Bogus chain store study ignores small biz benefits



Earlier this month, San Francisco's Office of Economic Analysis waded into the debate over whether the city should beef up its policy restricting the spread of chain stores. In a new study, the OEA concludes that the city's regulations are harming the local economy and that adding additional restrictions would only do more damage. But this sweeping conclusion, hailed by proponents of formula retail, rests on a deeply flawed analysis. The study is riddled with data problems so significant as to nullify its conclusions.

San Francisco is the only city of any significant size where "formula" businesses, defined as retail stores or restaurants that have 10 or more outlets, must obtain a special permit to locate in a neighborhood business district. The law's impact, in one sense at least, is readily apparent: Independent businesses account for about two-thirds of the retail square footage and market share in San Francisco, compared to only about one-quarter nationally. Although chains have been gaining ground in San Francisco, the city far outstrips New York, Chicago, and other major cities in the sheer numbers of homegrown grocers, bookstores, hardware stores, and other unique businesses that line its streets.

San Francisco's policy has gaps, however, which have prompted a slew of recent proposals to amend the law. Members of the Board of Supervisors have proposed a variety of changes, such as extending the policy to cover more commercial districts (it only applies in neighborhood business districts) and broadening the definition of what counts as a formula business.

The OEA presents its study as an injection of hard economic data into this policy debate. There are three pieces to its analysis. Let's take each in turn.

First, the OEA reports that chains provide more jobs than independent retailers do. It presents U.S. Census data showing that retailers with fewer than 10 outlets employ 3.2 workers per $1 million in sales, while chains (10 or more outlets) employ 4.3 people.

One major problem with this statistic is that the OEA includes car dealerships. Retail studies generally exclude the auto sector, because car dealers differ in fundamental ways from other retailers and car sales account for such a large chunk of consumer spending that they can skew one's results. The OEA's analysis is a classic example of this. Because the vast majority of car dealerships are independently owned and employ relatively few people per $1 million in sales, by including them, the OEA drags down the employment figure for local retailers overall.

If you take out car dealers, which are not subject to San Francisco's formula business policy anyway, and also remove "non-store" retailers, a category that includes enterprises like heating oil dealers and mail order houses, a different picture emerges. Retailers with fewer than 10 outlets employ 5.3 people per $1 million in sales, compared to only 4.5 for those with 10 or more locations.

The actual difference is even a bit more than this, because chains handle their own distribution, employing people to work in warehouses, while independents typically rely on other businesses for this. And, of course, a portion of the jobs chain stores create are not local jobs; they are housed back at corporate headquarters. The OEA fails to mention either of these fairly obvious caveats.

The superior ability of non-formula businesses to create jobs is notably evident across many of the categories that generate most of the city's formula business applications, including clothing, grocery, and casual dining. The only exception is drugstores, a category in which chains appear to be supporting more jobs. But even this may not be a true exception, since most independent pharmacies focus almost exclusively on medicine, while chain drugstores are hybrid convenience stores, employing people to ring up sales of cigarettes and greeting cards.


You're basically saying that you hate businesses that are successful and grow, but you love business that fail to ever grow.

Posted by Guest on Mar. 04, 2014 @ 4:33 pm

How is producing more jobs at higher wages, increasing the city's social and civic capital, and providing a good service to the neighborhood "failure"? San Francisco has many more entrepreneurs than other cities -- how is that anything but successful? You have to become a national chain to be successful? That's absurd.

Posted by Guest on Mar. 05, 2014 @ 5:55 am

Successful businesses grow; failing businesses contract.

Posted by Guest on Mar. 05, 2014 @ 7:05 am

Why do you equate growth, expansion, and increased consumption with success? Your logic is why we're unable to control runaway greenhouse gas emissions and capitalism's race to the bottom, in terms of labor standards, environmental protection, and living within our means. Many small businesses can be quite successful without turning themselves into chain stores. I think Stacy made good, clear arguments in this oped, even if our willfully ignorant trolls choose to ignore them. But if you want more information and arguments for controlling the proliferation of chain stores in San Francisco, here are some:

Posted by steven on Mar. 05, 2014 @ 12:51 pm

A retail business with nine stores suddenly adds a tenth because it is satisfying customer needs and suddenly it is the anti-Christ? That makes no sense.

But just for a laugh, what do you think is the optimal size of a business in terms of, say, employees, locations and revenues?

This should be good.

Posted by Guest on Mar. 05, 2014 @ 12:57 pm

it sounds like if you cherrypick from the results, then those results suddenly support your narrative

Posted by Guest on Mar. 05, 2014 @ 7:49 am

What the Bay Guardian is saying is that it welcomes any business to San Francisco so long as they pledge themselves to decades of anemic growth, with no plans to expand anywhere at any time. That’s a prescription for economic stagnation, blight and joblessness that benefits no one.

Posted by Guest on Mar. 05, 2014 @ 9:33 am

prefer the city to run all business. But they carve out an exception for small businesses because, er, SFBG is a small business.

The implication is that Steven was happy for Bruce to make his millions out of real estate because it was a "small" business, even while he advocates polices that hurt other small RE investors.

Posted by Guest on Mar. 05, 2014 @ 2:40 pm

Your argument sort of sounds right… but the truth is that San Francisco has done about twice as well as the rest of California in terms of retail sector growth over the last 6 years… Perhaps creating more opportunities for local entrepreneurs is actually a good idea for the economy.

Posted by Guest on Mar. 05, 2014 @ 5:46 pm

It's a moot point...who can afford to buy anything in San Francisco nowadays?

Posted by egg on Mar. 06, 2014 @ 12:52 pm

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