06/06/2022 | By John Cumbelich
Observers of world affairs are familiar with realpolitik – the term used to describe a system of principles based on practical rather than ideological considerations. Radical changes in the US economy throughout the COVID pandemic provided a vivid illustration of what occurs in business when practical considerations overwhelm ideology.
In San Francisco, politicians have long grown accustomed to imposing legislation, ordinances and other diktats on operators of retail and dining establishments designed to siphon off revenues, in exchange for the privilege of doing business in the glamorous city by the bay. To fund its progressive vision, San Francisco has long been at the forefront of the nation’s costliest minimum wage & health care requirements on retail establishments.
More recently, San Francisco legislated an anti-chain store ordinance, designed to restrict the most proven and profitable providers of wages, jobs and tax receipts from entering the city limits. Practically speaking, the Formula-Retail ordinance as it is known, would have been better fashioned as the Vacancy-Creation ordinance. When subsequently confronted with mounting retail vacancies, San Francisco’s policy-makers observed the vacancy mess that they had indisputably helped to create, and then loftily imposed a punishing vacancy tax on their aggrieved landlords of retail spaces. The Board of Supervisors advised the public that the vacancy issue was the result of what the Board described as “bad actor” landlords. Really? Apparently, accountability is not an ideological consideration employed by San Francisco’s policy makers as they sought to reconcile the shambles they had made of their once glittering retail landscape.
A useful data point as one considers just how outrageously politicized the environment is in San Francisco, was the successful petition to place an insulting Proposition on a 2008 ballot, renaming a water pollution control facility as the George W. Bush Sewage Plant. While the denigrating measure did not pass, though collecting over 30% of the popular vote, it exposed a sickness in San Francisco. One-party rule is a dangerous thing, no matter whose politics are involved. As Mark Twain observed, “To lodge all power in one party and keep it there is to insure bad government and the sure and gradual deterioration of the public morals.” Yet cheap-shot ballot measures, while offensive, are not the worst reflection of contemporary San Francisco.
Clearly the breaking point for several retailers was the city’s latest affront to the business community, its determination to stop prosecuting theft. San Francisco’s Prop 47 reduced felony theft and drug possession charges to misdemeanors. Clearly, the bad guys got the news. A Union Square and Embarcadero Center awash in historic vacancy tells the story better than any blog post or editorial.
Finally, retailers have had enough and are leaving. Both CVS and Walgreens have announced widespread closures in San Francisco. Think about that. The biggest national winners in retail through the COVID pandemic have been essential retailers. CVS and Walgreens sell everything from prescription medicines to milk to diapers to cleaning supplies. They are as essential as it gets. It would be hard NOT to be successful in a densely populated and historically high-barriers to entry market, during a pandemic when you are selling essential goods to a captive audience.
For major retailers like these, well trained in brass knuckles real estate negotiations with far more savvy counterparties in thousands of other municipalities, the practical costs of doing business in San Francisco have finally swamped the benefits of indulging the city’s crippling ideologies. These national chains, like all businesses, are acting according to their self-interests based on realities in the marketplace. They have determined that they are better served paying wages, paying taxes, paying rent and providing their truly essential services somewhere else. Big Retail is answering the punitive, arrogant and woke ideology of its host city with decisive and unmistakable action. Big Retail is leaving San Francisco. The exit of these chains leaves a gaping hole in the menu of critical services being offered to San Francisco’s residents, especially in the retail pharmaceutical space. The exit of critical retail service providers is a lesson in Retail-politik that every heavy-handed city and state government should soberly reflect upon.
Viral videos amass weekly of looters running rampant through the stores, and then brazenly fencing their stolen loot on the sidewalk outside the store, knowing that in San Francisco, they will not be prosecuted. Yet the decision to stop prosecuting crime, while sensational, is not the only reason that best-in-class retailers are leaving. It is just the latest reason. The tragedy of San Francisco’s fall from grace has been decades in the making and self-imposed. The city has become an Opera-Bouffe of one-party rule and a progressive agenda run amok.
The national economy has had scores of winners in the rebound from the COVID lockdown. Innovations around mobile ordering, online retailing, mixed-use developments, the embrace of electric vehicles, adaptations by major chain retail and dining brands that have allowed them to bounce-back, grow market share, raise wages and hire like crazy, are just a few of the ways communities and their business partners have met the challenges of our times. A generation ago, San Francisco would have been in the vanguard of these success stories. But in today’s San Francisco residents are immersed in the greatest measure of lawlessness, litter, graffiti, homelessness and panhandling that the city has ever known. In a national economy chock full of innovators, recovery stories and winners, it’s hard to dispute that San Francisco is the biggest loser of all.
About John Cumbelich & Associates
John Cumbelich & Associates is a San Francisco Bay Area based firm that provides commercial real estate services to Fortune 500 retailers and select owners and developers of retail commercial properties. The firm's expertise is in developing store networks for retailers seeking to penetrate the Northern California marketplace and the representation of premier Power Center and Lifestyle developments.