Opinion
 

Chain stores, rising rents may make Magazine Street the victim of its success

A sign at Azby's, a women's clothing store on Magazine, exhorts people to shop local. On the next block is Chico's, a national women's clothing chain.

Steve Myers / The Lens

A sign at Azby's, a women's clothing store on Magazine, exhorts people to shop local. On the next block is Chico's, a national women's clothing chain.

From an urban design perspective, Magazine Street wins the trifecta. It’s got walkability, diversity, and historical authenticity.  Throw in its predominance of independent businesses and you have a one-of-a-kind street.

Magazine embodies the essence of what also makes New Orleans special. It showcases the arts, culture, cuisine, history, and entrepreneurial innovation of a city that shuns the mainstream and is internationally beloved for it.

But as Magazine’s post-Katrina success catches the eye of national chains, the storyline may be changing. It’s a process that has played out in countless communities across the country. Independent businesses set up shop, often in unproven territory, and create an ambience conducive to shopping and community life. National chains — a breed better at following than leading — then swoop in to capitalize on the vibrancy that they never could have created themselves.

As an increasing number of chains express interest in an area, rent prices rise to a level only they can afford. The independents initially responsible for the street’s success are displaced, and a street that once possessed its own distinctive character is transformed into a mall turned inside out.

Over the past year, businesses along Magazine Street have been reporting a tide of unaffordable rent increases, and, sure enough, it coincides with increased interest in Magazine Street from national chains. West Elm is soon slated to join a cast of national retailers that already includes Walgreen’s, Jamba Juice, Starbucks, Chico’s, Whole Foods and Radio Shack — to name just a few.  Unconfirmed rumors coursing up and down Magazine Street have two prominent national clothing chains fixing to set up shop.

In response, Stay Local!, the Greater New Orleans independent business alliance, recently surveyed 23 independent businesses from the 1900 to the 5800 block of Magazine, among them a wide variety of retail and service providers. The final report was just released, and the results are compelling.

Sixty-five percent of businesses surveyed had “noticed a higher than normal rate of rent increases along Magazine Street.” Seventy-eight percent were worried about the impact on their businesses, with 76 percent fearing the soaring rents would force them off Magazine altogether.

Consider the case of Heidi Hammond, owner of Parcel & Post, an independent shipping store where you can ship a package and, while you’re at it, pick up a local CD or piece of art.  In May of last year, Hammond’s building was sold. The buyers planned a renovation and offered Hammond a new lease following the build-out that would have had her paying over eight times as much as before.

“I had to move,” Hammond explained. “To find a new space, I looked at over 20 different properties throughout the city. Luckily, I found an unlisted space a couple of blocks down the street at 5208 Magazine.”

Churn like that is costly for independents. “This experience has set my business’s financial plan back by two years,” Hammond said.

Not only are rents rising, landlords are increasingly insisting on leases that impose additional costs on tenants.

As one Magazine Street service provider put it, “my landlord has made it clear that the terms are going to be very different when my lease comes up for renewal next year. She won’t sign a long-term lease like the one I am currently in, and she wants to raise my rent while also moving me to a triple-net lease.” A triple-net lease requires that in addition to paying rent, the lessee is also responsible for paying the property taxes, insurance, and maintenance costs for the space.

Magazine Street’s economics are an entirely rational outcome, given its virtues. Independent merchants acknowledge that the kind of foot traffic along Magazine is worth a premium, especially given the low vacancy rate. As one retailer put it, “You need to hire a team of three to four realtors working for you to find a lease these days.”

Independent businesses aren’t fighting just against changing conditions on their blocks. City economic developers are aggressively courting national retailers to open in New Orleans. If these companies set their sights on Magazine Street, they’re likely to offer the developer a juicy lease arrangement that few landlords could refuse. Word spreads, and soon other owners start demanding the high-dollar, triple-net deals that only a national chain can afford.

Why is chain encroachment an issue? Study after study has shown that local independent businesses recirculate more of their revenues locally. The upshot? More jobs, income and wealth for New Orleanians. That’s because independents typically source business services and goods from other New Orleans businesses. Moreover, they spend their profits and make charitable donations within the local economy.

Chains, on the other hand, tend to perform these activities out of state. In fact, a 2009 study commissioned by the Urban Conservancy found that, compared to chains headquartered out of town, independent businesses on Magazine Street recirculate exactly twice as much of their revenues locally.

