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Season of reckoning – State Street shops at risk as sales take a nosedive

By   /   Sunday, January 11th, 2009  /   Comments Off on Season of reckoning – State Street shops at risk as sales take a nosedive

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After suffering a 50 percent drop in sales since last spring, Barbara Bartolomé doesn’t know how much longer she can keep her small business alive.

For five years, Santa Barbara Scrapbooks, which she founded in 2003, had been chugging along in its downtown location a block away from the Paseo Nuevo shopping hub on Chapala Street. But as consumers began trimming back expenses, trips to her store got chopped from to-do lists.

Now with a lease that expires in June, Bartolomé must decide whether her business can survive or whether it’s time to throw in the towel.

“I’m at the point where I can’t invest any more of my own family’s resources,” she said.

Bartolomé isn’t alone in her struggle to keep a small business afloat in downtown Santa Barbara. In the past six weeks, many once-bustling storefronts have become empty almost overnight.

Several commercial real estate agents commented that those spaces were often snatched up quickly by chain businesses looking for a prime Santa Barbara location. But with retail sales down for many major companies, expansion plans have been put on hold — and vacancies have accumulated as a result.

For several months, Clarice Clarke, a principal at Lee & Associates, has tried to fill the 1101 State St. location once leased by Java Jones. She said it has been “very difficult” to get anyone to sign on the dotted line, especially companies with a national presence.

“For a lot of the chain stores, the real estate departments are putting any expansions off for 90 days or canceling all their plans for new store roll outs,” Clarke said. “I think what we’re going to see is the retailers who have really strong balance sheets, in good financial shape, they’re waiting to see what will happen with the economy and with opportunities.”

Consequently, the State Street market has turned from a once-solid owner’s market to a nimble buyer’s and lessor’s market. Clarke said she wouldn’t be surprised if rents dropped 25 to 33 percent downtown this year.

Radius commercial real estate agent Kirk Carson is in the same situation as Clarke. Since August, he has tried to lease what was once the Piranha restaurant at State and Ortega streets. But at $5 per square foot — and 3,374 square feet split across two floors — it’s been tough.

“Tenants and buyers are all going, ‘This is our time. Here it is.’ And they’re not going to do a deal in a space where they don’t feel like they’re getting a really good deal,” Carson said.

Although the owner hasn’t reduced rent yet, he said other perks were tossed in to attract potential lessors.

“For the first three months, we were willing to build a third floor for a new tenant at our expense,” Carson said.

Even then, no one took the bait.

The number of spaces once filled by independently owned businesses up, down and around State Street has staggered real estate agents and neighboring retailers. Carson said the blocks worst hit by the recession have been those on either side of Paseo Nuevo, and it’s not hard to see why.

On the 900 through 1200 blocks of State Street, no fewer than eight small businesses have already closed shop or are days away from doing so. Some, like Sweet Alley at 1101 State St., are relocating.

“The garden’s getting weeded right now,” said Forrest Buchanan, an agent with real estate firm Goodwin and Thyne. Many businesses that didn’t have a viable business plan or strong enough market niche, he said, are going to be the first to go, and that’s what State Street is seeing. “When the economy turns around,” he said, “it will come back a stronger garden.”

Survival tactics

To support small businesses going through tough times, Santa Barbara’s SCORE [Service Corp. of Retired Executives] is holding a seminar Jan. 22 called Secrets of Survival, or SOS, that will help the little guys pull through the recession. With a panel discussion kicked off by Kinko’s founder Paul Orfalea, SCORE counselor Roy Norman said the seminar should provide relief at a critical time for many Santa Barbara businesses.

Usually, he said, SCORE helps individuals looking to launch businesses. “These days, we’re seeing a lot more people who are already in business and are having problems and are needing help in that regard,” Norman said.

He listed watching labor costs, promoting the company in cost-effective ways and reducing inventory as three major moves a small business can make to lessen the effects of difficult economic times.

In addition to halting all new inventory orders, Bartolomé took a major step to save her scrapbooking store: She removed herself from payroll. Though she still owns the store and engages in key marketing and executive decisions, Bartolomé took on a full-time job at Visiting Nurse and Hospice Care to make ends meet.

“We had a daughter in college and the expenses were such that to keep the store up and running, I would need to stop drawing a salary from the store,” said the former Businesswoman of the Year, as named by Women’s Economic Ventures.

Clarke noted, however, that the recession has brought about fresh opportunities for individuals who have always dreamed about opening on State Street.

“There are people who may have good retail concepts but need to pay less rent; and if the rents are softening, maybe they can roll out their concept,” she said.

 

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