Publication Date: Wednesday Dec 20, 2000

Paris, New York and...Palo Alto?

The holiday shopping season has arrived on University Avenue, Silicon Valley style. The street jingles with ringing cell phones and chatter about $25 million investments, as shoppers clutch bags filled with chic clothing, jewelry and high-tech gadgets. Upscale restaurants hum with the merry sounds of people who have cash to burn.

Downtown Palo Alto's appeal to well-heeled shoppers and diners is hardly news. But the recent clamoring over vacant storefronts on downtown's public face, University Avenue, shows how eager national and local retailers are to reach those consumers.

In the past week, a women's clothing chain and a Bay area furniture store have opened up shop, and a national shoe company could do the same within the next few months. The demand for retail space on University Avenue prompts some major companies and real estate scouts to keep a close watch on possible openings. Even the vague rumor of a store closure is enough to cause a stir among retailers and Realtors alike.

"Other businesses similar to ours, national chains and regional stores, have their eyes on University Avenue," said Russell Pritchard, owner of the San Francisco-based Zonal Home Interiors. Zonal opened its first Peninsula store on University last week. "It's a sought-after avenue."

University Avenue has experienced a strong rebirth within the past decade, after events such as the opening of the Stanford Shopping Center in the late 1950s and recessions turned downtown into what some describe as a ghost town. But downtown's growing prestige has some people concerned that University Avenue looks more like Rodeo Drive than Main Street.

"In some ways, residents have given up their downtown to the region," said Susan Arpan, the city's director of economic resources planning. "It's not what the neighbors like to hear, but University Avenue is not where local residents go to get their prescriptions filled."

The region, and the nation for that matter, are paying attention. According to one source familiar with downtown real estate, competition for space is so strong that by the time a vacancy becomes known, several potential renters have already lined up.

Zonal Home Interiors had been looking for space either in Palo Alto or Burlingame for about a year, and got the space at 367 University Ave. only after talks between the building's owner and a national clothing company stalled, Pritchard said. The furniture store, which replaces the Spirals art and craft gallery, got a lease within five days.

Last Wednesday, the Fort Myers, Fla.-based women's clothing chain Chico's opened up shop at University and Waverley Street, where Boudin Sourdough and the European Cobblery used to be. James West, Chico's director of real estate, said the stores' customers tend to be women in their 40s to 60s.

"We cater to a clientele that is maybe of a higher income than is the norm in our country," West said. "We chose Palo Alto for the great community that it is."

Chico's landlord, developer Roxy Rapp, said the store changes are helping downtown evolve into a place that attracts youthful and affluent customers. Walking past several buildings he has developed on University, Rapp said the days of small, independent stores lining the avenue have long since past. Customers, he said, now expect something different from downtown Palo Alto.

"We've got a beat and vitality and a diversity that's wonderful," Rapp said. "There are always stores coming in and out, but there's a reason for that change."

That demand for change has come at the expense of several businesses, which have left downtown because of high rents, competition from bigger retailers, industry shakeouts or a combination of the above. Even popular Palo Alto institutions are not immune. After 40 years in the city, Stacey's Booksellers will close its doors Jan. 19. Stacey's two other stores in San Francisco and Cupertino will remain open.

According to store manager Aurora Pribram-Jones, Stacey's isn't leaving because of high rent, but because of increased competition from online booksellers and big chains. She said customers' expectations have changed in this age of big megastores and seemingly limitless supplies available through the Internet.

"I think a lot of people are used to shopping in larger stores," Pribram-Jones said. "The expectation is that you will have it when people want it. And customers are not as willing to wait as much as they used to.

"That's the attitude customers have today, and that makes it harder for small stores like us," Pribram-Jones said. "That's not anyone's fault but our own."

Much of the turnover in retail space has been attributed to expensive rents that even many "successful" merchants can't realistically pay. According to several estimates, retail space on University can run anywhere from $3 or $4 per square foot to $7 and higher, making Palo Alto one of the most expensive addresses chains can add to their storefront list of locations.

But some property owners say it's not fair to blame them for pushing smaller independent and less upscale businesses out of Palo Alto. They say it's a combination of factors, including higher property values and a market that increasingly favors bigger retail conglomerates.

"I'll tell you one thing, I really wanted Stacey's to stay," said Dane Hantz, who owns the building. Hantz, who lives in Arizona, said he tried to find a way to get the bookstore to stay, but it didn't work out. Last week, Hantz was negotiating with Casual Shoe Company to fill the space. He said the turnover is a combination of real estate pressures and the property owners' need respond to downtown's changing culture.

