San Francisco's independent retailers disrupt themselves to survive
Retail in San Francisco is hard for the little guy. Shoppers have migrated to mobile. Commercial tenants have no rent control protections. A new minimum wage law has taken effect, amounting to a 40% increase over the next five years.
Larger retail chains -- Target being the most visible example, opening three stores in the past five years in the city, with plans for more -- can absorb these inflating costs with savings elsewhere, whereas for locally-owned shops these pressures seem sure to decimate already-slim margins. One might expect to see book, hardware and video rental stores retreat into the annals of history, barely missed by today's spoiled shoppers, who have all the world's inventory at their fingertips.
In defiance of this foregone conclusion, a growing number of San Francisco's locally-owned small businesses have begun innovating and iterating to save their lives.
The first sign of this resistance came in February, at a public meeting held by Alan Beatts, owner of Borderlands Books on Valencia Street. Beatts had called the meeting to discuss his decision to close the bookstore in order to avoid a slower death at the hands of the mandatory wage increase. An incredibly varied crowd of about 300 turned out to pack the bookstore's adjacent cafe -- there were weirdos and professionals, goths and hippies, old and young, townies and newcomers. All were bound together by a shared love of reading science fiction, fantasy, mystery and horror and of finding their next title in a brick and mortar store.
When news of the store's closure had reached local media weeks before, Internet comment threads roiled with outrage that a store-owner would have the temerity to blame the minimum wage ordinance for the demise of his business. The law is popular, the result of a voter initiative passed at the ballot last November with 77 percent of the vote. It's supporters considered it a progressive triumph -- a thumb in the eye of big business and a rare glimmer of hope for the City's less-than-rich. The city's minimum wage is set to increase each year until it reaches $15 an hour in 2018.
I spoke outside with Beatts before he took the stage. It was plain that he wasn't relishing the idea of explaining himself from the makeshift stage, to a crowd he worried had arrived loaded with its own convictions. He'd already laid out his position at length on the store's website, and more recently over the airwaves on the local ABC affiliate and MSNBC's Morning Joe. The story had been picked up by the New Yorker, NPR and Breitbart (the last with a gleeful schadenfreude you can probably well imagine). Beatt's rationale was simple -- his margins were slim, and he couldn't raise the price of his merchandise to compensate for the increase in his costs. The prices are printed right on the covers. The numbers didn't look good, so he was getting out while he could.
Beatts lingered outside, steeling himself for his task. When he did finally step through the door to take his seat on stage, he wore the stoic look of a man ascending the gallows.
When I spoke to him two days later, Alan Beatts was beaming. He almost choked up as he recounted the meeting and the quick chain of events that followed. As a last-ditch effort to save the store, it was proposed that he sell yearly $100 sponsorships. Although details of the benefits which would accrue to the sponsors had yet to be ironed out, he met his goal of 300 sponsors in the first 24 hours. Three months later, the tally has climbed to nearly 800.
That's $80,000, which may seem paltry by Silicon Valley standards, but for Beatts it's enough to ensure he'll stay in the black for some time to come.
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Bryan Hibbs was also in the Borderlands cafe that evening in February.
In 1989, at the age of 21, Hibbs opened Comix Experience on Divisadero St. with $10,000 and his own comics collection. In 2013, he purchased a second store in the Sunset.
"I bought the new shop based on old math," Hibbs told me this week, "Now it's money loser. I thought maybe I could live that American Dream, you know. I'm not the 1%, I take the bus and my wife's car is 11 years old. These are the type of small businesses that are going to be hurt the most, the ones that are trying to grow or expand, or are just starting out."
It was at the Borderlands community meeting that Hibbs struck upon an idea to save his business.
"I was sitting next to a woman that I know, but who isn't all that into comics. She told me that she didn't really know where to begin, but if I would pick out a comic every month and send it to her, she would buy it. And a lightbulb just went off," Hibbs said.
Since then, he has purchased the domain graphicnovelclub.com and set out to do just that. For $20 a month, anyone in the world can sign up to receive the comic that Hibbs and his staff deem to be the best release that month. He's also just set up a $15 a month graphic novel of the month club for kids. In addition to the book shipment, club members can attend or watch monthly book-club meetings, often featuring call-ins from the books' artists and authors.
Hibbs reckons that he needs to sell 334 club memberships this year, and six weeks in he has sold nearly two hundred. Within a block of his Divisadero location, two other small businesses -- a longtime mom-and-pop run cafe and a convenience store -- have closed up shop in that same timeframe after rent increases.
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Just a few blocks down Valencia Street from Borderlands, Lost Weekend Video is staging a similar campaign.
"We're basically throwing everything at the wall to see what sticks," co-owner Christy Colcord told me by phone yesterday.
