Bay Area businesses still in survival mode

Bay Area businesses still in survival mode

Before the pandemic, Papenhausen Hardware in San Francisco could make about $10 in profit selling a garbage disposal for $129. It wasn’t a king’s ransom, but it was the kind of transaction that has kept the place afloat and serving the West Portal neighborhood for almost 90 years — through earthquakes and multiple fires.

But with COVID-19 concerns increasingly in the rearview for many people, small businesses like Papenhausen are still locked in a struggle for survival, battling the immutable laws of economics and the permanent changes brought on by the pandemic.

That garbage disposal nowadays? Papenhausen owner Karl Aguilar said they don’t even sell it anymore. With inflation-pumped prices it would cost the store $150 just to get it on the shelves, let alone what it would cost a customer including a markup. And it’s unlikely anyone would buy it when the same item could be purchased online or at a big box store for less, he said.

It’s a similar story for shovels, disposable gloves and other items with increasingly razor-thin margins. Coupled with foot traffic still being down in the West Portal commercial corridor that has long depended on SF Muni-borne downtown commuters, Aguilar said the math is pointing in one direction.

“We’re running at a deficit,” he said. “If we continue down this line we’ll just have a huge debt. And bankruptcy is the end of that.”

Bay Area businesses still in survival mode
Victor Wong, right, buys caulk from sales associate Annabeth Russel, left, at Papenhausen Hardware in San Francisco, Calif., on Wednesday, March 8, 2023. Karl Aquilar said some things like certain shovels, sanitary gloves, and caulk have gotten so expensive they are not worth replacing as often.
Salgu Wissmath/The Chronicle

Papenhausen Hardware in San Francisco, Calif., on Wednesday, March 8, 2023.
Papenhausen Hardware in San Francisco, Calif., on Wednesday, March 8, 2023.
Salgu Wissmath/The Chronicle

Top: Victor Wong (right) buys caulk from sales associate Annabeth Russel at Papenhausen Hardware in San Francisco. The store’s owner, Karl Aquilar, said some things like certain shovels, sanitary gloves and caulk have gotten so expensive they are not worth replacing as often. Bottom: Papenhausen Hardware in San Francisco is struggling to survive. Photos by Salgu Wissmath/The Chronicle

Some low-margin Bay Area businesses like retail, food and other small trade industries are mulling closing up shop after braving the most uncertain of the pandemic years. That possibility is especially on the minds of many shopkeepers with the city, state and federal money pumped into local economies during the earlier days of the pandemic to keep workers on payroll long since spent. And while the dramatic economic collapse that many feared during the darkest days of the pandemic has largely not materialized, many local stores have held on for as long as they could, only to run out of road and shutter for good after business, and the world, never really returned to normal.

In some cases, the pandemic sped up trends that had been around for years, hanging the proverbial sword over longtime local businesses as they faced mounting costs.

For Berkeley interior design salvage yard Ohmega Salvage, it finally became too much. The store’s last day will be April 14, after almost a half century in business.

“We just can’t afford to lose money any more, it’s as simple as that,” said General Manager Steve Smith. “As our accountant says, ‘You can’t run an architectural soup kitchen.’ ”

The business has been struggling to break even since before the calamities of 2020, but, “After the pandemic was over, business didn’t really pick up,” Smith said. The found wall sconces and furniture of yesteryear that festoon the warehouse on Berkeley’s San Pablo Avenue can often be found online for a comparable price, Smith added.

And the rising costs of expenses, like employee health care, have meant the salvage yard has had no choice but to increase prices, making them less competitive with online retailers who offer perks like fast, free shipping, Smith said.

So Ohmega Salvage will call it quits.

“We have to be realistic that there were pressures on small business and retail long before COVID,” said San Francisco Chamber of Commerce President and CEO Rodney Fong. He pointed to expensive city permits in San Francisco, competition from online retail, and public-safety concerns that have only become more pronounced since shelter-in-place orders came down in March 2020.

“It’s very difficult, and the worst thing for small business owners is the unpredictability,” Fong said. 

