Will downtown SLO become a victim of its own success?

There was excitement among many downtown San Luis Obispo business owners when the project to redevelop Chinatown kicked off, bringing new life to storefronts that had been empty for years.

Then signs for some of the businesses started going up, and so did some eyebrows: Three apparel stores found in malls and downtowns across the country — Francesca’s, Lululemon Athletica and H&M — were opening. And, most striking, luxury kitchenware purveyor Williams-Sonoma was opening directly across Monterey Street from Forden’s, a 77-year-old city hearth and home staple.

“When we saw the sign go up, it was almost like a funny joke; like, is that for real?” said Forden’s manager Michael Hamilton. “We were surprised and shocked.”

A couple of blocks away at The Gold Concept on Higuera Street, Aaron Gomez said it was concerning that most of the retail shops going in are national chains.

“It really left a sour taste in my mouth,” said Gomez, who runs the jewelry store started by his dad in 1971, with his brother, Devin.

Downtown San Luis Obispo is seeing a spate of new development, including the Chinatown and Hotel Serra projects, as well as several more proposed around the downtown core — in the south, at the Creamery complex and around the old Foster’s Freeze; in the north, there are plans for the corner of Monterey and Santa Rosa streets and next to the Fremont Theatre.

Development in downtown San Luis Obispo is at a record high, according to a report by commercial real estate firm Lee & Associates, with more than $70 million in projects underway and nearing completion.

It’s unclear how much retail — whether national or local — the projects in the works will include, but the flurry of activity is raising concerns among some that downtown could become a victim of its own success, losing its local flavor to stores you can find in Anytown USA.

“That’s a whole new block of national retail coming in,” Natalie Risner said of Copeland Properties’ Chinatown project, which has been going up along Monterey Street around the corner from Apropos, the women’s clothing store she’s owned and run with her mom since 2002. “I worry about San Luis losing its personality.”

Finding the right balance of local vs. national

The city center has long been home to national stores, city and business leaders point out.

“Downtown was built around stores like Sears, Montgomery Ward, J.C. Penney, Florsheim Shoes, Woolworths,” said Pierre Rademaker, who came to San Luis Obispo in 1972 and founded his design firm, Pierre Rademaker Design, in 1980.

Those stores, he said, allowed local shops to flourish by drawing people downtown, a sentiment echoed by the San Luis Obispo Downtown Association in its 2013 strategic plan.

“Past fears that the arrival of national chain stores would result in the demise of independent retailers did not materialize,” the document states.

To the contrary, many city and business leaders view national retailers as a crucial part of a healthy downtown.

“You need to have the regional draw that chains bring along with the mom-and-pops,” San Luis Obispo Downtown Association Executive Director Dominic Tartaglia said. “All the development activity is a vote of confidence in the downtown. It creates the perception of stuff going on and draws people in.”

No one wants the downtown to end up like corporate-dominated State Street in Santa Barbara, he added, which is reportedly struggling, losing shoppers and businesses alike. The key, he and others said, is striking a balance between the chains and local retailers.

What that balance is, though, isn’t clear.

Neither the association nor the city tracks that ratio, though they are starting work to develop a measure. Nor is there a target mark.

So how do they assess the health of downtown? Sales tax revenue per square foot and vacancy rates are the primary empirical measures. Tartaglia also likes to use an admittedly more subjective measure he calls the Shopping Bag Index.

“You sit and watch how many people walk by with shopping bags,” he explained. “You could really see it during the recession. You stopped seeing bags.”

None of those measures, however, get to the question of balance, which some, like Risner, fear has already tipped too far.

She and mom Laura Bjorklund, who had another store on Higuera Street dating to 1976, opened a second Apropos location in Paso Robles a dozen years back and a third in Arroyo Grande three years ago.

“I don’t want all my eggs in one basket,” Risner said. “Paso has a cute downtown with no chain stores. A.G. has a cute downtown with no chain stores. Long-term, I feel they’ll be friendlier to small business and keep their quirkiness.”

Local developer Nick Tompkins acknowledges that it’s tough to include mom-and-pop general retail in projects.

