Riding out the recession
Here’s a story in The Bridge that I contributed to, along with several other reporters, about how local businesses are dealing with the recession.
Riding out the recession
Belle Reve — a new women’s clothing boutique that opened at 320 E. Hennepin Ave. last October — is ‘struggling’ but resolute in the current economy.
In addition to the following cover story surveying area businesses about the effects of the economy, read more articles about local businesses, including:
— how area business associations are battling economic pressures (web only)
— the closing of Global Village
— The Podium guitars celebrate 50 years of business.
— Elite Cleaners donates dry cleaning services to job seekers
Last October, then-presidential candidate Barack Obama acknowledged the vital role small businesses play in the economy, citing Small Business Administration (SBA) statistics when he said: “Small businesses employ half of the workers in the private sector in this country and account for the majority of the job growth.”
In South and Southeast Minneapolis, some of those businesses are hurting. People are cutting back on non-essentials and high-buck purchases, and the times have claimed some local casualties — like Global Village, a staple on the West Bank for nearly 40 year. (See story here.) Some surviving businesses have cut staff and, in turn, have seen more people looking for work.
The news is not all bad, however. While shops have closed their doors, others have opened anew, even since the economic collapse in September. And if essentials are still in, they seem to include a concert, that morning cup of coffee and socializing at moderately priced restaurants and bars.
In March, Bridge reporters talked with dozens of area businesses about if and how the economy is affecting them. The sample revealed specific effects all over the map but did show some trends.
East Lake Street
Among the hundreds of businesses in the Bridge area, there’s one in particular that is thriving. Max It Pawn hit a record high in February, taking in $80,000 in sales — about $10,000 more than average for a good month, according to Adilene Pliego, a longtime employee. “People are in need of money or loans,” said Pliego.
The economic situation has even driven some to pawn their wedding or engagement rings. “Just today, a woman came in and said her husband didn’t know her ring was here,” she said. On the flipside, Max It Pawn’s sales numbers show that more and more people are buying what others are pawning — trying to save money by buying used items, Pliego speculated.
Like the pawn shop, O’Reilly Auto Parts has seen more business lately. Store Manager Joe Mosser said he’s noticed a considerable upswing since November. “More people are working on their cars instead of trading them in for new ones,” he said.
The Longfellow Grill, now in its fourth year, is also gaining, according to General Manager David Fredrick. Sales in 2008 were significantly higher than in 2007 and have also increased this year, said Fredrick, who believes people are traveling less and are therefore exploring their neighborhoods more. Likewise, Leviticus Tattoo is just as busy as ever, according to its Manager Ben Karner.
In the spring of 2007, gift boutique Corazon opened its second shop on East Lake Street and, just last year, relocated its original Downtown store to 1026 Washington Ave. S. Now, co-owner Susan Zdon said the Lake Street store’s sales exceed those of the Downtown East location, which is struggling in part because it’s in an evolving community. But Zdon, experienced in retail, said business typically ebbs and flows.
“Small businesses can flex more easily. You have to really keep an eye on what’s happening everyday and make adjustments all the time,” she said, adding: “We’re really fortunate to have the support of the community.”
Lake Street Gifts and Crafts, which opened Feb. 27, is even newer to the scene. Ray LaVasseur, who manages the store at 2933 E. Lake St., said the shop is just starting to build a clientele. He’s not so worried about the economy’s effect on the shop. “We try to offer things that are affordable to everyone,” he said, adding that walk-up business is improving all the time.
Doug Jiracek, the manager at Rainbow Foods, said that sales are consistent, but he’s noticed customers going for more lower-end items — buying hamburgers and hot dogs instead of steaks, for instance, or baking rather than buying convenience items. They’re also making fewer trips to the store and buying more items at once.
Likewise, Mike Dooley, who owns the Craftsman Restaurant, said he’s seeing more patrons split entrees. In response to economic pressures, the restaurant has created more specials, like bottles for $18 on weekday evenings or a $19 fixed-course meal. Overall, “I think all retail is suffering,” he said. “You see it all around. Business is not what it can be or should be, or what it was a year ago.”
At Soderberg’s Florist, people are also buying smaller — picking up a $30 flower arrangement as opposed to a $50 bouquet, said General Manager Kym Erickson, who said sales are down a little but reported an influx in internet traffic.
Scott Cramer, owner of Northern Sun Merchandising and co-chair of the Longfellow Business Association, said the recession has hit him hard, too; sales are down 20–30 percent. Cramer and other Lake Street business owners have said the impact of the recent reconstruction of Lake Street is now compounded by the recession.
