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Retail Law Advisor

Fast Fashion: The Zara Experience

By Ann Klibaner Sultan, Matthew E. Epstein and Lara D. Guercio on Posted in Real Estate, Retail, retail sales

With more than 6,000 stores worldwide at the end of 2012, fashion giant Inditex, owner of the well-known Zara brand, is a leader in clothing sales. The New York Times recently profiled Inditex as a revolutionary force in the fashion industry. Inditex has about 4,400 stores in Europe, but as of the beginning of 2013, has so opened fewer than 50 in the US, begging the question of whether the hallmarks of its success thus far – a rapid-pace production process, a spending emphasis on storefront location instead of advertising, and manufacturing locations close to design centers – are a recipe for success in the US or a hindrance to the brand’s expansion here.

First, Inditex’s emphasis on responding to customer desires as quickly as possible in its design and production has pushed other clothing manufacturers away from historical biannual production cycles (though most competitors still lag far behind Inditex’s idea-to-store time line of as short as two weeks). Inditex’s model relies heavily on customer feedback in stores as expressed to store employees, and not just records of what has been purchased. This means that customers must be forthright in their evaluations of clothing to store employees, who in turn need to solicit feedback. This approach requires sensitivity to cultural norms of feedback as well as to changes of heart that may occur during the time that it takes Inditex to transform the ideas its sales representatives hear into actual products offered at stores. Inditex may need to adjust its tactics depending on how Americans respond to such an approach.

Second, Inditex makes no secret about spending little on advertising and much on locations for its Zara stores. One of Zara’s main strategies is to have locations as close as possible to famous expensive brands such as Gucci, Cartier, Chanel, and others of the same caliber. However, these same brands are motivated to stay far away from Zara, which offers many of the same or similar styles at great discounts. So far, Zara seems to have been successful in procuring desired real estate, albeit by paying top dollar for certain locations such as its Fifth Avenue store. Problems may arise as Zara seeks to expand into more conventional American shopping centers. There, where one landlord is responsible for the entire property, luxury retailers may exercise more leverage in dictating who their neighbors are. Unlike Asian shopping areas—where you might find a discounter next to Prada or Gucci—high end tenants at American malls tend to huddle together for strength and support– and insist that landlords honor their wishes.

Third, Inditex emphasizes that many of its manufacturing locations are centralized – either owned by the company or located very close to its Spanish headquarters. Many American companies have been successful in reducing costs by outsourcing their production to cheaper production locations and Inditex will have to compete with this reality in the US.

In many ways, Inditex has had a profound impact on the way that fashion is produced and sold all over the world. Whether it is able to sustain its current model as it continues to expand in the United States, or whether it is forced to make adjustments to succeed in the American market remains to be seen.

Revisions to the Family and Medical Leave Act Require Policy Changes and New Posting Obligation

By Elizabeth K. Levine and Adrienne M. Markham on Posted in Employment

Employers routinely are asked to consider requests by employees to take leave pursuant to the Family and Medical Leave Act of 1993 (FMLA). Determining whether an employee is eligible for such leave is usually straightforward: (1) the employee must have been employed for at least a total of 12 months before the leave begins; (2) the employee must have worked at least 1,250 hours in the 12 months immediately preceding the leave; and, (3) the employee must work at a site where the employer has 50 or more employees within a 75-mile radius. Beyond that initial determination, however, employers must also figure out whether the asserted basis for leave qualifies, keep track of such leave, and know what to do when the employee is ready to resume his or her position. Key changes to the FMLA took effect on March 8, 2013 and will affect how retailers and other businesses handle FMLA leave in these respects.

Military Family Leave

The most significant changes to the FMLA impact qualifying exigency and military caregiver leave. For example, an eligible employee previously was entitled to take FMLA leave for “qualifying exigencies” arising when the employee’s spouse, son, daughter or parent (the “covered military member”) is on active duty or has been notified of an impending call or order to active duty in support of a contingency operation. The FMLA now extends coverage beyond just “covered military members” to “military members,” which includes both members of the National Guard and Reserves and the Regular Armed Forces. “Active duty” is now “covered active duty” and requires deployment to a foreign country in order for family members to qualify for exigency leave. In addition, the FMLA now includes a new qualifying exigency leave category for parental leave – leave for an employee to care for a military member’s parent who is incapable of self-care. The changes also extend the amount of time an employee can take during a military family member’s “rest and recuperation” period from 5 to 15 days.

