose the conditional-use requirement on a neighborhood-by-neighborhood basis. That process permits each neighborhood to decide what is best for itself. We also think that the definition of formula retail in this measure casts the net too wide and hurts small businesses just as they are becoming successful. Calling any business with more than 10 locations "formula retail" sets the threshold too low and may inadvertently tilt the playing field in favor of the largest of formula retail businesses because they are the ones with greater resources to endure the longer process. Lastly, because this is a ballot measure and not legislation at the Board of Supervisors, it can be amended only by a vote of the people. That form of ballot-box planning leaves no room for modification or compromise or changing the rules under different circumstances.

SPUR recommends a "No" vote on Prop. G.