I've been contemplating this post for a long time. I'm afraid that it will be a credibility buster -- everyone will read it and say, "that's it. Duncan doesn't know what the hell he's talking about." But it's what I believe, and I think I can make a case for it. And I would love to have evidence presented to me to the contrary. So, if you disagree with me, please point to some examples that contradict me.

Here it is:

Independently owned high-end businesses rarely succeed in Bend.

Huh? Isn't that all we have? Doesn't that describe just about every business that has opened in the Old Mill, in Northwest Crossing, in Downtown Bend?

I'm afraid so.

There lies the danger.

First, the exceptions. Corporate high-end will survive or fail based on national trends and results. I leave them out of this. High-end restaurants seem to be thriving, but I just don't know enough about the business model. Same with service businesses.

But retail is what I do, and what I see doesn't make sense. Or rather, what I see in real life is counter-intuitive and contradicts everything that everyone else seems to be saying and believing.

High-end businesses in Bend rarely succeed.

The apparent success of high-end businesses in Bend over the last 3 or 4 years have been anomalies, fueled by the housing bubble, and can only continue if the bubble continues to expand. If or when the bubble truly bursts, the inherent weaknesses of high-end businesses that catered to that bubble will start to show. That weakness will be accentuated by the increases in rents and costs in independently owned businesses. It will be further accentuated by the impression that high-end businesses are doing well, and the time-lag between reality and perception.

The economy doesn't care.

I have watched many home decor, jewelry, dress shops, wine shops, shoe stores, galleries, etc. etc. come to Bend over the years. Some have survived, the quiet ones, the humble ones, the home-grown ones. Others have made a big splash, and then an even bigger thud. They leave a beautiful corpse, higher rent, and an attractive place for the next dreamer.

One of the first business books I read was GROWING A BUSINESS, by Paul Hawken, who started Smith and Hawken. His contention was that most business start Too Big, wasting time, money, and effort on non-essential product and services and infrastructure; That they buy too much inventory before they know what their customers want, that they trap themselves into a business model before they know what kind of real sales they are likely to do. Everything I've seen since then has only confirmed that observation.

It has only been over the last five years that Bend has sustained these kinds of shops for very long.

But, you say, look how well they are doing. Well, I know that many of these stores obviously have money, but I suspect that most of that money is coming from behind the counter, instead of through the front door. That the investment is going to take years to pan out, and that most won't pan out at all. They create beautiful storefronts, with beautiful inventory. The irony being, that the humble little store down the street with used fixtures may actually be turning a profit, while the 'rich' looking store is bleeding money.

What we can never know, from the outside, is how much money is backing the enterprise. What we can never know until the crunch comes, is how motivated the owner is in the face of adversity. The rich don't like losing money any more than you or I do.

Before 2000, I saw high-end store after high-end store fail. With the bubble, with all those new houses needing home decor and furniture, and all the home equity money flowing into town, I think the high-end stores have probably done all right.

But I will contend: the rich don't spend money in Bend.

Half of you have stopped reading, I'm sure. How ridiculous.

But here is what I observe in the real world of retail. A high-end jewelry store opens, with beautiful and expensive items. They also offer repairs and adjustments as a service, and carry a moderate amount of more affordable jewelry for the 'locals'; and what happens is, the high-end stuff almost never sells, the moderate stuff sells O.K., and that a large part of their overhead is carried by repairs and adjustments. An analogy of the above can probably be made for just about every downtown business.

The retired who have moved here are shedding possessions, not adding to them. It's why high rated T.V. programs for the elderly are cancelled, and lower rated teenage programs are renewed: the advertisers know that middle-aged and elderly QUIT buying as much.

So those stores that adjust to the reality of Bend survive. Those disappointed that all their beautiful high-end artwork and furniture doesn't flow out the door, will end up quitting. The ones who have made the reality adjustment will try to keep the illusion of 'high-end' while the quality of their merchandise is slowly adjusted down.

I do not exaggerate when I say there are business downtown that I almost never see any customers in; businesses, that I'm told, are doing big bang business. All I know is, every business I've EVER seen where I don't see live customers on a regular basis, didn't survive. What I'm seeing, and what I'm hearing, don't match. I trust what I see.

