HomeMy WebLinkAbout0357.095•
1
, .
. <-"
[}
" '
.
City of Palo Alto
City Manager's Report
1'0: HONORABLE CIlY COUNCIL
FROM: CI1Y MANAGER DEPARTMENT: aty Manaller
DATE: A1IJIUSI 3, 1995 CMR: 357:95
SUBJECT: Retail Trends in Palo Alto
PEOJ1fST
The purpose of this RpOIt is to familiarize the City Council and the =unily allarge with
mail trends 0<:CUIring in die nation. the region and Palo Alto specifically. In p ... .ucn..!ar. the
report focuses CIl changes in mail uses 0<:CUIring over time in the Stanfoo! Shopping Center
omd cIoWlllOWn Palo Alto. The report was prepared as a publi<: private partnership between
Wilbur Ptoperties, StanfunI Shopping Ceo!er. commercial real estate expcrIS, and Economic
llesources PIaJming s(aff of the City of Palo Alto. A fundamen!B1 objective of the report is
10 provide fadual data on retail sales tmlds and change of llSC. and 1he public policy
iIIIpIicatioos of Ihose dumges. While the report is intended to be primarily educational, 1he
, policy implications of retail tmlds in the City are considered imponant. given the ongoing
Coaqnhensive Plan Update.
RECOMMENDATION
Ibis is an infoonatiooal report; no Council action is required. Should City Council desire,
sIlIfr will agendize this report for • future study session in order to discus, in detail
CONCI.JISIONS
Ahbough s(aff=ogni2es the many risk factors of drawing conclusions on retail trends 0''''
• sh<rt lime period, and in general the hazards involved in predicting future retail scenarios
in • rapidly changing ecooomy and reIail marXel environment, the following observations
may be of interest to the Council:
._---_ ......... _-
-.;.: '~, ,', '.
0";_",; ;,:,;':, ~ -C'" --:--,~-C
. ,","-
"
'.
,,'
i
I
I
1. Palo Alto sale< lax data over the six-year study period show Ihst the C~ sale. lax
revenue overall failed 10 keep pace with in1Iaiion. While a 7"/. growth in currenI
cIoIIars w.os naIized, adjusted roc infu.tion, an .... eraII &cline of 9% wu exhibited.
This _ dipIIy better Iban the CP! adjusted sale< tax rcceipIs of Santa CIaIa County
(-I2'Y.) and 8m ~ County (-1I%). Man: importantly. ooIy three geographic
...... of the City fared wen: Downtown Palo Alto, SlanfO«! Shopping Center (sse).
and California Avenue Distric:t. Only downIown, however. exhibited a positive
iocrease in sale< of r.4 (adjusted roc Cl'I) over the six-)<-ear time hme. While retail,
in general. in !he Il8Iion fi:II off durins the 1989-94 period studied, select ore .. of the
Clay li:II off dramaticaIly in retail sale< during Chat time frame, suggesting that other
factors were It play 1!lan the rectssiOlW)' retail climate of the late 1980's and early
1990's.
2. There is • JeIationsI>ip. perhaps a SIrong one, bet,...." retail growth in an ore. and the
City's poIicles with regards to zoning iolervention and discretio<wy approval
processes. Examples of soch relationsbips include:
-:-_.
L Those retail area. of the City that fared best in sales growth and adaptability
to clwlging ma:l<et conditions ",ere the Stanford Shopping Caller (sse).
DowntoWD Palo Alto, and the California Avenue District. While ownership
pIdkrns, parceIizatiOII, and market IracIe areas differ lIIIIOIIg the<e areas, sse,
DowntowD and California A venue share two impor1aIlt features: (i) their
respecIive zoning pemUIs chango of IISC to nearly any other retail ..... without
requi1emew roc cliscretiorwy approval5; and (n) such thangcs of use ore DOt
lied to required on-site parking. CaIif<lrnia A_ and Downtown participate
in pr<Mding paddog via .. scssment districts; StanfO«! Shopping Center hti a
"pool" of parking aUoc:a:ed to the Center. In lIWly other areas of the City
these same conditions do DOt apply.
b. N~ Sbopping Cen1en and El Camino ReaJ fared most poody in the
S!Ildy, showing significant retail sales losses Illroughout the C~_ 10 general,
Ihese ....... exln1Jit many of !he problems identified in both the previoos Gruen
Gruea + J.ssoci~ Study entitled A Planning Polk)' A .dit of &1DJ1 Areas in
the City of Palo Aho (See Atta<lnnent A). and the more recent Midto ......
Market Analysis prepared by Keyser Marston Associates (CMR: 120:95).
MuItipk ownership patterns, smaU parcelization, inadequate on-site parking,
and obsoleSCtrt« of structures are evidenced throughout Palo Alto'.
neighborhood and serv'.ce commercial are... These same area. have been
subjected to the greatest number of zoning reslrictions, lIWly of which are
counter to national and regional retail !rends. 10 addition, both zoning
.atinns and de fa<:10 process requirements. soch .. the continued relimce
upon the use of discretio<wy approval processes, .. Planned Community
Zoning. have complicated r<-<ISO of structures, and Jed to • high level of
· ,
'.
,-.
unprcdictIbilily for commercial firumcins pwpose$. The rcsults have be ...
cIccay, loss of sale5 and service 10 lhe community, and reducboo of revenues
10 !be City,
~. M a dty, Palo AlIo has enjoyed • rel&!iv<oly low dependen« on rrn.il sales for
Scneral fnnd I1M:IIDCS in comparisoo 10 many other California communities.
NoaeIIIeIess, our ~ slim of sales tax remrues for. cily of its size is quite
high. What dIis means is Ibat we haw enjuycd !be best of both wodds. in a 5eDS<.
HcnI:e. 011)' poII::IItW softminj! of retail sales tax conlributiol1s in light of future mail
IreIIds -.Is 10 t.e maIyzed carefully. Whik overall sal .. losses have been gear in
lhe nrisfdvvhood and senice commercial areas, Ihosc areas' proportionate retail tax
contributions 10 lhe City are muclliower than lhe Downtown, sse, or Stanfocd
1teseardt Pad<. That docs not cepe !heir importance 10 lhe COIIImIIIIiry, however,
ad Ihe hrighteced &Ib:IItion 10 revttaIization oflht Midtown Shopping DisImI is a
cue in point. In DCighb0r!w04 commercial areas, lhe prinwy issue is loss of retail
uppoi bmities and eonvenieDt SCf\Iices to Ihe commnnity, not loss of revenues to Ihe
Cily.
4. The City-wide retail sal.. tax collections shown tJ:.roughout Ihe study period
lIIIdencorc die signifiamr COIllributioIls of!he "other 5OU!'CCS" caleSor)' shoWll in !he
sale5 tax exhibits. In Jarse part, "Oibcr sources" contributions, pri..marily within the
City's employment areas, reflect Iong-tenn regional pattems reliant upon
JIIamtfaaurirJ8. 111= paIIerns _ changin& as manufacturing is increasingly moW1g
fiom die Silicon Valley IoWanIlower COSlIRUIbrodghooI!be region. Ihe D.IIioII, and
O\'CJlC8S: Unlike oaks tax ~ within retail commercial orcas, ho-=-,
lowered oaks from mamIfactured SoocIs within lhe Cily do nO( <:OiDcide with •
declinins """"lIlY in Ihe empJoymeDt sector. On lhe conlraIy. rents within the
SIanford ~ Pal\ haV<O beeR steadily mills as saI05m revt1l1lCS from \he PaIk
to the Cily 1Iatlea or ~ decline. In addilioo, 15 mannfacturing is replaced by
reseMclt and development and RAD support services (e.g~ law and environmental
firms).1he median income ofwodren inaeases, wbKh in lura may pOiitively afft<:t
\be diiaeiiooaly spending power of woOO:rs within !be area. It should be anticipated,
however, IhaIlhe ev.m:uaI cconom;c shift from mannfacturing to other uses within
1'&10 AIIo willlcad to clirect revenue declines to lhe Cily from 1hat sector.
POI ley IMPYCATIONS
The City bas a unique opportunity to blend policy. direction with changing economic
coadiIioDs over Ihe ncx! few year-.Ibat wiD .now meshing of our changing regional and local
~ climate wilh good land use planning. More globally, the Cily has !be opportuniry
10 incoIporaIe the marl<eI relarcd Ieaming experiences of the last dec&k or so, wilhin both
PoplolU
.~~ .•.
