Formula Business Restrictions & The Fight Against Cookie Cutter Places

imageWhen Paula and I travel, one of our favorite things to do is to search out unique places of character. Now there are many factors that go into making a place unique and special, but the one most immediately obvious to us is the clustering of small, one-of-a-kind locally owned businesses within a walkable area. Here in Central Texas, towns such as Fredericksburg and Wimberley are so successful with this design that they are consistently listed as top day-trip tourist destinations, well worth the hour long trip it takes us in Austin to get there and linger for a day. These places offer a stark contrast to the collections of chain stores and big box developments which, by their very nature, turn any location into an Anywhere, USA.

Yet despite their draw, places of unique character seem increasingly rare.  Some of the blame may lie with our own court system.  In the United States, courts have consistently ruled against the efforts of local places to protect their economies from the outside goods and services of chains, claiming that to do so would violate the Commerce Clause of the U.S. Constitution (Island Silver & Spice v. Islamorada Village is a good example of one community’s inability to enact a law intending to prohibiting chain stores). This Clause merely states that Congress has the power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. How exactly this got interpreted as effectively banning economic protectionist policies is a mystery in itself, and one we’ll tackle in a future post soon.

In the meantime, what’s a local place to do? Do our very laws make the existence of cookie cutter places inevitable? If a major chain or big box retailer identifies your community as a future market for expansion, is it just a foregone conclusion that your quaint community and local businesses will be a thing of the past, another victim of the tireless march of “progress”? In this modern-day David and Goliath matchup, did we just rob David of his sling and pebble?

Well the good news is that there are still a few legal tools left in the toolbelt. While places aren’t permitted to regulate chains themselves, the Institute for Local Self-Reliance has documented in detail how a number of local communities are preserving their identity through the use of planning and zoning codes. One such example is the enactment of laws that define and limit “formula businesses.” Formula stores can be defined as “businesses that adopt standardized services, methods of operation, decor, uniforms, architecture, or other features virtually identical to businesses elsewhere.”  San Francisco’s formula business definition is as good as any:

“a type of retail sales activity or retail sales establishment which, along with eleven or more other retail sales establishments located in the United States, maintains two or more of the following features: a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, a uniform apparel, standardized signage, a trademark or a servicemark.” In other words, retail stores with multiple locations and a recognizable “look” or appearance.”

Once defined, communities have been able to restrict formula businesses in various ways. Some have placed bans on formulas citywide, others in only certain areas or districts of the city. Still others have restricted the total number or percent of formula businesses overall. This strategy can be found all over the country. Take this brief list for example:

  • San Francisco, California restricts formula businesses in their neighborhood districts but not in the downtown or tourist districts.
  • Coronado, California has two formula ordinances on the books. The Formula Restaurant Ordinance allows no more than 10 formula restaurants in the City. The Formula Retail Ordinance requires formula retail businesses to obtain a special use permit from the City and judged on a case-by-case basis based on its appropriateness. The latter was upheld by a California Appeals Court in 2003.
  • McCall, Idaho limits formula businesses to no more than 10 percent of the total number of “like businesses” in town.
  • Bristol, Rhode Island prohibits formula businesses larger than 2,500 square feet from its downtown area.

The important distinction that puts formula business regulation on firm legal ground in these instances is the treatment of all businesses equally, applying the same standards to both the locally owned institution and the national chain. In fact, there is nothing in these laws themselves prohibiting chain stores from adapting in order to comply with these local ordinances. The interesting thing is that, apparently, few do. Again, per the Institute for Local Self-Reliance,

“A ban on formula businesses does not prevent a chain such as Starbucks from coming in, but it does require that Starbucks open a coffee shop that is distinct — in name, operations, and appearance — from all of its other outlets.  Although there are a few examples of a chain complying with a formula business ordinance by opening a unique outlet, in most cases, they refuse to veer from their cookie-cutter formula and opt not to open.”

The unwillingness of chains to deviate from their cookie cutter formulas in order to help a place retain its unique character is pretty telling in itself. As for me, I’ve always enjoyed checking out distinctive places worth visiting, but I now have a newfound respect for those places. They didn’t retain their character by accident or by mistake. It was deliberate, and the result of hard-fought victories on behalf of places that valued – and were willing to fight for – their unique personality. In the end, what could be more American than that?

[And as a quick postscript, I can’t say enough about the fantastic role and resources of the Institute for Local Self-Reliance! Check out their website for a wealth of resources, including zoning codes and court cases backing up some of the laws I mentioned in this post.] 

Related Articles:

Small Town Decline: 1920s & the Rise of Chain Stores

Why Does Auto-Oriented Development Attract Chain Stores?

Economics vs. Finance: Why Local Government Struggles to Support Local Businesses

7 thoughts on “Formula Business Restrictions & The Fight Against Cookie Cutter Places

  1. Hey Justin, First time commenter, but this one was too good to stay quiet. I really enjoyed the case you made for local-friendly commerce laws. I’m looking forward to the future post you hinted at.
    I often find it interesting how some types of ventures lend themselves more towards independent local shops while seem to be lacking. It’s hard to find a city or town WITHOUT its share of local coffee houses, bike shops, and book stores. But on the flip side, locally owned grocery stores are nearly non-existent. We got pieces of the puzzle already, places where we expect culturally expect to shop locally. Now we need to expand that mindset outside of its normal paradigm to include the things we often look for in cookie-cutter stores first, with the goal of creating a more-or-less self contained local system that meets all of the needs of its population.

    Liked by 1 person

  2. Bryan – Really awesome points! Why local thrives in some sectors but is vulnerable in others is a really good question, one I’m eager to explore. Off the top of my head, I suspect it has to do with the margins, startup costs, regulations, and ability for the products to be superior to what is being mass produced. Any thoughts on your end about this?

    Bryan – I hope you keep the comments and thoughts coming. I will be interested in getting your thoughts on the law article which will be coming out in a couple of weeks!

    Like

  3. Hey Justin,

    I think you’re onto something. It stands to reason that most large, chain business have the capital, influence and structure in places to insert themselves into markets where initial costs are too high for most independent businesses. I imagine this is why grocery stores do NOT tend to be independent, even though the offer some of the most basic and universal products. Standard American grocery stores are quite large, have large leasing costs, labor costs and complex supply logistics. Corporate grocery structures help to cover these costs and organize distribution. An independent store trying to compete with the same (or better) quality AND variety would likely face significant obstacles. Industries like coffee shops, and bike shops tend to have a smaller footprint and lower start-up costs, which i would guess leaves them more open to independents.

    This leads into another interesting question that I hope you might discuss: What about all of the behind the scenes support industries that allow localized businesses to exist? For example: there might be several coffee shops who all have their coffee delivered by the same national distributor. Coffee, quite obviously, is not something we can grow here in our climate, so it would be impossible to source it locally. What is your opinion on this type of standardization, perhaps one that is not so obvious as cookie-cutter retail stores?

    Liked by 1 person

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