I repeat: I suspect that more money is flowing into these stores from behind the counter than from in front of the counter.

I had a competitor once who said; "I don't need to make money." He flashed a big wad of cash around. Six months later, he was closed. I've learned since that "I don't need to make money...." is the kiss of death. It's very hard to make money when you're really trying....working hard, talented, persevering. It's nearly impossible if you "don't need to..."

What matters is how many people walk in the door; how many of them spend money; how much they spend. Except for July, August and December, most of those people are locals, with limited spending power. We are a town which proclaims it has champagne taste, and then goes out and buys a six-pack.

The economy doesn't care. All this will play out over the next few years. Much of it will be obscured by new high-end businesses replacing the old high-end businesses. But I'd be willing to bet, that if we took a random sampling of 10 downtown high-end businesses, that 8 of them will have sold or will be gone in 2 to 3 years.

How dare I make these kinds of predictions? I don't know all the facts. But I do know what costs are like, what profit margins are like, and what the customer flow is like. I know that few businesses can defy reality for very long.

The economy doesn't care.

There are exceptions to every rule, and I'd love to hear about them. Anyone?

I hope Anna Sowa doesn't think I'm picking on her when I respond to her articles. I give her credit for writing about subjects that matter to me and Bendites, instead of generic, fluff business articles. I also sort of assume that it is the editors who are picking the titles of the articles. I've noticed that the content of the articles often contradict the rosy titles.

What I disagree with is the interpretation, the slant, they put on the information.

Yesterday I mentioned that I thought the continuing rise in business starts at a time when Bend's business underpinning are starting to unravel wasn't a good sign. That new business starts are a lagging indicator, planned while the curve was on the way up but likely to come online just as the curve is heading down.

Today, the Bulletin followed that up with the article; "LIFESTYLE ATTRACTS BUSINESSES TO REGION."

I see two problems.

One. Coming to Bend for the lifestyle and then starting a business is ass-backward.

One should start a business because there is a NEED or a DEMAND for the services or product in a town, not because an owner wants to live in a town and looks to start a business. Chances are slim that a new resident is going to understand Bend, start his or her business at an appropriate level, and then succeed. In comparison, look at Lakeview, which has grown by 'only' 3000 people in the last 5 years. I'll be willing to bet than almost any new business started there were started because of an obvious demand, probably started by a resident who knew what he was doing, rather than started because someone came from out of town and decided what the local residents wanted.

Two. "The largest increases were in construction, real estate, rentals and leasing..." Yeah, we need more of those types of businesses, just as new housing starts have dropped 45% and home sales have dropped 26%! The first example of a business in the article was a frackin' real estate office. What happens when everyone in Bend is a realtor trying to sell to another realtor?

I don't want to stomp on anyone's dream, but starting a business because you want to live somewhere, unless there is a demand for that service or product isn't going to work. How do you know if there is a demand? One quick way would be to discover what the average population demographics were for each business, discover if someone is already filling that niche. I'd be willing to submit that there are very few niches that haven't already been filled.

The other way would be to create demand for a service or niche that hasn't previously existed. Creating a business that takes groups of seniors on hikes? Uh, O.K. Thought I can't imagine the day when I'll be so senior that I can't walk down a trail by myself. But, you know, good luck. I've got a pretty good idea, after 27 years in business, after multiple locations, after living in Bend my entire life, what the likely costs and likely rewards are to most stores -- and from my perspective, an awful lot of businesses are, to be kind, micalculations.

I'm afraid that what I see are overestimations on the part of most new businesses for their services or products. Too many of the same kinds of businesses, where the pie can be sliced only so many times before everyone falls below survival levels. Businesses that are started as a 'dream', who over invest from the very start in infrastructure. Stores that are leaving behind beautiful corpses for the next 'dream' owners.

A business community that depends on people losing their money in a sinkhole in order to prosper is on shaky ground. Downtown Bend continues to fail upward -- for every new business that prospers, there are four or five 'recreational retail' stores that will be there only so long as the owners don't tire of losing money, working everyday, and watching the clocks tick.

And this is at a time when the retail climate is pretty good. If there is a slowdown, either nationally or locally, there is going to be a huge shakeout. How can 2000 real estate agents sell 100 houses a month?