The changes further expand military caregiver leave so it can be taken to care for veterans discharged within the past five years and also to allow caregiver leave to be taken for a pre-existing injury or illness that was aggravated in the line of duty. Moreover, the recent revisions broaden the list of required information for certification of a qualifying exigency and the documentation related to military caregiver leave. They also amend employee eligibility so that all absences from work protected by the Uniformed Services Employment and Reemployment Rights Act count toward hours of service. All of these changes create potential traps for unwary employers who receive a request for military family leave.

Additional Clarifications

Beyond military family leave, the recent revisions also clarified certain aspects of FMLA that apply to most employers. For example, with respect to leave of varying increments, or intermittent leave, the revisions clarify that employers must track such leave using the smallest increment of time used by the employer for other types of leave. The increment of time by which leave is taken can no longer vary within an organization as was previously the case. Likewise, an employer may no longer require an employee to take more time than necessary for intermittent leave.

In addition, the revisions clarify the rule that previously allowed employers to delay an employee’s reinstatement from FMLA when it was physically impossible for the employee to return to work in the middle of his or her shift. Instead, the revisions provide that the physical impossibility provision may be applied only in the most limited circumstances.

Finally, the recent revisions also update an employer’s recordkeeping requirements so that an employer must now comply with the requirements set forth in the Genetic Information Non-Discrimination Act.

If all of this seems like a lot to digest, never fear. A new poster available on the Department of Labor’s Wage and Hour Division web page provides a good overview of an employer’s obligations. In fact, employers are now required to display the poster in their workplace. Employers also should review and update their existing FMLA policies as necessary to make sure references to military family leave reflect the recent changes.

Review Your Retail Company’s Existing Business Interruption Insurance to Ensure Proper Coverage

By Christian W. Habersaat and Gregory O. Kaden on Posted in Insurance, Restaurants, Retail, Risk Management

We welcome our affiliate, Fort Hill Risk Management LLC, as a guest blogger for today’s post. It is our hope that this advisory may help retailers address insurance issues in the wake of the Boston Marathon tragedy and other disruptions.

The bombings at the Boston Marathon have been extraordinarily difficult for individuals and businesses alike.

The significant business-related losses in the wake of the recent Boston Marathon tragedy underscore the advisability of a prompt and careful review of a company’s existing business interruption insurance coverage. Such a review is necessary to ensure that any current claims are properly asserted and to determine whether any modifications to existing coverage would enhance protection against potential future losses.

Whether a particular loss will be covered by business interruption insurance depends on the nature of the loss and the specific terms of the insurance policy. Perhaps more than many other lines of insurance, the scope of business interruption coverage may vary dramatically depending on when it has been purchased, which insurance carrier has issued the policy, and the evolving state of applicable law. The issues raised by such variations may include:

  • whether the policy includes coverage for acts arising from terrorism;
  • whether coverage is triggered by a material decline in business or whether a complete suspension of operations is required;
  • whether the policy responds only to physical damage to the insured’s property or whether coverage may be triggered without such physical damage;
  • whether coverage is afforded if access to the policyholder’s property was prevented or prohibited by “action or order of civil authority,” such as an evacuation, street closure, or lockdown order; and
  • whether coverage applies until the business has returned to pre-interruption levels or only until it reaches some lower threshold.

As to complex insurance coverage issues, Fort Hill Risk Management can help. Our professionals have extensive experience in assessing and pursuing business interruption coverage in the face of terrorist acts. Please contact us if we can be of any assistance.

This advisory was authored by Fort Hill Risk Management’s Christian Habersaat and Gregory Kaden. For questions or additional information on this topic, please contact Chris at chabersaat@forthillrisk.com or Greg at gkaden@forthillrisk.com.

 

 

 

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.
 
