While Silicon Valley’s tech sector is thriving, cranking out IPOs and flooding the region with high-paying jobs, its retail industry is struggling to keep its boutiques and tiny mom and pop shops open.
The number of retail businesses — particularly small retail businesses — dropped significantly in the Bay Area between 2007 and 2017, according to data from the state Economic Development Department. Experts blame a host of factors, including high rents, increased competition from online vendors, a rising minimum wage and increased health care costs.
The average rent per square foot for retail space in San Jose increased nearly 9% between 2015 and 2017, according to commercial real estate firm JLL. It also rose 9% in Oakland, and in San Francisco, it inched up almost 5 percent. Even incremental rent hikes can cause trouble for small businesses, which often operate on thin profit margins.
At the same time, Bay Area home prices and rents have become so expensive that many local retail workers can no longer afford to live near their jobs, forcing them to commute long hours or quit.
“So many of their employees have to live farther and farther away from the work site, and at some point it’s just not cost effective for them to do it,” said Dennis King, executive director of the Small Business Development Center Silicon Valley. “And that makes for an unreliable workforce.”
Those struggles are hitting very small businesses particularly hard. In the San Jose metropolitan division, the number of so-called micro-businesses — a loose category that generally means businesses with nine or fewer employees — declined 8.1% between 2007 and 2017, according to the most recent data available from the state Economic Development Department. For businesses with 4 or fewer workers, the drop was even starker — 12.7% in the San Jose metro area, which includes Santa Clara and San Benito counties. The number of micro-businesses in both the San Francisco and Oakland metro areas dropped 6.1 percent. Statewide, retail micro-businesses declined 4.2 percent.
Meanwhile, the tech industry is booming. Employment in the tech-heavy “innovation and information products and services” sector grew by 38.8% in Santa Clara and San Mateo counties between 2007 and 2018, according to the Joint Venture Silicon Valley’s 2019 Silicon Valley Index.
Faced with a steep rent hike three years ago in San Jose, Monisha Murray was forced to uproot her vintage clothing store and move to a new location in the city. Murray, owner of Black & Brown Clothing & Accessories, was paying about $9,000 per month for a 5,500-square-foot space on The Alameda. After five years, the landlord decided to raise the rent to almost $20,000 per month, Murray said. She talked the owner down to $13,000, but it was still too much for her nine-employee business.
So Murray moved her shop a few miles away, to a 4,500-square-foot space on West San Carlos Street, where she now pays about $7,000 per month. Now Murray wonders what she will do when her 10-year lease expires and she faces the possibility of another rent hike.
“Business is doing well for me,” Murray said, “but if I keep having to do this, I’m going to have to close my doors. I’m going to have to go online.”
When small businesses like Murray’s struggle, it has a big impact. San Jose’s micro-businesses are a significant part of the region’s retail economy, accounting for 62.3% of all retail businesses and 12.4% of retail employees, according to the Economic Development Department. Both are down slightly from their share of the retail economy in 2007.
But it’s not just micro-businesses that are feeling the sting. Between 2007 and 2017 the overall number of retail businesses — clothing stores, gas stations, bookstores, etc. — in the San Jose metro area declined by 4.4 percent, to about 4,500. That’s a faster decline than the statewide decrease of 0.6 percent, and it means in the San Jose metro area there were 210 fewer businesses in 2017 than before the Great Recession.
The San Francisco metropolitan division, which includes Redwood City and San Rafael, experienced a similar decline in overall retail businesses of 3.5 percent. In the Oakland metropolitan division, which includes Walnut Creek, Antioch and Fremont, overall retail businesses declined 2.5% — a drop that translated to 164 fewer retail businesses in the region.
Most of those closures occurred from 2008 through 2012, during the Great Recession, and the industry never bounced back. As recently as 2017, the Oakland metro lost 50 small retail shops and the San Jose area lost 34 from the preceding year.
Talbot’s Cyclery, a well-known neighborhood bicycle shop in San Mateo, is planning to close its doors for good at the end of this month. The company was founded by current owner Gary Moore’s grandfather in 1953 as a toy store, and expanded into a full-service bike shop in the early 1970s. Moore sold his first bike while he was in high school. Now he’s 66 and wants to retire, but he has no one to sell or pass the business on to. His sons, busy with their own careers, aren’t interested.
Moore would have retired anyway, but he said if things weren’t so tough for small businesses in the Bay Area, he might have been more likely to find a buyer. One of the main struggles is the area’s exorbitant cost of living, which makes it hard to retain workers.
“We’ve lost some very good people in the past several years,” Moore said, “where they’re in their late 20s, early 30s, they want to start a family, they want to buy a house, but that’s just not going to happen here on the San Francisco Peninsula.”
He also sees people come into his shop and do what he calls “showrooming” — they see a bicycle they like, then look it up on their phone and find it cheaper online.
That online shopping has taken a toll on brick-and-mortar retail stores nationwide. A recent report from UBS estimated that 75,000 stores will close around the country by 2026 as e-commerce becomes a bigger share of the retail industry.
In 2017 in California, there were 4,496 nonstore retailers, which includes online and mail-order businesses, as well as shops selling out of portable stalls and vending machines — a 61% increase from 2007. Still, that’s a fraction of the total retail industry and fewer than, for example, the 6,785 gas stations in the state.
In the Bay Area, it’s “sadly ironic” that the tech sector is booming while small retail businesses struggle, King said.
“It seems like retailers are experiencing the cost of the success,” he said. “We’re kind of victims of the economic success.”