Manny Gonzalez, co-owner of Manny’s Tortas, cited that one-two punch of the as a reason for the closure of his sandwich shop in the Coliseum building, 2700 E. Lake St. (His two other Lake Street locations — at the Mercado Central on Bloomington and Midtown Exchange at Chicago — are still open.)
After the recession hit, “No one was going out to eat,” he said. Eventually, Manny’s was taken to court and evicted by the landlord. Gonzalez laid off 12 employees.
Now, the historic Coliseum building — which underwent a $5.1 million renovation earlier this decade with the help of more than $1 million from the city — is itself facing foreclosure. The Coliseum was to be sold through the Hennepin County Sheriff’s Department on March 26, according to Ron Wood, a representative of American Bank, which holds the mortgage on the 92-year-old building.
Building owner Fred Lehmann downplayed the situation, calling it a “period of restructuring” that is largely misunderstood by the general public. Though he acknowledged the building does not have enough tenants, he has high hopes for the Coliseum, and he noted that some tenants, like Denny’s, have recently renewed their leases and remain busy.
Meanwhile, Manny’s is not the only Latino business facing hard times, according to state Sen. Patricia Torres Ray, who is pushing for legislation to give the small business owners a break and planned to organize a community meeting of small business owners and city officials in early April.
Pat Clough, owner of Oaks Hardware for 38 years, said he’s hearing about the tough economy from customers and seeing its effects in late or partial payments of company accounts. He said he hasn’t seen a change in what people are buying — they’re just buying less of it — and landlords are making just the necessary repairs and holding off on extra remodeling. In response, Clough currently has less stock than normal for this time of year, but as of now isn’t planning to make other changes.
Bassel Banat, who owns Wally’s Corner Market, said food purchases have remained steady over the past year, but he’s seen a decrease in “miscellaneous,” nonessential purchases. Banat’s been working more himself to save money, he said, and he’s been looking for ways to cut down on rising wholesale costs, like purchasing in bulk and looking for deals at places like Sam’s Club.
Late last summer and fall, Larry Manning worried that he’d be seeing a drop-off in business at Manning’s Café, but it never materialized. “To our surprise,” said Manning, business has been quite good.” Their prices are moderate, he said, and the nearly 77-year-old restaurant has a lot of steady customers.
Across the street at Sporty’s Pub and Grill, owner Joe Radaich echoed Manning’s findings, saying business is actually up from the previous year, which may be partly due to recent renovations. The industry consensus seems to be that people still want to eat out, he said — they just want to spend less. He expects customers to continue being value-conscious, and he’s held off increasing some prices despite rising wholesale food costs.
Perhaps the most noticeable economic indicator for Radaich was the 130 responses he received for one server position he recently advertised on craigslist. Cevin Chladek, owner of Muddsucker’s Coffee, has also noticed more people stopping in and asking for work.
As some customers face unemployment — and along with it, the loss of health insurance — Tom Senguptu, owner of Schneider Drug, said he’s seeing more people trying to stretch their medications or not refilling prescriptions at all. He’s not concerned with how it’s affecting his business (which he said is more or less recession-proof) — he’s more interested in finding ways to help customers, like setting them up with cheaper generic drugs.
“It was kind of a rough winter” for the 4-year-old Cupcake café, said Assistant Manager Rebecca Brents, but business is starting to pick up now. Large catering orders helped them through the earlier winter months, but the café got pretty slow right before the holidays. In January they had to lay off almost a third of the staff, but as it gets busier, they expect to hire back some people, said Brents.
In contrast, sales have continued to increase each month at the 2-year-old Overflow Café, said owner Jeff Barnhart. “People need food, and people are addicted to coffee,” he said. While vendor prices have increased, he’s hesitant to raise prices for fear of losing business. Barnhart said he expects people will continue to patronize the café because “such low-margin items … are easily justified, even in a time like this.”
At General NanoSystems, which sells gaming systems, servers and customized computers and does repairs, owner Khalid Mahmood said he’s seeing more repairs and fewer new purchases, but he isn’t concerned about the effect the economy might have on his business. During the 2001 economic downturn, sales remained high, he said.
Dinkytown and Stadium Village
Sally’s Saloon & Eatery hasn’t had to raise prices or tweak the menu in these dire economic times. “We’ve just been blessed with a good location,” said Nick, a manager and bartender at Sally’s, a longtime haven for U of M students, Gophers fans and others. “Because of that, we haven’t seen a steady decline [in sales] like our friends [in the restaurant business] Downtown.”
