Independent retailers, which once made up a prominent part of the Hill Country’s economy, are having a harder time trying to survive in the existing commercial climate, said Tim Laine, a representative for commercial real estate company NAI Partners.
Increased competition from online retailers and national corporations make it more challenging for small-business owners to generate reliable income, he said. Owners of small businesses “now, more than ever,” need to find a “specific niche,” he said, that offers something to people that is in demand and hard to obtain.
Since opening Faraday’s Kitchen Shop 12 years ago with his wife, Melissa, Tony Curtis-Wellings said he knows of almost 200 local small business owners who have had to shut down their shops. He said area businesses struggle because they are paying too much for rent. This can cause new owners to prematurely close if profits are not seen early, he said.
Courtney Brown Brock, who had owned Brilliant Sky Toys & Books in West Lake Hills for more than five years, closed the franchise June 30 due, in part, to increasing overhead costs associated with operating in the region, she said.
“It was unsustainable,” Brock said of the store’s operations. “We’ve got a great community here. I live here. I grew up here. I know everybody, so it was hard to close. But I’m not the first to close or the last. It’s going to keep happening.”
The cost of doing business
In the Greater Austin area, commercial rent has increased by 30 percent since 2012, said Sam Tenenbaum, a market economist for commercial real estate analytics company CoStar Group.
“Rents continue to escalate across Austin as more and more people move to town, creating additional demand for retail space,” he said.
Rising rents result in slimmer profit margins, a concern for local businesses that already tend to operate on smaller margins, he said.
As retail space in downtown Austin became more expensive and harder to find, large retailers began moving west within Travis County to take advantage of the area’s population growth and new developments, Laine said.
Many businesses are now forced to spend 14-16 percent of profits on rent, Curtis-Wellings said, an amount that is unsustainable for a family-owned small business.
Nikki Mackenzie, owner and designer at Magpie Blossom Boutique in Lakeway, said small businesses pay the same in rent as national corporations. Using other locations to keep a struggling branch afloat, business chains often have the resources to outlast mom and pop businesses, she said.
“There’s no special deal because we’re local,” she said. “I’m all in on one little store in one neighborhood. If I have a really tough few months, there’s no other [income] to help. National chains can operate a store at a loss for a long time.”
Because retail space is at a premium, shopping center management companies are using the opportunity to modernize their facilities, allowing them to attract higher-priced clients. However, some businesses—such as the Great Harvest Bread Co.’s Westlake franchise—have struggled during renovations, franchise owner Stewart Dickson said.
“There was a literal barrier in front of our store, and everybody thought we were closed,” he said. “Because of the construction, I’ve been doing ride-sharing with Uber to make extra money.”
Dickson said the renovations to the center are not related to aesthetics, and he does not believe they will help attract more customers to his business in the future, although the improvements will likely make space in the center more profitable for the landowner.
“The rents have already gone up dramatically,” he said. “I was up for renewal in July and saw a significant jump.”
Online shopping and convenience
Tenenbaum said the continued rise of online shopping has made it difficult for small businesses to sell goods that can be obtained elsewhere.
“Goods can be purchased online for cheaper prices,” he said. “There is also the convenience of the goods arriving at your door, as opposed to having to leave the house to find what shoppers are looking for.”
Rising rents, along with the emergence of online shopping, contributed to Brock closing Brilliant Sky Toys & Books, she said.
“With the money we lost to online shopping increasing each year, the store wasn’t sustainable with the overhead, property taxes and any additional expenses that came up,” she said. “Customers would come in and say they saw an item for less on Amazon.”
Although bakeries have not yet been affected by the rise in e-commerce, Dickson said the prevalence and convenience of chain supermarkets has made it less necessary for families to stop into his bakery.
“What has changed for us is the fact that all supermarkets now have their own bakeries in them,” he said. “You can get fresh bread at any grocery store, and it wasn’t like that in the past.”
The need for small business
Although chain supermarkets are producing better products than before, Dickson said bread aficionados would know his bread is superior.
“As a society we have sacrificed so much on the altar of convenience,” he said. “What we hope is everyone that walks into the door is able to experience the sights, smells and tastes that come with baking fresh bread.”
Curtis-Wellings said small business is the foundation of innovation, and as family-owned businesses decrease across the country, there could be a decrease in product quality.
“Small businesses come up with a good idea, they take a risk and then sell that idea to a big company,” he said. “If people expect big businesses to be committed to innovation, [business] is going to fail.”
The advantage larger corporations have in high-rent areas has created a country where communities are becoming homogenized with the same handful of retailers found in every city, Mackenzie said.
“Americans have to make a choice in the next decade about what they want their communities to look like,” she said. “If [people] want their communities to have unique personalities, they have to be conscious of where they shop.”
