May 052014
 

Owen Courreges

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.

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  • Deux amours

    Build it and they will come doesn’t always work. What creates demand is not easily answered, especially in retail. Magazine Street is high demand because people want to go there, possibly because it is a high demand area. I find the expansion of retail in the city a great success story. We have whole new commercial streets and districts. What street do you have in mind where retail expansion would occur except for foolish zoning?

    • Owen Courrèges

      Deux,

      There are lots of places where zoning is holding back commercial development. The non-commercial parts of Tchoup and Magazine are the most obvious examples, but I’m also thinking all the old corner commercial buildings that have lost their nonconforming use statuses. There’s significantly more demand for commercial properties than there is supply, and that’s a major part of why rents have skyrocketed on all major commercial corridors.

      • Deux amours

        There are old corner stores still operating in many places, and I think in the historic districts special consideration is given to buildings that had historic commercial use even where traditional grandfathering has been lost. The web of corner stores was there to serve a very localized market, were small, and have no parking. Few could attract customers from across the city or metro area. I doubt they are really the solution to an expansion of available retail space. I think the battle over rezoning the non-commercial parts of Magazine from residential to commercial has been fought and decided. There will be no wholesale change from residential zoning to commercial there or really anywhere. The people just don’t want what you want. As I said, most people are excited over the redevelopment of our long moribund neighborhood commercial strips, and I’m surprised you’re not.

        • Owen Courrèges

          Deux,

          I believe you’re incorrect on that. The zoning code does not give preferential treatment to commercial buildings that have been zoned residential and lost their noncomforming use status. Remember the coffee shop on Carrollton named “Konbini?” Prime example. It was a commercial structure on a street with many businesses, but was zoned residential and had lost its nonconforming use. The city, however, refused to spot zone it. Stacy Head crassly told them that they should move to O.C. Haley.

          I also disagree that the corner store model is no longer viable. Small groceries could survive (and some still do, although the city is trying to shut them down). Most retail businesses would have a harder time of it, but corner bars and restaurants could certainly attract both locals and people from throughout the city. Same with professional offices. These locations might not be as sought after as Magazine, but you’d find businesses that could make it work.

          The problem is that residents, instead of working with businesses, just don’t want them around. Even a coffee shop on Carrollton — something that would have virtually no impact on residents — was vigorously opposed by residents. There needs to be a change citywide.

          • Deux amours

            I spoke of special treatment given to historical commercial corner uses in historic districts. The Carrollton coffee shop was not proposed for an historic district. I don’t feel it is a problem that residents don’t want businesses around. To the contrary, most residents appreciate their local businesses. I think you are confusing their understandable reluctance to losing a residential neighbor while gaining a new commercial neighbor. I don’t think there is any chance that national chains will be banned, There are lots of affordable alternatives for small businesses, but high demand areas command high rents, and a business that can’t pay free market rents in one place needs to look elsewhere.The fact is that we have a glut of commercial space that is virtually unrentable.

          • Owen Courrèges

            Deux,

            >>I spoke of special treatment given to historical commercial corner uses in historic districts.<>. I think you are confusing their understandable reluctance to losing a residential neighbor while gaining a new commercial neighbor.<>There are lots of affordable alternatives for small businesses[.]<<

            I don't think there are, unless you're talking about properties in bad neighborhoods (and I'm certainly not). Moreover, even those tend to be more expensive than nearby residential properties if they have commercial zoning or a nonconforming use.

            In my experience there's most definitely a shortage of commercial space, and particularly there are many commercial buildings throughout Uptown that can no longer be used for commercial purposes. Likewise, the city won't allow residential properties along Uptown's commercial strips to be re-purposed for commercial use, meaning the overall availability is restricted.

          • Deux amours

            I don’t know the HDLC or zoning rules in the historic districts, but I do believe it is the policy of the HDLC to preserve historic corner stores in neighborhoods otherwise residential. Uptown does not seem to lack for commercial spaces to me, although I am sure there were many more fifty or a hundred years ago. i think part of the problem you see is just the extraordinary attractiveness of Uptown that has produced a demand for retail space greater than the supply. Most people do not want that supply increased. Most neighborhoods in the city have the opposite problem with lots of empty space. A pure mathematical comparison of the area zoned commercial with the actual space used commercially would show no shortage city wide.

          • Owen Courrèges

            Deux,

            >>I don’t know the HDLC or zoning rules in the historic districts, but I do believe it is the policy of the HDLC to preserve historic corner stores in neighborhoods otherwise residential.<>Uptown does not seem to lack for commercial spaces to me[.]”

            Seriously, speak to people trying to open up a business or move an existing one. You’re one of the only people I’ve ever heard speak as though it’s easy to find a good commercial space in Uptown.

            >> [T]he extraordinary attractiveness of Uptown that has produced a demand for retail space greater than the supply.”

