Can downtowns keep up?

• This article is part of a larger story on Reimagining retail.

A walk down Palo Alto’s bustling downtown and California Avenue business districts would seem to indicate that businesses are thriving. With busy restaurants and tony new stores that have just opened, the city’s retail landscape appears bullish. Make that a bull with pretty big horns.

But some retailers are experiencing a darker reality, underscored in red in their ledgers.

“Some are fine and some aren’t. It’s a mixed bag,” said Russ Cohen, executive director of the Palo Alto Business and Professional Association.

“I got a call from a retailer recently who said, ‘I don’t know what to do. My business is down; the foot traffic is down,'” he recalled.

To help Palo Alto retailers, the association held a forum, “Brick and Mortality,” in July to identify some of the problems facing downtown businesses. Shop owners said a lack of parking is driving customers away, and the high cost of housing is making it tough to recruit employees, Cohen said.

There are also skyrocketing rental rates and the ever-growing migration of customers to online retailers, which offer near-immediate gratification and ease of shopping. And everyone has heard the stories of shoppers who come in to try out a product, then move on to purchase it online for less.

Palo Alto and other local cities, in an effort to retain vibrant downtowns, are looking at ways to help local retailers through zoning and other municipal tools.

Hillary Gitelman, city of Palo Alto director of planning and community environment, said that Palo Alto should look at ways to create a scale of rents to attract and retain an array of businesses. It might be that leases for retail spaces on the fringes of downtown could be less expensive, she said.

Already, the city has taken steps to aid its retailers. Last year, Palo Alto adopted an ordinance to limit franchise businesses in the California Avenue business district, to leave some breathing room for mom-and-pop shops.

The city also conducted a parking study downtown last year, and Gitelman hopes to convene retailers to discuss their needs and to examine the parking and traffic study.

“I’ve asked Russ and Judy (Kleinberg, CEO of the Palo Alto Chamber of Commerce) to set up focus groups to talk about short-term parking for customers and long-term parking for employees,” she said.

Cohen, who hopes to have additional forums to help retailers by bringing in experts, said that newer retailers are likely to seek smaller spaces and to carry fewer but more specialized products. The city should shape zoning to accommodate those needs.

“The notion of a 3,000-square-foot space in downtown needs to be reimagined,” he said.

Other local cities are addressing similar concerns. Redwood City is expanding its downtown footprint with a mix of uses that city officials hope will bring more customers to its retail areas. The city’s 2001 Downtown Specific Plan includes 500,000 square feet of new office space, 2,500 new residences, 100,000 square feet of new retail and 200 new hotel rooms, most of which have recently been built or are under construction.

In terms of zoning, the city recently expanded ground-floor retail protection to Main Street as well as Broadway. The city also allows the spaces to be divided into smaller units, said Catherine Ralston, city economic-development manager, enabling some smaller boutiques to open.

But the city has to be careful with that approach: If all of the spaces are subdivided, they won’t be attractive to an anchor store wanting to move in, and an anchor store might be part of what’s needed in the downtown mix, she said.

In Burlingame, one of two main shopping districts is thriving while the other is challenged, said Kevin Gardiner, planning manager for the city of Burlingame.

Downtown Burlingame, with its concentration of retailers and restaurants, is riding high with its mix of locally owned shops and chain stores. A streetscape project widened sidewalks and added more seating and displays.

The other area, Broadway, has businesses that serve more local needs.

“There are a lot of mom-and-pops (businesses). People say there needs to be a draw of chains to draw people. When there are all local businesses, it’s hard to get critical mass,” he said.

The city is trying to act as a matchmaker through its economic specialist, who introduces retailers to property owners, which helps reduce vacancies. The city’s downtown business improvement district and Broadway also host monthly events.

The efforts have made downtown a destination spot — even for teens.

“In my day we went to the mall. Now I see teens going downtown. It’s a social scene,” Gardiner said, noting their attraction to new and trendy stores, such as the boba tea shop.

Ann Fienman, executive director of the San Mateo Downtown Business Association, said her organization is promoting its businesses through social media.

The business district also attracts people through arts events, such as “yarn bombing,” in which whimsical knitted art objects were added to everyday street objects, like the “squid tree.” The district’s also hosted pop-up performances by a mobile theater company and added murals to create visual interest and a sense of discovery.

“We are fortunate to have a lot of foot traffic. It’s a great advantage to have a train station in the center of town,” she said.

San Mateo built movie theaters in downtown 13 years ago, which was the area’s turning point, she said. Retailers also do their part: Atlas Skateboarding is well-known for its product releases, and Baking Arts, a specialty baking and candy-making supply retailer, offers classes. Specialty market Draeger’s offers a cooking school.

“It’s something that can’t be duplicated online,” Fienman said.

But Michael Berne, head of Berkeley-based MJB Consulting, who is working with Redwood City, said that cities should beware of counting on any particular trend for its economic success. A downtown with a continuum of retailers, encompassing multiple uses and price points, is needed for the success of all businesses, he said.

Having a small anchor store and small chain stores would bring in more regional customers, who would also then likely shop at the smaller stores, he said.

As with investments, having a diversified strategy is the best approach. When he looks at downtowns such as Palo Alto’s with its strong concentration of restaurant and fitness businesses — and with other Peninsula cities such as San Mateo and Burlingame seeing the same trend — Berne said he is starting to worry.

When downtowns go too far in the food and beverage direction, the question becomes whether the area can sustain its boutique retailers. Once the erosion of retail space has begun, it’s very hard to arrest that process, he said.

“There’s a tendency to think we are always in the new normal. But it will change again. What happens if Generation Z suddenly develops a love for cooking? These things can change in a hurry. Retail is always uncertain. It changes constantly,” he said.

• Watch “ Behind the Headlines” to hear Weekly journalists discuss the changes in retail.