I was talking to a business from Portland who told me that there were more stores in Bend offering what he did than there were in Portland. You can probably apply that to alot of businesses in Bend.

I was reading a SF book last night, and they quoted the line: "Nature doesn't care." I'd like to adapt that to business: The economy doesn't care.

Your dream business will not succeed simply because you want it to. It will succeed if there is a need or a demand. It is arrogant and foolhardy to come here from somewhere else, do little or no research, and open a business when you have no business experience. Take those long odds of succeeding in business, and for Bend, double them.

Lonely Maytag real estate.

My next door neighbor is having an "Open House." Since this is my chance to see what's next to me, I bopped on over and checked it out. Huge house, one level, 2400 ft, probably on a third of an acre. Like most houses in Williamson, a nice house. They're asking 495,000

I've been saying how Willaimson Park never seems to have any houses for sale. Well, now we have 3, which is a veritable explosion. I knew that an older couple owned it as a 'second' home because one of their children lived in the neighborhood. She laughed, and said, my parents, my sister, but the they just didn't like the weather, etc.

Asked it it used to be a doctor's office, because it looks like it would be perfect for a couple of offices, or a children's nursury, or a group home of some kind. It used to be something like that.

So I picked her brain. Is it a drawback to be so near doctor's and dentist's offices? -- no, its a plus.

Do you ever read the bubble blogs? -- what's a blog?

How's business? -- this is Bend, people will always want to move here.

Where are all the browsers? -- well, it's the first really nice weekend.

So, the upshot of it all is, I've been gardening all afternoon in the back yard. 3 hours, so far. NOT A SINGLE LOOKER!

The Lonely Maytag realtor.....

Update; just after writing the preceding, a young middle aged couple and probably their mother drove up in an SUV, and checked out the place for probably 20 minutes. Heard them ask about the sprinkler as they left. About ten minutes after that, the realtor removed the sign.

Must not have liked what she heard, and called it a day.

Re; the Bulletin's POSITIVE SIGNS IN AREA GROWTH.

Like a bystander seeing a corpse twitch, maybe.

Really, it is hard to see that the tiny little upturn from the 4th quarter of 2006 to the 1st quarter of 2007 as anything other than a seasonal uptick, which -- if you examine the charts -- happened strongly last year, and even in a little in the boom years.

In other words, I think it's a lot more pertinent to compare 1st quarter of this year with the 1st quarter of last year, for a more accurate appraisal. Hard to see anything positive there. Building permits drop from 392 in the middle of 05; they don't give us 2006, but I'm guessing after the little uptick at the start of of 06, looks to be well over 300 or more. This year? 163. A 50% drop? (I'm sorry, they give us 45% at the end of the article, my bad.)

Yes, housing units sold are up from 295 to 359 from the 4th to 1st quarters, but they are DOWN from 560 or so from the 1st qt. of 06. A 30% drop. (Again, at the end of the article, they say 26%, which doesn't look right, but I'll take their word for it.)

Median days on the market haven't seen any improvement from the last quarter, much less 2006. A increase from 82 to 142 days.

As a businessman, I find any comparisons month to month to be worthless. What would the fact that sales drop -- EVERY YEAR -- about 40% from December to January tell me? I compare December to December, apples to apples.

In the face of all this, the Bulletin finds it positive that new business filings have hardly slowed at all as a positive, whereas I see it as a disaster waiting to happen. I think that new businesses openings are a lagging indicator; and that many of these new businesses were planned in the 2004 to 2005 period, and won't come on line until later this year. Good luck with that.

Edited to add:

To put it in perspective, how many of you could absorb a 45% or even a 26% drop in income? How many of you would just shrug and say, "Gee, I was getting too much money, and now I'm just back to normal wages?"

In my business, I've survived up to 25% drops in business in the short run -- barely. I've survived 50% drops in business over a span of several years -- again, barely. It wasn't pleasant, and almost all my competitors didn't survive at all. I was just more stubborn.

It's really difficult to see any of these figures as positive.

Such a cheerful entry, yesterday. "Quiet Devastation." Ouch.