"Obviously, rents have an effect on what stores can stay," Hantz said. "But a lot of owners feel a certain responsibility to bring in a certain level of store to maintain University Avenue's profile."

Kerry Chafey, landlord to Zonal Home Interiors and Spirals' former landlord, said she was upset by reports that she had driven Spirals out by hiking the rent. Spiral's owner, former City Councilwoman Micki Schneider, told the Weekly in August the store closed because of high rents. Chafey said that she and Schneider couldn't agree on a lease length, but added she charged below-market rent and even lowered Spirals' rent at one point.

"We'd as landlords love to keep the flavor of Palo Alto," Chafey said, adding that her family has deep ties to the city. Her relatives also own Mills the Florist, a few blocks down the street. "It's not just about the almighty dollar."

But Chafey and others pointed out that downtown's customers are changing. While the shopping district still attracts many locals from Palo Alto, Stanford and other nearby cities, it has also become a drawing point for Bay Area residents, business travelers and visitors to Stanford.

"Clearly, Palo Alto has become a Mecca for good food, shopping and location," Chafey said. "There's a lot of money that can be spent here."

For decades, University Avenue's fate has also been tied to Stanford Shopping Center, less than a mile away. In the 1960s, stores and customers flocked to the brand-new shopping center, and it took years for downtown to rebound. Though many acknowledge a level of competition between the two shopping areas, downtown and the shopping center have collaborated on marketing efforts, trying to woo would-be travelers from other parts of California to spend money in Palo Alto.

The idea is to get tourists from places such as El Dorado or Grass Valley to come to Palo Alto, and they'll probably end up at both downtown and the shopping center, said Robyn Urvinitka, who works for the shopping center's marketing department. Urvinitka said that a rivalry between the two shopping areas may have existed, but added she hasn't seen it during her tenure. That kind of attitude is counterproductive, she said.

"We feel they complement each other, that they play off of each other," Urvinitka said. "There certainly is room in Palo Alto for both a shopping center and a strong downtown. It's great for Palo Alto."

Some downtown merchants said downtown and the shopping center can coexist more easily now that each essentially offers different things to consumers: The shopping center has more the high-profile clothing chains and department stores, while downtown offers more restaurants and nightlife.

Downtown merchants say downtown does have some disadvantages in attracting customers. Georgie Gleim, who owns Gleim's Jewelers stores on University and in the shopping center, said downtown merchants have to worry more about keeping streets and sidewalks clean and other public works issues.

Stores downtown also can't compete with the amount of parking the shopping center can offer, said Gleim, who also serves on the Chamber of Commerce's Downtown Marketing Committee. Early next year, downtown property owners will vote on whether they're willing to pay for two new parking garages.

Merchants say maintaining a different atmosphere is essential to keep shoppers coming downtown, and that the area will thrive as long as it maintains a collection of slightly more independent, more eclectic shops.

"People come to downtown for stores than can't find in your average mall," said Gleim, who described a "gentle competition" between the two shopping areas. "Downtown has a real distinct feel that Stanford can't offer."

But some University Avenue retailers said they're concerned that downtown will lose its distinctiveness as more national chains come knocking on Palo Alto's door. Hitomi Yasuda, marketing consultant for M.A.C., Marin Apparel Company, said the women's clothing store depends on other small businesses to bring foot traffic downtown.

"When cute little stores that complement each other but don't directly compete with each other leave, there's not enough reason for people to come to downtown for one store," Yasuda said. "It's inconvenient for people to come all the way downtown for one store."

Yasuda said M.A.C. works hard to compete against clothing stores at Stanford, but said it's difficult because big stores can slash prices and pay signing bonuses to sales clerks for temporary help. Though she's happy that Chico's has opened and will add to the foot traffic of people shopping for women's clothes, Yasuda said it's unfortunate that other businesses are driven out by high rents and other difficulties.

"It makes me very sad to see these stores leave, because I know it's not that they're bad businesses, it's because of circumstances," Yasuda said.

Susan Arpan is heading the city's efforts to study the local retail market and see what, if anything, the city should do to help protect smaller businesses. Though the city has an interest in protecting smaller shops that serve people's day-to-day needs, Arpan said, Palo Alto shouldn't tamper with the downtown's success, either.

"Would we like to go back to the days where we had empty storefronts?" Arpan said. "I don't think so."



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