, ,
:
'.
,i i-" ',.. :~.;_
.". -.
I
'" . '.:
, .
--.---.'. :::;> .:.
,-,
, .'
o
die JIIlblic and priVIk seeton, in crafting futUre PQIKy di=tion. The JIIlblic policy
imp&ations of Ibis stndy, IS identifie<! by staff; include the roUowing:
I WhiIc die City of Palo Alto's land use policies and governmental regulations haw
played III intennittcD1 role in !be City's retail enviromnenl, il is both stafI', and lite
cxpa1's opinion 1IIIIf mm.t considentioos ha~ ~ much more cODtributory 10 die
Cily'l d!ansins reIaiI climate. Whether." area ~ rela!ive sucuss or faihm:
appeaiS to reflect a sync:gistic relarionsldp between public and priWle sector facton.
with a grelter weight on !he 1atIer,
L aa. of die mosI imporIanlllUS Mlcre a City can be effective is in carefully
defining its retai1 areas. Zooing alIowaru:c of lite Stanford Shopping Center
in the 1950s ccr1Binly impacted die short-knD viobilily of die downtown area
for retail sales, Ma:kct introduction over die next two decade. of financial
institutions to die downrown provided an economic boost rapidly dispelled by
!he dram&!i<:. and largely unpredicted, cbaug.. in financial institutions
Ihrougbout the nation, during !be 1980.. The market gap created by
institurionol finance losses was filled in Wge part downtown by ao increasing
IIlIIDber of eating a&<! drinking and enrertainme1t1 establi5lunents. The mid-
1980. adop6on of downtDWII regulations had two impor1ml markct-relAt<:d
impIieations: (l) one was to c:arefolly define !be geogrsph.~ area of ground
&or retail, and to limit ovcraIJ builrun, volume (IS defined by square footage)
lblt C<mSIituted downtown; and (D) die other was 10 accommodllte market
driven use dwlges WiJhin the ground floor retail while "capping" oIhcr office
aDd oon-pedestrian uset. ltesuIts ha,.., ~ Ibe ~tion or go...ographic
COl)tojnment of a vcy desirable market, but ""lit few restrictions on use.
Regardless of community perceptions, pm or con. IS 10 lite dcsirsbili!y of
retail changei in downtown over !be last decade, sales tax indicators and
pcdesIrian activity slJow • vcy heaItby ecooomi<: cli!rurtc. A po!eDtiallhreat
10 continnecl priWle sector flexibility is !be increasing role of discretionary
;wrung in the downtown. a movement thai has occurred even though overall
hind use caps estabflSbed for !be downtown are DOl at issue.
b. Growth in the Stanford Showin8 Center !bat occurred in lite Center', early
years reflectcd a cbanging national retail climate favoring "c:enter" or "mall"
retail CBWonments over more lraditional retail activity, as doWDIoWD5 or
neigbborhood commercial areas. Future sales tax growth in Stanford Shopping
Center, however, may be more dependent upon pmviding additional square
footage for expansion. The retail climate of!be lale 1980s and early 1990s
was most uncertain, and nationwide departrnm store closures occurred
RgUIarly dming!hat time pcriod.Along wiIh adler shopping centers, Stanford
Shopping Center bas bad 10 redefine its leasing efforts regularly 10 deal with
cbnged retail conditions and the Qverall CCOIIOmy. II appcan. bowever, that
•
--
/-
CD
fwD privall: _ factm in1Iuencing Je!ail UIICCI'Wnly during this time period
lite JDOre staJw1iri (I) _era! cI<par1ment sIoI'e1l>a, .. rc-o.-ganiud, gone out
of business. 01 financially n-groupcd in or&r 10 maintain Ibc 19900
competitiveness; lind (0) Ibc cIccper retmI =ession of the early 19905 is
detini~1y on the upswina. Given !he ~ rclatiMship that exists
belween Stmfanl Shapping ~ lind Downtown Palo Alto. continued
fl=biIity in _ ODd poIm6a1 expensioo may be importanIlo sse in definiD&
its future role in Ihe Bay Ala', retmI eoviromoeot
c. The state of the City's neighl>orbood ODd service commercial areas snsent
some very real policy dilemmas fllf the City. Upgnding such ateaS will
~ greaIa" rccogoilion of market-<dated .issues, and. possibly. greater City
inten=600 in facili!8tiog rc-use of SIIUCtorcJ lind private rcdevolopment
dIIlftJ. There has been • substantial loss of «I1aio kinds of,.,tai1 10
SWI 0CIlding communities that is voIikely Ii-be recaptured in Palo Alto; ckep
discount openlioIa will conIinue so be located outside !he City. given laud
awila!>iIiIy in Palo Alto ODd community senlimen! thaI is often lIIII'eCCpIivelo
"box· retail openiIioos. There is • difference. however. l>e!ween regiooal
RId loss 10 \be City and cmmm"ity retai\ losses. The dalll indiate that boIh
these losses have IBken place; • re-anphasis on attracting <:OIIlIIlwllfy
commercial wes so tbe City. however. iDco<poratcs an importanI seMce
compooeot.
The IAsI IWO decades of zoninB ae600s 10 exercise greater control over
neighborhood lind seMce ~ia1 zones b., .. often focused on size of
stru= or uses; benu • 0.4 F100r Area Ratio (FAR) limilalion has been
imposed throughout 1he City that in many cases is \1IItefleclive of existing
conditions. c.!-. in Midtown, or tbe uses permitted within !he disIricts, SlItk
as hotels Ilf m~. Private sector forces arc mnch more instrumental in
regul.oting building size in single storyfslrip commcrcialareas.. as !he parking
of\ea dictates the suitability of. building for • particular retail use far more
tIan 1he zoniJ1g requirements. Foo;using on building size and use eaps within
the CN and CS ZOIIeS does IlOl address the broader policy and economic
questions: bow many neighborhood commercial centers can be supported in
the City; wiler. 1hose that can be supported should be located; ",bat
geograpbic II'eIS are DO Iooger mble for neighhodlood. or service cotnmeI"CiaI
use giveD; land naiJabiIity or other locational coosninJs; and 'What areas of
the City's El Camino Real are truly suitable for commercial. ,.,sidcntialllf
oIhesuses.
n. Land use policy &cioon-making over the last two decades has sometimes taken an
".ilber-or" form with regard to residential vis-a-vis commercial uses. Certainly.
effoos to mitigllte employment wilh gRater hoosing opponunities represents ..,und
I
I
· .,'0:..
o
land-use p!annios. But die land use changes that ha,'e cxx;urred over the yean 10
address die "~GIISing imbal&nce~ ha~ Ingc!}' affe<:1ed retail eoounercial arus,
JIO! employment areas. Rrvisitatioo 0( Ibose areas in v.iUch commcn:iaJ versus
residential ~Iopcent may """'" is • legitimate part 0( Ih. Compr.hensive Plan
upcIote. bill !be likelihood CCO' t;ignificaDtland use .baDge. in !be City are low given
present built-out conditions. Meanwhlle,!be <:OIIlplex zoning issues related \0
neigbb0d>004 and service c:oauner.w and die City', housing zones roruUn largely
IlOII<Idressed. The end RSUlr will be the eootinued IanquislWlg 0( many o(!be City's
retIiI commen:i&l arus, and th. concomitant inability 10 coostruct housing where
~ ~1opmenI is n<>iooger viable.
III dforts \0 ccem gRater IwIIsiDg opportunities, the City h.as progressive!}'
designated larger properties f<M: residential llSC, an.d retained smaller properties for
neighbodlood and service commercial...... Man.y of the proposals bef<M:o !be City
Council would continue these efforts in considering such arClS as Town 8l. Country
ShoppiDg Cmrer and !be Rickey's HyaII si:e for future residential CO' mixed use. The ..
retail II'cnds study points out that community commercial, and in some cases
neighborhood eommereial, demand larger sites in Ihc 1990s (oole that larger
commercial sites do DOl ne<:essarily equate 10 IaIger retail tenants). The land use
conflicts inherent in retail and service commercial areas abutting residential Ire
gradfy cxacerbaIed OIl smaller commercial sites. Altemalively, designBli<m of. few
Jarser commercial 'ites for neighbodlood and community commercial cec!eIs with
mWlcr p-opcr!ies desigriated for residential ..... C8I1 be • mabie option based on
bod! retail needs and expressed CO!DIIIunity =timent for smaller, more di~
IwIIsiDg projms.