“Some chains come in and utilize the resources that are available from corporate instead of exploring what’s available locally,” says Yvette Rutledge, owner of Mystic Blue Signs. “A chain store recently moved in down the street, and they shipped in their sign from out of town.”

And of course, there is no question that as a wave of new chains open, Magazine’s distinct character will suffer. Indeed, 74 percent of the businesses we surveyed feel that an influx of national retailers threatens Magazine Street’s character. It’s simply impossible for chains to replicate the experience that an independent business rooted in New Orleans provides to the community. As one business and property owner put it, “We’re looking at a corporate takeover of Magazine Street. Small businesses will be forced out, and the street’s eclectic nature will be lost.”

Magazine Street does possess a couple of potentially mitigating factors. Parking is a pain, and the parcel sizes tend to be on the small size. The independent businesses that aren’t afraid of being forced off the street tend to report a strong relationship with the owners of their buildings: “My landlord wouldn’t raise the rent on me like that,” one tenant said.

Some property owners, like Aidan Gill, owner of the Magazine Street barbershop that bears his name, take pride in the role they play maintaining the street’s distinct character. As Gill put it, “People enjoy Magazine because of its uniqueness. Unless we want to see Magazine Street look like any mall in America, we can’t let this process continue to play out. “

But on the whole, these built-in factors may not be enough to ward off widespread chain encroachment and the rent hikes and business disruptions that follow. As such, 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. San Francisco has been doing this for the past decade.

In 2004, San Francisco’s City Council, in the name of “protecting distinct neighborhood character and supporting local small business innovation,” passed its “Formula Retail Ordinance.” It requires “formula retailers” (i.e., chains) to apply for a conditional-use permit in the districts zoned “Neighborhood Commercial.” In deciding whether to approve the conditional-use application, the Planning Commission considers factors such as:

  • the concentration of chains already in the area
  • whether similar goods and services are already available there
  • how the business might affect the character of the neighborhood

Importantly, the process allows ample opportunity for public input, pro or con.

New Orleans does not want to be looking back 10 years from now and kicking itself for letting one of the most eclectic and unique shopping streets in the world go the way of mainstream America. That’s what the rest of the country is for. We have a chance to take proactive, common-sense steps to maintain a uniquely New Orleans experience on Magazine Street, or we can let it go the way it’s heading. Which will it be, New Orleans?

Mark Strella is project coordinator for Stay Local! Travis Martin is a Stay Local! intern and a candidate for a master’s degree in urban and regional planning from the University of New Orleans. They can be reached at info@staylocal.org

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  • http://magicboxneworleans.com Betsy Ordemann

    Excellent article. Hope we can all work together to prevent chain encroachment. Betsy Ordemann, Owner Magic Box Toys on Magazine Street.

  • ultimateliberal

    Well, we fought Malwart tooth and nail, and lost. How did Starbucks land a place in the Garden District when PJ’s and CC’s were within a couple of blocks from Washington?

    And don’t send us any of those Vieux Carre T-shirt shops! There are enough T-shirts at Walgreens…..

  • Athena

    This isn’t just a problem that businesses are having, EVERYONE is experiencing increasing rent and many low to moderate income folks are being driven out of the city, residents included. Landlords, many of whom happen to also be New Orleanians, are laughing all the way to the bank. Every time you insist on demanding exorbitant rents for your sub-par rental and rent to a wealthy non-New Orleanian, you become part of the problem whether it’s business or residential. Pretty soon there won’t be many of the original residents left who fought so hard to come back after the Storm.

  • Not So Lucky 7

    Amen to that. It’s going to be really ugly when our boom ends, because much of the original charm and many of the city’s original residents are going to have been driven out by rising costs. Sure New Orleans has endured cycles of boom and bust in its long history, but never before has there been a boom that has been such a threat to what has historically made the city a good place to live, not least of which are residents with multi-generational roots and locally-based businesses.

  • http://www.laugh-eat.com/ kyron

    indeed, excellent article.

  • grossco

    This isn’t news.
    This is America.
    Anyone been to Greenwich Village lately?

