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FOCUS / SMALL BUSINESS Bloomberg Businessweek January 29, 2018DATA: COMPILED BY INSTITUTE FOR LOCAL SELF-RELIANCE FROM U.S. ECONOMIC CENSUS DATA FOR YEARS SHOWN
the ordinances are “one of the most powerful tools
that local governments have to shape the mix of busi-
nesses in their cities.” A 2016 ILSR report noted that “as
recently as the 1980s, independent retailers supplied
about half of the goods Americans bought in stores;
today their share is down to about one-quarter.”
The biggest U.S. city with a formula ordinance is
San Francisco. ILSR advised the city on the rule, which
was enacted in 2004. San Francisco considers large-
scale chain stores—defined as those with more than
20,000 square feet—for most of its commercial districts
on a case-by-case basis, weighing factors includ-
ing how many big retailers operate within a certain
neighborhood and whether the goods and services the
business offers are already available in the area. The
city revised its restrictions in 2014, requiring chains to
undergo an economic impact analysis that the planning
commission also takes into account. Multiple districts,
including in Chinatown and North Beach, prohibit for-
mula retail entirely.
Thanks to the rules, ILSR says San Francisco has
more independent businesses and fewer chains per cap-
ita than other big cities. “There’s a strong anecdotal case
that these policies contribute to the creation of new inde-
pendent businesses,” Mitchell says. “There’s significant
churn in retail, so if you look at a place like San Francisco
or another community that’s had a policy in place for
years, lots of the businesses there opened under the pol-
icy, and it would be fair to say that these local entrepre-
neurs had more opportunity to secure locations because
of the policy.”
Since last spring, Fulop has been working to revise
Jersey City’s business restriction. He wants the city
council—which last June declined to repeal the cur-
rent rule, given strong community support—to meet
with planners by the spring to discuss a version that he
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 ordinance doesn’t clearly define how the city judgesTHE BOTTOM LINE Governments from San Francisco to Jersey City are
using special zoning restrictions to limit chain stores. Some officials worry big
businesses and property owners could challenge the rules in court.square footage, leasable space, and restricted entities.
Fulop’s interest in revising the rule comes in part from
a lease signed by CVS Health Corp. last January for
20,000 square feet of space in the city’s waterfront dis-
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.
“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
vacant and then “complained again and again,” he says.
A spokesperson for the mayor declined to comment on
whether CVS has complained about the restriction.
Only one formula-business restriction has been over-
turned in court, according to ILSR. That happened a
decade ago in Islamorada, a vacation destination in the
Florida Keys. A federal appeals court found its ordinance
failed to demonstrate it would help the town preserve its
character, noting that Islamorada “has not demonstrated
that it has any small town character to preserve.”
“The purpose of a formula zoning regulation cannot be
to protect existing businesses from competitors, but to
protect and support legitimate land-use plans and goals,”
says Peggy McGehee, a director and land-use lawyer at
law firm Perkins Thompson.
The Florida case is an anomaly, says Mitchell: “Courts
have concluded that if a city defines a public-interest pur-
pose to its policy and enacts the policy through a fair and
open process, then the measure is valid.” But the threat
of lawsuits can have a chilling effect, she says.
Ariel Zaurov, who owns a 3,000-square-foot phar-
macy that he opened in 2005 a few blocks from the
would-be CVS, says Jersey City has been “assaulted by
chain stores” over the past year. Without the formula rule,
he worries, chains will drive small shops out of business
and then abandon the city if there’s a downturn.
Steve Kalcanides has mixed feelings about the
restrictions. As the second-generation owner of Helen’s
Pizza, a 50-year-old neighborhood fixture in Jersey
City’s historic downtown, he says the rules are working.
As the owner of several properties in the area, he’d like
to see the city’s rule revised so chain tenants could
occupy more space. He admits the current restriction
has helped the local economy and given small busi-
nesses facing rent and other overhead increases “a little
more equal footing.”
Says Fulop: “I do understand the landlord’s stand-
point. They view chains as the best, most stable long-
term renter, but from a city standpoint, that’s not creating
the best urban environment to live in.” —Nick LeiberLosing Out to Chains
Retail sales in constant 2017 dollars
Independent retailers Chain retailers1982 1987 1992 1997 2002 2007 2012$2t10