BACKGROUND
Compilation of sale. tax data has be.,. prepared over I six-year tim. frame, from 1989 up
\0 1994, for die lOlIov.ing an:as of the City: Downte..." Palo Alto; SlBnford Shopping Center;
Califumia Avenue ~ aroa; the City'. four neighborhood commercial centen (Alma
Plaza. CIwieston Shopping Center, Edgewood Plaza, and MUlto"",); ToWll &: Country
Shopping Center; El Camino RcaI and environs (inCluding wmmerciaI side streets); and
SIa:Iford Res, ad. Parle. Unlike the City's Armnal Fmancial Reports (CAFR) and !be Budget
documents which arc based on a fiscal year basis. sales tax in this report is caJcnlated 011 a
caIcndar year basis. In additioo" fa< bach the doWDlOWD and Stanford Shopping Centes areas,
cbanges in !be Dmnbeo-of retail outIe!s by C61eg<l<y of use over a six-year time frame are also
shown in 1his report The "economic beaJth" of Ihe City's other commercial areas h.as been
mcasurccI by soles lax data increases or decreases over thaI six-year time frame. bill specific
bmd use changes Ire DOl addressed oIher than anecdo!ally. For comparati~ J'lIIPOSo's, all
data IIR JRSCDIed ill actual dollars. ie, Ihey are DOl adjust.d for inflation. Exhibit A shows
Palo Alto soles tax dollars IS adjusted for Ihc national consumer prj<;<: index, in<licating that
CMII.:l51," ,.... , "lA
-.-
,
PlIo Alto SIIes Tu Dlb
1989-1994
CPI..rjWlCd
CY 1989 .CY}~ CY 1991 CY 1992 CY 199) CY 1994 CIwtA~I9-94) ChinR<fI9-94)
i DownIOWD $1,469,000 $1,535,000 $1,640,000 $1,635,000 $1,1)2,000 $1,866,000 17% 1%
Stanf'oo! Shopping ~er 3.,283,000 3,266,000 3.171,000 3,392,000 3,492,000 l.646.COO 11% -6%
CafIfornia Avenue 1Q6,OOO 635,000 627,000 741,000 797,000 794,000 . 12% -5%
E1 CaminQ Ileal 1.160,000 878,000 798,000 156,000 !41.000 955.000 -18%
.4L
EI Camino Environs' 215,000 31>9.000 474,000 552,000 671.000 756.000 252% 191%
Town ol Coun!ry Village 211.000 205,000 193,000 . 185,000 189.000 203,000 "'1}. -11%
Stanf'ord Ileseerc' Park 2,535,000 2,212,000 1.133,000 1,745,000 1,971,.000 2.502.000 . -1% . -16%
Neighbo<hood ~ .... " 155,000 141,000 156.000 219.000 116,000 200,000 -21"-' -34%
Sales Tox fi'00I Other Sources 2.452,000 3,3il,OOO 4,216.000 3.619,000 2,678,000 2.223 ... 000 -9"-' -23%
Total Palo Alto Sales Tax 512,286,000 512,664.000 513,208,000 $13,010,000 S12,597,ooo $n.145,000 7'Ao -9%
, includes busineue, 011 the I'oliowirlg Itr",,[,: Olive, Pepper, Encina, Lambert. Utban, • &rner. Poctage and PaIt. in close prmomiq 10 EI Camino Real
"includes A/ma PI ..... CIw!esIon ~er. Edgewood Plaza and Midtown.
fOllowingCPI facton·. 1990:6.0'" 1991: l.S%, 1992-. n', .. 1993:1.9'" 1994:1.6% 10< the San_San Fr>ncisco-Oa!dmdAre& ..... e~
Source: Quarterly Sales TIX Reporu prepared 10< tbe City of Palo Alto by Municipal Resource C<>nsultants (MRC)
.. -: cJ_
'-~~ ..
-. !'-
Change in Sales Tax Receipts by Alea
(198&-1994)
1~r-------------------------------------------·----------------------------'
200
•
-200
ElCnnoRe!ll
BXBIB.l'l -A-2-
".
-'""' -.
only !be Cily"1 doWllloWD _ exhibitod positi~ mail sales growth over !he six-year study
period.
SllMMAllX 0]1 FINDINGS
•
A IIUI!IID8I)' of sales tax coIIeeted 1»' ma from 1m duooglt 1994 is shown on Exhibit A·I.
Overall, !be City's sales tax RVe1lUC$ in current doIlan showed slight gains, with a 7%
increase. There were substandal c!ifferen«s by aru, however. with !be downtown area
oIIowmg III iaa'ease in sales dmioB \he 1989-94 lime period at 27%" followed 1»' California
A_ sbowing a l~~ iocrc8se. Stanfonl Shopping Ccmer showed sales in<:rease. of 110/0,
wbiIe TOWlI . .t CoimIry Shoppin& Ccmer exhibited a slight decline of 4% in w.. tax during
!be l\I>dy period. In nearly .n other ....... of !be City. and ~arly ",ithin most cf the
CitYI neighborhood and EI C.amino RcaI commerci.aI areas. sales tax indicators declined
slwpJy. ExtcpIions 10 Ibe SWIlI!I8I)' findings and • IIIOR in-depdl discussion of !be possible
contributing ~ors to ather decline or economk growth are discussed in the body of the ..
report.
J!mmtmrp Plio Alto
Ptia: to b COIISIr1Jdion ofb SWIford Shopping Center in 1956, downtown Palo Alto was
'lIle of the Mid-Peni .. ",la'i prime shopping areas. Numerous departmeut stores ~ as
"anchcn"\bat drew residenb to !he downlOWll ilea. Wnh!he COIlStrucIion of the Stanfosd
Shopping CenIer, do_ suffered hip reWI vacancies and declining rents. With
Stanford Shopping Center came the c!epar1uR of numerous anchor stores and \he toss of
~ialty reWI from downto ....... Downl<lWll', decline in the 19SOs and '60s was further
impacted by bisIoric deed ICSIricIions placed 011 pi opaty originally held by Stanford
University, prohibiling the serving of alcoholic beverages within the downtown aru, a
c:oodition \bat W1uaIly ~ RSIaUi aut and related cnlet1ainmcnl growth. RemoVlll of
!he deed restrictions in the early 19?Os coo!n1ruted subslanlialJy 10 the ~Iopment of the
"~ting md drinking" mBIht niche that downlOW\! bas served oves !he \BSt two decades.
OIlIer £acton !bat make downtown dynamic include:
a. tbe hip average income ill Palo Alto aud IUrrouD<fLDg .... id.atial ar .. 1 supporU
hi&h disaetionary espmditures 'lrilhin do_to...... According 10 a market an.aIysis
'"""""""" by NaIionIl Dec:isioos SysImIs ill Aprill99S, there are 96.267 households
with estimated medim inc<>me of $62,608 ",ithin I five mile radius of the OreS""
Expressway and Middlefield Road intersection.
b. The proximity of 00.,..,.1611'0 to Stanford Ullinnity aDd the Medical Cenler,
world renoWDed in.tilutiOIU .... lUch &eDerate • llrge Dumber of domeslie aDd
internatiooaJ studeuts, employees and risitan 10 the lrea, thereby iDcr ... iD!: the
rqional lin,.. of cIowDloWIL Sbmford l.JnMrsity IIInIc!S more Wn 100,000 visi!ors
evcI)' year, according 10 Univcnily sources,
c. Sv~ta"thiI 1I;p-llICllme emploY"'ent Iocaled I" or """r tile DowuloWA Ina,
M.p empIaym incJude the Polo AIro Medk:al FoundaIioo. at): of Polo Alto, Digital
Equipmenl C<xpon!ioa. and many OIlIer computer, cOllS1liting. law, and inves:ment
finns, Palo Alto is eotimaIcd 10 have I job base of more !han 80,000 daytime jobs,
inclodiq 9,SOO OIl University Avenue .
