The collapse of small business: Wondering what comes next in a San Diego neighborhood

©The San Diego Union-Tribune

Kevin Schugar, mechanic and co-owner of Coastal Auto Repair in San Diego's Pacific Beach, in his garage on April 14, 2020. - Eduardo Contreras/San Diego Union-Tribune/TNS

SAN DIEGO — In San Diego’s South Park neighborhood, the doors of small shops are typically thrown open. Dogs strolling past tug their humans into the open doorways, collecting treats from the business owners up and down Fern Street.

Like most local neighborhoods, the shop owners here are the stewards of their streets. They keep the sidewalks clean; the trash cans emptied; the water bowls full for their resident pets. The storefronts, meticulously cared for, are uniquely San Diegan, as chains are rarely welcomed.

Frilly coats, retro hats and old treasures sit in the windows of Bad Madge & Co., a vintage boutique run by the shop’s colorful owner, Tanya McAnear. Matteo, an Italian eatery that donates its profits to San Diego schools, has covered an entire street-facing wall with the brightly painted words #NeighborhoodLoveSD. And down the street sits The Book Catapult, a small indie bookshop with brick-red windows and a blue awning. The store is filled with curated picks from the store’s owners, married couple Seth Marko and Jennifer Powell, who walk to work every day from their home down the block.

This is what South Park normally looks like. It’s why people want to live here, drawn to the feeling of being part of a community.

But during the six-week-long government-mandated shutdown, small-business owners that make up the foundation — and the trimmings — of San Diego’s most unique neighborhoods are disproportionately suffering. And many of them may not survive their fight.

“I’m operating bare-bones,” McAnear said, the shop owner of Bad Madge. “I laid off all my employees. I’m not paying myself a salary, so I’m living off my savings. The money I’m making from online sales is dramatically reduced from brick-and-mortar sales. I think I can stay afloat. But that’s for right now. I don’t know if that’s sustainable.”

How many shops, restaurants and small businesses might we lose?

The numbers in this pandemic are ever-changing, and still in limbo as companies struggle to secure government aid that might keep them afloat a few weeks longer. Bankruptcies will likely be delayed until creditors — and landlords — are less flexible with suffering business owners.

Just like much of America’s middle-class and lower-class population, the majority of small businesses are unprepared for emergencies, according to the U.S. Chamber of Commerce Foundation. After a disaster, 40% of small businesses will not reopen.

John Kabateck, the California director at the National Federation of Independent Businesses, said a survey among its members at the end of March was sobering.

About half of small-business owners said they couldn’t survive more than two months without the income from their normal operations. As of this week, many San Diego shops are only two weeks away from that two-month threshold since the shutdown began.

“Our members are saying there will be a point in the coming weeks when they’ll have to make a vital crossroads decision,” Kabateck said. “They’re soon going to find themselves at the edge of that cliff.”

With the federal government’s first aid programs for small businesses drained in a matter of days — and the second round coming rather late in the game — many San Diego operators feel like the aid is a lifeline tossed out of reach.

“We haven’t seen any money from the (Payroll Protection Program), but it doesn’t really matter because it would’ve only put a Band-Aid on the problem,” said Damon Goldstein, co-owner of Truly Fine Wine in Pacific Beach. “It doesn’t give me the runway to manage collection issues, or to make orders. It doesn’t get me back off the ground. Without our income stream, we don’t have enough to run our business.”

‘The damage is done.’ The cost of lost tourism on coastal neighborhoods

McAnear and Goldstein are two among several small-business owners who spoke with the Union-Tribune over the past six weeks to share worries over their futures — and their neighborhoods.

Bernard Lebel, the 32-year-old owner of California Sock Company in Pacific Beach, said he’s particularly worried about the shutdown’s long-term effect on local retail shops and restaurants in coastal areas. Tourism, he said, accounts for a huge percentage of his sales, as he owns three total shops across San Diego. And the spring and summer months are vital to ending the year in the black.

“Most business owners live off cash flow,” Lebel said. “So they accumulate debt in the slow season, and they make all their money in the spring and summer.”

