After three years of chasing dreams and weathering storms in downtown Palo Alto, Lisa and Scott Hunter are packing it in.
Their Bryant Street shop, Vian Hunter, overflows with bright dresses, patterned blouses and a variety of shirts and shifts, all designed by Lisa Hunter. But these days, customers are scarce, even on a sunny afternoon in one of the busiest areas of town.
"Nobody shops any more," Hunter said. "Even I don't shop any more."
Though Vian Hunter opened with high hopes three years ago, these days the first thing passersby see when they walk past the boutique is a bright yellow sign proclaiming a closing sale. The Palo Alto family now hopes to keep the dream alive by moving their shop to Seattle.
The dismal economy, which continues to keep customers away, has been shrinking store sales for more than a year. But it doesn't help, Scott Hunter noted, that the city is considering instituting a business-license tax, which would be based on gross receipts. Or that the former Walgreens site -- reduced to rubble by a fire two years ago -- is only half a block from the store. Closed streets and recent construction noise made it harder than ever to operate a customer-friendly boutique.
"It's a whole combination of things: the construction, the lack of foot traffic, the tax," Scott Hunter said. "The longer you sit and watch this house of cards fall the harder it gets."
Their story has become commonplace. Stores all over downtown are either shuttering their doors or struggling to hold on to ever-dwindling profit margins. Z Gallerie, a home-furnishings store, departed from its location at 340 University Ave. last month, leaving more than 13,000 square feet of empty retail space in a central downtown location. Magnolia Audio Video, one of the few big-box retailers in downtown Palo Alto, also abandoned its University Avenue property earlier this year. And on March 22, Wolf Camera became the latest University Avenue business to close up shop. The store sign on the front door thanks customers for "allowing us to be a part of your lives and memories" and directs them to Ritz Camera in Menlo Park.
"It's definitely a trend," said Sherry Bijan, president of the Palo Alto Downtown Business and Professional Association, which represents downtown business interests. "We need to really start paying attention to this."
Bijan, whose association has about 800 members, said about 10 downtown businesses have closed down in recent months. But she has also been fielding calls from many other business owners who told her they could no longer afford to pay their rent.
Charles "Chop" Keenan, whose many downtown holdings include the Whole Foods, Borders Books/Varsity Theatre and Miyake restaurant buildings, said he gets calls just about every day from tenants who need help.
"Retention is the new acquisition," Keenan said.
In some cases, including Vian Hunter's, landlords have been willing to compromise on rent payments. But another downtown store, Shady Lane, recently saw its rent double amid a change in ownership.
Bijan said she would like to see the city and downtown landlords become more proactive in helping local merchants stay in business during tough times. One way, she said, would be to have business owners sign one-year leases on their properties, which would then be reviewed and, when necessary, adjusted at the end of the year. Property owners could also be more mindful of sales figures and economic conditions when setting the lease terms, she said.
"As a city, as property owners, we really need to get ahead of this trend instead of getting bowled over by it," Bijan said. "It's really become survival mode."
To be sure, the scene is not completely bleak. Most businesses are still finding ways to hang on and a few are even thriving. But, as a walk up and down University makes clear, hope is becoming an increasingly rare commodity along one of the city's most vibrant stretches. "For Lease" and "Clearance Sale" and "Store Closing" signs almost leap out from windowpanes and doorways on both sides of the street, and parking spots, once rare on this busy stretch, are becoming easier to spot.
"Nobody is signing leases," Deputy City Manager Steve Emslie observed at roundtable discussion sponsored by the downtown association Wednesday morning.
One doesn't need to flip through the city's bleak-and-getting-bleaker revenue figures to sense the obvious truth: Downtown businesses are fighting to stay alive.
The decline of business in downtown Palo Alto, and throughout the city in general, hasn't come as a shock to City Hall. With the nation trapped in a recession, the question asked by City Manager James Keene and other officials isn't "Is business declining?" so much as "How bad will it get?"
Most recent signs point downward. A staff report released last month projected a $2.1 million drop in sales taxes this fiscal year, a 9.5 percent decrease from the budgeted amount.
"With American consumer confidence at its lowest point in decades, consumers are scaling back their spending plans for major purchases resulting in substantial declines in this major revenue source," the report stated.
On April 6, staff came back with even bleaker news: Sales taxes are now down by $2.3 million, or 10.4 percent, from the projected total of $22.1 million. The downward trend, coupled with decreases in hotel-occupancy taxes and document-transfer taxes, has pushed the city's projected budget shortfall to $7.8 million in fiscal year 2009, which ends on June 30.
Emslie said city officials are particularly concerned about downtown's increasing focus on restaurants, to the exclusion of other types of businesses. He noted that both Borders Books and Restoration Hardware -- major companies with downtown Palo Alto stores -- have seen their figures plummet in recent months. The city is worried about how this trend will affect downtown, he said.
"We've always enjoyed a mix," Emslie told business leaders. "If you end up heading into entertainment and food, it makes us a little bit nervous."
Ironically, the happiest news for many in the downtown community is Stanford University's recent decision not to bring more stores to Palo Alto. On April 13, the university -- which leases the shopping center land to mall manager Simon Property Group -- formally withdrew the application to expand the Stanford mall. The proposed expansion, which would have added 240,000 square feet of retail and a 120-room hotel within walking distance of downtown, had alarmed many downtown merchants, who viewed the proposal as a direct challenge to downtown business. The design of the new expansion featured a village-like hub inside the shopping center, full of restaurants, bars and other amenities that would encourage lingering. In short, the proposal would have created a downtown-like environment within a few blocks of downtown itself.
