During the last two years, retail sales in Berkeley have dropped by nearly $200 million, prompting the closure of many stores and leaving numerous vacant storefronts, according to information gathered by the city’s Office of Economic Development.
While the recession is partly responsible, the drop also reflects the impact of some of Berkeley’s long-term planning decisions. The city has focused on creating boutique shopping districts like the Elmwood and Solano Avenue in lieu of creating malls that can hold big-box stores.
As a result, many Berkeley residents travel to Emeryville or Oakland to buy computers, televisions, and other electronics.
“It’s called sales tax leakage,” said Michael J. Caplan, the city’s economic development manager. “Our weakness is the fact that we don’t have the type of stores where people buy the large, taxable items. It’s virtually impossible to buy a television in Berkeley, or men’s clothing, stereo components, or electronics.”
The drop in sales activity translates into a $1.92 million drop in sales tax revenue to the city over a two-year period, according to Dave Fogarty, the city’s economic development project coordinator, who is preparing a report that will be presented to City Council on October 26. All retail areas are slumping, including stores that sell furniture, building materials, garden equipment, sporting goods, clothing, cars, and drugs.
Every shopping district in the city has seen sales drop off, with Fourth Street hit the hardest, said Fogarty. Its sales have declined 23.8% in real dollars (adjusted for inflation) in the last two years. Sales in stores on University Avenue have declined 20.8%, those in the North Shattuck area have dropped 19.1%, (mostly due to the closing of Elephant Pharmacy) and Solano has seen a decline of 17.7%.
In tough economic times, people stop buying items they don’t absolutely need, and many of Berkeley’s small specialty stores fit into this category, said Caplan.
“The issue is discretionary dollars,” said Caplan. “People in an economic crisis cut back on the most discretionary items first. They have to continue to buy groceries, but they put off buying a new mattress or appliance since they are relatively large expenditures. Since Fourth Street has items for sale that are really discretionary, they have suffered a drop.”
The one bright area in Berkeley’s economy is a surge in the number of restaurants. In the past year, a number of new places have opened, including Revival, Locanda da Eva, Gather, Slow, and Cinnaholic, said Caplan. With as many as 365 eating establishments, or one restaurant for every 295 people, Berkeley has a larger proportion of food sales than comparable cities.
Berkeley’s Buy Local movement has been effective in showing people the importance of spending their money close to home, said Caplan.
“There has been a real strong emphasis on buying local and the “staycation” phenomenon,” said Caplan. “[Berkeleyans] don’t go to Paris but stay here. They are spending their recreational money here.”
Lori Rosenthal, a realtor with Gordon Commercial real estate company, concurred with that analysis. She has seen a surge in people looking to start new restaurants or existing restaurants looking to expand into a second location. It can be tough to find an appropriate location, though, because Berkeley has restrictions on the number of permits issued for eating establishments, she said.
The slump in Berkeley’s sales started in June 2008, which was later than it started in other California cities, according to Fogarty. Just last month he saw data suggesting the slump is easing.