‘Online rules everything’: Internet, operating costs force Berkeley retail businesses to adapt

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Kirstie Bennett, co-owner of The Framer’s Workshop, has seen the landscape of Berkeley’s Telegraph Avenue district change for better or for worse, since 1977 when The Framer’s Workshop opened in the Telegraph Channing Mall.

Although The Framer’s Workshop, a framing retail and service business, has been doing well, it stands as an example of a store forced to adapt to a changing commercial climate. Bennett pointed to rising rent costs, online commerce and changing neighborhood conditions as challenges for her and other owners of small retail businesses. It took a remodeling of her store and the addition of a new section to revitalize the business.

Overall retail usage in Berkeley’s commercial districts has declined from 44.8 percent to 39.4 percent in just three years, according to the city’s Office of Economic Development, or OED. These figures capture the reality for businesses who sell non-food and non-service goods, including bookstores, clothing shops and Bennett’s framing shop.

“Our independent, locally owned small businesses help to define the distinctive character of Berkeley,” said Jordan Klein, the city’s economic development manager. “And by providing critical goods and services that are locally accessible, they help to make our economy more sustainable.”

But commercial spaces have been increasingly occupied by offices, personal services or other non-retail businesses.

“Local retailers are absolutely seeing their sales figures decline, and that’s a problem for local communities,” Klein said.

The rise of restaurants

M.A.C. Berkeley, a shop specializing in computer repairs, is one of the small retail and service businesses that has survived in Downtown Berkeley since 1985. Store owner Wai Lee has seen the variety of shops in the area drop as each is replaced one by one with a food-selling businesses.

“Any time another business closes it’s sure to be replaced by another restaurant,” Lee said. “I’ve had people ask me to buy out my lease for a restaurant.”

Downtown Berkeley appears to be one of the most extreme examples of a shift away from retail toward food business. According to the city’s demographic and economic profile, there are more than 150 restaurants in Downtown Berkeley alone. Retail sales tax revenues have been in decline in Berkeley for the past several years, and they now bring in less money for the city than food and beverage businesses.

Berkeley has long been known as a center of diverse fast food and fine-dining cuisine. It has been ranked one of the best college towns for food, and it hosts a number of internationally renowned restaurants in its Gourmet Ghetto. But small business owners are beginning to push back on the sheer volume of restaurants and cafés in the city.

“I think having more food is boring — we have enough food,” said Kyle Martin, an employee at the clothing store Bows and Arrows. “There’s so many of the same thing out here.”

The Telegraph Avenue district, which extends from Bancroft Way to Parker Street, has also witnessed a “dramatic increase” of food and beverage services, according to an OED report. Now, 32.4 percent of ground floor commercial space in the district is occupied by restaurants, coffee shops and other food and drink shops.

“It’s almost all food. There are some small clothing businesses but an awful lot of food and coffee,” Bennett said.

Jade Weitzman, a retail employee at Indigo Vintage Cooperative, said she believes that the food business will only continue to grow. She added that this might be beneficial in areas with a lot of student customers, who increasingly prefer faster and more affordable food.

While the OED reports that commercial districts are increasingly reliant on food and beverage services as a driver of sales and foot traffic, some retail business owners do not think they have benefited from the change. Carol Lipnick Dougherty, the owner of Berkeley Hat Company, said she felt that there were less people walking by and that Telegraph Avenue “doesn’t seem to have the jazz it had before.”

Internet competition

UC Berkeley opened an Amazon campus store in 2016, providing students with a convenient location to pick up their products. Students are also eligible for Prime Student membership, a discounted version of Amazon Prime that includes benefits such as free two-day shipping and streaming of movies and TV shows.

According to the OED, 32 percent of small businesses interviewed mentioned Amazon as a challenge for independent retailers and described the online store as the “elephant in the room.”

“Amazon doesn’t provide local jobs the way these independent businesses do,” Klein said. “Competition from the internet has a big impact on retailers more so than it has on services or restaurants — you can’t go out to eat online.”

Online shopping poses a challenge to Berkeley businesses on a number of fronts, ranging from decreased foot-traffic to increased competition from lower online prices.

Doris Moskowitz, a board member at Moe’s Books, added that organizing the bookstore’s shipping, cataloging and online order services require a lot of time from store employees.

Moskowitz said she prefers walk-in traffic over online orders. She said talking to the employees and buying a book means that customers spend more time in the area, potentially also benefiting neighboring businesses.

“What you get in a small business is personalized service from people who care and have a greater selection in frames than you’d find online,” Bennett said.

While competition from the internet may drive some small businesses to closure, some businesses have also used online shopping to their advantage.

Bows and Arrows, a small shoe and clothing retail business on Telegraph Avenue, receives many orders online, especially from clients in Asian markets looking to buy shoes that aren’t offered in their local market, according to Martin.

“I don’t even think the business would be here if it wasn’t for our online shop — online rules everything now,” Martin said.

Costs of business

According to Klein, the increased cost of labor is particularly hard on retailers that rely on unskilled labor or entry-level positions. Berkeley minimum wage increased from $12.53 per hour to $13.75 per hour in 2017; it further increased to $15 per hour in 2018.

Business owners also cited commercial rent increases as a key threat to business profitability and sustainability by business owners in Berkeley, according to the OED.

Berkeley does not have commercial rent control because of the Costa-Keene-Seymour Commercial Property Investment Act of 1987, a statewide legislation banning commercial rent control as a policy tool throughout California. This means that owners who rent spaces for their businesses have no control over their rent.

Moskowitz and City Councilmember Lori Droste said rising rent was a big problem for small businesses in Berkeley. As a member of the merchant committee in the Telegraph Business Improvement District, Moskowitz said the district urges property owners to be reasonable with rent changes.

Although Klein said rent typically only accounts for 10 to 20 percent of business costs, Bennett said the lack of rent control makes it difficult for small businesses to invest in revitalizing their stores and evolve with the customer base. She added that many small businesses appeared to be just “hanging on.”

How retail stores are adapting

Despite the challenges retail stores in Berkeley face, business for Mars Mercantile — a Telegraph Avenue vintage clothing establishment for about 30 years — has improved over the past year, according to its manager Leslie Kieffer.

In addition to Mars Mercantile, Telegraph Avenue has several vintage or second-hand retail stores such as Anastasia’s New & Vintage Clothing, Indigo Vintage Cooperative and Buffalo Exchange. According to Kieffer and Weitzman, their customers were more inclined to buy in-store because of inconsistencies in clothing sizes and textures. Weitzman added that second-hand customers also tend to be more environmentally aware about creating more clothing or packaging waste from online shops.

Lee, Dougherty, and Kieffer said business trends, whether it be the influx of more food and beverage services or the popularity of certain fashion trends, depend on what the consumer wants.

In order to support small businesses that have not benefited from the same customer support, the OED has established several programs to help maintain their financial viability. These include the Revolving Loan Fund, which provides access to capital at low interest rates for investments such as business expansion.

Droste also said she consistently talks with businesses and communicates with constituents about local events to increase small-business patronage. City officials and business owners are continuously encouraging people, especially students, to shop locally.

“We watch these trends all the time and adjust to that,” Bennett said. “That’s one of the beauties of being owner-operated, because we have the pulse of the business right here.”

Andreana Chou is the lead business and economy reporter. Contact Andreana Chou at [email protected] and follow her on Twitter at @AndreanaChou.