  • tsb

    Thank you. I moved here from Greenwich Village. I miss the place. But it’s changed beyond recognition. True of most of Manhattan. New Orleans has a ways to go before it gets to that level of neighborhood obliteration. But the pace it is moving is very, very fast.

  • Owen Courrèges

    “As such, 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.”

    The Fifth Circuit’s going to love that. It’s an instant lawsuit, and the city will probably lose. The 11th Circuit has already struck one of these.

  • Owen Courrèges

    Athena,

    Some landlords are just taking advantage, but a lot of this involves increased costs. Insurance has skyrocketed, property taxes have gone up, and sewerage and water are going up annually. Renters wind up paying the bill.

  • http://www.twitter.com/AhContraire AhContraire

    In most other cities there are OTHER places for businesses to goto. Yet, the locals should learn to COMPETE, in the first place and get CUSTOMERS to come to them.

    Yet, with regards to NOLA, there are very few places businesses want to move to as most of Orleans Parish is extremely crime ridden, in the first place. Would you go to the French GUTTER? No way, that place is dangerous, even though it’s the center piece of New Orleans. I guess St. Claude could use some improvement, but again that area really sucks on the lake side as opposed to the river side.

    But, it’s your New Orleans “Free Lunch” Culture that creates this crime ridden city in the first place. You want it both ways, 24/7 alcohol, public intoxication, and you get the long term alcoholics/drug users all over the city, who of course, can’t hold jobs and end up being a burden to society. Same goes for the panhandlers and homeless all over the city.

  • TurkeyMuffin

    “whether similar goods and services are already available there” This is crucial in not allowing chains to displace local long term independents with cheap chinese made crap.

  • Athena

    That may be true in some cases, but someone renovating a house they bought for maybe $10K, renovating it with cheap installs they bought from Ikea, then flipping it for half a million dollars? That’s getting common and it’s a dangerous move for this city. Not only are they cutting out people who make moderate incomes, they are cutting out our local craftsmen, carpenters, and people who made this city what it is. I have no sympathy for that type of landlord or house flipper, and if you watch the real estate listings it is happening with alarming frequency. Just look at the house rental in Central City posted on Curbed last week. Maybe a higher quality rental, but you think those landlords are wanting to rent to the typical Central City resident who probably works for either the tourist trade or in our restaurants? Nope. Cha-ching.

  • TK

    Taxes have only gone up because property prices have skyrocketed. I really hate it when owners complain about property taxes. There isn’t a more just tax. And our insurance commissioner is probably not doing his job. If you do the simple math and look at what properties are selling for (not what they’re asking) it will become obvious we’re in for yet another enormous rent hike.

  • Stay Local!

    Hey Owen, there are about at dozen formula retail policies in place throughout the country, and have only been two court challenges. The first, in California, was upheld. The second, in Florida, was indeed struck down, but the issue here was particular to the language this town used and the specific circumstances regarding this town. This case does not in itself imply that formula retail ordinances on the whole are unconstitutional.

    Plus, Fredericksburg, Texas has a successful formula retail policy in place. They’re a part of the 5th Circuit, and we’re not aware of any legal action taken there.

  • Owen Courrèges

    Stay Local!,

    If a city the size of New Orleans instituted a formula retail policy, it would be challenged given enough time (unless the city liberally approved conditional use permits). The most likely outcome in the 5th Circuit, in my opinion, would be that the ordinance would be struck.

    It’s obvious from the piece above that the driving force between any formula retail ordinance would be to shield local businesses from competition from national businesses. The constitution simply doesn’t allow that. The only way to convince a court that a formula retail ordinance is constitutional is to argue that the true purpose is, in fact, to preserve some vague “feel” or “atmosphere.” The 11th Circuit didn’t buy it, and I doubt the 5th Circuit would be more receptive. The 5th Circuit is, if anything, more conservative and protective of commerce than the 11th Circuit (the 11th Circuit was actually split off from the 5th Circuit, and both circuits share a common body of precedent from the before the split).

    Thus, instead of instituting an ordinance of dubious constitutionality that restricts commerce, we should look for measures that promote commerce in the city and make it easier for local businesses to flourish. For example, I agree that commercial rents are going up, but that’s due in huge part to government restrictions on supply — so how about we loosen zoning restrictions to allow more locations for commercial businesses instead of cramming them into a few commercial corridors, as we do presently? How about we rezone corner commercial buildings for general retail?