I live in a town that seems determined to attract “chain ” stores to replace one-off family owned retail stores at every opportunity. Quirky and quaint Main Street shops are disappearing almost before our eyes. The next town over has a very different attitude – there are only a couple of chains (such as the ever-present Starbucks and its competitor Peets) operating in the township, which has apparently gone to great lengths to keep it’s charming downtown, well – charming! But my town isn’t “all that ” chain friendly – we like our Tiffany’s, Aveda, Burberry, Nordstrom and Neiman Marcus, but (aside from the Target on the far edge of the downtown area, which the locals refer to a “Tar-jhay “) you won’t find any big box stores, and the few fast food chains that are still there are the ones the predate our more recent upscale sensitivities. Well, beauty is in the eye of the beholder… I can almost hear Gilligan’s Island character Lovey Howell saying, “anyone who says money can’t buy happiness doesn’t know where to shop “.

That communities would want to control what kind of retail stores operate within city limits is nothing new of course – just look at the number of cities that have tried in one way or another to keep decidedly un-quirky/un-quaint Walmart out. For example, last summer the populations of two cities near Boston (Somerville and Watertown) petitioned their planning commissions to refuse building permits for the retail giant (which subsequently withdrew its plans). And (as recently discussed by RSR’s own Paula Rosenblum on Forbes.com), Washington DC and Walmart recently decided that they didn’t need each other; quoting Paula, the city council “passed a bill called the Large Retailer Accountability Act (LRAA) of 2013. The bill requires retailers with gross annual sales of more than $1 billion to pay workers an hourly wage of $12.50 an hour, vs. the District’s minimum wage of $8.25 (which is higher than the national minimum wage). Upset with the bill, Walmart first threatened and then confirmed it was canceling the build-out of three new stores in the DC area if the bill becomes law. ” In other words, DC made the conditions for Walmart to operate in the city untenable.

The San Francisco Story

The city of San Francisco dares to be different in many ways, and those include how the city chooses to manage the influx of chain retail outlets. In a recent column in the San Francisco Chronicle, columnist CW Nevius revealed the challenge in SF:

“…a …memo and subsequent hearing by the city’s Planning Department <suggests that> there are subtleties to the issue, beginning with how to define a chain store, known as ‘formula retail.’ In San Francisco, that means there are 11 or more locations that all provide the same goods or services and have a uniform appearance. Walgreens drugstores are an obvious example, but even a funky place like Philz, with 14 Bay Area locations, could be considered formula.

“…a …memo and subsequent hearing by the city’s Planning Department <suggests that> there are subtleties to the issue, beginning with how to define a chain store, known as ‘formula retail.’ In San Francisco, that means there are 11 or more locations that all provide the same goods or services and have a uniform appearance. Walgreens drugstores are an obvious example, but even a funky place like Philz, with 14 Bay Area locations, could be considered formula.

“That’s where it gets tricky. Depending on the store, some neighborhoods might want a formula retail outlet. Mid-Market residents, for example, welcomed the arrival of a CVS pharmacy at Market and Seventh. CVS may be a mega-chain – it has thousands of outlets around the country – but the convenience of a neighborhood drugstore outweighed the objections.

  “On the other hand, the Marina is locked in an incredibly acrimonious debate over the arrival of the generally well-regarded Pet Food Express. The company is local – it started in West Portal – consistently supports animal rescue efforts, donates food to animal care groups and wants to take over a long-abandoned eyesore of a building on Lombard Street…<But> It also has more than 40 outlets. Complaining that the store would endanger small, boutique pet stores nearby, a militant group has gone ballistic. “

All joking about West Coast politics aside, it brings up a couple of important issues. The first is the question, “what exactly IS ‘formula retail’? ” and is that the same as “chain stores “? According to the city’s planning department website:

