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In Bay Area, small retail struggles while tech booms

Marisa Kendall and Leonardo CastaƱeda, The Mercury News on

Published in Home and Consumer News

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 -- has 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 a thin profit margin.

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.

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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 a 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 a 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 a month. Now Murray wonders what she'll 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."

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