Business leaders had plenty of reasons to be afraid. When Stanford Shopping Center opened its doors in 1956, it drew stores and customers away from University Avenue, turning a previously vibrant stretch into a ghost-town full of boarded-up buildings. In the following decades, downtown merchants responded by creating an assessment district and contributing funds to build parking lots. The new parking structures, coupled with a 1970 court ruling that allowed downtown merchants to serve alcohol, helped businesses flourish in the coming decades.
Not surprisingly, when Stanford dropped its expansion plans, downtown businesses heaved a collective -- yet cautious -- sigh of relief.
Barbara Gross, general manager of the Garden Court Hotel, said at a meeting this week that the shopping center's application withdrawal is a good thing (particularly, from her standpoint, because the proposal included a new hotel). But she also said she wouldn't be surprised if the proposal re-emerges sometime in the future.
"I don't think it's totally off the table, just suspended," Gross said. (A Stanford spokesperson, however, indicated the plan will not return.)
City officials have mixed feelings about Stanford's withdrawal of its proposal. The city requested and supported the expansion, largely because of the millions of dollars in sales-tax revenues the added retail would bring to the city. But as Emslie told downtown leaders, the withdrawal may have some benefits, considering the unpredictable economic arena. It's virtually impossible to predict how successful the new stores would be, he said.
"In some ways, the pulling back of the shopping center is not necessarily a bad thing," Emslie said. "Nobody knows how retail will emerge."
Though business owners are as uncertain as the city officials about the duration of the current economic freefall, even the most optimistic ones balk at the idea of a new business-license tax, which city officials hope to put on the November ballot. City officials have argued that the new tax, based on gross receipts, is badly needed to boost the city's sagging revenues. Though the tax would not help the city get out of its current $7.8 million budget gap, it would provide a new revenue stream at a time when other streams are slowing to a trickle.
Business owners, however, have other ideas. At recent meetings of the downtown business district, the Chamber of Commerce and the City Council Finance Committee, business owners blasted the proposal, which would cost each of them between $35 and $20,000 a year, depending on the type of business and the gross receipts.
Last month, the Finance Committee asked city staff to revise the proposal and lower its revenue target from the new tax. At its meeting Tuesday, the committee unanimously backed staff's recommendation to hold meetings with business leaders several times in May before presenting a revised proposal in June.
But, as business leaders made clear at numerous meetings, it would take major revisions to earn the support of downtown business owners. The Chamber of Commerce has come out in opposition to a tax based on the gross-receipts model and urged the creation of a blue-ribbon task force to come up with a different, less burdensome, tax proposal.
Tommy Fehrenbach, chairman of the Chamber's board of directors, said the current business climate makes the prospect of a new tax particularly perilous.
"It's a really tough time for more taxes," Fehrenbach said. "It's obviously going to have a negative effect by making the business environment even harder."
Developer Keenan said he thought the new tax would also encourage some of the more flexible companies, including venture capitalists, to set up elsewhere. As soon as the new tax becomes a fact of life, many would move their operations "with the flip of a switch," he said.
Bijan, president of the business district, said opposition from local business owners could abate if the city commits to using revenues from the new tax to assist the business community. She said one positive upshot of the new tax proposal is that it would require the city to come up with a business registry, something that Palo Alto currently doesn't have.
"If the council comes back and says, 'Yes, we will tax at revenue base, but we're going to give it back to the business community,' I think the businesses will be more receptive to it," Bijan said.
On Tuesday, the icy tension between city staff and the business community thawed somewhat when city officials agreed to hold meetings with an eight-member group of business owners. Paula Sandas, CEO of Palo Alto Chamber of Commerce, thanked council members for working with the business community and said the chamber is currently selecting the eight members who would take part in the discussions.
But many remain upset about the city's proposal for a new tax. Beth Rosenthal, a psychologist who works downtown and is a member of the business-improvement district, said the city is acting with "undue haste" in proposing its plan.
"There seems to be an implicit assumption that there are deep untapped pockets of revenue in the downtown community," Rosenthal told the Finance Committee. "This is not what I heard from business owners who describe themselves as quite upset at the lower revenues and outraged that the city would propose a tax at a time like this."
A shortage of customers, expensive rents and ongoing competition from Stanford Shopping Center have already chased some downtown business owners away and have prompted others to consider shutting down their businesses. But most say they are staying put, confident that the bad times will reverse.
Alice Deutscher, co-owner of Shady Lane, a store that specializes in handcrafted gifts and accessories, has been running the University Avenue shop for the past 35 years. While sales have dropped precipitously over the last year, Deutscher and co-owner Lesley Obermayer have been scraping by the old-fashioned way: by working harder and responding to changes in customer demand.
Over the past few months, Shady Lane has expanded its variety of offerings, most recently adding a new line of beads created by local artists. They are also willing to keep the store open later, if a customer requests it.
"We're working twice as hard now because that's what we have to do," Deutscher said.
"We try to be very positive because we feel extremely grateful to our customers," she added. "But it's really heartbreaking to see all the small businesses that can no longer make it here."
Jeff Selzer, meanwhile, is thriving through innovation. Since last year, Selzer -- general manager of Palo Alto Bicycles -- and local architect Joe Bellomo have designed a line of "bike arcs" that allow bicyclists to park their bikes in an orderly fashion.
Selzer said the sales in Palo Alto Bicycles were actually up last year, despite the dire economic conditions. He remained hopeful that the business community would find a way to meet whatever challenges come up.
"The economy is in turmoil, the big-box stores have left and there's the business license tax," Selzer said. "But I get up in the morning excited because there's so much opportunity out there."
"It does take work, it does take effort, it does take doing things a little differently than before," he added. "But that doesn't mean we can't succeed."