            You seem to be conceding my point. When demand outstrips supply, and supply is artificially restricted by the government, then you should blame the government for rising rents. Isn’t that what I was arguing in my column?

            You also admit that there were more commercial properties in the past, and zoning has restricted them in favor of residential development. Thus, you’re basically admitting that New Orleans has been favoring residential development over commercial development, with the result that the market balance is off.

            >>Most neighborhoods in the city have the opposite problem with lots of empty space.<<

            And even then, most of that "space" is residential. I reiterate that even poorer, more blighted neighborhoods appear to have higher percentages of vacant residential properties than vacant commercial properties. This is because zoning across the city disfavors commercial development.

            Simply because you can point to a lot of vacant commercial properties in the Lower 9th doesn't mean that the city doesn't have a problem with discouraging commercial development through zoning. It's a problem, and it's the reason why people are so scared about rising rents in more desirable neighborhoods. There's no way around this conclusion.

  • Bethany308

    Given the improvements on Freret Street and the attempts at revitalizing Orthea Haley, the Bywater and the Marigny – I certainly don’t see high rents due to lack of space. I see high rents due to the concentration of retail in what is perceived to be a safer neighborhood. I don’t think we need to dot our individual residential streets with retail – but ensure the safety of all our retail corridors so that local store owners feel comfortable operating in any NOLA neighborhood.

    • Owen Courrèges

      Bethany,

      I disagree; residential options are still far less restricted than commercial options, and that’s true throughout the city. And in any case what causes the concentration of commercial development is zoning. The real estate market isn’t allowed to develop organically — the city can try and shift new commerce to an unsafe and unproven area, but that doesn’t mean it will work.

  • best_in_show

    “Byzantine”, indeed.
    A careful investigation into local protectionism of businesses might reveal that the business being protected is owned by a powerfully connected individual. There seems to be no need to “protect” the exclusivity of rampant tee-shirt and spice shops, especially in the French Quarter. Many of these businesses sit side-by-side, selling the same items.
    We all miss our local “chain stores” such as Katz and Bestoff and Schwegmann’s. But what are we to do? We need drug stores and we need to eat. Rent gouging by LOCALS enable the deep-pockets chains to move in, providing goods and services we all need. The Macy’s and Lord and Taylor stores were, at least to me, a welcome choice for shopping before Katrina. The spotlessly clean Rouse’s are a pleasure to visit.
    We won’t go into the Wal-Mart presence, due to the controversial and “Byzantine” business practices already addressed in the media.

  • Overbrook

    Agree 100%. The real force behind such laws IS economic protectionism, something that has plagued this city and contributed to its massive poverty for decades. Want lower rents, build more housing. Want more local establishments…open up more places to build them. Want fewer chains? Don’t eat/shop at the chains.

  • kmsoap

    Owen, you’re absolutely right. We have the same problem with live music permits, with zoning attempting to shoehorn music into designated overlays. Once these areas become congested with venues and the cluster of venues attracts crowds, the neighbors complain about the noise. If we went back to having music scattered throughout the neighborhoods again, it would lessen the pressure on the overlay districts.
    I prefer the idea of corridor zoning. It’s obvious which streets have historically had a more mixed use presence, and we can build on that. When one of the CPC staffers asked how to define corridors, I suggested “anything with a stop light”.

  • Hoodoonola

    Let’s just make sure we are not handing over our public tax dollars to WalMart and other national chains through the engineered theft schemes imposed by big lobbyists like the National Restaurant Association, ALEC, etc., in the form of Tax Increment Financing and other forms of corporate welfare. We may also want to require CBA & CWA agreements to ensure New Orleans residents/workers are hired and receive a living wage ….

    • Owen Courrèges

      Hoodoonola,

      I agree, but I think that perhaps part of the reason why we end up subsidizing national chains is because our regulatory environment is such that national chains can often demand tax breaks, etc., to offset all the hoops we make them jump through. City officials don’t want to miss out on future tax revenue because Orleans Parish residents, with unmet retail shopping needs, decided to patronize big-box stores in Jefferson. Thus, they have to incentivize those chains all the more to slog through the bureaucracy here.

      Likewise, the CBA and CWA agreements are probably a part of why those tax incentives/subsidies exist as well. You don’t get something for nothing. I think the solution is to simultaneously have less regulation and end the gravy train of subsidies.

  • CBD

    wow. i disagree with almost everything you wrote here. san fran can’t do anything right? no zoning so we can look like houston? artificially-inflated importance of magazine st? ouch.

    • Owen Courrèges

      CBD,

      Ok… Well, first of all, I merely suggested that we loosen zoning restrictions, not that we necessarily eliminate them. And the idea that zoning is the only bulwark between New Orleans looking like Houston is just stupid. New Orleans’ layout and general use scheme was established prior to zoning. The only part of the city that really post-dates comprehensive zoning is New Orleans East, which is the part of the city that most looks like Houston. The appearance you deride is a function of time, not zoning.