.t The .Iliqae AlllbiallCe of Do __ L Downt.:lwn has I &'.endIy. wtikable
envirOllmenllhat exhibits life Ihroagboul the daylight and eveniDs hour>. It is the
evening basiness whicII is of panicular impor1anCe in understanding !he retail usc
clislinclions between downlOWIi and the Stanford Shopping Center.
N'otirub1t neaga in D<nmtmn over ,be rllt Six Va"
• pains Ymns hdc:prnd.mt\y Owned Store$
WIIh the recent entry oflloss Stores and Subway Sandwich sbop, and the proposed
uriwl of Borders Bookstore. some critic. point to the inlrOduction of chain stores
(JIICIDing IIHee or more outlets. ~thcr nalionwide, regionally. or 1ocaJJy) as • new
trend.' It should be IIOIed. however, !hat downtown Palo Alto has had • history of
majoe chaia stores sioce the 1950s. including Mootgomezy Ward, I.C. Penney. and
WooIwo<1h. In addition, IIlI!ny oflOday', chains either began or j!Ttw in Polo Alto
as pm of ngiocIaI retailing efforts. Mn. FJeld', Cookies. Good EattII ~stannmt. '
Suzanne's Muffins, Stacey'. BooksI<n. and Gleim's Jewelers are generally perceived
as reflective of 'community wJue," for retailing in downtown Polo Alto, yet all are
chains. FIlI1he:more. the loss of major chains 10 su1>nmn shopping centers in w
19SOs was sees as onerous 10 • positive business climate, largely because die
cIeportmc:It st<n cl!ain attraction supported sm.aIkI sp«iaIty r.tail While there has
beea I slight Il"'wth ill chain outlets downtown over the six-year study period.
(es6m"""' by Ray Wlibur of Wlibur Properties 10 be less dum S%), downtown Palo
Alto area currently has only about one-!hird of its businesses as chains. Accocding
10 David J..oosbine. DirecIor of the Stanford Shopping Cenler, approximately 60"/0 of
mailers widIi:1 Ibe Center lie chain opera6ons. Stanford Shopping Cenler is
cfist:iD8uished from OIlIer suburban maIl, by its relatively low number of chain
retai\et1
1. "Palo.Alto ~ mm rade ~ retail awns-'by FrGCJ' Bbd::wood. SaJr FrartCis:co Brai~s.t Tima·
'etIJ!Ullu, btmolflic Report. October 21-. 1994
.... 1 .. U4
,-"
(
-~--~--~---~--'''''''--.~-
o
• ,
,.
--.
'.
In COIlIraSt 10 single ownedIiII8IlA8ed malls or CCn!m, there is less opportunity 10
~ _ mix in doWlltowns where multiple property ownership exists. Sedwlly
KCIIdin MouchIy Group. f<>m>erl)' Sedway " A.ssociate .. the SaD Francis«> based
mb8n and real_ CC<IIIOi!lks finn whicll prepared the Palo Alto ~nlmm Retail
StIuIy ill 1982, I>OIi:d that "the laek of eoordinated retail area management in
downtoMlS is • signi6can! disadvan!Bgc in competing "';!h major shopping centen.
Shopping ceDtcn have • single management staff whi<:h can exercise subslaDlial
COIlIrJI ~ _ mix and design for the entire ",,!cr. By ""'1rasI. the downloWll
property OWDerS make decisioos based on their individual nw!s, desires, IIId renls
10 be adiievod." R. Bruce Ricks, CEO of Capital Solutions, a Polo Alto-based real
_ ecoDOIIIics firm, quesIions this premise on &fOWlds !hat the mad:et ultima!ely *' care of iIseI! In his opinioo. -0<X:UpSIIt 1W110~l:r in response 10 the ~ of the
market and many bnd10rds may ,..odo; bettet !hi!! the SO-< ailed '~d' retail
management elrons."
DistiIIctions between dowr.lown and the Stanford Shopping Center Lre softening.
largely because the ownership and management of many downtown properties "'"
held by • handful of retail knowledgeable individual. who recognize that _
variety and m.aM;t <XAUpCIition enhan.:e the overaI1 quality of downtown nses. &sed
on fismes provided by Wilbur Properties, nearly one-lhlrd of groIIDd floor retail space
iJ CODIroOed by six downtown owners lIId!or property managers. They include, in
order of amount of floor area: Premier Properties. Thoit Properties, Keenan Land
C<>mpany, the GioVIIIIIO!Io WniJy, Stanko,"", Proper1iei, and Rapp Properties.
PedIaps cquaIIy impo<1ant to nole. lweM ley intcrse<:tions are IIJIdcr the ownership
or ~ COPIroI of jusllhree downlowa property owners or managcmeot
enIities.
ODe effect of1be alxM factors is that the downtown _ mix may k:Dd 10 emulate
shopping CCIlIer ~ 10 kasing more than has bees the use in Polo AItc's p&>l
This may lead 10 the introduction of more chain operations in the downtow" in the
future. although IUIIioruIl dIains may Dot be the dominant players. R.S. Basso.
Restontioo Hardware. and Whole Foods are good example. of <eleolive specialty
retail chain niches !hat serve downtown Palo Alto.
Nooetheless, "chains do Dol emerge from management style -good lccatioDs within
very strong trade areas demand high rents,' DOles Bill Phillips, Managing ~tor
Jlul EsIate. Stanford Marulgement C<>mpany. Acoording \0 Mr. Pbi!lips, "major
chains can ~ m<n aggressively because of their higher profit mazgin.s; the
primaIy -supply side" reason for chains is usually financing requirements."
Polo II 0124
------"' ......... :;.c-__ ". ~.-_:_ -~_ .----•
";, .
, .
-----.----, - -------.--~--,--I" -.
. .
-;" _". a_ .• --
'--. .l' -~-
.' --",'~ i~ >: .
• The EIP"'Mn oCDcwntm!!to'D elfe s and Restaurants
Aa oft-repealed «lIICC1l reprding change of use in the downtown "!au. to the
subsImlIiaI gIOwth of n:sIaIinmIs I!Id c.ares within the area. This change has oc=rcd
Do( only in the "'" of DeW reslllurul inlrodoctioo, but llso in the reIail food sale.
c:ak;gOIy, whiclI includes ~ food such IS yogw1. coffee anc! pastry. While the
actual Dumber of ealinI and drinking outlets has not increased substantially, the
increase in 1ake-out food esIabIisbm<sIts and die increased on-site sales of rcsIal!raII!s
in generu H • reality. Some newer restaunDls oowntown have outperformed their
pmIece.son by IS modi IS eight-fold in _site soles. Palo Aho is not a100e in
experiencing dIis 1rt:Dd. According 10 • re«nt Fortune magazine arock.' AmerK.Ins
,pent an estjm"ed 44% of their food oonm-. on food away from. home last year.
Nationwide, there are about 30,000 superm.ukets. 13,000 discounters lCllins food.
93,000 conveoia>ce sIoRS, and 400,000 fast food outlets. diners and resta=mls. The
fastest-growing 5ep>mI oflbe restaurant indusby is thIIt of casual dining; the Dumber
ofU-S. reslBu!illIs rose by 7,000 in Ibe year 1994 110110. "~caunnts and take-away
outlets. in shoct. have become extensioos of [baby) boomer kitchens ... a generation
that srew up Ihinkin3 of resIliuruts IS a necessity not .luxury", according 10 Bill
Soparito, the outbor 0( the article.
EXHIBITB"
Growtlo in "Eating a"d Drinki ... g~ Use Cate&ory
1989 1994 1994 %growth % growth
s.Jes Tn Sales Til< in 19895 in current S in 1989 S
Downto\Vlill
Eating Il Drinking 286,000 458,000 383,804 60"~ :J4%
All Other J\&iI 1,113,000 1,408,000 1,179,.904 l~. 00 ....
