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Five Things to Know About SF's Formula Retail Policy

Thanks to the formula retail law, only smaller shops, like <a href="">Paolo</a>, can set up in Hayes Valley.
Thanks to the formula retail law, only smaller shops, like Paolo, can set up in Hayes Valley.

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Between speculating about the future Matt Bernson boutique location and discussing proposed legislation that would limit the types of stores that could open in neighborhood commercial districts, we've dedicated a fair amount of ink this week to San Francisco's formula retail policy. Yesterday, there was more formula retail news with a report on Uptown Almanac that the Valencia Corridor Merchants Association is petitioning to keep Jack Spade from starting a lease at 3166 16th Street next week. So is the law a blessing or a curse? The answer depends on who you ask.

Small business owners say that local businesses put more money back into the community and that large chains hurt small businesses. Large chains (and the landlords who want to rent commercial space to them) argue that an active storefront creates more jobs and generates more tax revenue for the city than a vacant space. To help you draw your own conclusion, here are five things you should know about the formula retail rules.

1. The San Francisco Planning Code regulates formula retail, a.k.a. "chain stores."
To fall under the formula retail rules, a store must have 11 or more US locations and a recognizable "look." That look could be determined by standardized merchandise, signage, decor, color scheme, uniforms, or trademarks. The city has a handy checklist to determine if a business is a chain store. The formula retail definition excludes certain common commercial uses like professional or medical offices, salons, and gyms. (That explains the Crunch Fitness on every corner.)

2. How it works.
Our seven-by-seven city is divided into zoning districts where chain stores are either permitted, not permitted, or conditional. If a chain store wants to set up shop in one of those conditional zoning districts, it has to complete extra paperwork with the Planning Commission. In many cases, the Commission will notify the neighbors of the chain store's intentions, and the neighbors will have an opportunity to object.

3. Formula retail regulation is a relatively new policy.
San Francisco voters passed the original formula retail law in 2006. The San Francisco Chronicle explains that voters extended the law in 2012 to add banks and other financial services to the list of businesses that must seek special permits to open in mom-and-pop-dominated areas.

4. There are conflicting conclusions regarding the policy's effects.
Further proving that you can find support for any argument, small businesses and big box stores have presented conflicting evidence regarding the value of the rule. Last year, the San Francisco Bay Guardian reported that a SF Locally Owned Merchants Alliance study indicated that formula retail cost as many jobs as it created. Bay Area big businesses counter that the rule has unintended consequences, like penalizing homegrown businesses such as Levi's, Gap, and Pet Food Express for their success.

5. More regulation on the horizon.
As we discussed earlier this week, Supervisor London Breed wants to change to the current formula retail rules to ban companies with more than 11 outlets worldwide—or whose parent company has 11 or more stores— from opening in Hayes Valley. (Hypothetical example: Gap would fall under the formula retail rules if it wanted to open a Piperlime store in Hayes Valley because it has more than 11 stores worldwide. It wouldn't matter that there is only one brick-and-mortar Piperlime location. Again, this is just an example. There are no actual reports of a Piperlime expansion.) Though Breed's proposed change would only apply to the Hayes Valley commercial district right now, it would likely spread to other parts of the city. After all, Hayes Valley was the first neighborhood in San Francisco to ban chains, and now it's just one of many.

Whether you're a raging capitalist or an economic protectionist, formula retail regulation is here to stay in San Francisco. The only question now is whether it will expand.
· Valencia Businesses Launch Petition Campaign Opposing Jack Spade [Uptown Almanac]
· New Legislation Would Keep More Chain Stores Out of SF [Racked SF]
· New Regulations Proposed For Food Trucks [Eater SF]