In Bay Area, small retail struggles while tech booms

While Silicon Valley’s tech sector is thriving, cranking out
IPOs and flooding the region with high-paying jobs, its retail
industry is struggling to keep its boutiques and tiny mom and pop
shops open.

The number of retail businesses — particularly small retail
businesses — has dropped significantly in the Bay Area between
2007 and 2017, according to data from the state Economic
Development Department. Experts blame a host of factors, including
high rents, increased competition from online vendors, a rising
minimum wage and increased health care costs.

The average rent per square foot for retail space in San Jose
increased nearly 9 percent between 2015 and 2017, according to
commercial real estate firm JLL. It also rose 9 percent in Oakland,
and in San Francisco, it inched up almost 5 percent. Even
incremental rent hikes can cause trouble for small businesses,
which often operate on a thin profit margin.

At the same time, Bay Area home prices and rents have become so
expensive that many local retail workers can no longer afford to
live near their jobs, forcing them to commute long hours or
quit.

“So many of their employees have to live farther and farther
away from the work site, and at some point it’s just not cost
effective for them to do it,” said Dennis King, executive
director of the Small Business Development Center Silicon Valley.
“And that makes for an unreliable workforce.”


Those
struggles are hitting very small businesses particularly hard. In
the San Jose metropolitan division, the number of so-called
micro-businesses — a loose category that generally means
businesses with nine or fewer employees — declined 8.1 percent
between 2007 and 2017, according to the most recent data available
from the state Economic Development Department. For businesses with
4 or fewer workers, the drop was even starker — 12.7 percent in
the San Jose metro area, which includes Santa Clara and San Benito
counties. The number of micro-businesses in both the San Francisco
and Oakland metro areas dropped 6.1 percent. Statewide, retail
micro-businesses declined 4.2 percent.

Meanwhile, the tech industry is booming. Employment in the
tech-heavy “innovation and information products and services”
sector grew by 38.8 percent in Santa Clara and San Mateo counties
between 2007 and 2018, according to the Joint Venture Silicon
Valley’s 2019 Silicon Valley Index.

Faced with a steep rent hike three years ago in San Jose,
Monisha Murray was forced to uproot her vintage clothing store and
move to a new location in the city. Murray, owner of Black &
Brown Clothing & Accessories, was paying about $9,000 a month
for a 5,500-square-foot space on The Alameda. After five years, the
landlord decided to raise the rent to almost $20,000 a month,
Murray said. She talked the owner down to $13,000, but it was still
too much for her nine-employee business.

So Murray moved her shop a few miles away, to a
4,500-square-foot space on West San Carlos Street, where she now
pays about $7,000 a month. Now Murray wonders what she’ll do when
her 10-year lease expires and she faces the possibility of another
rent hike.

“Business is doing well for me,” Murray said, “but if I
keep having to do this, I’m going to have to close my doors.
I’m going to have to go online.”

When small businesses like Murray’s struggle, it has a big
impact. San Jose’s micro-businesses are a significant part of the
region’s retail economy, accounting for 62.3 percent of all
retail businesses and 12.4 percent of retail employees, according
to the Economic Development Department. Both are down slightly from
their share of the retail economy in 2007.

But it’s not just micro-businesses that are feeling the sting.
Between 2007 and 2017 the overall number of retail businesses —
clothing stores, gas stations, bookstores, etc. — in the San Jose
metro area declined by 4.4 percent, to about 4,500. That’s a
faster decline than the statewide decrease of 0.6 percent, and it
means in the San Jose metro area there were 210 fewer businesses in
2017 than before the Great Recession.

The San Francisco metropolitan division, which includes Redwood
City and San Rafael, experienced a similar decline in overall
retail businesses of 3.5 percent. In the Oakland metropolitan
division, which includes Walnut Creek, Antioch and Fremont, overall
retail businesses declined 2.5 percent — a drop that translated
to 164 fewer retail businesses in the region.

Most of those closures occurred from 2008 through 2012, during
the Great Recession, and the industry never bounced back. As
recently as 2017, the Oakland metro lost 50 small retail shops and
the San Jose area lost 34 from the preceding year.

Talbot’s Cyclery, a well-known neighborhood bicycle shop in
San Mateo, is planning to close its doors for good at the end of
June. The company was founded by current owner Gary Moore’s
grandfather in 1953 as a toy store, and expanded into a
full-service bike shop in the early 1970s. Moore sold his first
bike while he was in high school. Now he’s 66 and wants to
retire, but he has no one to sell or pass the business on to. His
sons, busy with their own careers, aren’t interested.

Moore would have retired anyway, but he said if things weren’t
so tough for small businesses in the Bay Area, he might have been
more likely to find a buyer. One of the main struggles is the
area’s exorbitant cost of living, which makes it hard to retain
workers.

“We’ve lost some very good people in the last several
years,” Moore said, “where they’re in their late 20s, early
30s, they want to start a family, they want to buy a house, but
that’s just not going to happen here on the San Francisco
Peninsula.”

He also sees people come into his shop and do what he calls
“showrooming” — they see a bicycle they like, then look it up
on their phone and find it cheaper online.

That online shopping has taken a toll on brick-and-mortar retail
stores nationwide. A recent report from UBS estimated that 75,000
stores will close around the country by 2026 as e-commerce becomes
a bigger share of the retail industry.

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In 2017 in California, there were 4,496 nonstore retailers, which
includes online and mail-order businesses, as well as shops selling
out of portable stalls and vending machines — a 61 percent
increase from 2007. Still, that’s a fraction of the total retail
industry and fewer than, for example, the 6,785 gas stations in the
state.

In the Bay Area, it’s “sadly ironic” that the tech sector
is booming while small retail businesses struggle, King said.

“It seems like retailers are experiencing the cost of the
success,” he said. “We’re kind of victims of the economic
success.”

Source: FS – All – Real Estate News 1
In Bay Area, small retail struggles while tech booms