THE CHANGING FACE OF DOWNTOWN
The article in the Bulletin showed up in today's paper. I was quoted for a few paragraphs, (and she mentions this blog!), which is about what I expected. Of course, what I actually said was much more extensive and some ways nuanced.
I have to quibble with the first paragraph my store is mentioned: "Duncan McGeary has owned Pegasus Books in downtown Bend since 1984. At that time, the Minnesota Avenue surroundings lacked the clusters of funky businesses that fill the old buildings today."
Actually, what I tried to say is that my little corner of downtown used to HAVE the funky businesses; such as Masterson St. Clair Hardware, the The Sole Shop, etc. Where the misunderstanding comes in probably is that it wasn't a strong retail part of downtown, but more a mix of service and retail. But the area around the corner of Bond and Minnesota did change to a more funky retail mix over the last 20 years. The problem, I tried to point out, is that the funky retail IS being replaced by high end dress shops and jewelry stores and home furnishings and art galleries. The funk factor is what I was talking about in my first entries on this blog.
What I tried to say was that there is both good and bad in the changes downtown. That the store I currently own wouldn't have survived in the downtown Bend of 10 or 15 years ago; that I've tried to adapt my store to the current environment. But it is a natural event, and inevitable. The rugged individualists, the risk-takers, are gone, replaced by people who are, well, almost by definition, followers. That is a completely different mindset. Meanwhile, like weeds, the bo ho crowd will move somewhere else.
There are three separate issues.
1.) Lifestyle. Obviously, a block that contains a hardware store, a shoe repair shop, an engraving store, a bike shop, and a comic shop has a completely different flavor from a block that contains the ubiquitous high end furnishings shop, a high end dress shop, a high end jewelry store and art galleries. The very funkiness that attracted people to downtown is being lost. I hear the comment from locals all the time, "I don't shop downtown because it is too expensive..." True, or not, that is the perception.
2.) Architecture. When every building is built in a faux 'craftsmans' syle, instead of an eclectic mix of styles, old and new, then the look become homogenized. And to me boring and tasteless. When every single story building is replaced by 3, 4 and 5 story buildings, the 'small town' atmosphere is obviously lost. (Not to mention the sunlight.)
3.) The economics. Rents look to be getting way too high. I will stake 26 years of experience in downtown Bend to say this: if you rent any space in downtown Bend for 2.50 a foot, (plus triple net, which is the equivelent of another .25 to .75 a foot) it will be extremely difficult for you to make money. Period.
The landlords have a choice of sustaining viable long-term businesses at reasonable rents, or they can encourage mayfly-type, here today, gone tomorrow businesses, at the rents that are being quoted. (Yes, they may fill the spots, but not for long. Being an equity sink with constant turnover can't be healthy.)
In the long run, reality will set in. If rents are too high, spaces will stay unrented. Or the shops will split in the middle of the night owing months of rent, or it will become obvious to everyone that even though most spaces are rented, the turnover rate makes it a killing zone.
We are in a dangerous time, here, because I think reality is on its way, but it may take a few years. I'm afraid we are going to lose alot of viable business before the right equilibrium is established. I hope the landlords will be smart enough to be flexible with the few long-term businesses that are left, or downtown Bend will turn into nothing but a tourist trap, and that would be a shame.
I thought I should explain why even the slightest increase in rent can be significant for a small business, just so's you know we aren't just a bunch of complainers.
Specialty stores, by their very natures, need higher profit margins. We don't ordinarily sell by volume, but by specialness, therefore every sale counts. But in the a retail world dominated by mass market discounters, it can be very, very difficult to maintain your margins. Sure, you try to offer more service, selection, knowledge, etc. but PRICE is king. Always was, always will be, despite what the consumer might say.
I was told early on that I would need about a 40% markup to stay in business, and I have found this to be generally true. But over the last few years, as my product has begun to show up more and more in the mass market, the margins on many of my items has dropped to more like 30 - 35%. (This is not counting the stuff damaged, stolen, or that just sits on the shelf and never sells.) At the same time, all expenses in Bend have risen, until we are one of the most expensive places in Oregon.
So the landlord raises your rent 1.00, and adds a .35 triple net. On a thousand square foot space, that would be 1350.00 more in rent. That's pretty hard to take, but in reality you need to make 1350.00 divided by your profit margin. So if your margin is 35%, you need to earn 3857.14 more per month, of 128.57 more each and every day of the month.
Believe me, if I knew where to make another 128.57 a day, I'd be doing it. And that figure seems even more intimidating on a cold, snowy, wet blustery Tuesday in February, when you've had 5 people in the door all day.
So, you say, it must be that the higher end stores must sell more, or make higher margins? Why? Margins are always close to edge of survivability or someone else will come along and be cheaper than you. Selling more? At higher prices? Maybe. But I suspect that they sell more at higher prices, LESS OFTEN. So it evens out. The higher the cost of inventory, the more risk. There just isn't any free lunch, and I haven't noticed that higher end stores last any longer than your average funky store. In fact, the opposite. Most businesses that I have seen survive downtown over the LONG run have been modest business, with nice but not overly expensive product. I have seen a huge number of 'high end' business come and go.
Sunday, December 10, 2006
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