      Secondly, yes, I do say that Magazine Street’s importance has been artificially-inflated. There used to be a web of corner businesses that satisfied much of the need for local commerce. These businesses have often lost their nonconforming use statuses over time and the buildings retrofitted for residential. How is that not artificially inflating the importance of commercial corridors like Magazine?

      You might disagree with everything I say, but that doesn’t mean you have a good reason for your disagreement.

    • Overbrook

      NOLA could get rid of 90% of its zoning regulations and still be nothing close to Houston. We need a balance…and the NOLA is woefully over-zoned.

  • Owen Courrèges

    Andy,

    I agree partially; yes, we should expressly allow more home-grown businesses. Beyond that, though, I think at least the old corner commercial structures should be rezoned for general retail, restaurants, etc. (with signage), and other properties should be able to apply for a spot zone if circumstances make that property ripe for commercial development and the business plan has few externalities for neighbors.

    • http://www.brottworks.com/ Andy Brott

      Mr. C-
      I want results and the best ROI on efforts spent, so as much as I completely agree with putting corner stores and others back in play (at least ask for it) but skip over hot spot issues and NIMBY’s need for parking to focus on a bottom up approach with a few simple changes that apply to all. The internet is now your storefront and your signage is on your customers phone.
      Stop me if i’m wrong as we designed and built 5110 to B1A (now with a AC overlay) but cant folks get a OL for home business in RD2 if it’s under 30% (?) of the total square footage- and they have no employees with different last names?… No signage, etc etc… Target and change those first 2 and other simple things first and avoid NIMBY time wasting.
      BFFS.
      Mr. B

  • Owen Courrèges

    HStreet,

    Do you really think that San Francisco’s current policies, as opposed to how it is situated geographically, socially and historically, are primarily responsible for its high average incomes, good infrastructure, etc.? I don’t.

    I would also argue that San Francisco has intentionally pursued policies that increase the cost of living and thereby keep out the poor, which is very helpful if you want high average incomes and a high-income tax base. These policies are superficially virtuous (i.e., rent control, high taxes for public services, restrictions on certain types of businesses, etc.) but increase the overall cost of living and basically force the poor to move to Modesto, Oakland, Stockton, etc., to keep their heads above water. I’ve criticized attempts to enact similar policies here.

    You generate true economic growth by creating a city that is open to all income groups, not just a playground for the rich. When you do the latter, the poor are just dumped somewhere else. That’s what’s happened in San Francisco, IMO.

    http://www.huffingtonpost.com/2012/09/05/bay-area-poverty_n_1855189.html

    • HStreetLandlord

      I wholeheartedly agree that SF anti-building policies have been a failure (which most San Franciscans now realize, and they are in the midst of a building boom the likes of which N.O. has never seen). But that’s not what you wrote in this piece, and your petty shots at SF politics seemed absurd given how much more successful that city has been.

      To get back on topic, I’m surprised you didn’t address in this piece the absurd NIMBYism of the anti Holy Cross development etc folks.

      • Owen Courrèges

        HStreet,

        I agree with you about the anti-Holy Cross development crowd, but that’s the type of thing I was criticizing when I said “San Francisco doing anything is a grand argument for not doing that thing.” It isn’t just building policies either; lately they’ve been on a kick of passing laws against all sorts of things, most of which stick it to the poor under the guise of something enlightened (i.e., banning plastic shopping bags, which are a cheap disposable option far easier to avoid if you’re not poor, and restricting fast food — again, if you’re rich you just “eat cake,” but the poor don’t really have as much choice).

        And if a city claims “success” by making it virtually impossible to live there unless you’re rich, then allow me to say that I don’t agree with that definition of success. What I see in San Fran politics is the same type of thing many wealthier residents want to push on New Orleans, and it’s a fake kind of success where the poor are forced out and the city can’t grow.

        • HStreetLandlord

          The bag tax has been a tremendous success in DC. Plastic bags in the Anacostia river, which is primarily used by middle and lower class citizens, have been reduced by 90%. Waste in the streets has been reduced all over the city. There is no reason lower middle class and the poor can’t use reusable bags. But scream about your right to destroy the quality of life in the city, or something!

  • TK

    One problem with Magazine St. is that there a a woeful amount of just useless vanity business destined to fail within a few years anyway. You know them – their names are all puns on something or another.

  • Owen Courrèges

    Craig,

    Not quite sure I follow. You do realize that pretty much all the local, independent shops on Magazine are probably organized as some kind of closely-held corporation, right? This is really about the commerce power and federal limitations on local protectionism, not whether corporations are treated as “people.”

    • Craig

      Perhaps I read more into the post than what you actually meant to convey but it seemed like you were really sticking up for the little guy: national chain behemoths.