Subto!aI 1.469.000 1,866,000 1,563,70S 27% 6%
Stanford Shoppins Centa-
Ea!ing &: Drinking 151,000 204,000 nO,952 29"/0 8%
All Otber J\&iI 3,125,000 3,442,000 2,884,396 10% ~I%
Subtotal 3,283,000 3,646,000 3,055,348 11% -7%
Downtown&: sse 4,752,000 5,512,000 4,619,056 16% -3%
(USng CPI facio< of 15.1 % For the San Francisc<>-San Jose-Oakland Area for 1989·1994 )
f
•
o
~ Rkb claims that rJl is ~W)' for1UlUlle for c11Sl(>mCr .. tisfaclion and City ,"fes
lax rec:EipIs Ihat doWDtoWII shifted 10 an emphasis on •• tins and drinking. This was
a JIIIIIIcd response with minim.! ..,nons pro.nded by 1hc City, just lS 1hc c!eaeaY: in
f'inaI!ciaI services was accomplished by uwket forces without City ... -tioru." In
Exhibit B (proW!c4 by Mr. Ricks). he shows that eating and drinkins sales tax went
up 60% in cum:D! doIl4n and 34% in real dollars for doWll!own and 29% in current
dollars and 8% in real cIoIIan for sse. while all olhcr retail in both d<;WDtoWD and
Slmford Sbopping CenIr:r 6riIed to even keep up with inflation or just bareJoJ kept up
with intIatioo, over !he six-year time period.
Fmc;qeoo; of fJomc. Fpmj ,bio, R dated Stp[cs
The emerg= of specialty home furnishing stores is the outcome of & beha-.ic<
pattenl c!esCI:ibed by New Yorio: mad:etiJ!s consultant Faith Popcom as 'cocooniDg:
the impuI.., 10 go iDsicIe when it gelll 100 IOOgh and SCal)' outside". In her Istest
Popcorn Report. Faith Popcono. DOles wt "cocooning turned out 10 be • major
Americu preocaql&!ioo. as record numben remodeled. re~!ed, and restored
their homes-" "Americans spent • record $126 billion on home impro>=ent
products last year: according to an article in FO<tUnc magazine.' Funhcnnoo:,
Pr~ition 13 eneootages home improvement and expansion rather than resal. in
Ca1ifornia. III the opinion of cenaiD retail e.pens. furnilW'C stores located in
sul:urban. downtowo.s attract cfiner> wailing 10 be seated ()£ strolling along the main
street lfIcr an evoning drink.
Exhibit C gives one l'icIW'C of the chonge in use in !he do .. -nloWlt area over die last
six yean. While apparel stores cI>anged oo!y slightly in the &e1lW number of outlets,
I. JnlWIh in sales 0{ IM:I 40'''' occumd ovcr that ~ix-yw fune period, some 0{ which
can be attributed to the recent arrival to Downlown or the Ross store. The number
of drug stores declined slightly, but sales increased drama!icaIIy, largely reflecting !he
introduc:tioo of Longs Drugs and Ihe expansion and remodeling of Walgreen's. Other
reIaiI stores or specWty shops remained relatiyely stable in sales produced, aItllOugh
accounting ro< inflation, could show declines. The inCIelSC in food store sales and
ootIers Iqely tdIects 1ak~ IOOd operations. and the introduction of Wbol. Foods
Market 10 \he doWDtoWll area. While the number 0{ restaurant operations also
increased by 14% during that six-year period, sales increased 60"/0, reflecting Ihe
gremr intensity of restaurant oPerations overall downtown. The number of home
furnishings outlets downtown incretsed by 32%, and exhibited. S 1% increase in
retail sales.
, "TM I'oJ'C""l Rtpo .... by Fo±r. Popcoo>, IU>pc.-_ Publimers, 1991
• "Why """Y <Od-b_ """"""" own. .1rUCk."by RooaId ~ F""",.., May 29, 1995
.. , '
PaplloUI
. 'o'
(
-._----------.. ---..,-
-. '-
o
EXHIBITC
Do .... I0 ... Plio Alto Re!&iI Sal ..
Number of ACOOIlDIs Inel SII .. Tn (1989-94)"
CY, ... .m CYI994 1994 Chop Chop
SaIoo III SaIoo .11 s .... .11
Tu Acdo T .. A.odI ru ~
""""'--154,000 16 576,000 IS 41% -6%
..... --546,000 • m/YJO ) 69% -25% ----1562,000 200 1S6!,OOO 186 1% -7%
..... --134/YJO IS SS6'<JOO I' 65% 17%
~&-. 1286,000 .5 145&,000 108 60% 14%
-~&A.pplla-. 194,000 I. S!4VX>O 25 51% 31%
'Soonoo; Quanody 50Ics r",R<paru!"'PaRd "'!be COy mPIIo A!Io by Mucicip&I Reooo= CoosuItaDb (MRC)
1989-1994
Stallard SbAIQJinr Center
The single-levd 1.3 million sq<IlIR fOOl Stanford Shoj>piog Cealer is !he closest major retail
~ II> cIowDIown Palo Alto. According II> David B. Longbine, Cealer Director. !heR are
I niDnber 0( stores in the CenIer that CIDlIOC be found in any 0Iber Bay AmI shopping
atViroomaII. Slanford Shopping Caller bas I unique policy of mlling \0 I bigh percenta&e
(35%) of independent merchants. The re-merchandising of about 80,000 square feet, as a
result 0( the expiration 0( numerous 15-year leases since 1991, bas led \0 the creation 0(
mini-anchon \hrougbou! the mal! by clustering numerous rompIimcntaly small .bops around
suclo cIestina!ioo.lI:nanls. "Wha, wow seeD. is I diorna!ic iDa",... in 1nffic in areas Wt w ....
basically devoid of traffic', said Mr. LonBbinc. SlICk leasing efforts boosted non-anchor
saIcs in sec by 12"'" over the past year ..
From Exhibit D, it is clear !bat !be Stanford Shopping Ceater captured the growth in apparel
IMI" Ibe last six years. According \0 N"ma Gruen. Executive V"", President 0( Gruen Gruen
+ A.<SOcia1<s, an economic and real cslst. restarell finn, '"the usual wear boom bas helped
mamlBin apparel sales. AJ a point of fact, some JIlCIl are <pen<fmg IIIO<e for their 'dress down
Friday' cIoIhes." Department stor. sal •• remained flat, while specialty retail increased in
bod! IllIIDber cl omIets and sales tax generation. Restaurant sale. remained relatively steady
&I Stanford, although the ACtual number of restaurant operations declined.
..... 1."'14
..
, .
,-.:
.. -'"
o
The SboJ!l>iDI Qma-'slea!ins policies fimlr retail ova-eating an4 cIrinlcizIg. I factor !hat hll
hcIped Icad 10 the lISe compatihility which downtown IJId SlIdord Shopping Center have
KIIic¥ed ow:r Ibe last decade_ Home f.mIishing s.ales detlmed III sse. as <Iepalt=nt store
iOndring and SIb of sucIt iIems declined Nina GNen ~ !bat while the !rend loward5
~ oflKme ~ may have been on !he upswing in the =CIll Past. !here is 110
sud! trend =t!y_
AIPonI ......
Dep.-------z-..~
EXHIBITD
Sbnforcl Sboppi"l Cenm Retail Sales
Number or Accoualt aucl Sal .. Tn ( 1989-94)·
CYlm Ita CYI~ ,.,,4
SaI.oYu h' SoIeoYu '<1
AftU A ....
S546,ooo 44 S1SI,OOO .~
52,02<;.000 • S2,ll2l.ooo S
S404,OOO 54 S56I.ooo 5)
S1.ooo , 11<4.000 •
SI5&,ooo 21 S204,ooo 2<l
a-I'a:: 7 Ita 6",. .. II S?6.ooo 7 S4i.000 I
CIou .. cu ....
SIIIaTu .. ,
Aoda
38% II"
0% -38!0
)9% -2%
liN -H"
29% -11%
-16% )1%
I, From I CGmpedtive to I SYDe~ Relationship: Stonforcl Shoppine Caller anc!
