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Formula one: Why the Lusty Lady and the Grove should worry small businesses more than changes to the chain ordinance

When I voted in favor of San Francisco’s formula retail ordinance in 2006, I thought it was to keep huge national retailers like Walmart from opening on what I call “strollable streets” — those charming neighborhood thoroughfares with a mix of restaurants and retail that attract a bevy of foot traffic. Since then, the ordinance has proven to be shambolic and full of loopholes, and the Planning Commission, tasked with deciding which chains get conditional use permits and which chains don’t, has added another layer of perplexity by making absurd, often contradictory decisions like denying a Starbucks on Market Street, and then five days later approving a CVS two minutes away. The Planning Department often treats these hearings like high school cheerleader tryouts, easily swayed by letter-writing campaigns, small community groups, and organized opposition from merchants who don’t want competition. The problem is, of course, that 99 percent of regular citizens never attend these hearings, and so what the commission sees is rarely representative of the majority of the neighborhood.

It is precisely this combination of self-interested politics and nonsensical regulations that led me, this past March, to send a series of questions regarding San Francisco’s formula retail ordinance to Scott Sanchez, the zoning administrator for the Planning Department. On July 25, those inquiries and a number of others appeared in a report prepared by his department and presented to the Planning Commission. I questioned, for example, why David’s Tea, a Canadian-based chain with 95 international locations, was not subject to formula retail controls. “According to the project sponsor, David’s Tea was operating fewer than 11 stores at the time the permit was issued,” Sanchez replied. It turns out those 95 international locations don’t count. When I interviewed founder David Segal in August of 2012, he told me they intended to spread across the United States like wildfire, but they were starting in San Francisco because they were aware of the formula retail ordinance limit of 11 U.S. locations. David’s Tea opened one store in Burlingame and four stores in San Francisco (including Chestnut Street) and they currently have 15 U.S. locations.

Another question I had for Sanchez was why, in February of 2012, the Planning Commission unanimously approved Equinox Fitness, an international luxury gym chain that took over the historic Metro Theater on Union Street, despite the fact it has more than 60 locations nationwide. Sanchez replied, “Personal Service Uses are not included.” In other words, businesses like gyms, nail salons, and massage parlors are exempt. The Planning Commission routinely approves such businesses, chain or not, which is why the City is flooded with gyms, nail salons, and massage parlors. This year, in fact, they approved two massage parlors on Lombard Street, which Planning Commissioner Gwyneth Borden recently admitted had both been busted for “illegal activities.”

The report also questions why Geary Boulevard allows chains except pet stores. For example, in 2011 the Planning Commission denied a Petco Unleashed store at 2675 Geary, but they approved a Target store at 5411 Geary less than two miles away. The Planning Commission fell back on the same old criteria for approving chains, stating that the Petco Unleashed was “not necessary or desirable,” but it seems to me any business should be considered necessary and desirable on Geary, which, according to David Heller, president of the Greater Geary Boulevard Merchants Association, has over 80 vacant storefronts.

The Planning Department report recommends resolving such discrepancies in the ordinance, and six members of the Board of Supervisors — including moderates like London Breed, Scott Wiener and Mark Farrell — have either sponsored successful legislation or are proposing stricter formula retail controls. Breed and Farrell have introduced neighborhood-specific legislation for Upper Fillmore that would expand the definition to stores that are 50 percent or more owned by a chain. Breed also wants to define a chain as having more than 11 stores worldwide. The more progressive Eric Mar wants to expand upon Farrell and Breed’s proposals by instituting them citywide, and also including gyms and gas stations.

If all of this seems confusing, it’s even more confusing to the people trying to enforce it: The Board of Appeals recently ruled that building permits for Jack Spade, the eleventh outlet of a menswear chain that wants to move into the former Adobe Books space at 3166 16th Street in the Mission District, may go forward. While Jack Spade is under the corporate umbrella of Kate Spade, which has nearly 100 stores in the U.S., city zoning administrator Sanchez had previously found that they weren’t the same company, and thus Jack Spade didn’t have to go through the conditional use permit hearing triggered by having more than 11 U.S. stores.

I definitely feel the Planning Department report and proposed legislation by Breed, Farrell, and Mar are a step in the right direction to resolving the rampant inconsistencies in the chain ordinance, but I also fear that San Francisco is legislating itself into an upscale Detroit, with commercial corridors like Geary and Lombard littered with long-vacant buildings. The most common reasons cited for stricter chain controls are “maintaining San Francisco’s unique character” and “making sure small businesses can compete,” but I don’t think empty storefronts add unique character, and I don’t believe chains are the biggest threat to small businesses. While neighborhood groups and merchants have spent much of the past three years working to stop formula retail, something much more insidious has happened right underneath their noses: an influx of billion-dollar tech companies and their affluent young workers, and commercial landlords — who are exempt from rent control — seeing dollar signs.

The Grove and the Lusty Lady

In this new high tech economy, strollable streets are particularly desirable, and landlords know it. Kenneth Zankel, who took over the Grove on Chestnut Street in 1999, lost his lease this past June when the building owner asked for a 50 percent increase over what the Grove was paying five years ago, to the tune of more than $20,000 a month for 1,500 square feet. “It’s his building and he can value it however he likes,” Zankel told the San Francisco Chronicle, but the reality is the market dictates value.

There was nary a peep from neighborhood groups or merchants over the closure of the Grove; nor were they alarmed when Peet’s Coffee vacated its Chestnut location to take over the former Rabat space down the street (and, reportedly, the storefront next to it). Like the Grove, the owners of Rabat couldn’t negotiate a lease they could afford. The old Peet’s is already filled with the eleventh location of Peek Kids, a high-end children’s apparel chain. Meanwhile, a number of international chains, including G-Star, Brandy Melville, and the aforementioned David’s Tea, have quietly opened on Chestnut. They’re all willing to pay high rents to get onto a strollable street frequented by San Francisco’s inflow of hip, wealthy tech workers. That inflow won’t stop any time soon, either, with Mayor Ed Lee courting companies like Twitter and offering them tax incentives to forgo the Silicon Valley for San Francisco. I grew up in the Silicon Valley — or the Valley of the Olive Garden, as I call it — and I worked in the tech world at Apple during college. On my frequent visits home, I am always amazed at the line of cars wrapped around the Bank of America/Starbucks drive-through window on Blossom Hill Road in San Jose. They’re not doing their banking (they do that online); they’re getting their coffee with something techies love: ultimate convenience.

Even North Beach’s colorful, historic strip clubs are not immune to the high- tech lifestyle and the inevitable changes it brings: the legendary Lusty Lady, San Francisco’s only employee-owned co-op peep show, recently closed its hatch-doors after more than 30 years. In 2001, rent at 1033 Kearny Street was $5,500 a month; it’s now $16,500, and the ladies have been behind on their rent for nearly six months. “Why would a guy drive from Palo Alto to see a naked girl when he can stay home and see one on the Internet?” a Lusty Lady mused. Indeed. And why, when that guy relocates to San Francisco to work at Twitter, would he want to get out of his car for coffee at the Grove when he can drive through a Starbucks?

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