Is Magazine Street poised to be taken over by national chain stores?
It’s certainly a possibility. Rising rents are already forcing some Magazine Street retailers to move or close entirely. Well-heeled national businesses can often afford what mom-and-pop cannot.
However, while a few national chains have moved onto Magazine Street, they are still dwarfed by the number of independent, local businesses. Chains are still the exception, not the rule. When one local business closes, it is usually replaced by another local business. Even the much-maligned Walgreen’s on Magazine didn’t replace a local business, but an American Legion Hall.
Thus, local businesses have proven to be quite competitive with national retailers. Most of the time, they manage to hold their own.
But even if the sky isn’t actually falling, there is cause for concern. Local businesses are definitely struggling. This is why the nonprofit Stay Local!, a.k.a. the Greater New Orleans Independent Business Alliance, has waged a campaign to encourage New Orleanians to shop more at independent local retailers. It’s an admirable effort.
Alas, recently Stay Local! published an opinion piece pushing for something more than a sense of civic virtue. They asked the government to pass laws keeping the national chains a way.
“New Orleans should take a look at one policy tool for Magazine Street that communities across the country have employed to curb chain encroachment: developing a ‘formula retail’ policy,” wrote Stay Local! project coordinator Mark Strella and intern Travis Martin. “San Francisco has been doing this for the past decade.”
Normally, San Francisco doing anything is a grand argument for not doing that thing. After all, San Francisco is the city that attempted to ban Happy Meals, but only succeeded in forcing McDonald’s to charge an extra dime to include the toy. They’re not the brightest policymakers, but man, they do love passing laws.
But it isn’t just San Francisco; other cities have also passed formula retail ordinances. New Orleans, however, should not try to join their number.
Formula retail ordinances are wrong at least two reasons. First of all, they often wound up igniting court battles. This is because localities are prohibited under the “dormant” commerce clause power from enacting laws that discriminate against or burden interstate commerce.
The bottom line is that localities are not supposed to shield their own businesses from competition. Local protectionism is frowned-upon, and protectionist laws tend to be struck.
That’s exactly what occurred with the formula retail prohibition enacted by the city of Islamorada, Florida. The 11th Circuit Court of Appeal struck the law holding that “the stipulated facts indicate that the formula retail provision’s disproportionate burden on interstate commerce, such as the effective exclusion of interstate formula retailers, clearly outweighs any legitimate local benefits.”
Other courts in more liberal jurisdictions have approved of formula retail ordinances, accepting the argument that they aren’t really protectionism because they’re actually designed for the legitimate purpose of preserving some cultural or historical feel. It barely passes the laugh test, but some courts have been receptive to the notion.
Irrespective of which side is correct, I believe that the 5th Circuit Court of Appeal (of which Louisiana is a part) would likely endorse the 11th Circuit’s view. This is a conservative circuit, and the enterprise of defending a protectionist policy made popular by San Francisco probably won’t fare well.
The second reason why formula retail ordinances are bad policy is that they miss the real issue. The problem of rising rents and limited commercial spaces is caused by New Orleans’ restrictive zoning policies.
Making zoning even more strict in an attempt to “solve” the problem amounts to feeding the beast that’s killing you.
New Orleans’ byzantine zoning laws tend to restrict retail businesses to a handful of major commercial corridors. A smattering of businesses exist outside these corridors, usually because they were originally established prior to the institution of zoning and have maintained noncomforming use status.
Because commercial properties are more restricted, commercial rents tend to be higher and small retailers feel more pressure from competition. The most obvious solution is not to eliminate the competition with dubious new laws, but to loosen the laws that created the pressure to begin with.
Local retailers can deal with national competition. They don’t need hand-holding from the city in the form of preferential zoning. What local retailers need is for the city to be more friendly to business in general.
I doubt Magazine Street will succumb to national chains, yet the artificially-inflated importance of Magazine feeds these kinds of fears. Businesses are suffering, but we’re never going to find the answer to this problem if we keep asking the wrong questions.
Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.