©2013 Fort Hill Risk Management LLC All Rights Reserved

New Consumer Privacy Decision by the MA Supreme Court Requires Retailers’ Attention and Review of Their Data Collection and Use Policies for Consumers’ ZIP Codes

By Lara D. Guercio and Matthew E. Epstein on Posted in Retail, retail sales

We’ve all had the experience of being asked for our ZIP code when making a purchase. Collecting this information at point of sale or otherwise has been a common and growing practice among retailers. However, a recent decision by the Massachusetts Supreme Judicial Court (“SJC”) in Tyler v. Michaels Stores, Inc. on March 11, 2013 and class action complaints filed on the heels of Tyler against Williams-Sonoma and Restoration Hardware on April 15, 2013 demand that retailers doing business in Massachusetts review their current consumer data collection and use policies, specifically where retailers collect shoppers’ ZIP codes when processing credit card transactions.

In the Tyler case, the highest court in Massachusetts found that collection of ZIP code information by a Michaels employee while processing an electronic credit card transaction (and where the credit card issuer did not require Michaels to request ZIP codes), violates Mass. Gen. Laws ch. 93, § 105(a) (the “Statute), a state consumer privacy statute that restricts the collection of personal identification information (“PII”) during credit card transactions.

Specifically, in response to the three questions certified to the SJC, the high court unanimously found in favor of the plaintiff that: 1) the Statute defines PII in a non-exclusive manner (including but not limited to a credit card holder’s address or phone number), and since the consumer’s ZIP code, when combined with the consumer’s name, provides the merchant with enough information to identify through publicly available databases the consumer’s address or telephone number, the consumer’s ZIP code is also considered PII under the Statute; 2) there is nothing in the Statute that limits its purpose to the prevention of identify fraud and its inclusive terms and legislative history reflect the Statute’s broader intent to guard consumer privacy and specifically to limit disclosure of PII leading to identification of a particular consumer generally; and 3) the Statue applies to all credit card transactions, including electronic and paper credit card transaction forms.

Importantly, in the Tyler case, the SJC also identified at least two types of injury or harm that might in theory be caused by a merchant’s violation of the Statute, including 1) the actual receipt by a consumer of unwanted marketing materials as a result of the merchant’s unlawful collection of the consumer’s PII, and 2) the merchant’s sale of a customer’s PII or the data obtained from that information to a third party. In class action lawsuits recently filed against Restoration Hardware and Williams-Sonoma, plaintiffs allege suffering both of the above injuries under the Statute based on the specific retailers’ collection of ZIP code information from plaintiffs when they made purchases using credit cards at defendants’ stores, as well as unjust enrichment by the retailers by their unlawful use of PII. Damage awards requested include: statutory damages in the amount of $25 per class member, tripled, as allowed by the Statute; additional damages based on the asserted claim of unjust enrichment; as well as interest, costs and attorney’s fees.

In sum, highlighted by the recent SJC decision in Tyler and subsequently filed lawsuits based on that Court’s consumer friendly ruling in Tyler, retailers with stores and operations in Massachusetts should review their current consumer data collection and use policies to ensure that they do not include the collection of shoppers’ ZIP codes when processing credit card transactions. Further, retailers doing business in other states should do the same, as a number of states (including California, Delaware, Georgia, Kansas, Maryland, Minnesota, Nevada, New Jersey, Ohio, Oregon, Rhode Island, and the District of Columbia) have statutes limiting the types of information that merchants can collect from consumers.

Recent Decisions Potentially Expand Scope of Landlords’ Bankruptcy Claims Beyond the Rent Cap

By Peter Bilowz and Timothy John Carter on Posted in Bankruptcy, Landlords, Leasing, Tenant

When a tenant files for bankruptcy and rejects its lease, the Bankruptcy Code limits a landlord’s rejection claim to the amount of any unpaid rent and rent-related charges accrued prior to the tenant’s bankruptcy plus future rent and rent-related charges (e.g., common area maintenance charges, real estate taxes) reserved under the lease (without acceleration) for the greater of one year or 15 percent, not to exceed three years, of the remaining term of the lease. (You would need a remaining lease term of 6 years and 8 months to have a future rent claim exceeding one year’s rent.) Tenants in bankruptcy and bankruptcy trustees have been largely successful in arguing that all of a landlord’s damages associated with the lease and the leased premises are limited by this so-called cap. For retail landlords with long term leases, in particular, this has often meant having no recourse against a bankrupt tenant’s estate for physical damage to the abandoned leased premises. If a retail tenant is leasing multiple locations from the same landlord, the potential lost damages as a result of the cap may be significant. However, recent decisions from bankruptcy courts in Michigan and Pennsylvania suggest that the cap has a much narrower application and only limits damages that “result from” termination of the lease. Whether these decisions signal an emerging trend in commercial tenant cases remains to be seen. Accordingly, retail landlords, with the assistance of counsel, should seek to identify and document not only damages resulting from a tenant’s rejection of the lease (e.g., the remaining rent under the lease), but also any additional damages unrelated to the lease termination.

