What is happening with San Francisco’s retail businesses? Why are iconic stores and local businesses closing in our downtown area but doing better in the neighborhoods and suburbs? What is causing these changes?
As a native San Franciscan who has been deeply involved in the city’s and country’s retail industry, I have a pretty good perspective on what is driving a difficult evolution in how people buy their jeans, dishes and books. My parents founded the Gap with one San Francisco store in 1969, and now it’s a global company. There is no doubt that the city helped the Gap become what it is today because of the city’s unique ability to attract the best creative minds in the world.
We’ve seen many trends and innovations through the years, just like other retailers. We’ve opened stores and, yes, we have closed stores as well. I know these ups and downs are part of the retail business.
And I know that the dynamics that are driving recent announcements, like the closure of Macy’s, are much bigger than San Francisco—and have been in play for a long time.
We all know about the large economic changes that have pummeled in-store retail in recent decades. The internet created a marketplace that is easy to access and has a huge amount of goods to select from. A digital marketplace, by definition, is not constrained by the inventory of what a bricks-and-mortar building can provide. Plus, we’ve all gotten used to purchases that can be delivered to our doors and returned for free via the mail.
The convenience, scope and low cost of goods bought on the internet have permanently reduced retail store-bought sales by 30-40%, a massive number that has triggered an equally massive drop-off in store-based customers and an epidemic of store closings across America.
The pandemic just added fuel to this fire. Not only did people stop coming into downtowns throughout our country, but the rise of a viable work-from-home employment model allowed many to stay away from business centers after the pandemic was over. In San Francisco’s case, it looks like there may be a permanent 50% reduction of people working in downtown office towers. That means a lot of people are not visiting our stores or eating out as they used to.
And, as we all know, anxiety around whether San Francisco’s streets are safe and clean is another serious ingredient contributing to a decline in people choosing to be downtown. This means our core downtown area is lacking a lot of customers who might otherwise be there. Fewer customers equals fewer sales and less revenue to keep the doors open.
Adapting to retail’s new normal
While research shows that these situations are being experienced in most major U.S. urban cities—not just in San Francisco—we still have to deal with what is happening here. We must figure out how to persuade more people to visit, work and live in our urban core. We must create a reason to come downtown.
Simply put, we must adapt. And there has to be a robust plan to help that happen. In many cases newly vacant downtown buildings, especially around Union Square, may be converted to housing. However, it is clearly understood that the conversion of commercial offices or large retail space to housing cannot singularly resolve downtown’s problem. It will take a mosaic of solutions to do that.
Another possibility is the growth of unique and more personally scaled boutique shopping experiences. People are attracted to opportunities that they can’t find anywhere else. Retailers have to create excitement—a buzz. That is well known. Coal Drops Yard in London, for example, offers open-air movies, cafes and bespoke shopping. It is a sensory experience for shoppers. Closer to home, we can look to Marin Country Mart, with its broad array of local eateries and independent shops.
One crucial solution is the abundance of entertainment, eating and cultural activities that can only be found in major urban cities. If we are to stay competitive, we need to better utilize the city’s streets to create joyous gatherings as a part of the culture of consumption—experiences like the recent Chinatown Night Market and the upcoming Downtown First Thursdays, which my wife, Randi, and I are helping to fund.
We know that internet shopping is not going away nor is the work-from-home model. To attract more people to the city in the new world we’re facing, we must support the development of options that address people’s new expectations and interests. The sooner we get behind the need for change and come to an agreement on what that may mean and look like, the better off we will be.
Our city’s unique history, geography, neighborhoods and innovation-based economy are strong foundations for building such a bright future. But we must do the work to achieve it.
Bob Fisher is the former chair of Gap Inc. and a lifelong resident of San Francisco.