Publication Date: Wednesday, December 24, 2003
Retail sector remains sluggish, report says
Retail sector remains sluggish, report says
(December 24, 2003) City officials step up efforts to support local businesses
by Jocelyn Dong
Signs of economic recovery have been popping up throughout the nation, but there's little evidence of an upturn in Palo Alto.
Sales-tax revenues continued their three-year slide in July-September of this year, according to a city financial report released this month. During that quarter, the city's income from sales fell 12.5 percent, compared to the same quarter the previous year. Sales revenues have dropped every year since 2000-01, when the economy peaked.
"In terms of sales-tax revenue in the state, everybody is already experiencing recovery ... but Santa Clara County is still a black hole at this time. We're not seeing a recovery," said Carl Yeats, administrative director for the city.
The declines have Palo Alto officials worried. The city counts on the sales tax for about 16 percent of its general-fund budget, which is used to pay for city services.
"The whole region has never experienced a prolonged recession like this," Yeats said. "We had tremendous growth, and we knew the tremendous growth could not be sustained, but we did not expect that we would have the perfect storm occur -- a significant economic downturn coupled with a state budget crisis."
The report highlights several "areas of concern" regarding the city's revenues. In the retail sector, competition from other regional malls, such as Valley Fair and Santana Row in San Jose, and discount chains are suspected of gouging the city's sales-tax base.
Looking at data from sales at Stanford Shopping Center, city staff saw evidence of what Yeats called "the spreading effect."
Joe Saccio, deputy director of administrative services, cited some data.
"The stores that are duplicated in Santana Row or Valley Fair, we noticed their sales were down substantially. We were astounded they were down as much as they were -- on a percentage basis, more so than other stores in (Stanford) mall. We believe that those sales are going other places."
For its part, Stanford Shopping Center's new management is planning to research market forces in the second quarter of next year. Last August, the mall was purchased by Simon Property Group from Stanford University for $333 million. Simon owns more than 200 malls across the United States.
Jennifer Halloway, marketing manager, said that while she couldn't speculate about the competition from other malls, management was dedicated to continuing to add stores to the mall and promoting its upscale identity.
"We focus on our environment," she said, when asked about competition from discount stores. Events such as a chefs' tour and kids' club "add to the quality of the shopping experience that big boxes can't offer."
City officials admit to being able to do very little to affect Stanford's bottom line. But given the changing regional-retail landscape and continued recession, they have been stepping up their efforts to encourage businesses and residents to work together in boosting local sales. The "Shop Palo Alto" campaign, launched this year, urges residents to spend their dollars within city limits.
In addition, staff are trying to make the city more business-friendly, speeding approval processes after a recent audit of the Planning Department found ongoing delays. They're also working with businesses owners on the creation of a downtown Business-Improvement District, which would enable joint promotions and activities, attracting consumers, if approved by the City Council.
"There are very few tools for economic development in Palo Alto," said Susan Arpan, economic resources planning manager for the city, "but any way that we can make (our businesses) competitive..."
She cited the opening of parking garages downtown as a way the city is aiding retailers. The city's focus is on retaining businesses already in the area, Arpan said.
During a recession like this one, Yeats said, tooting one's own horn -- promoting the area's safe and accessible shopping environment -- may be key to riding out the rough times.
The ultimate test of the city's retail sector, especially assessing any long-term changes brought about by competition, will be seen when the economy picks up again.
"When business begins to return, it'll be interesting to compare how high-end stores come up relative to others. Then we'll get evidence to see if they're returning back to normal," Saccio said.
Jocelyn Dong can be reached at jdong@paweekly.com
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