Downtown Palo Alto stores are struggling with high costs, difficulties in finding employees who will work for minimum or low wage and a parking shortage, among other problems, a panel of business owners said Wednesday morning during a discussion on the future of retail.
Held in a vacant store on 217 Alma St. -- the former North Face outdoor-gear store -- the "Brick and Mortality" event was sponsored by the Palo Alto Downtown Business Association and Premier Properties Commercial Real Estate and included representatives from the City of Palo Alto, business owners, landlords and retail-trend spotters.
Lori Silverstein, CEO of Peninsula Beauty Supply, comes from a long line of retail owners -- her great-great-grandfather owned a department store on Market Street in San Francisco. She said she has seen many changes since opening her University Avenue store in 1982. Employees cannot afford parking permits, which are slated to rise to more than $700 a year in 2018. And combined with the high cost of living, lower-wage workers are heading for greener pastures.
"I lost my store manager to a job in an office paying $5 an hour more, and she doesn't have to work weekends," Silverstein said.
Peter Katz, owner of The Counter restaurants, has a location on California Avenue and others spread throughout the country, including 21 in California.
The balance of brick-and-mortar retail and restaurants affects the viability of both types of businesses, he said -- and the loss of retailers harms dining establishments.
"Traditional retail and restaurants have a symbiotic relationship. If the mix goes out of balance one way or another, it's a problem," he said.
Both drive foot traffic to each other, with hungry shoppers looking for places to have lunch and diners stopping at stores to shop. In Palo Alto, the presence of too many restaurants is becoming an issue, and as a result, restaurants are having a hard time, he said.
Katz and Silverstein agreed that parking is also a problem for customers, which impacts the bottom line. Silverstein sees higher sales at her other store locations, where there is a good mix of retail and parking.
"My No. 1 store is in Redwood City at Sequoia Station. There is a lot of activity and it is near the train station," she said.
In other locations, such as in Burlingame, parking is a challenge, but the Burlingame store is thriving because it is located with a better mix of stores to draw in customers, she said.
Wealthier communities such as Palo Alto can be a boon but are also fraught with hazards. In those locations, Silverstein must stock pricier brands to attract customers, but those brands mean "a huge investment. It costs more to get inventory that customers demand today," she said.
Katz and Silverstein said they face the obvious challenges from online retail and have adapted by making their products available on the internet, which has been lucrative. But now complications are creeping in.
Silverstein started a thriving, multimillion-dollar online store about 10 years ago. But sales have dropped as more retailers have started offering discounted products online. In addition, some suppliers don't allow her company to discount their products, but they give permission to Amazon to do so, she said.
New habits of the younger generation are also affecting how their businesses function, Katz and Silverstein said. Millennials grew up accustomed to rapid-service models, such as Amazon Prime.
Katz said that many younger people are foregoing the sit-down restaurant experience in favor of ordering online for pick up or delivery. He recently had a full dining room of 100 people and received five DoorDash orders.
“One was 29 entrees," he said, which puts a strain on staff members while they try to serve seated customers, who have priority.
Landlords and businesses also face the conundrum of how to get customers to stick around long enough to shop. Matt Taylor, senior leasing manager at Westfield Group, which owns and operates 35 shopping centers mainly in the U.S. and the United Kingdom, said that landlords and developers are looking at models that include entertainment and other amenities to draw in customers. Its Westfield Valley Fair shopping center in Santa Clara, for example, will have a $1.1 billion makeover that will include full-service restaurants and connect to Santana Row.
Katz noted that a proposed project at Stonestown Galleria in San Francisco would take out the Macy's and replace it with a movie theater, restaurants and a grocery store.
But while landlords often get a bad rap for "pushing out" or not leasing to a mix of retailers, the issue is more complicated, landlords and property-management company executives said.
Aaron Dan, managing director of retail brokerage Lockehouse Retail Group, Inc., said his company has 10 restaurant tenants, one fitness tenant and no traditional retailers in its portfolio, but that's because the interest from stores isn't there.
Jon Goldman, managing partner of Premier Properties, said 90 percent of the calls the company receives for potential leases are from restaurants. Fitness businesses are also clamoring to move in.
"There are very few interested retailers for soft-goods retail," he said.
Perhaps ironically, while traditional brick-and-mortar businesses have been fighting for their lives in the face of competition from online retailers, some large internet stores are looking to open stores. Amazon just opened a bookstore in Santana Row, Katz noted, and that model could further erode the presence of small retailers.
Betsy McGinn of McGinn eComm Consulting and Dan of Lockehouse Retail Group said businesses that succeed have specific targets or fill a specific consumer need. McGuinn, who consults with small companies and startup retailers, said some of her most successful clients, such as Warby Parker, which allow customers to choose eyeglass frames from the website to try on at home free of charge, and Dollar Shave Club, which mails razor blades each month at cheap prices, filled unmet needs by saving customers time and money.