Architectural Studies

Golden Opportunities in Historic City Centers

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.

In 2012 the Galleria, which is owned by the city of Milan, received a great deal of attention for effectively evicting one specific commercial tenant—the third busiest McDonald’s restaurant franchise in Italy—from a prime retail space at the very center of the arcade. McDonald’s was dislodged from the Galleria by means of 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 occupied the space in question for twenty years and also held a legal right of first refusal to renew its lease.

The 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 actively conspired to manipulate the allegedly open bidding 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 McDonald’s lawsuit was dropped. No official public statements were made about the terms of any settlement, but it is generally assumed 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—however this is purely speculation.

The former McDonald’s in the Galleria.

But Milan’s legal troubles stemming from the alleged Galleria scheming were not done. In the summer of 2014 Lombardy’s regional administrative court or “TAR” (Tribunale Amministrativo Regionale) revoked resolution no. 1497 of Milan’s Executive Board that had rewritten the guidelines for renting commercial space at the Galleria. Thus the TAR overturned the initial municipal action that had enabled the unscheduled and expedited public tender offers. The TAR further declared 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 of Milan then appealed this regional TAR ruling to the national Italian Council of State. Towards the end of 2014, this high court sided with Milan, thereby overturning the TAR reversal of the municipal resolution. Significantly, given the great emphasis placed upon financial matters in a country that had been operating under multiple austerity measures since 2011, the council largely justified its decision with an appeal to monetary issues. The council argued that the city was obliged to try to maximize profit from city-owned real estate, and noted that the new leases to the Milanese fashion houses earned about double the rent paid by the previous tenants. The ruling left some lawyers, journalists and entrepreneurs wondering how far a city administration should be permitted to impinge upon fair market practices in the interest of healthy municipal finances or, for that matter, in pursuance of any other goals.

In March 2014 an ambitious restoration project of the Galleria began, with Versace and Prada as its official sponsors, along with the publishing firm Gruppo Feltrinelli. This exquisite renovation is widely praised by the architectural community as helping to restore the landmark to its former glory. Also, since this renovation other luxury brands have flocked to open stores at the Galleria, further boosting rental prices 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 a 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 its new concentration of fashion houses, along with the striking makeover of its physical fabric, the Galleria has begun to rival—or even eclipse—the Via Sant’Andrea, long known as Milan’s premiere thoroughfare for luxury items and haute couture. This, in turn, has led some business owners based along the Via Sant’Andrea to accuse the city of damaging their profitability by actively working to promote an alternative center for fashion in the city.

The new Prada storefront in the Galleria.

Towards the end of 2016 a somewhat similar situation unfolded in Tuscany. Another McDonald’s franchise brought another lawsuit for €17.8 million in damages, this time against the city of Florence, after the mayor rejected a proposal to locate a McDonald’s restaurant 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.

A student newspaper at the University of Florence is preparing a series of short essays expressing different viewpoints on the issue of how much power and latitude municipal governments should be given in efforts to make historic city venues conform to the preferences of municipal leaders. As a visiting international student, you are one of a handful of assorted individuals who have been invited to contribute an opinion piece about this subject. You are not being asked for a legal interpretation of the cases in Milan or Florence. Nor is your loving or loathing of the McDonald’s menu in question. Rather, you are being asked to provide your personal opinion about the extent to which local governments should or should not be permitted to deter or incentivize the commercial presence of specific businesses, from local establishments to multinational corporations, in officially designated historic districts. Why and when, if ever, are such interfering actions acceptable? How can it be determined if the ends justify the means? Are secret agreements ever appropriate?

Let us assume, by the way, that it would not always be practicable to put all such measures to votes in municipal referenda. Also, 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 at either of its 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 not a preservationist issue.

Here are some further 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 one be allowed to open while the other is barred from business? 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 sometimes have little or no control, be allowed to factor into considerations? For instance, McDonald’s has often been blamed for unsightly litter left by its patrons. Is the potential for littering a fair accusation to level against McDonald’s rather than its patrons, presumably both tourists and locals?

Feel free to reference the McDonald’s episodes in Milan or Florence in your response or to present your opinion in a more purely theoretical way without reference to any real-world examples. For additional information about the specific situations with the two McDonald’s lawsuits, if you happen to be curious, 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 to learn details of the Galleria renovation project.

A historic photograph of the Galleria in the late nineteenth century.

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