DowaIOWlt PaJo Alto
The 1932 Sedway Study IIO!<:d that "tmIe .. the downtown is able to sustain and
hope1iIIIy ~ iIs quB!ily shopping and restaunwl envirOlIlllellt, it is likely 10 lose
some of the better stores to Stanford. While the real differential is certaiDIy an
inclucemeot for stores 10 n:main in the cl.>wnlown. higher rent cosIs are less of I
deterrent 10 sDCCessful stores, especially given the opportunity of I more regional
CCIISPJ!MT draw !ban is preSClll in the downtown.· In the detsde since !he writing of
IIlII nport, boch 1he Stanford Shopping Center and do,.."toWII Palo Alto have boned
1heir ~ niches with I unique mix of shops and CIllertalnment acthilies,
drawing slIoppers from. all over the wadel
. .t._" •• -
-'-.~"-:-. ... -"~ .. ~.-,,:,~-,
Tbcre is clearly • retail synergy between Stanford Shopping ~tcf and downtown
that is wod:ing wen for boIh districts. Areas of overlap, for the most p.n, are
COIICCIltrated in specialty reW!. Fut= expansion of the Stanford Sbopping Caller
could impocI downtmm if such expansion were to be con<:enlnlted in the downtown
reIail Dkbe of eatini and drinking establishments. Given that regiooal shopping
..,.,ter leasing policies c;oocentratc 00 shopping goods, direct compe1ition in \he
ealinglcIrin/dlls ..... is unlil:ely.
EXHIBITE
Sala TIS Treada Over TIme for Downto .... Palo Alto
Ind Stallford Shopplllg C •• ter (ssq.
,. iM u" 1m .... .... CIoueo
(O'->C) ---51.469poo Sl,fl,,ooo S1poo,ooo 11,635,000 S.l.73l,\XX} " ........ "'" %0, 11% 12% 12% 1)% , .... ,..,.
sse Sl,203,ooo ...... .DOO ")71,000 ")92,000 l1.m.ooo S3 .... .DOO liS
"or, ..,.,. )6% '4"10 ---........ .,,-m,664,ooo .13,201.DOO 113j110)lOO S Il,s91 ,ooa (13)"'.000 7% ....
Whatever reS1a1lnDt additions, if any, that take place in \he center will be aimed
primarily at <:apturioa luncJ>.1ime and aftcmooo. ohoj>pers. It is in Stanford Sbopplng
c-'s best interests to concenlrale on uses lIi!llare complementary to downtown.
la !he =em past, evening entertainment in terms of eilher tbe4ters and/or food
~ bas not boeR • focus of the Shopping Center's leasing efforts. Gi"en
the recenlloss of onoIher downtown theater. cioala operatioos in \he Center JtJZj
wen be • ~ilhl. 1ISO in tile future.
Z. C.Ufornia Avenne Shbpping District -A Community Commercial Cul-de-uc
TllatWorks
CIlifomia A venllc Business DiSlrict was • solid sales tax perfonncr over !he period
atudied. California Avnmc is unique in that !be Itea bas limited access for
c<lII1lDOtCiaI purposes; the lack of. through vehicular connection across !be railroad
ncb serves as I banier \0 some retailers, particularly national chain operations that
Dve "fonnula" si!e 1ocanon criteria. A major offsetting f&ctcr 10 this is !he
SIIbstanIial emptaymeru base provided by the Stanford Resean:1t Park. California
Avame is ~ becoming I destination business district. and the area sh<>wod
I respectable growth 0(11% in taxable retail sales over !he Last six years. Muck of
•
. :-.-.
this growth can be ~ 10 some notable additions: Mollie Stone'. V.Ad<et
repIa=! !be former Co-<ljI gracey slore; Ki:lkO', Copy Center expaOOed on
California A ''eIIUC near Park Street; Print .. •• Inc. expanded and added 2 C<>tfee
slwplres1auJBDI; and Keeble and ShuchAt PbotognIphy nearly doubled Ihrir camera
_ op<:I1IIion. WhiIe tbt:re is DO direct empiricaI evidence 10 Sllppo<! litis .Ia~
it is also likely that the decline in retail ond restaurant establishments along EI
Camino ReaI has boosted !he Californil A venue Shopping District as & destination
1CIailuu, par&ularly Cor Sl3nford Rcsea.rcll Park empl<.>yc ...
3. Neipborboocla"" StrIp Commerci.ol Areas of the City Fared Poorly
While dowuIown Polo Alto. Stanford Shopping ecm.r and rufornia Avenue >bowed
economic growth during !be SII1dy period. nearIy ail of!be Cily' s mnaining retail
"""'" showed evidence of decline, per1icularly !be Cily's neighbod>ood CO!IIIJIeI1:iaI
and EI Camino ReaI IIUS. Wnb!be exception of Cbarlestoo Shopping Center. which
sho-.d & 33% groWlh in sales since 1989. aU Oiber neighborhood cenl= exhibited
serious ecooomic stress. willi declines in tnabl. retail sales of up 10 45% aves the
six-year period. The retail sales groWIh abo",,, for the Charleston Ccnier is skewed,
however. in 1hat !be Center exhibited nearly SO% vacancies in the I.ale 1930<,
cooseqoondy base sales weR '-ely low. Pbysica1 upgrade of the Center. and the fiwt
thai it is under single maoas=t cootrol, have also contributed toward a healthier
retaiI environment
EXHIBITF
Sal .. Tn from EI Camino Rea I anI ..,virons
aad NelgIIborlooocl Centers·
1m 1.,. '''1 ml mJ 1.,. Cbop
(D-J4)
n~_ Sl,16O,OOO 5871.000 S798.000 1856.000 5'.>41.000 1955.000 ·17%
Elc-M __
Aaa
0..-
1:11 1 .,. --..........-s.._
S2I5.!lOO
SI.ooo
40.000
".000
m,ooo
SlS3JlOO
, .
Im.ooo 547'.000
(6.000 (6.000
"I~OOO '9.000
36.000 C2,CXlO
111.000 11 • .000
.2<1.000 S25S.000
'SSl,OOO 5671.000 17S6.ooo 251%
51.000 "3,000 32.000 -45%
53.000 51.000 5).000 ))%
(6.000 )3,000 24~OOO -124,000 99.000 '1.000 -J'I%
52711.000 '226,000 '200.000 -22%
hael70lU
..
i
o
While the In cIata do DOl differentiate ~een Neighborhood Commcrcial (eN) ZOnN
~ and Service Commercial (CS) zoned properties along EI Camino Real. losses in
El Camino Real retail areas r<:ileet an "VeraI1 decline, regardloss "f zoning. Only the
introclueli<m of electronic and applimce sal.,. along EI Camino and in the environs (side
streets sw:It IS Lambert Avenue and PortIIge Avenue) put the Jlict= in. pcsitive taxable
saleofi8ht
lD I m. A PlannIng Policy AJldiI of Relail An,.. In the C;~ of PaIo Alto, • reIailIIand use
SIDdy of the City's c:ommerciaI areas, was tomp!eted by Gruca Gruca .. AssOciates. Many
of1llat SlUdy's findings were predictive of e<mCfi1ions exhibited in this report, and the study
awIe several =ommendaIions f<>< <:hange 10 the City's zoning regulations .&Ire.sing
~ and strip rommcn:iaI issues.
•
Similar fiMjngs wen: highlighted in the reant!y completed Mrotown Market Analysis.
COIlducted by Keyser Mars10n Assoeiate. for the Midtown Neighbod>ood Coounercial
District. I In sumrtWY, retaillrends fer neighbodlOod and strip COIIlJIlefcial developmcnt . .
have cbanged dramaticaJly over the !sst two decades; and Pa!o Alto's aging physical plant
and 2IlIIiDa resIric:Ikm, panicnIarly within the CN zoo.., have been partially r.sponsible for
ecc~ cIec:line in the.. areas. Factors such IS multiple ownership, IIIJt08listic
expecIalions of property \'1IIues, and lack of owner investment in structure. have ats" been
'"""'1ruto<y.
This <:<>mhina!ioo!. of various c~ has led 10 deterioration of neighborhood
~ retail. are.. and of EI Camino Real retail areas. The steady pcpulation in Palo
AIIo, coupled with cban8ins retail shcpping patterns toward "box· retailer> fer many goods
and sc:r-vic:cs snggrsts that the City C8D!IOf support aD of the City', ccmmercial centerS given
0UISide competition. The r=tJy <:<l!lGluded MidtowlI M.rl,et Analysis Study supports !he ..
findings: "For Midtown Shopping Cm!er to cap!Ure the =aliud poIelIti&! will require
upgrading portions of MidtoWll to mOOem retailing S!Bndards in \ern1S of building
imprOveD1cn1s and parking. Strong market opportulIities do DOl necessarily transl.te into
9:reascd sale. for existing Itnants or for financial fcasl1Jility of new retailers in Midtown.