Then I turn around and have a nearly record day at the store. It was the confluence of my two biggest customers, but still....as Linda always tells me, it all counts. But it feels kind of weird to be so downbeat about the future, and yet be doing pretty well in the present. One doesn't preclude the other, intellectually. But it's a bit of cognitive dissonance that I haven't quite resolved.

The rock chuck had a banquet while we were gone. About a fifth of my backyard garden had the tops eaten off. Either the rock chuck goes, or I do!

Still sticking to budget. The next three months will tell the whole story. We've been beating last year by about 15 - 20% each month, which has been the trend for the past 3 years. So even if we just Match last year, we should actually turn a profit. It's a very rare occurrance, (beside earning my own living.) With all the rent increases and dislocations I don't consider a profit to be anything other than insurance.

A quiet devastation.

I feel like I should add one more thing to my earlier post.

The bubbles I've been involved in, end much quieter than you expect them to.

The people who survive usually have a resigned response. The people who don't survive are like con-artist victims. They don't want to admit to being suckers. Occasionally, you'll get the chagrined, "I wish I sold my Nasdaq stock earlier." Or you get a forlorn, "Are you buying sports cards? I've got a really valuable collection."

Once a person drops out of a bubble, it's the past. It's embarrassing. They move on.

Most of the emotion happens just before the end, as it starts to become clear that things are changing for the worse, and the Casassandra's begin to be targeted. The sports card people spent years bemoaning how 'negative' the messengers were, and how if everyone would be 'positive' it would all be turned around. Which turned a blind eye to the problems, of course. If you can't even acknowledge that there is a problem, you sure as hell can't fix it.

Anyway, there will be a quiet desperation for the next couple years. But it will happen under the radar, to a large extent. The media will move on to the next big thing, once it becomes old news. Frankly, we bloggers are becoming a bit redundant already, (not that that will shut us up) because the things we were saying as possible are now on the front pages as news.

I was just talking to my neighbor for 20 years, Jerry Opie of the Sole Shop, and he was calling me about Sukmi's situation. (He calls me anytime there is a new victim of the downtown rent increases -- a sort of 'told you so...') But see, he's moved on. He is not motivated to indignation the way he was before he moved. Therefore you don't hear anything. He's happy where he's at.

Told you so.

Someone had to say it. The news is just relentless confirmation of what many of us naysayers were saying a year or two ago. Rising interest rates, falling prices, rising inventories, slower retail sales, higher gas prices, etc. etc. Everyday a new story.

Here's the thing that has to be said, though. This is just the beginning. The 300 pound bully has thrown you to the ground. But you're not going to be able to just get up, dust yourself off, and say, "I get your point." No, the 300 pound bully is intent on beating the crap out of you.

It's a slow moving trainwreck, and the first car has just jumped the track, but all the trailing cars don't know it yet, and in the caboose they're having a party. On the side of the tracks, witnesses have heard a screeching brake, but aren't really paying attention.

My job as a downtown retailer will be to dodge the flying debris for as long as possible, to cater to that party, and then dig a hole and wait for it to be over. The commercial side of the equation is still stoking the boilers, raising rents, building new office buildings. Full speed ahead. So I'll make a prediction right now. Everything the bubble bloggers were saying about domestic real estate can be applied toward commercial real estate, just a year or two later.

It will be slow and unnoticeable at first. But, I'll be surprised if in two years I won't be able to look at the commercial aspect and say;

Told you so.



Edited to add:

It probably behooves me to talk about the Kuishinbo Kitchen article in the paper today. I have several reactions.

First is, whenever a new landlord says, "We aren't planning on any changes," Run, don't walk, to the exits.

Second, retailers are for reasons I do and do not understand, very fuzzy about the details of their lease. I was given to understand that everyone in that building had fairly long leases. Thus, I thought when the Double Happiness restaurant had to leave, it was a power-play on the part of the new landlords.

Third, the question of why the landlord wouldn't just raise the rent without fixing the place up. Well and good that they talk about renovating so that can charge more, but in my experience, if they can charge more WITHOUT spending money, that's what they'll do.

Fourth, damn, some people have been getting cheap rent! 1.00 a ft? .82 a ft? I haven't paid those rates for a decade, and believe me my building is just as old behind the facade.

Fifth, I hope that Sukmi Douglass finds a great location, and prospers. Success is the best revenge.