Likewise, students are still shopping at The Book House, although Manager Adrian Doerr said business is “a little slower, like most retailers. Luckily, we haven’t had to lay anyone off.” While foot traffic has been on a noticeable decline, online sales are up. As with other Dinkytown businesses, Doerr said the book business is seasonal, and the 32-year-old shop is just now beginning to emerge from the annual holiday hangover.
Inkaholics Tattoo opened in March 2008 at 1319 SE Fourth St. While it is almost always tough for a new business, a declining economy only compounds the struggle, said Jenna Emmans, head receptionist. “We opened in this economy, so we don’t have a lot to judge by,” she said. “Even though tattoos are forever, people still view it as an excess.”
Like Inkaholics — where reputation is your best advertising, said Emmons — the Loring Pasta Bar relies largely on word-of-mouth, said Senior Manager Khanh Goodman. Goodman was worried when the economy began to nosedive in late 2008 and the news reported more people dining at home. He has had to cut back on staff hours, but that can happen in any economy, he said. Still, the Loring has maintained a pretty solid customer base, and catering and sister-business the Varsity Theater have helped supplement sales; revenue percentages have actually risen over previous years, said Goodman.
At the other end of the block of Southeast Fourth Street, business has slowed at the Hair Shaft, a small barbershop dating back 30 years. Still, one barber there (who asked not to be named) said he’s seen tight times before in his 37 years of experience. He suspects people have been buying clippers and cutting their own hair. “But then they botch it up and have to go to a barber,” he said, proving the economy hasn’t doused his sense of humor.
Seward and Cedar-Riverside
Caleb Majerus, a supervisor at Pizza Lucé, said he’s seen a shift in evening sales from dine-in to delivery, as more people are eating at home. However, people who do dine in tend to spend more money “because it’s a special occasion.” Daytime supervisor Lynette Foxen reported smaller lunch parties and slower happy hours, as well — and fewer staffers on at times, as a result.
Cindy Kangas, owner of Second Moon coffee shop, said she hasn’t really felt the effects of the down economy. “I think people still want to go out,” she said, “I’ve been lucky.” A coffee shop, she noted, is a low-cost option for food, drink and socializing. Kangas said she has also noticed an increase in professionals using the shop and its wireless internet as a de facto office.
Dining is not the only stepping-out option. While attendance is still strong for shows at The Cedar, Executive Director Robert Simonds said they’ve seen a modest drop in private donations this year, and the economy has had a major impact on most of their funders, resulting in a significant cut in grant support.
While the West Bank is losing an icon in Global Village, another business has opened right next door. Mohamoud Hussein moved his West Bank Dry Cleaning and Alterations from the Al Karama Mall in January. While the economy has led some people to do more laundry at home, Hussein said he’s still seeing business, like people bringing in winter coats and needing alterations.
“I think I’ll make it,” said Hussein. Down the street at Al Karama Mall, some of the upstairs stalls were empty in mid-March; whether it’s a sign of the times is uncertain. (A call to mall management was not returned.)
Wing Witthuhn, who owns Pacifier with her husband Jon, said she has definitely seen a downturn since September, although Christmas was still fairly strong, and she has seen an uptick since February. Online sales have been better than instore, she said.
Customers have shown concern, Witthuhn said. “I can’t tell you how many people ask us [how we’re doing],” she said. “I feel like people in Northeast, Seward, Downtown really care about their small businesses,” she continued. “People who are aware of that seem to be making an effort to shop locally.”
Just a few doors down, Aisha Ghanchi sat behind the counter at Belle Reve, the women’s clothing boutique she opened with her mother and sister last October. “The person that comes here spends money on their clothes,” said Ghanchi, who has experience as a fashion buyer in Beverly Hills, London and at Marshall Field’s. “I know how boutiques do in a good economy,” she said. “We’re struggling.”
Two other businesses on the block have closed in the past six months — kitchen supply and cooking class-specialists Let’s Cook last fall and the fine-dining Fugaise in mid-March.
“People have changed values, and I understand that,” she said, but she added that it is important to price her merchandise equal to its value, rather than try to compete with brands selling at slashed prices at large departments stores.
“People who shop at my store … are looking for something unique, they’re looking for a story about the line,” she said, emphasizing the related importance of “shopping and buying locally” — a message and campaign currently taken up by area business associations.
To finance the boutique, Ghanchi said she didn’t even attempt to get a bank loan last fall, but she was planning to apply for an SBA loan, just days after President Obama announced expanded SBA programs and economic relief for small businesses, calling them “one of the biggest drivers of employment that we have.”
last revised: April 1, 2009