In 2012, the cineast treasure-trove added live-performance to their business model, programming stand-up and sketch comedy in their 25-seat basement "theater" (dubbed the CineCave) five nights a week. Last fall co-owner Dave Hawkins told me that, were it not for the success of these CineCave shows, the store might have closed already.
This Spring, Lost Weekend has ratcheted up the experimentation. They've consolidated their 27,000 titles into half of the space and rented the front half of the unit to Oakland-based record shop 1234Go!. They launched an IndieGoGo campaign to save the store which raised over $35,000. Currently, the store is selling tiered membership plans for $100, $250, and $500 per year.
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Each of these three businesses has built a devoted followings over many years, and occupies a cultural niche that comes preloaded with die-hard fandom. If any small businesses can parlay customer support into a new revenue stream, it's these ones. And while I am thrilled that Borderlands will live to sell another year, and hopeful for Comix Experience and Lost Weekend, it's clear that these new models won't work for everyone. It's an idea that just can't scale. Who is going to sponsor their corner store, or sign up for a hammer-of-the-month club?
Still, these unconventional new business plans have bucked a trend and flipped a narrative. And there are signs that they won't stop there. Beatts has said that, once he catches up with the data-entry burden his new model entails, he plans to help independent, locally-owned businesses to organize and wade into the political sphere.
Here again the small-retailers seem to be adopting a methodology that has worked well for the tech sector: lobbying local government.
One emerging vehicle for this effort is the San Francisco Locally Owned Business Alliance, a loose coalition of some 200 businesses, from booksellers and clothiers to hardware stores and professional services. While it lacks the 'bandwidth' -- in terms of both time and money -- of tech coalition Sf.Citi, SFLOMA has a compelling case to make at City Hall on behalf of its members, replete with hooks that local politicians usually can't resist. Jobs. Taxes. Quality of Life.
The SFLOMA website is armed to the teeth with studies demonstrating the outsized impact that independent, locally-owned businesses have on the life of the city.
SFLOMA's volunteer Executive Director Hut Landon believes there is hope for the city's small businesses despite the pronounced economic upheaval afoot.
Landon hopes to organize events and information sessions where small business owners can share best practices and novel solutions. He's looking at putting the owners of Lost Weekend, Borderlands and Comix Experience on a panel to share their stories with their peers. It might not sound revolutionary, but it is evocative of the original LSD-fueled, DARPA funded definition of 'bootstrapping', courtesy of Doug Engelbart: "working in an iterative fashion in which each improvement would in turn accelerate the pursuit of further advances." It could also embody a return to an older, more altruistic definition of 'sharing.'
In addition to organizing, SFLOMA hopes to divide the labor of engaging with City Hall. There is reason to believe that legislators may be receptive to their arguments. Last summer, SFLOMA's leadership played an instrumental role in reworking the minimum-wage-raise ordinance, which originally would have raised the wage to $15 an hour in one fell swoop. Instead a compromise was reached, and the current graduated schedule of increase was implemented.
Landon says he supports the wage increase, and that now is the time for small businesses to press their advantage.
"What we are really pushing for is to ask the City to help independent businesses if they care about them. We have some of the highest business expenses in the country, with permits and Healthy SF and mandatory transportation benefits. And then you add the minimum wage increase. And that's fine, do all that, but can you do something to help us out too?"
He has some very specific ideas for what the City could do to affirm its support for local businesses.
"Rent is the most pressing issue, because business owners have no control over it. With payroll there are things you can do, but if the landlord says this is the rent, then that is the rent."
Landon has two proposals to incentivize landlords to rent to local retailers at rates they can afford. And neither of them is rent control, which he deems a lost cause.
The first is a tax break (he evokes Mayor Ed Lee's deal with Twitter as an example) for landlords who rent to independently owned small businesses at below market rate rents. The second involves counteracting a Federal policy which rewards landlords who keep a commercial unit vacant with a tax write-off.
"What happens is an independent business will go and say we are interested in going in here and the landlord says ok, but its cheaper for me to take the tax write-off and leave it vacant than to rent to you at a rate you can afford. Could the City look at a tax on landlord's leaving property vacant for more than six months?"
San Francisco today is an economic success story that is the envy of the nation, and increasingly a destination for the best-educated and most highly-skilled to pursue a career. Almost none of those people need pickaxes and shovels, but they do need screwdrivers and duct tape and socks. Some of them might even still read books. Nearly all of them enjoy the city's vaunted restaurants, cafes and bars. Small businesses are a big part of what makes San Francisco such a desirable place to live, a significant reason that corporate shuttles roar through the streets ferrying workers to Silicon Valley office parks in the first place.
In the midst of a storm of business pressures, the modest dreamers behind the city's beloved storefronts are adopting the tech industry's lingo and stripping it of PR shellac -- leverage your community, share, innovate, iterate, bootstrap, cooperate with local government.
Small business, disrupt thyself.
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