“We want the fly-fishing store, the hat store, all the cool quirky costume stores on Haight Street,” he said, adding that the character of neighborhoods across the city and the Bay Area at large largely depend on them.

Fong added that the economic situation is starting to stabilize, as more workers trickle back to downtown and stop by local businesses, but the loss of predictable customers and in-person work schedules has made it hard for many small businesses to hang on as sales are still slow to come back in some cases.

While the dip in sales has been most evident in ZIP codes in downtown San Francisco, sales have also been flat in many neighborhoods across the city compared to before the pandemic.

That points to ongoing pain for businesses not just in the downtown core, but also throughout the city.

From the third quarter of 2019 to the third quarter of 2022, four downtown ZIP codes saw double digit drops in sales tax revenue, between 12% and 32%, city data show. The ZIP code that includes Hunter’s Point saw a 14% drop during that time, while the southwestern most area of the city that includes the San Francisco Zoo saw an 11% drop.

The situation was not all doom and gloom throughout the city, with nine ZIP codes in San Francisco seeing between a 0% and 10% increase in sales tax during the same period.

The San Francisco metro area also saw office occupancy rates rise to 46% of their pre-pandemic levels during the first full week of March, according to data from card swipe security company Kastle Systems. 

New business formations in San Francisco were on the rise, particularly in the food services industry, during January and February after being preceded by two months of slow growth, according to figures from the San Francisco Controller’s Office

The trend of businesses no longer being able to hold on as a hoped for recovery fails to materialize is not only hitting retailers and restaurants. The pandemic has changed not just the ways that Bay Area residents shop and work, but also how they play.

That is evident in the planned closure of San Jose’s Tabard Theatre Company, which after mounting its final show this month will close its doors on April 2. The cause is a combination of factors, said the live theater’s Executive Artistic Director Jonathan Rhys Williams, ranging from theatergoers not fully returning, to pandemic aid programs winding down, to the persistently high cost of living in the region.

“We, as arts organizations, have survived on emergency COVID funding pretty much the last three years,” Williams said, referencing Paycheck Protection Program loans and other state and federal money. As of this year “it’s pretty much over,” he added.

And it’s not just emergency funding drying up. Community donations have slowed and with attendance only hovering around 40% of 2019 levels, the math no longer works. “We need people back in the theaters. We need butts in seats,” Williams said.

He also noted that friends and colleagues in the performing arts across the country are dealing with similar problems. “Everybody that I’m talking to is white knuckling it and going, ‘It’s going to come back, it’s going to come back, it’s going to come back,’ ” Williams said. So far, it hasn’t.

Still, he is planning to keep the space, but refocus it on music and comedy instead of full-blown theater productions, especially as COVID has made it much more difficult to put on a play with a sizable cast.

“The reality is, as soon as a single member of a cast tests positive for COVID, that person would have to isolate and can no longer be part of that cast,” Williams said. “That could mean we have to shut down a whole show for a week or 10 days,” as opposed to swapping out a single musician or rebooking a comedy act to another night.

Even for small businesses that have managed to survive the pandemic, the cost to stay open through lean times has been high.

“From a revenue standpoint we’re almost at parity,” with 2019, said Manuel Torres, who owns and operates a franchised location of commercial printer AlphaGraphics in the SOMA neighborhood. He caters to business clients and specializes in posters and banners for the many conferences that come through San Francisco, although there are not as many as before.

As conferences canceled and delayed their plans in the city during the pandemic, Torres saw his business became increasingly unstable. While he got through the worst of times with the help of stopgaps like the Paycheck Protection Program, he said he was forced to shutter a second location in Marin County and let go of the 13 employees there.

He is down to 11 employees at his San Francisco location, including himself and his wife, compared to 17 before the pandemic. 

Despite the lean times, Torres said things are looking up. He even hired an employee to help liaise with clients, and enough conferences have come back to the city to keep him busy and even start thinking about adding shifts.

“We want to get back to where we were, we want to ramp up,” he said, noting that he’s ready to take on more clients. “We’re not done.”

Chronicle staff member Adriana Rezal contributed to this article.

Reach Chase DiFeliciantonio: [email protected]; Twitter: @ChaseDiFelice