Food stor •• sales teprescnlless than SO% and non-food stores sales about 12% of the
expendinue potelIli.oI in Midtown.·
11 is inb::IesIing 10 DOle that tb= are.some WIIIlI>OtIalities shared by the CiIy"s healthier retail
esvirOllllleDts DOC found in neighbod>ood or EI Camino Real areas. Stanford Sbopping
Center. DoWlltoWll Palo Alto, and the California A venue district aD exh.ibit different
-.hip paIIc:ms. HoW"""", t!>ey sbare two attributes in common; (i) aD c(the.., cfistricts
ha~ reIBil zoning WI is opea in terms of use (restaurants can replace specialty shops and
~v=a willi no Ifucre1ionary approval re'luired from !he City); and (n) change ohse is
..... nolle
'---;.",
-.
.,
':' .
l ~-'
,
------------~ --
-. -,
, -.-
_ govemed by oo-sitc parking ~quirements. In almost all odoer c~iA! areas of !he
City those factors do _ exist, and the taxable soles data show steep declines. Zoning
rcsIrktioos compound these factors; both the CS and CN zone. have caps on uses Ihat
discoun&e ~ ~~ 10 accommodate ~Iopmenl for retail JIWPClSCs.
REGIONAl. AND NATIONAl. TRENDS
According 10 the 1992 Calsus of RctaiJ Tm!e.' Santa Clara COWIIy exhibits exce!leot
retailing ~ willi • population ofl.SS million and • median hous.:hold income
dDe8dy $56,000. In an IF of dwindJ!ng public revenue 5OW'CeS, some cities Jook Ie retail
clevelopmellt in an effort Ie improve the;. tax bases. MAny shopping cen!cn = raeing ...
in<nasinsIY competitive envitorunenl With the cnlI)' of map discount retailers and pow«
centers iDIo the nw:ke: IRa.
.Retail. spending in SIIIIa Oara COWIIy declined by 11 percent from 19!!7 10 1992 after
IC<'O'mfina file inllation Department SIOre5' market shaR decreased from 30 percent in 1981
fa 26 paCCIlt in J99land is HlimaIed 10 decline to 24 perunt by 1m, according 10 Tactical
.Retail. Solulions.· "Department store. m long pas! their peak and have been struggling",
Pete Buddin, • professor II the Haas School of Business II the University of California,
BcrlreIey, said in ... iureni=w 10 the San Jose Mercury News. During that same lim. period
it is inteRsling 10 IIOIe !hat spending increased by one-third at -....rehouse clubs, nearly
doubled at eleclronics stores and climbed almost nine percent at restaurants and bars.
Incn:ases in reIail sales tax in othec Peninsula communities such IS Redwood City, San
Bruno and F osta City COD be attributod 10 gianl grocery stores and diSCOlllll rerailers'
MouoIain View bas wclcoo!ed WalMart, Prke-Coslco, and Orchard Supply Hardwm in the
past two years. East Palo Alto is proceeding With • big bcx diSCOlllll shopping center,
including Home Depot, Sportmar1, Tower Rec«cIs, Videos and Books, en the fenner
Rn-enswood School site; Phase I of the Gateway Project is scheduled 10 be complete: by
December 1996. AI ofdiesc: outlets (will) have regiooaI draw and are partly responst1Jle (or
the losses in sales of retail goods and services nole~ in the Midtown 1v'.arkel AllBIysis
prepaRd by Keyser Mmion Associates.
Aecording '" retail expert N'lDI Grue&, "One of the worst reraiIing strategies file • community
could be 10 &Uempl1O compeIe Wilh its neighbocs fO< the ~ types of relaillenancies. For
mosI cities. the challenge of the 19905 wiU be 10 provide. uni<r->e shopping environment -
, "Haw .... """" .... moo<y". by Scott nn.m .:00 Shmi Eng. s... h, M,,,,,,>, &w,. MMd> 17 1995
• ~ Choqa io J<tailin('. bJ Nma Gruca. 1994
• 'Cooo\y ohows...".......,.,,;c ~-bJ'" C<>oto. TIw Tim ... Octobo: 17.1994
•
-, .. '
"\'
o
CCIC that canDO! be readily c!uplieate<I by nearby competing communities or substituted foe
by the information highwIy.' ...
While SOlD" odI:r cities ill the Bay AJu offer special incentive. 10 attract 1MBeted retailers
10 d!cir "'."iiIi"'i6es such IS ~Iopmenl Agency formatk,n, sales tax rebares, .!c~ Palo
A/Io does IlOl ha~ lIlY ~ in place 10 f.acili_ retail redevelopment. More impol1antly:
L ZorliD& RgUIatioos ~ sma1Ier uses Isrgely pre<;lude the development of "bo,,~
retailers ill Palo Alto. Size cap< on certAln uses, suc:h as groctry $loR limitations,
diso:ouAge,.".. reIIil ~ Asslnning the cunent zooing regul.ations mirror
!be C<IIDIIRIIIity's sc:miments, pazOOlIarIy within neighbodlood commercia1 areas, the
City should assess its uecds for neighborhood commercially ZOIltd land.
b. Palo AIIo is I c!cvclopcd City with little land avail&bili!y. A typical destination relail
ckvelopmcut ~ up 10 100, ()()() "I""'" fee\ in building area. and nearly ten acres
foe .individDal siIa. Currem policy in Palo AIIo is 10 ~ Isrger properties (I)[ future
n"idmtia! 1lSe, Iea-ms sma1ler propert:es for c:ommercia111Se. This practice may run
coun!e< 10 90's retailing needs. JI may be that carefully placed coomwnity
COlllll1ercia1 cenlerS on Iarge sires, suc:h as ToWD 8;; CoonII}' Vt!lage and Rickey's
Hyatt si~ would betl<t sorv< !he COOlllIunity's retail needs for neighbodlood goods
andseMc~.
c. Although SOIllC retail uses .... conditionally pennitted in indasfrial zoned areas,
ilK:ludiD& Sranford Research PazIr. Stanford Mmagemenc Company policy
disc"", ages retail"",; and Ib<R is DO clumge an1ici~d in Ibis poticy. F\D1henn<n,
tbcrc may be little owner incentive 10 attract retail tenants IS rents earned for office
space generally exceed those foc rtiail.
Today we are in I better positi9" 10 analyze retaJ1lreDds that were set in motion a decade
ago, even tbough such trends are continuously 1lI1derS"inB chang.. Wbll. Il3tional and
Rgional retail patterns do nO( alway1 apply at the local level, overall retail changes eanoo(
be ovedooked in evaluating a Citys retail climate.
N.rional Trrrnds
The foIIowing national trends have been suggested by retail specialists:
&. Americ.aRll .re spending leu Gil reuil goud. beca"sc housing. l>4u<&&I\. aDd
.eaJtII COIls bve Co •• up.
,
A$ more of each COIlSUD!er'S budget i. oIIocate4 10 bousm,. health C&Ie,
~ and energy, die percentas0 of income left for retail sboppins is beiDg
reduced. In 1975, 20 pcr=t of aD disposable iDcome was expcIIded for retailgood5.
wIlile 35 p<:rcenI was spenI for hoosing, medical care. IrIlIspOJ1a!ion and energy
rdIItd IOO'h and servicet. By 19i7, the percmtase of disposable income spent on
.reIail soocIs had ~ 10 ibou! 19 pcn:mI. whiIc die percenlago spent on housing
and oIber items had climbed 10 41 pereent. 11
h. 'The iIK:rasInJ .amber or diW iocome f. mili .. in the 90'0 is ores tin, lIew treacb
III recoil "'oppinC-
The ~ injob and fmIiIy p&Uans. with III<lR two-family eomert as wen as more
singlc-porem bowehoIds, lie resulting in Ie .. ~ to shop. "One result of both
limited doUus and more limited time 10 shop is die retail success of "box" ret .. il .....
sucIo as ~ C<>5tco and Wal-mart", notes Roy W>lbur. NO( ooly is die pie oflollil
disposable income sI>rinkina in size, Ihere is also • redistn1>ution of the slices of ..
disposable income takins ploce simultaneously. Americans are spending
proportio<wely Icss in the gro<:ery and lraditional deplJ1men1 stIRS, and """~ II
discoun! stores, outlets, """e.\ouse clubs and giam specialty stORS. There are
estimated to he about ISO or 50 wa..-ebouse clubs, ma/dns it • $39-billioo .. ~
indusrzy. "Snpermark:!s ami discounters haw discovered 1ha! they, -. can aI!nIct
~ by selling basi< c:ommodities in big boxe5. At the sa= lime, III&S5 volume
-ca!egory b1lcrs" sucIlas Circuit City and Offi<;e Depot an: chipping away at !be
clubs' businesses by offering lower ~s and large selcctioru." 11
Co lbe Information SuperlU&b •• ". i. addition to .... I'pinll catologues, lias
introduced mall)' more obopping opportunideo into Dar bom .. ODd ....... kplaceo. u
AJ Ihe goals of media and .reIail companies merge, the non-slorc retail ..... iru:hlding
caIaIog merchants, lave dramatically incRased in Dumber and SIrenglh. These uew
technologies are heing reinforced by other urban trends mch as traffic congestion,
crime and parl<ing availability.
