Saturday, December 6, 2008

Struggling To Stay In The Black

New businesses try to survive in recession

By Joseph Kellard

At Pheobe's, a women's shoe and accessory store, a sign in the window reads, “Up to 50% off on selected items.” But on Black Friday last week, owner Roz Sterling said that with business down dramatically from last year at this time, nearly all merchandise is half price.

Cost-cutting is distinguishing this Christmas season from years past, as retailers both big and small offer high-percentage discounts, some up to 75 percent, as the economy falters. Some predict the slowest December in years.

Sterling, who opened her doors in the East Park Avenue shopping district in July of 2007, is among the new, small businesses that set up shop in Long Beach just as the mortgage crisis hit last year and that now face a continuing recession. In this “perfect storm,” as Sterling described it, they are reporting mixed results.

“It's like a light switch,” Sterling said of the difference between the two years. “Business is way down.”

Pheobe's specializes in handbags, which sell for $50 to $300, and shoes that go for $40 to $300. Sterling's lines include Old Gringo, Ed Hardy and Seychelle. Initially, her offerings garnered a “very quick following,” she said, but by September, sales dropped just as quickly. “I think people are being very, very cautious,” she said.

“Statistics on the news show people spent an average of $800 [during the holidays] last year, and this year they’re going down to $200 and $300.”

A few doors down, at Lil' Towhead, owner Melissa Barnett described business as “fair” at her boutique. She attributes this in part to her product, children's clothes and toys, which remain popular, along with her prices. Her toys generally sell for $30 or less, and most are Melissa & Doug, a brand of wooden “learning” toys — puzzles, arts and crafts, blocks — sold only by boutiques. The best-selling items, however, are accessories, particularly scarves, gloves and small watches, all priced under $30.

But many of Barnett’s customers' husbands work in finance. “So they're starting to pull back a little bit,” she said. “... I find that people are shopping, but they're looking to keep things at $20 and $30.”

Both Sterling and Barnett said that Black Friday — the day after Thanksgiving — is typically when shoppers head to the malls rather than local shops. Yet at about 1 p.m. last Friday, the Rose & Eye clothing boutique on West Beech Street was abuzz with shoppers, ranging from high school students to middle-aged women, trying on the store’s non-designer clothes.

Michael Muratore, who co-owns Rose & Eye with Stefano Malluzzo, expects business this year to be as good as or perhaps even better than it was last year, despite the fact that there are just 27 days between Thanksgiving and Christmas, five fewer than in 2007. So Muratore e-mailed his loyal customers monthly savings passes earlier, and even added outerwear, sweaters and other selected items for 30 percent off.

“No matter what’s going on right now economically, the holiday season will happen regardless,” said Muratore, who worked in department stores for 20 years. “You just have to be prepared if business happens today or two weeks before Christmas.”

Rose & Eye, which has expanded twice since it opened in March 2007, can be described as a $99 store, since no item exceeds that price and the average runs about $55. With shoppers looking to spend less, Muratore actually sees the lousy economy as working to his benefit.

“Maybe they won't buy a $175 T-shirt at the mall, but they will buy a $40 one from me,” he said.

Across the street, at Frock, owner Stephanie Thornton last month offered everything in her women's clothing and accessory store for 20 percent off in honor of its first anniversary. Over the Thanksgiving weekend, she marked down some items by 30 percent. “I've been telling people about the sales all week, so I'm hoping that's going to bring them in,” Thornton said on Friday.

While Tribute, a sportswear line, has sold well for Thornton at an average price of $200, her store highlights cocktail dresses for about $300, which she cut by 20 percent, Gracia dresses at $100 or less, and formal gowns ranging from $200 to $400.Accessories include wool and silk scarves and hats, evening bags and jewelry —everything from $15 bracelets to $200 designer gold-plated necklaces.

Like Sterling, Thornton said sales were good when she first opened, but are now lagging. “But you just have to pull through it,” she said. “I think that's everyone's attitude right now.”

Thornton is adjusting by bringing in less expensive products, and this week she plans to meet with other local business people about starting a retailers' association. “Especially now, with the economy as it is, I think that it's important that we in the community kind of band together,” she said.

Michael Kerr, president of the Long Beach Chamber of Commerce, said new businesses have it rough because they have a lot of start-up costs, including security deposits on rent, renovations and initial inventory. “People I speak to say business is down ... but basically they're making a living, which is the most important thing in this economy,” Kerr said.

He finds that many people go into business lacking capital, and the fact that bank loans are not readily available now makes things even more difficult. “I've seen people take a home equity or mortgage against their home to go into business,” Kerr said.

Thornton said it has been a struggle to build a loyal clientele. By contrast, long-established businesses in town, such as Unsound Surf and Jewelry by Steven, can rely on their steady customers to see them through a bad economy.

Dave Juan, co-owner of Unsound on East Park Avenue for 10 years, said business is down some, but the relatively mild weather is keeping his customers from traveling.

“A girl who works here, her father is a dentist, and he's not going away this winter, so he came in and bought himself a new board and wetsuit,” said Juan, who said this season's hot items are winter wetsuits ($405), Skullcandy headphones (from $20 to $100) and Emu boots for women ($65, with 20 percent off).

Steven Leibstein said that the jewelry store on East Park that he has owned for 16 years has seen a slight downturn. This time of year, his regulars look to buy their wives necklaces or rings, but this year they're bringing him old gold instead to be remade into new pieces. “And that's been a very big part of what's going on right now,” he said.

Otherwise, Leibstein has no shortage of customers, virtually all of whom he knows on a first-name basis. “Chances are, they pop in earlier and they tell us they want this, this, this and this, and we put it on their wish list,” he said.