Shutting down in the year’s most critical season will not just hurt for a couple of months. It will hurt the entire year, and possibly the years to come.

As Goldstein put it, “The damage is done.”

Lebel said he’s predicting Pacific Beach, La Jolla and other beach neighborhoods won’t see the true impacts of the shutdown until the fall arrives. And for residents, they’ll notice the change in the form of empty buildings.

“You’ll roll down the street in Pacific Beach or La Jolla and you’ll see vacancy after vacancy,” Lebel said.

Marco Li Mandri, who forms and manages business improvement districts across the country as president of New City America, said he anticipates a lot of fresh vacancies as a result of the COVID-19 pandemic. Li Mandri also administrates the Little Italy Association of San Diego, which represents property owners and businesses in the neighborhood.

“I think there’s going to be a real shakeout in the retail and restaurant industry in the city,” Li Mandri said, although he expected Little Italy to fair well in comparison.

Will chains take their place?

If a true shakeout occurs, there is a chance retail and restaurant buildings will go vacant in the coming years. But there’s also a chance they will be filled with chain stores and restaurants that have weathered the crisis better than small-business owners. While chains are still suffering during the shutdown, they have access to credit thanks to their abundant assets. And they have financial advisers to help them expand in a downturn.

“Bigger businesses have teams of professionals who can respond and apply for aid more quickly,” Kabateck said. “They have relationships with banks and lenders that small businesses don’t. And lenders see a greater rate of return for signing up a big box company rather than a small business.”

San Diego’s core neighborhoods haven’t taken kindly to the entrance of chains to some of their most local main streets. When Target announced their small-format stores were coming to South Park and Ocean Beach, residents angrily picketed their arrival.

In 2017, South Park lost its 20-year resident business Rebecca’s Coffee House when the owners had to shut it down. There were rumors Starbucks might take its place, and the neighborhood balked.

“When Matteo took over that spot, there was a local celebration,” McAnear said. “Chains coming in — that scares me. Especially in neighborhoods like South Park, the residents won’t like it.”

Noticed dirtier neighborhoods lately? Businesses are usually the ones cleaning

The weeks of the shutdown have taken their toll on South Park, and not just on the business owners. While pedestrians still wander up and down the streets of their neighborhood, the shop doors are closed. The streets are dirtier than normal. The trash cans are overflowing.

The city wanted to remove the trash cans from South Park about 10 years ago, McAnear said, as they didn’t have the funds to maintain them. So the South Park Business Group took over the job.

“South Park looks terrible because businesses are closed, sidewalks are not getting swept and trash cans aren’t getting cleaned,” McAnear said.

This is fairly typical in local neighborhoods. The businesses take up the responsibility of cleaning their streets and their communities, and the shutdown has left neighborhoods such as Gaslamp and Pacific Beach more littered than ever.

“It takes a lot of cleanup to keep the streets good,” said Kevin Schugar, an auto mechanic and the owner of Coastal Auto Repair in Pacific Beach. “Garnet and Hornblend are bad, and the side streets look awful right now.”

McAnear said she wonders if the public realizes how much small-business owners do in their communities.

“If these businesses close, you won’t realize what you had until it’s gone,” she said.

Kabateck, who advocates for small businesses in policy matters in Sacramento, said the same is true from the government perspective.

“One thing people forget about Main Street is that small businesses play a vital role to the tax base of a local economy,” he said. “Less tax money means fewer firefighters, fewer police officers, fewer schools and infrastructure. You can’t expect the public sector to survive if the private sector is on life support.”

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©2020 The San Diego Union-Tribune

Iris Marko's walker is kept under a book display table at The Book Catapult in San Diego, the store that her parents, Jennifer Powell and Seth Marko, own. - Howard Lipin/San Diego Union-Tribune/TNS
Tanya McAnear, the owner of a San Diego vintage boutique called Bad Madge & Co., in her shop on April 29, 2020. - Eduardo Contreras/San Diego Union-Tribune/TNS