In In re Energy Conversion Devices, Inc., a Michigan bankruptcy court denied a motion to disallow a landlord’s claim that included not only a year’s rent, but also claims based on the tenant’s breach of lease provisions requiring it to maintain and repair damage to the premises. The trustee argued that the claim for maintenance and repair damages was subject to the cap, while the landlord asserted that the additional damages did not arise from the lease being terminated, and therefore the cap did not apply.

Relying on the plain meaning of the statute, as well as legislative history of the Bankruptcy Code, the court denied the trustee’s motion. The court noted the absurdity that could result if the Code were construed to preclude a landlord from asserting a damage claim wholly unrelated to the debtor’s rejection of the lease — for example, where a debtor caused major damage to the leased premises. The Court reasoned that leaving the landlord with no recourse in such a situation was a result Congress could not have intended.

In a more recent decision, In re MDC Systems, Inc., a Pennsylvania Bankruptcy Court refused to disallow a portion of a landlord’s claim for attorney’s fees incurred by the landlord in a state court action brought against the tenant-debtor. Similar to the Energy Conversion Devices court, the court narrowly construed the cap to apply only to damages resulting from the termination of the lease and concluded that the obligation to pay attorney’s fees arose independently from the lease’s termination.

Both cases cite favorably to the California Bankruptcy Court’s decision in In re El Toro Materials Co., Inc. In that case, the court framed a simple test to determine whether a certain portion of a landlord’s claim should be subject to the cap: “Assuming all other conditions remain constant, would the landlord have the same claim against the tenant if the tenant were to assume [i.e., continue performing under] the lease rather than rejecting it?” If yes, the landlord may have a claim for damages in addition to its capped claim. Claims for repairs to the premises (as in Energy Conversion Devices), pre-rejection attorney’s fees (as in MDC Systems), environmental cleanup, indemnification or other claims which arise under the lease, but arise irrespective of assumption or rejection of the lease would appear to fit the bill. In the case of a tenant bankruptcy, a retail landlord should seek to identify, document and recoup all categories of damages accruing under the lease, not simply lost rent resulting from the termination of the lease.

For Purveyors of Medical Marijuana, Siting Dispensaries Gets Easier in Massachusetts, and Federal Tax Concerns Begin to Settle

By David A. Lewis and Timothy H. Watkins on Posted in Landlords, Municipalities, Real Estate, Retail, Tax, Zoning

Some retail landlords in Massachusetts will welcome medical marijuana treatment centers as tenants by the end of the year, and treatment center operators have recently had some good news regarding local land use and federal tax regulation of medical marijuana.

Although many state governments are easing the path towards legalizing marijuana for medicinal use, local and federal regulations continue to present obstacles. Earlier this year Massachusetts became the eighteenth state to legalize marijuana for medicinal purposes, paving the way for as many as thirty-five new treatment centers across the Bay State by the end of 2013. If operators of medical marijuana treatment centers in Massachusetts follow trends in Washington, D.C. and elsewhere nationally, at least some of those operators will seek to locate in conventional retail locations. The risks to Massachusetts retail landlords are similar to those risks confronted by landlords with medical marijuana tenants elsewhere. Two recent developments are good news for operators, and should help landlords be more comfortable about accepting medical marijuana tenants.

 

Massachusetts Moves to Limit Zoning Regulations’ Exclusion of Medical Marijuana 

Medical marijuana treatment centers are likely to encounter opposition because of neighbors’ concerns about increased crime and because of the lingering stigma of the drug. However, before the first medical marijuana treatment center has even opened in Massachusetts, Massachusetts Attorney General ruled that towns and cities in Massachusetts may not entirely exclude treatment centers via zoning. The effect of this recent decision is that each Massachusetts municipality must authorize treatment centers somewhere in its jurisdiction. This ruling should make siting these facilities somewhat easier on treatment center operators.