“It’s a very, very expensive process to build new space, and if you are financing, the banks look at the tenant for a reliable income stream,” said Tompkins, who’s bringing a new middle-ground proposal for the Monterey/Santa Rosa site to the city soon after withdrawing a larger one earlier this year.

“(Local retail) is integral to the fabric of the community, so you hate to see it not work,” he said, but with so much online purchasing, “the way people shop is different now.”

Even without firm figures, though, many people think downtown has navigated the local vs. national balance well.

“When you consider the square footage, we’re still high on local, more independent-type businesses and eclectic offerings,” said Lee Johnson, the city’s economic development manager, pointing out successful recent additions such as Fromagerie Sophie, Batch, Bowl’d and Flour House. “Most anywhere would be jealous of our downtown.”

High rents pose problems

But with new development comes rising rents, most people concede, and that can be a huge barrier for local businesses.

Palazzo Giuseppe owner Joe DiFronzo made the decision to move his popular Italian eatery on Court Street after finding out his rent would increase about 50 percent following Copeland Properties’ sale of the complex to East Coast-based Jamestown LLC.

“The big chains are the only ones who can absorb rents like that,” Risner said.

That, in turn, can push down the community as a whole, Hamilton said. “Instead of opening your own store, you’re getting a job at the chain store.”

The Downtown Association attempted to gather rent data recently through a survey sent to downtown businesses, said Gomez, a member of the association’s board, but it didn’t get much response.

According to data from Stafford McCarty Commercial Real Estate’s San Luis Obispo office, rent can reach $4.50 per square foot in the core blocks of downtown and is trending upward.

“Higher rents continue to make it difficult for mom-and-pop retailers to compete for downtown space with larger regional or national retailers,” states the firm’s 2015 SLO County Economic Outlook.

Gomez said he’s lucky: His dad owns the building where The Gold Concept is located.

“If I had a different landlord situation, it would be much more difficult for my business to survive downtown,” he said.

Gomez advocates looking at models such as the Ferry Building Marketplace in San Francisco, where several merchants share a larger space to keep individual rents affordable.

“The chain phenomenon is a symptom of how expensive SLO has become,” he said.

Gomez also favors citizen and city advocacy with developers, though Johnson said the city doesn’t get involved in what comes into downtown beyond putting in place infrastructure and zoning that officials believe create the best environment for a vibrant city center.

The rest falls to developers like the Copelands, who declined to comment for this story. But both Johnson and Tartaglia describe the Copelands and other area developers as local residents who have a vested interest in a healthy downtown and better pulse on what people want in the area.

“They’re out talking to consumers, hearing what’s needed in the market,” Johnson said.

And that changes over time. Bigger stores have given way to condensed, more intimate shops. With the rise in online shopping, transactional spaces have evolved into experiential ones, where people can create their own ice cream sandwiches, pour their own beers and get custom-crafted products.

“Downtown ebbs and flows with the demands of the consumers,” Johnson said. “It will evolve based on what people who use downtown want to see in downtown.”

Those conversations are starting to take place.

“It’s become a really big topic, and it will become an even bigger topic,” Gomez said.

In August, about 400 people attended a Downtown Association-sponsored showing of “Urban Century: America’s Return to Main Street,” a documentary chronicling the role and revitalization of downtowns across the country.

One of the main takeaways for many attendees? How lucky we are, Rademaker said.

“We’ve got a great downtown,” he said. “It’s safe. It’s relatively clean. And it’s much more livable than it used to be.”

But the city will continue to evolve, he added: “Downtown has always changed. It’s never been static, ever.”

Not all businesses will survive, many agree. Those that do will be the ones that react to shifting market forces, trends and customer desires. And there, Tartaglia, Johnson and others assert, small, locally owned businesses have a huge advantage over their corporately owned neighbors.

“Small businesses can be so nimble and flexible. You can turn on a dime, start a new campaign. You can be more responsive,” he said. “You don’t have a board you have to go through and get everything approved.”

Ultimately, he said, “the community votes with their dollars.”

This story was originally published November 27, 2016 at 8:06 PM with the headline "Will downtown SLO become a victim of its own success?."