“Formula retail uses are commonly referred to as ‘chain stores.’ Under Section 703.3 of the San Francisco Planning Code they are defined as ‘a type of retail sales activity or retail sales establishment which, along with eleven or more other retail sales establishments located in the United States, maintains 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.’ In other words, retail stores with multiple locations and a recognizable ‘look’ or appearance. “

That’s a little different than the definition of a “chain store ” put forward by the venerable Encyclopedia Britannica: “chain store, any of two or more retail stores having the same ownership and selling the same lines of goods. ” No matter; SF offers a checklist so that you can check to see if your company is a “formula retail ” practitioner. It boils down to this: the city wants stores that look and feel unique, but only if a retailer have 11 or more stores (if you have 2 to 10 stores, be as uniform as you want to be). And as an added bit of craziness, one SF neighborhood wants the criteria to be for 11 or more outlets in the world, not just within the U.S.

But wait! The second issue is, although the city has established a definition for “formula retail “, neighborhoods seem to have sway over the decision whether or not to apply it to a particular retailer. That sounds like a formula for chaos, and one can only imagine what retailers’ real estate departments think about this (other than the obvious: “let’s stay out of San Francisco “). But the “formula retail ” notion is popping up in other places too: Los Angeles, Malibu, Sausalito, and Ojai. The thing all of these places have in common? They are all upscale and they are all in California.

It’s an old cliché that what happens in America happens in California first, and so to get to the bottom of this I decided to get the “inside scoop ” and talk to the Chronicle’s CW Nevius himself. As luck would have it CW (Chuck) is an ex-neighbor of mine and our kids went to school together, so it didn’t take much to make the connection.

Let’s Get Rational

I asked Chuck if it was his sense that the “formula retail ” concept will spread. His response was, “well… maybe! But I got an e-mail from a guy and he said, ‘our neighborhood was going to get a Starbucks, but the old coffee shop mounted a petition that everyone signed that successfully kept Starbucks out. Then that coffee shop went out of business. Now we have no coffee shop. Thanks for nothing!’ I think that describes the situation; there are some advantages to having a retailer that has their formula down- they may be cheaper, and they can certainly put together a product and a service that people like. So, the ‘formula’ retail concept may have some trouble traveling. “

The Chronicle columnist continued, “there are places in San Francisco that would like to have big retailers. A new Target just opened up downtown, and the place is jammed! Tell me that people don’t want to have a big, cost-effective shopping option! “

What about the point that San Francisco is making itself utterly unattractive to retail planners by letting neighborhoods decide whether or not to apply the “formula ” criteria? Said Chuck, “that’s what the planning department is trying to say. Maybe if you have 11 or 12 sites in San Francisco, we can argue about it- that may or may not be the best possible approach. But to say you can’t have that many in the world is pretty remarkable – incredibly restrictive. “

How will this get resolved? Chuck commented, “the best way for it to be resolved would be to have some general overall guidelines that could be tweaked by the neighborhoods. Even now, if you bring a store into a neighborhood that doesn’t ban all formula retail, there would still be a ‘conditional usage’ hearing that give the neighborhood a chance to speak up. There are places that are full of ‘rubber stamp’ retailers that have no character whatsoever, so there is a case to be made. But we’re seeing terrific locations boarded up and deserted, but desirable operators can’t come in because someone invokes ‘formula retail’. The people are biting off their nose to spite their face. “

The issue of course is in trying to establish a “formula ” that restricts free trade. But on the other hand, communities are concerned that big operators with their huge economies of scale can destroy free trade too (exhibit: Washington DC’s insistence that Walmart pay a higher minimum wage). “If there is a way to enable neighborhoods to have their say without kowtowing to noisy sub-groups, it could work, ” said Nevius. “That’s why the idea of ‘conditional use’ is interesting – you get the whole neighborhood in on the conversation. The Pet Food Express example is a good one. They’re local and they’re trying to do everything right but run right into some rigid ‘formula retail’ policy that doesn’t allow any wiggle room. At some point, it’s still a free market economy. If people didn’t want those retailers, they’d go out of business. “