Although treatment centers can’t be “zoned out” in Massachusetts, other land use hurdles will remain. A related Massachusetts Attorney General opinion gives Massachusetts municipalities the right to impose temporary moratoria on issuing permits for treatment centers in order to study the effects of this new land use. This opinion might cause some municipalities to engage in regulatory foot-dragging, slowing the development of treatment centers. In addition, treatment centers are likely to continue to be unpopular with some potential neighbors, who may mount opposition or even litigation to prevent treatment centers from opening.

Outside of Massachusetts, other states that allow medical marijuana have not yet followed Massachusetts’ lead to smooth the land use path for medical marijuana treatment centers.

 

A Recent Federal Tax Court Decision Eases Tax Burden for Treatment Center Operators

The federal tax code prohibits dealers of illicit drugs from deducting their “business expenses” on their income taxes. This provision presents a unique problem for operators of medical marijuana treatment centers in states that have legalized their business: federal tax laws have not caught up to state laws and still consider marijuana to be an illegal drug. Thus, under the letter of the internal revenue code, legitimate medical marijuana businesses cannot deduct the expenses related to the sale of marijuana to reduce their federal income tax liability. However, a recent federal Tax Court decision may offer some tax relief to treatment center operators to at least not lose the tax deductions relating to their non-medical marijuana business. Provided the treatment center offers other services or products in a trade or business substantially different and separate from the sale of medical marijuana, the business expenses of the separate trade or business are deductible. For instance, a treatment center could offer care-giving, counseling, therapy, education, or related services for its customer’s ailments, and the expenses of those services substantially different from the sale of medical marijuana would be deductible. The issue is not fully settled, however, and as the medical marijuana industry continues to grow, further refinement of the federal tax treatment of treatment centers seems likely.

Medical marijuana is definitely on its way to Massachusetts. State regulations are due in the next month, and treatment centers are likely to open this year. Landlords will need to be aware of these local and federal regulatory changes as they welcome medical marijuana treatment center tenants.

Changing Massachusetts Brownfields Regulations: Retailers Should Take Note of Upcoming May 17th Deadline to Comment

By Ned Abelson and Lara D. Guercio on Posted in Development, Environmental, Green, Retail

A NAIOP event held at Goulston & Storrs recently focused on big changes coming to the Massachusetts Brownfields regulations, also known as the MCP. Retailers should take note of these regulations. They are directly relevant if you own or lease real estate in Massachusetts at which environmental contamination issues are (or were previously) present because these regulations control how these sites are cleaned up and reused.

The speakers at the event, Big Changes Coming to Brownfields Regulations, How Proposed MCP Regulatory Changes Could Affect Properties & Related Transactions, included Ben Ericson, Assistant Commissioner for Waste Site Cleanup at DEP, Lisa Campe of Woodard & Curran, Ilene Gladstone of GEI, and Ned Abelson of Goulston & Storrs. Each speaker contributed an interesting point of view, but all noted that the proposed MCP amendments are intended to address most, if not all, of the significant current implementation issues under the regulations.

In quick review, Ben Ericson focused on how these amendments are part of an agency-wide effort at DEP to improve the speed and efficiency of the agency’s work. The private sector speakers, Lisa, Ilene and Ned, focused on some of the details in the proposed regulations concerning vapor intrusion, petroleum and urban fill sites. All of the private sector speakers agreed that the proposed regulations include some very thoughtful proposals on a general level, but that some of the details could be problematic and result in increased uncertainty, at least in their current draft form.

What does this mean to retailers? Reviewing the draft proposals and providing thoughtful comments to the DEP will be even more important than usual. The draft materials, along with a helpful summary, are available on the DEP’s website. The comment period concerning the draft regulations ends on May 17, now a little more than six weeks away. The goal is to finish up the new regulations and have them go into effect by the end of this year. Happy reading!

A Big-Box Retail Store in the City? “If They Come, We Will Build It.”

