The Daily Californian Online

City Businesses Hit Hard by Spending Drop

By Jessica Kwong
Daily Cal Staff Writer
Monday, November 10, 2008
Category: News > City > Business

Berkeley Honda and other dealerships are finding it harder to get cars off the lot by making sales. Many other high-end businesses are suffering from the current economic downturn.

Across the city of Berkeley, car dealer parking lots are nearly full, fine furniture pieces gather dust and people walking into upscale restaurants without reservations are promptly seated.

Throughout Berkeley's commercial districts, symptoms of Wall Street's woes are most visible among businesses with expensive items, according to a study conducted by the city's Office of Economic Development.

"We find that sales are down because people are not spending as much now because of fears and concerns in the economy," said Michael Caplan, the city's economic development manager. "It's not rocket science to know that things are going down."

While the wealthy tighten their purse strings, the effect of the dip in sales among high-end businesses trickles down to the entire city as less sales tax revenue is generated to fund public programs.

For every purchase made, the city receives 1 percent of the sales tax. Sales tax revenue makes up 10 percent of the city's general fund.

The second quarter of the year, which includes April, May and June, showed a 2.4 percent decline in sales tax revenue from last year.

Although data for sales tax in the third quarter will not be available until the end of the year, Jennifer Cogley, the office's sustainable business coordinator, said, "It's projected to drop pretty steeply based on anecdotal sampling from businesses and factoring in national trends."

Robert Hicks, the city's director of finance, said advances that the city has received for the third quarter have indicated that there will be a decline.

Decreased automobile sales especially affect the city because the sector is a big contributor, making up 8.6 percent of the city's revenue, said Dave Fogarty, the city's economic development project coordinator.

"When a dealer's got lots of cars in their lot, it's a sign of business being poor," said Chris Regalia, sales manager for Berkeley Honda, whose sales are down 40 percent since the economy took a fall around September.

Kent Daroll, owner of KCC Modern Living, has seen his sales decline by 50 percent in the last 18 months. Furniture stores are the worst hit next to car dealers, and he claimed there is a "bloodletting" in the industry.

"We are barely here; most of our competition has already gone out of business," he said. "You need to eat, but you don't need to buy a sofa, so that has become a reality for a lot of people."

But even restaurants, particularly upscale ones, have more empty tables.

"The phone's not ringing as much for holiday events," said Cara Pezzola, general manager for Skate's on the Bay. "When I look at my reservations for holiday parties, I'm seeing a lot of vacancies. Usually, people secure space pretty early in October."

She said the restaurant's year-to-year decrease-10 percent in September, 11 percent in October and 12 percent expected in November-are declines she has not seen during the holidays since the '90s.

The economy has not been this depressed since the 2000 dot com bubble burst, said Jonathan DeYoe, chairman of the Berkeley Chamber of Commerce.

But Mary Flynn, client services manager for Muni Services, a municipal financial analyst, said Berkeley's sales tax decline for the second quarter is not much compared to neighboring cities, including Oakland, down 12.3 percent and Emeryville, down 6.7 percent.

Despite the decrease in sales tax and $1.6 million state budget cuts made in early October, city spokesperson Mary Kay Clunies-Ross said the city is not expecting across the board cuts on departments because it plans to draw from its $1.8 million reserves.

But some basic-necessity businesses have seen an increase.

"Our customer count is up; we're doing even better now with the economy," said Petty Randall, assistant manager of Grocery Outlet, which sells food and household items at lower prices.

A select few among the elite, however, seem to have remained immune.

"Because we have a fairly recognizable and prominent name, our business stayed pretty steady, so we don't struggle with the down times as much," said Jennifer Sherman, the general manager of Chez Panisse.

But while Chez Panisse may be one anomaly, Ted Garrett, CEO of the chamber, saw the tough times as an opportunity to steer holiday shoppers with tighter budgets toward mom-and-pop shops.

"Folks aren't going to be purchasing large ticket items, so with our unique, one-of-a-kind businesses, we are at a place to try to attract people that want to buy those holiday gifts," he said.

Article Link: