S.F. trying to find 'balance' on chain store limits

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San Francisco's tough restrictions on chain stores may be keeping rents lower for independent shop owners, but also may be boosting the number of long-shuttered storefronts, a study of the city's formula retail rules has found.

The study, which will be presented to the City Planning Commission on Thursday, will be used by planners to craft guidelines for the retail restrictions, which have spread across the city in a crazy-quilt patchwork of rules that vary neighborhood by neighborhood or even block by block.

Those new guidelines, which are expected to be released in May, will try to steer a course between the outright ban on formula retail that many local merchants want and rules so loose that national companies could overwhelm the homegrown businesses that give San Francisco's neighborhood retail districts their special flair.

"We're trying to find the balance of what works," said Kanishka Burns, the city planner overseeing the project.

The study, done by Strategic Economics, makes it clear that there's no "one size fits all" solution that will serve the entire city. Case studies prepared of the Upper Fillmore, Ocean Avenue and Geary Boulevard commercial districts show just how diverse retail is in various parts of the city.

"San Francisco is a city of neighborhoods, each with its own character and needs," said Dee Dee Workman, director of public policy for the San Francisco Chamber of Commerce. "There has to be flexibility."

Neighborhoods vary

Upper Fillmore, for example, is home to high-end fashion boutiques and has a vacancy rate near zero. A destination for well-heeled shoppers from the city and beyond, residents are worried that high-priced retail stores are forcing out the small, neighborhood-serving businesses that can't handle the rising rents.

Along Ocean Avenue and Geary Boulevard, "most formula and independent retail businesses tend to be in categories that serve ... daily needs, such as grocery stores, drug stores, banks and coffee shops," the study found.

While expanding the definition of formula retail to a variety of other types of businesses, as suggested by Supervisor Eric Mar, might not hurt Upper Fillmore, it could cause problems in areas already struggling to fill vacant storefronts.

With online merchants like Amazon competing with brick-and-mortar stores, both Ocean Avenue and Geary Street have seen the number of retail stores dropping. "Expanding formula retail controls to include personal, business and medical services could potentially make it more difficult to maintain healthy vacancy rates," the study found.

Any regulations involve trade-offs. Since retail controls create a disincentive for chain stores to locate in some commercial districts, rents may be lower because there's less competition for the space from companies that typically can afford to pay more than local merchants, the study found.

But since national chains often occupy larger spaces than independent shop owners and can better afford the costs of fixing up those very visible sites, the city's formula retail controls "may be a contributing factor in some long-term vacancies, particularly of larger storefronts," according to the study.

One surprising statistic found in the study is just how large a percentage of the city's approximately 1,250 formula retail sites are either franchises (17 percent) or chains with more than 50 locations (nearly 75 percent). About 5 percent of the current formula retailers are linked to businesses with fewer than 20 branches, while another 4 percent have between 20 and 50 outlets.

Companies that started in San Francisco, including Philz Coffee, San Francisco Soup Co. and others, still would fall well below a 50-store limit, Workman said.

"We love these stores when they have three, five or eight stores, but hate them when they open number 12," she added. The chamber "would like to see a policy that protects San Francisco startups."

Room for flexibility

Loosening some of the existing rules might not be disastrous, according to the study. Increasing the current ceiling of 11 stores to 20 or even 50 outlets before applying the chain store neighborhood limits "would exempt some local, fast-growing businesses, while still capturing the vast majority of national chains."

The formula retail restrictions have done what they were designed to do, the study found, concentrating those businesses in areas like downtown and SoMa, where no restrictions now exist. And while the City Planning Commission has approved about three-quarters of the conditional use permits required for chain stores to move into most currently restricted areas, the city has only received about 100 applications since 2004, suggesting that large retailers generally aren't willing to fight the restrictions.

The existing rules "empower well-organized community members to keep out unwanted formula retail uses," the study found.