Architectural Studies

Golden Opportunities in Italy

High Culture, High Rent & Fast Food

The Galleria Vittorio Emmanuel II is one of the largest and grandest of the cast-iron arcades built in Europe during the nineteenth century. Located in the heart of Milan, this covered shopping plaza connects Milan Cathedral’s piazza to La Scala Opera House. Popular with locals, but also frequently thronged by tourists, the elegant marble-faced commercial spaces here are highly desirable and expensive rental units. In addition to cafés and restaurants, most of the shops in the Galleria now feature costly luxury goods, such as haute couture, antiques and jewelry.

A nineteenth-century photograph of the Galleria. From the Ingalleria website.

In 2012 the Galleria, which is owned by the city of Milan, effectively evicted one specific commercial tenant—the third busiest McDonald’s restaurant franchise in Italy—from a prime retail space at the center of the arcade. The removal resulted from a newly worded public tender offer that required the tenant in that location to be a “business showing excellence in innovation, technology and communications.” Deemed ineligible according to these new criteria, the McDonald’s franchise was prevented from continuing its lease, despite the fact it had rented the space in question for twenty years and also held a legal right of first refusal to renew the lease.

The McDonald’s franchise located at the center of the Galleria. Photo from New Statesmen online (17 Oct. 2012).

This lease was soon given to Prada, the famous leatherwork and fashion design firm founded in Milan in 1913, which already operated another shop in the Galleria. According to the city, Prada outbid Apple, Louis Vitton (a Parisian fashion house) and other companies to win the lease in the public offer. However, later allegations claimed that the city had already reached a secret agreement with Prada and was actively conspiring to manipulate the open process in order to help advance the city’s image as a world fashion capital.

Acting on behalf of the local franchise owner, McDonald’s Italia, a national association representing around 500 McDonald’s franchises in Italy, sued the municipal government of Milan for €24 million in damages (including €6 million in lost revenue). The complaint alleged that the abruptly imposed eligibility requirements for rental of the space were unfairly created in order to deliberately exclude McDonald’s as a tenant and that this action constituted an act of illegal discrimination.

Eventually the lawsuit was dropped. No official public statements were made about any settlement out of court, but many commentators have presumed that the two parties struck an undisclosed deal, perhaps involving the city helping to arrange favorable terms for locating the franchise elsewhere in the city—but this is purely speculation.

Despite the dropped lawsuit, two years later, in 2014, the regional administrative court or “TAR” (Tribunale Amministrativo Regionale) ruled that the terms under which the Galleria had evicted McDonald’s and reassigned its lease to Prada—as well as two other instances wherein spaces in the Galleria were awarded to Versace and Armani, two other Milanese fashion houses—violated fair market regulations by reaching private agreements with clients before issuing public calls for proposals.

The city appealed this verdict, whereupon the national Italian Council of State sided with Milan, arguing that the city was obliged to try to maximize profit from city-owned real estate and that the new leases to the Milanese fashion houses earned double their prior rent.

The Prada store in the former McDonald’s location.

Other luxury brands have flocked to open stores in the Galleria, greatly boosting rental prices even further in the process. In early 2015, Louis Vitton doubled the size of its Galleria shop. In September 2015 Gucci (the luxury leatherwork firm originally based in Florence) won a public tender offer for Galleria retail space. That same month Hugo Boss (a German fashion house focusing on men’s wear) beat out seven other luxury labels to secure an enormous, thousand-square-meter space spanning five floors at the center of the Galleria. In 2016 the French firm Chanel announced plans to open a three-level store. With all these changes, the Galleria has begun to rival the Via Sant’Andrea, long known as Milan’s premiere thoroughfare for luxury items and haute couture, as the key fashion venue in the city.

Towards the end of 2016, a somewhat similar situation unfolded in Florence. McDonald’s brought another lawsuit for €17.8 million in damages, this time against the city of Florence, after the Mayor rejected a proposal from the fast-food corporation to open one of its restaurants in the Piazza del Duomo. The Mayor’s negative decision—subsequently endorsed by a municipal panel tasked with overseeing the historic character of the city center—rested upon new city regulations, introduced only several months earlier, that required restaurants and other businesses in the vicinity of the piazza to offer “typical products” associated with Florence or Tuscany. In public comments the Mayor also noted that he preferred to support “traditional businesses” rather than branches of powerful foreign corporations associated with contemporary globalizing American culture. According to McDonald’s, these actions constituted unfair discrimination pure and simple.

As a visiting international student, you are one of a handful of assorted individuals who have been invited to contribute an opinion piece about these situations to a student newspaper at the University of Florence. You are not being asked for a legal interpretation of the cases in Milan or Florence. Rather, you are being asked to provide your personal opinion about the extent to which local governments should or should not be permitted to bar or deter the commercial presence of specific multinational corporations in officially designated historic districts.

Note that this is not a question of preserving the integrity of the physical fabric of historic structures. McDonald’s was not endeavoring to bring about controversial or irreversible alterations to any venues. Preservation ordinances routinely prevent owners or renters of buildings in historic districts from making insensitive additions to exterior façades. Indeed, Time Magazine noted that “McDonald’s may not have fit in with the luxury image of other stores in the Galleria, but aesthetically it was right on par. There are no outsized golden arches and red banners to be seen flanking this franchise: the name and logo were displayed in classy black and gold.” So, the issue at hand is whether or not municipal regulations should be permitted to ban McDonald’s, or other multinational corporations, from outbidding competitors in order to occupy commercial spaces in historic districts that are publicly available for rental.

Here are some questions that might be helpful to consider: To what extent should free-market doctrines override all other concerns? Is any form of discrimination against certain classes of business acceptable? If you believe that some restrictions are appropriate, how might you word a coherent policy outlining those situations where discrimination is acceptable?

How much should local opinion matter? If the majority of the citizens in another city in Italy were pleased to have a McDonald’s in their historic city center but considered Pizza Hut to be an affront to Italian culinary traditions, should the former eatery be allowed to open while the latter one is barred from conducting business in the historic district? Should franchises that are owned and operated locally be treated in the same way as stores directly managed by a foreign business enterprise? Should the actions of customers, over which businesses have little or no control, be allowed to factor into considerations? For instance, McDonald’s has often blamed for unsightly litter left by its patrons. Is the potential for littering a fair accusation to level against McDonald’s?

Feel free to reference the McDonald’s debacles in Milan or Florence in your response or to present your opinion in a more abstract way without reference to any real-world examples. For additional information, if you happen to be interested, about the specific situations with the McDonald’s lawsuits, see Manuela Mesco, “Milan Remakes Galleria as Fashion Destination: Luxury Brands Take a New Look at an Old Shopping Arcade” in The Wall Street Journal (18 Sept. 2014) and Nick Carbone, “McDonalds Forced Out of Mall in Milan to Make Way for Second Prada Store” in Time Magazine (18 Oct. 2012). For the Florence case, see “McDonald’s claims 20m from Florence over piazza restaurant rebuff,” in The Guardian (7 Nov. 2016). Also see the “InGalleria” project (sponsored by Versace and Prada).

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