By Brian R. Judge and William H. Dillon on Posted in Real Estate, Retail

Ray Kinsella, the baseball enthusiast played by Kevin Costner in the movie “Field of Dreams,” heard the now infamous words: “If you build it, he will come.” Relying on nothing more than blind faith, Ray risked financial ruin to build the baseball field of his dreams. The prophecy ultimately came true and consumers came from far and wide to watch games played on Ray’s field of dreams.

Although it worked for Ray, big-box retailers have historically not been fans of his business model. Retailers are skilled at analyzing the multiple factors that affect a decision to open a new location, not least of which is the significant construction and labor costs associated with building and fitting out retail space. Until recently, the art and science of store location has led big-box retailers to favor locating stores in suburban shopping centers and strip malls across the country as suburbia’s population grew alongside car ownership rates and the desire for greener pastures.

Perhaps it is no surprise then that the same approach is now leading some big-box retailers to focus again on setting-up shop in urban areas across the U.S., such as Chicago, Los Angeles, New York, Seattle, and Washington D.C. where populations are growing at a faster rate than suburbs for the first time in nearly a century, particularly among college-educated “Millenials”. This pool of desirable consumers is set to grow even deeper according to at least one study that found upwards of 77% of “Millenials” want to live in the urban core.

Chalk up the migration to distaste for long commutes, falling crime rates, or simply a desire to live, work and play in close proximity to one another. Whatever the reason, it has not been lost on big-box retailers who are now reinventing themselves to adapt to urban environments. In the process they are shedding some of the characteristics that earned them the title “big-box” in the first place, including floor area. Take Wal-Mart’s “Wal-Mart Express”, which averages about 15,000 square feet (about one-twelfth the size of a typical Wal-Mart Supercenter), or Target’s “CityTarget”, which averages between 80,000 – 100,000 square feet (about one-third smaller than a typical Target). Merchandise is being adapted too. Think more floor space dedicated to groceries (at the expense of, say, the lawn and garden section), prepared food options for on-the-go commuters and passers-by, and smaller furniture that is easier to transport by foot or public transportation.

The potentially significant rewards of an urban location do come with some challenges. Lack of exclusives, restrictive signage regulations and complex reciprocal easement agreements are just a few of the legal complexities posed by urban locations. Still, many big box retailers are finding that if they are willing to tackle these issues there is the potential to hit a real homerun in cities across the country.

Taxing Conditions for Traditional “Brick-and-Mortar” Merchants: Can Marketplace Fairness Be Restored?

By David A. Lewis and Andrew J. Ferren on Posted in Retail, Tax

If you blinked last Friday you might have missed a rare moment of Senate bipartisan agreement with potentially huge implications for the retail community. And as surprising as any bipartisanship is in the current political climate, even more surprising was the subject of Friday’s accord: taxes.

The Marketplace Fairness Act, which received a filibuster-proof 75 to 24 approval as an amendment to the Senate’s FY2014 budget resolution, would ease the path for states to collect sales tax from out-of-state consumers in an effort to level the currently uneven playing field between online merchants and traditional, “brick-and-mortar” merchants. The Marketplace Fairness Act is welcome news for traditional merchants, but its ultimate fate rests in the hands of a fickle Congress.

Online Merchants Enjoy Favorable Tax Treatment

Currently, an online merchant must collect sales taxes on online transactions only from those customers who reside in the state or states where the online merchant has a physical presence. Online merchants need not collect sales taxes on transactions with out-of-state customers. Instead the responsibility for paying state sales taxes falls on consumers, who often fail to do so. A brick-and-mortar merchant, on the other hand, must collect sales taxes on all transactions in its store and on all online transactions with a customer residing in a state where it has a store. For example, an online merchant with no physical presence in North Dakota need not collect North Dakota sales taxes when conducting a transaction with a resident of North Dakota. But a store in North Dakota, selling the same goods that could be purchased from an online-only merchant tax-free, must charge North Dakota’s sales taxes to North Dakota residents whether it sells the goods in store or online.

This disparity has very real and detrimental economic effects for brick-and-mortar merchants, especially those that operate in every state. National chains, with a presence in every state, generally must collect sales taxes for all transactions: offline or online. Online merchants, especially those with no stores, can avoid sales taxes on a large percentage of their transactions. As a result, brick-and-mortar merchants have consistently lost sales to online merchants.

