Battling big box

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In neighborhood commercial districts, national chains and other formula retail stores such as PETCO, Target, Subway, Walmart, and Starbucks are hot button issues for residents who don’t want to see San Francisco turn into a strip mall or have local money pulled from the community.

Sup. Eric Mar and other city officials want to make sure local small businesses aren’t being unnecessarily hurt by competition from national chains, which is why he called a hearing on Dec. 5 to discuss big box retailers and their impacts on San Francisco’s small businesses, neighborhoods, workers, and economy.

“There is no vehicle to see the impacts of big business on the city,” Mar told us, saying he is contemplating legislation to do just that.

Mar was part of city efforts to keep formula pet stores from locating in the Richmond area, working with a coalition of pet food small businesses concerned about PETCO and Pet Food Express trying to move into the area. But it isn’t just pet stores.

“There is a perception that Walmart might make a move into the city since we already have stores like Fresh n’ Easy,” Mar’s Legislative Aide Nick Pagoulatos told us.

The city doesn’t have a comprehensive analysis on how these companies impact San Francisco. Mar says he wants to “have a clear scale of their influence and see what we need to do to protect small business in San Francisco.”

History of wariness

In 2004, the Board of Supervisors adopted the first Formula Retail Use Control legislation, an ordinance that “prohibited Formula Retail in one district; required Conditional Use Authorization in another; and established notification requirements in all neighborhood commercial districts.”

The Planning Code changed again after a voter ballot initiative in 2007, Proposition G, required any formula retail use in neighborhood commercial districts to obtain a conditional use permit, which gave neighboring businesses a chance to weigh in during a public hearing.

Mar said the intent wasn’t to bar big box retail from entering the city, but to simply give neighborhoods a voice. But now, he said the city needs to take a more comprehensive look at what’s coming and how they will impact the city.

Small Business Commissioner Kathleen Dooley echoed the concern, which extends even beyond city limits. “I’ve heard through the rumor mill that Lowe’s in South San Francisco is going to close and

Walmart is looking to take that space since they know they’d never get into the city,” she told us. “It’s bad enough that Target is opening stores [in San Francisco]. They are the quintessential big box because they sell everything.”

Target is in the process of opening a massive store inside the Metreon in SoMa, and another store at Geary and Masonic. Mar isn’t diametrically opposed to the big box industry, but he thinks those companies should be appropriately situated.

“I’ve seen that people in Richmond are positive toward big box like Target coming into the district, but some are nervous that it will take down business,” he told us. “There are some property spaces that are supposed to be for big box, like the property at Geary and Masonic where the old Sears and Toys”R”Us used to be.”

But it’s not easy to figure out what other big box stores have their sights set on the city. The Planning Department’s list of projects in the pipeline aren’t always filed under the name of the business, making it difficult to stay vigilant.

For example, while application #3710017 at 350 Mission Street describes the project as a “95,000 sq. ft. building of office, retail and accessory uses,” it isn’t clear what businesses are actually setting up shop. And these days, some big box stores are coming in smaller boxes.

Prototype stores such as Unleashed by PETCO are specifically designed to squeeze into smaller property spaces so they can get into neighbor corridors that are typically reserved for small businesses.

More help needed

During the Dec. 5 hearing before the Land Use and Economic Development Committee, Sup. Scott Wiener echoed Mar concerns, commenting that he wants to see how the Planning Commission could “improve the Conditional Use process since we see a pushback of strong neighborhood activity.”

Dooley recalled an issue from 2009 when the Small Business Commission formally asked the Planning Commission not to authorize a PETCO in the Richmond because “the surrounding area was already well served by pet stores.” The board ultimately stopped PETCO, but Pet Food Express did locate a store nearby, which Dooley said has already taken a toll on the locally owned pet food suppliers.

“Big box stores carry a huge number of products that impact other stores,” she said. “Big box is a category killer in the neighborhood…the Planning Commission needs new criteria for formula retail because there are several different types.”

Some superstores require parking lots, taking up additional land, and increasing traffic in certain neighborhoods. Yet one trait that most chain stores have in common is that they extract more money from San Francisco than locally owned businesses, whose revenues tend to circulate locally.

“With every dollar spent at local stores, 65 cents will go back into the community, while only a quarter will be returned from a big box.” Rick Karp, owner of the 50-year-old Cole Hardware, said at the hearing, citing various studies on the issue.

Small business owners are asking for economic impact reports to be included in project applications from chain stores to see just how they measure up to their locally owned counterparts.

When Lowe’s entered his district, Karp says he lost 18 percent of his business and was forced to eliminate six full-time jobs. He appealed to city officials to “keep big box out of San Francisco because it impacts the efficacy of neighborhood shopping.”

Once chain stores puts the locals out of business, the consumer is stuck with set prices and reduced variety. But critics say it isn’t just consumers and small business owners who suffer, but workers as well. They singled out Walmart as notorious for union-busting and poor labor standards.

“We can use our land use ordinances and powers to set a basic minimum labor standard. Big box must abide by that and also include health care if implemented in local government [legislation],” Mar said.

But Steven Pitts, a labor policy specialist at UC Berkeley, told us there is a connection between low prices and low wages.

“People who work at Walmart are poorer than those who shop there,” he told us. “Therefore, if prices were raised to increase wages for employees, the burden wouldn’t be on people of lower income.”
Opposing Walmart

To illustrate how Walmart would adversely affect San Francisco’s workforce, the hearing included two employees of Walmart, Barbara Collins and Ronald Phillips from Placerville, who helped create Organization United for Respect at Walmart (OURWalmart) to push for better benefits and labor standards.

“We want to hold Walmart accountable,” said Collins, whose last annual income from Walmart was $15,000 annually, a salary she realized couldn’t support her four children. “Walmart says they pay living wages. No, they don’t.”

Phillips said that Walmart has “a tendency to fire people for any reason and then does not have to pay for the benefits… I was one of these people, but I was rehired.”

For the past three months, Phillips says she has worked at least six days and 40 hours per week, but that she still qualified for welfare assistance.

Also at the hearing, SF Locally Owned Merchants Alliance unveiled a study showing that formula retail costs nearly as many jobs as it creates. A domino effect occurs when stores close because fewer customers circulate to other nearby stores.

But the group noted that consumer habits are probably even more important than city regulations. The SFLOMA study found that if 10 percent of San Franciscans shifted their spending to locally owned small businesses, consumers would create 1,300 jobs and $190 million in the city.

And that would be good for everyone: owners, consumers, and workers. Steven Cornell, owner of Brownie’s Hardware, said that small business pays good wages, typically above the minimum wage, as well as sick leave, health coverage, and other benefits. As he told the hearing, “Local businesses have been doing this for 20 to 30 years since we are already invested in the community.”