Quoting statistics that "in 1993, home shopping coble televisloil cIwmels genuated
lboat $2. S billion in annual sa.1e. (l., about one-half of oue percent of lola! U.S.
retail .00) and c:atalog sale. exce.ded $25 billioo (ie .• about five perunt of1o!al
11 'Tho ~ ~ SoIu!ioos b-Today', ShiIIio. Mad<.etplaco-by Nm. an.... """""" Of
hop<,,¥ M"""Il.-.IulyIAqus 198'
" "why CYCI} IOd bloodo.L"by R...l.! _ F ..... M M.oy 29. I'>9S
13 ~ ChIIJps iIIlt~ by Nu 1. Gruea,. Ferte". City, MD)'. 1994
.... ZloI14
':,,-~ '.
'-
.. ' . .-
'-,
....
... .. .
saks).· 14 Nina Gruen coocludes 1hat "if1hese new tcclmologies capture an additioMl
~ pc=nt of America', 1993 retail sales doIIan, they would replace
liD milJioII square fee! of on-lhc-groimd spac., (assuming that $27.5 billion would
avuast $250 per square fool in relail w..,.
Nationally, 1he reIail market bas been glutted; between 1975 and 1984, IoIal !ew1
square foocagc in 1he U.S. ~ 80 per=>! -I much greater ina'ease than Ihe
national popuIalion. Lyun s..dwoy points to Ik fact that deparImenl stores have
de<:1iDed, while "his box-retailers htve cxpomded. A clear area of 8I'owth ill reIaiI
is 1he in<:n:ascd demand !os food and/or entertainmenl As I result, many shopping
ccn1cn Ire shifting their tenant mix more soW1lcls food and enter!ainment to _
shoppers. Such soan:es of entertainment and places of coogregation as IkIler1,
espresso ban, virtual reality stores, bookstore. with readings and coffee et<: .• Ire OIl
1he rise, .",.., in ~ighbodlOod coounercial c:entea.
II. Most of tI!e a)llDUY'. ", .. 1111 is in tbe I>lndJ of tl>ooe o>.r so.
Most of1he OOUDtry's weaItb (1houghQ()( income) is in Ik hands of those ever SO, and
tI>iJ age sroup is expected 10 increase by about J2 million people during !he '9Os."
III Palo AItD, the senior p<>puIatioc incn:&Jed nearly 5O"h over me 19'}().1990 time
period." It is suggested lbat !he increasing fear on Ik pan of many older and
we4I1hier submbanites to leave their e!oiJtered commUDities to shop II more urban
c:adI::rs is partially responsible !os !he tendency of more mature Americans to spend
less OIl recaiI aoods and scN=;, in IddiJ!on to Ik fact thaI they already pas"'" most
of what they need. These trends may be less eWlenced in Ik City of Palo AItD,
wbcrc we exhibit: I low crime rate and inviting aImosphere to 5C!lior shoppm
(poitic:uIarIy allk Stanford Shopping Center). sinGe "1he over·50s are also !he ones
most likely 10 be furnishing ..woo homes, purchasing C<peDSive gifts !os children
and granckbildrea, and buying health care ..... l.ated products~, according to N'ma
C'IUeIL
14 "Fetr:oma R.cWkn iDlJ_ BiI £lcctrooic: Ganble ... .by G.vio PO\Nc:n.l'1v SaIl Frr:mci.Jec Cwnkk.
IlOIlOI)' 20. 1994
15 ~ Cb.o.p ill RcU:ffine .... by NIDiI J. Gruen, F"tc!'nI C~'. May 1994
U CilY hoJik. City ~P"o Aho Co!np>"_ .. Updm, February, 1993
;~
." .
, .' " :
_______ <0-;_.-
" . -:-.
. ", .
. -.. -:-
Prc4"tdjgn. for ,be Futpre
JtdI.iI specialists predicl!he following possibilities for !he future:
L MOl( mOllC)' iDcome wiD be Ia tho bands or the 3S-10 5S-year-olcls."
DIlriDg IiIc 199Os, !be largest _ of dispcoabIe incooIe will be in !he bands of !he
3S-'> 53-year-olds. By Ibo year 2000, Ibis single oge category will probably account
file 44 pc:rc:e2Il of all bousdloIds, but file 52 perteDI of all JIlO<I<)' income in !he United
States. Clothes, accessories, di!Iins out, cultuAl and m:reationaI ~ !ravel,
luxury caB, jewelry, 1111, and llI!iqoe. should an benefit from this higher awilable
.iDcamc. AIIhougb.)'OIID8I:r qed oduIts between IR lBe. 11 and 34 have historically
'-' !he most acti'!'< COIlSiImC2"S, Ibis oge group will shrink by abont nine million over
Ibe nineties and lose Ibout $40 billi<m a yeM in spending power. ACC<Jrding to
Naliorull Decisions Sys1ems, !he esIimated population of Palo Alto (5 mile radius
around ORgon Expressway and Middlefield) for 1995 is 240,079 ofwhich 30.39"/0
are in !he 11 yean -34 yean CIlegory and 32.84 % arc: in the 35-S9 age-group.
II. Retail cIema." is likely 10 grow ,lowly -particularly for soft goods."
Wbik the demand for home furnishings and necessities may grow fairly wen.
dtmogti¢ic shifu, competi6on fut expenditure from noo-rewl secton. and lingering
pro<Iuc6vily problems wiIIlmd 10 inhibit demand for many of !he goods on retailen'
sheMs. Themalllringofthebabyboomgeneration.amini-baby boom. • growing
lIumber of grandparc:nts, later JnaJTUse and child bearing. longer life spans and a
hcalIhier old 130 Itt IiIc Il<lIeWIl<1hy demograpbic featutes of Ilris decade.
AITACRMENTS
Summary of A Planning Policy Audit of retlIiI Areas in !he City of Palo
Alto, prepared by Grua. Gruen + Associates, lanwuy 1992
Spedal th.ks 10 : Ray Wllbur, Wilbur Properties
N"I!UI and Oande Gruen. Gruen ('.rucn + Associates
TIID Kelly, Keyser Marston Associates
Bruce Jticks, capital SoJutions Inc.
David Longbi.ne. GenenI Manager, Stanford Shopping Center
BiD Phillip$, Stanford Manogeroenl Company
17 -n.e-R.et&a b~ by Nma GNc:n
II ~C'ballil=i inhtailin."',b)'NIllIJ Grucn,.1J'ate,.. Ci9',May 1994
, (-r -
;'. " ,
.-, -
• /-.
. :-.,:
f
,;"'.
,
-. 1 -.' •.
LYJIII Se4way, Sedway KO<ltin M"""hly Group
Jad< &ril!:au, Ko:erum &; Bariteau
Bob Amold, Cenkr foc Continuina Study of :lie c.lifomia. Economy
lleuard Cudueled By;
CITY MANAGER APPROVAL:: __ V;....:::=--f~-r!".C;.::::,I.!---""==::>:::-"..:;;;'--__ ~
BERNARD M. STROJNY,
AssL<tanl Ciry Manager
> ,. ~l. \ ........... ,
:!:i;?~~~<<.
" .
•