Vacant storefronts are the newest trend hitting Santa Barbara’s downtown commercial district, as retail shops and restaurants face the economic crisis that has gripped the nation.
With consumers weary of spending money, many locally owned businesses are simply unable to meet the high prices of prime downtown retail space, and some are being forced to close their doors and move out. Those businesses that have successfully navigated the hard economic times are being forced to lay off workers, reduce hours and, in some cases, renegotiate their lease agreements to stay afloat.
Among the latest casualties of the recession are popular downtown establishments like Camille Day Spa, Savoy Café and Video Schmideo. Additionally, a slew of Santa Barbara restaurants have been put up for sale in recent weeks, including Ruby’s Café, El Paseo, Harry’s Plaza Café and the Stateside Restaurant and Lounge.
“It’s affected absolutely everybody,” Genny Cummings, owner of Indigo Interiors on State Street, said. “I haven’t heard of anybody that hasn’t been affected. In the last number of years, the rents have been escalating. Now, with this economic downturn, people are having to leave because the rents are too high. So far, it’s been mostly restaurants, but the next year is going to be critical, and I expect to see a lot of small businesses go.”
Gene McKnight of Santa Barbara’s Pacifica Commercial Realty, who specializes in Santa Barbara’s retail property market, agreed that restaurants have suffered the brunt of the worsening economy.
“People have less discretionary income, and restaurant sales have taken a dramatic hit in both the lunch and dinner hours,” McKnight said. “It’s hard because you can’t put a 50 to 70 percent discount on restaurant sales – restaurants don’t have that wide a margin to deal with to begin with.”
With businesses low on cash, landlords are increasingly being asked to renegotiate their lease agreements with business owners, McKnight said. And with capital becoming a rarity, stubborn landowners may be forced to go along.
“The landlords who are really holding out for top-dollar rents are the ones that are going to be stuck with an empty building,” McKnight said.
Erik Kelley, owner of the Book Den, hopes that negotiating for a lower rent will help him keep his store open and his workers employed.
“Some small businesses have fallen into a bit of a trap: They get into a 10-year lease and three years in, the bottom falls out,” he said. “A 10 to 15 percent drop in sales can make the whole house of cards fall apart. … Our landlords have always been reasonable, but I’m asking them to be more reasonable than usual.”
Cummings, whose upscale furniture store is about to celebrate its 25th anniversary, said her store has weathered previous economic ups and downs by focusing on customer service and cutting costs. She said the businesses that survive the downs come out stronger and more innovative than before.
“The people that weren’t solid to begin with are already starting to go,” she said. “The ones who stick around are going to be a lot stronger. Every time you have a recession, you get better. You have to recreate who you are and anticipate the future.”
For her part, this means adapting her inventory to the rising trends of environmentally conscientious consumerism.
“Everyone is rethinking their business strategies, looking forward to the next trends, such as sustainability, green products and environmental responsibility,” Cummings said.
Kelley is adapting his own strategies to keep his bookshop afloat during the tough times. With 2008 sales down 15 percent compared to 2007 – including a 30 percent drop in November sales from a year before – Kelley said the recession has fundamentally changed the nature of his business, affecting both his role as shop owner and the criteria he uses in when stocking his shelves.
“This used to be a genteel business, where we used to focus on ‘Is this a good book?'” Kelly said. “Now, I’m focused on sales, overhead and cost-efficiency. We have to be a lot more careful about what we’re buying. A used bookstore likes to buy quirky things, but we take fewer chances now; we have to make sure things we buy will sell in the store.”
Despite the grim sales of the last few months, storeowners and real estate agents alike agree that, compared to national trends, Santa Barbara is weathering the storm relatively well.
“We have a lot of advantages that insulate us here in Santa Barbara a little bit,” Cummings said. “We have a lot of concentrated wealth, which will help us stay strong if people aren’t afraid to spend locally.”
According to Kelley, local sales, though lower than average, have remained significantly stronger than sales from his online store, which have decreased dramatically in the last year.
“We have definitely seen a higher drop in online sales,” he said. “A year ago, 60 percent of our sales were in store, 40 percent online. This year, we were at 70 percent in store and 30 percent online. It shows that locals are a little bit more isolated from the national economic trends.”
And, despite the apparently rapid rate at which State Street shops and restaurants are going under, Pacifica’s most recent Commercial Market Update states, “The retail market in Santa Barbara is still very strong.”
Additionally, the report states that many vacant retail spaces are “in the final stages of lease negotiations” and that the area has received attention from a number of interested national retail chains looking to move to the area, including Apple, REI, Forever 21 and H&M.
“There is a good interest from major national tenants looking for suitable locations,” the report says.
By Kelley’s reckoning, however, the greatest cost the city is likely to suffer is the loss of historic shops and restaurants that, once closed, are lost forever.
“Times are really hard, and we’ve lost some real gems,” he said. “You’re not going to replace these businesses that have been here 30 or 40 years; you don’t get local icons overnight. It makes you wonder if there really is a future for small, locally owned stores in Santa Barbara.”