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FOCUS / SMALL BUSINESS Bloomberg Businessweek January 29, 2018

Losing Out to Chains square footage, leasable space, and restricted entities.
Retail sales in constant 2017 dollars Fulop’s interest in revising the rule comes in part from
Independent retailers Chain retailers a lease signed by CVS Health Corp. last January for
20,000 square feet of space in the city’s waterfront dis-
$2t trict. CVS hasn’t opened its store, and company spokes-
woman Erin Pensa would only say that it’s reviewing the
city council’s moves and evaluating its options.
1 “It’s not only CVS,” says Fulop. Similar situations have
surfaced in the last couple of months, creating a stand-
off with some developers who’ve chosen to leave a space
0 vacant and then “complained again and again,” he says.
1982 1987 1992 1997 2002 2007 2012 A spokesperson for the mayor declined to comment on
whether CVS has complained about the restriction.
Only one formula-business restriction has been over-
the ordinances are “one of the most powerful tools turned in court, according to ILSR. That happened a
that local governments have to shape the mix of busi- decade ago in Islamorada, a vacation destination in the
nesses in their cities.” A 2016 ILSR report noted that “as Florida Keys. A federal appeals court found its ordinance
recently as the 1980s, independent retailers supplied failed to demonstrate it would help the town preserve its
about half of the goods Americans bought in stores; character, noting that Islamorada “has not demonstrated
today their share is down to about one-quarter.” that it has any small town character to preserve.”
The biggest U.S. city with a formula ordinance is “The purpose of a formula zoning regulation cannot be
San Francisco. ILSR advised the city on the rule, which to protect existing businesses from competitors, but to
was enacted in 2004. San Francisco considers large- protect and support legitimate land-use plans and goals,”
scale chain stores—defined as those with more than says Peggy McGehee, a director and land-use lawyer at
20,000 square feet—for most of its commercial districts law firm Perkins Thompson.
on a case-by-case basis, weighing factors includ- The Florida case is an anomaly, says Mitchell: “Courts 47
ing how many big retailers operate within a certain have concluded that if a city defines a public-interest pur-
neighborhood and whether the goods and services the pose to its policy and enacts the policy through a fair and
business offers are already available in the area. The open process, then the measure is valid.” But the threat
city revised its restrictions in 2014, requiring chains to of lawsuits can have a chilling effect, she says.
undergo an economic impact analysis that the planning Ariel Zaurov, who owns a 3,000-square-foot phar-
commission also takes into account. Multiple districts, macy that he opened in 2005 a few blocks from the
including in Chinatown and North Beach, prohibit for- would-be CVS, says Jersey City has been “assaulted by
mula retail entirely. chain stores” over the past year. Without the formula rule,
Thanks to the rules, ILSR says San Francisco has he worries, chains will drive small shops out of business
DATA: COMPILED BY INSTITUTE FOR LOCAL SELF-RELIANCE FROM U.S. ECONOMIC CENSUS DATA FOR YEARS SHOWN
more independent businesses and fewer chains per cap- and then abandon the city if there’s a downturn.
ita than other big cities. “There’s a strong anecdotal case Steve Kalcanides has mixed feelings about the
that these policies contribute to the creation of new inde- restrictions. As the second-generation owner of Helen’s
pendent businesses,” Mitchell says. “There’s significant Pizza, a 50-year-old neighborhood fixture in Jersey
churn in retail, so if you look at a place like San Francisco City’s historic downtown, he says the rules are working.
or another community that’s had a policy in place for As the owner of several properties in the area, he’d like
years, lots of the businesses there opened under the pol- to see the city’s rule revised so chain tenants could
icy, and it would be fair to say that these local entrepre- occupy more space. He admits the current restriction
neurs had more opportunity to secure locations because has helped the local economy and given small busi-
of the policy.” nesses facing rent and other overhead increases “a little
Since last spring, Fulop has been working to revise more equal footing.”
Jersey City’s business restriction. He wants the city Says Fulop: “I do understand the landlord’s stand-
council—which last June declined to repeal the cur- point. They view chains as the best, most stable long-
rent rule, given strong community support—to meet term renter, but from a city standpoint, that’s not creating
with planners by the spring to discuss a version that he the best urban environment to live in.” —Nick Leiber
says would be better able to withstand legal challenges.
“There’s a lack of clarity over who it applies to and what
those restrictions mean,” Fulop says. As written, he says, THE BOTTOM LINE Governments from San Francisco to Jersey City are
using special zoning restrictions to limit chain stores. Some officials worry big
the ordinance doesn’t clearly define how the city judges businesses and property owners could challenge the rules in court.