This seemingly unfair disparity between online and brick-and-mortar merchants is a result of the 1992 Supreme Court decision in Quill Corp. v. North Dakota, which was decided at a time when the retail marketplace looked very different than it does now.

Nearly everyone has recognized that the marketplace has changed and that the laws need to keep up. A broad coalition of interests—including retail trade associations, individual merchants, unions, real estate finance associations, the Conference of Mayors, and many others—support leveling the playing field. Even Amazon supports reform. Notably, eBay is the lone large merchant among those opposed.

Congress (sort of) Acts

Moving at a pace as only Congress can, after two decades of explosive growth in online sales and a widening gap between online and brick-and-mortar merchants, the Senate has finally made a gesture towards resolving the disparity that Quill created. Perhaps because the proposed Marketplace Fairness Act does not involve increasing federal taxes, twenty-five Republican Senators—enough to prevent a filibuster—support the legislation. Last Friday’s action, though largely procedural, demonstrates that a large majority in the Senate believes that now is the time to end the differential treatment of online and brick-and-mortar merchants.

The good news for brick-and-mortar merchants probably ends here, however. Last Friday’s Senate vote was almost purely symbolic and does not commit those Republicans in favor of the budget amendment to actually support the Marketplace Fairness Act in a separate and binding vote, if one should ever occur. Even more daunting for advocates of this overdue reform is the prospect for success in the House. Independent commentators have expressed mixed opinions on whether it will gain support in the House. On the one hand, the Marketplace Fairness Act would not raise federal taxes and would give more power to the states, the latter being a move that most Republicans would support. On the other hand, a core of Republicans in the House generally views all taxes unfavorably. Thus, while passage as part of a broader budget bill that includes the Marketplace Fairness Act is possible, it is by no means certain. In the meantime, brick-and-mortar merchants and other advocates of tax fairness will continue to pressure Congress to pass legislation that levels the sales tax playing field for online and brick-and-mortar merchants.

Zoning for the All-In-One Commercial Space

By David Avitabile and Lara D. Guercio on Posted in Compliance, Restaurants, Retail, Zoning

Many zoning regulations were drafted decades ago in an era before all-in-one superstores. Accordingly, the form and structure of these regulations often reflects a single use-based regulatory scheme, with lists of dozens of commercial uses that are permitted in each progressive zone category. Today’s all-in-one commercial establishment typically provides many of these uses under one roof, and it is important to confirm that all of the proposed uses are permitted within the applicable zone district.

Take, for example, the District of Columbia’s zoning regulations. The lowest density C-1 commercial zone permits bakeries, cosmetics or toiletries store, pharmacies and florist shops as well as grocery stores, which today typically include all of the above uses. Even a modern all-in-one grocery store should fit in the lowest zone district without difficulty.

But what about superstores that include not only groceries but also apparel, home furnishings, toys and electronics? Accommodating one of these stores in the lowest-density zone could depend on the mix of uses within the proposed retail space. Some of the uses found in a superstore, including electric appliance sales, book stores, hardware shops and toy stores are also permitted in the C-1 Zone District. By contrast, other uses typically found in a superstore, such as dry goods stores, home furnishing stores and department stores, are first permitted in the less-restrictive, higher-density, C-2 commercial zones. The District is considering a comprehensive overhaul of the zoning regulations that would restructure the regulations around broader categories of use (e.g., “retail uses,” “general service uses” and “eating and drinking establishments”), which may eliminate the distinction among types of retail uses in low and moderate density commercial zones.

Eating establishments within grocery and other all-in-one stores also require a close examination. As standalone establishments, restaurants are permitted starting in the lowest density commercial district without reservation, but other eating establishments are restricted under the District’s Zoning Regulations. In the lower density zone districts, “prepared food shops” (establishments such as sandwich shops, coffee shops or ice cream parlors) are permitted, but with limitations on the number of seats, and fast-food establishments are not permitted at all. When contained within a grocery store or other use, prepared and fast food establishments are allowed in a lower-density zone district, but only if the food service use is subordinate or accessory to the principal grocery or other use. As retailers continue to modernize and expand their prepared food offerings to appeal to evolving consumer preferences, they should consider how the food service uses relate to the other uses within the store.