February 05, 2015

A Personal Note

Updated 2/6/15 at 8:34 pm

by Alan Beatts

For the sake of clarity, there are three things I want to say up front --

1)  If you don't believe that small, locally-owned businesses are an important part of the fabric of a community and that they are worth preserving, you and I will not agree about much of what follows.  That's fine with me and, though I disagree with you, I think that your opinion is perfectly valid.  But, there may not be much point in you continuing to read this.

So, I believe that small, local businesses are valuable and worthy of support.

2)  I don't know if the changes to San Francisco's minimum wage are objectively good or bad.  I know that those changes mean I'm going to close my store and, personally, that is a bad thing.  But I don't believe just because something is bad for me, that is it objectively "bad".  The question of whether a minimum wage is "good" or "bad" (and what amount it should be) seems to me a hugely complex issue.  And I'm not an economist or any other sort of expert on the subject; I just sell books.  I've read arguments on both sides of the issue and, on the face of them, they all seem to have some valid points.  I just don't know.  I do believe, however, if tens of thousands of people are going to benefit from the increase, their well being is much more important than the continued existence of my bookstore.

So, I don't know if the higher minimum wage in San Francisco is, objectively, good or bad.

3)  My complaint is, despite knowing that this change would be hard for small retail stores, especially bookstores, the city government did nothing in drafting the law to alleviate the negative effects on those businesses, despite giving lip-service to the idea that they are important.  When the law passed, Mayor Ed Lee said, "We can give a well-deserved raise to our lowest-wage workers, and we can do it in a way that protects jobs and small business."  Scott Wiener, the city supervisor for the district where Borderlands is located, said last Monday night on the news, "I know that bookstores are in a tough position, and this did come up during the discussions on minimum wage".  But there are no elements in the wage ordinance or any other ordinance, that offer any new protections or assistance for small businesses.  All businesses are treated the same, regardless of size or ownership, despite the acknowledgement that at least some of us are in "a tough position".

So, I see no sign the people responsible for drafting the law took steps to "protect" small businesses.

And so, without a way I can see to make Borderlands financially viable over the long term, we're going to close the store.  And it sucks.  I've already talked about all the things I considered doing to avoid closing, along with the reasons that they won't work.  I've also explained what it would take to stay open (by the way, no phone calls yet from Elon Musk or those other guys).  But I haven't really said much about how I feel about all of this and what I, personally, think.

It blows, it sucks, and I hate it.  It has made me miserable for months, and it's still scaring the crap out of me.  I've been a bookseller for more than a third of my life and I loved it.  It was the best, most fun, happiest-making thing I've ever done.  Because of it, I've not only made a ton of wonderful friends but I also met the person that I suspect I'm going to spend the rest of my life with.

And now it's about to be over.

On a basic level, a small business like mine isn't much different from an individual's personal finances.  A certain amount of money comes in (sales or a paycheck), some money needs to be spent so that the money will keep coming in (the wholesale cost of merchandise or the price of work clothes, commuting, tools and so forth), and then money has to be spent to keep the whole thing functioning (rent and payroll or . . . rent and food).  Most businesses have two expenses that are bigger by far than anything else -- rent and payroll (our payroll is 43% of our expenses).  Most people have one expense that is bigger than anything else -- housing (in San Francisco right now, that averages at 50% of income).

Let me ask this: how would things work out for you if your housing cost was going to go up by 39% in the next three years?

The situation isn't much different for me.  And, much like many of you, I can't go to my boss (i.e. customers) and say, "Hey, I've got this expense that's going to go up a bunch in the next three years.  Can I have a 13% raise every year for the next three?"  For most employees, your boss is going to say, "Nice working with you, hope things go well at your next job."

Borderlands is part of a sub-set of San Francisco retail businesses that are going to get screwed by the increase in minimum wage.  As I've said before, the price of a new book is set by the publisher and I don't believe that it is realistic to charge more for it.  On top of that, because of discounts on ecommerce sites, people are hesitant to pay that nominal retail price.  So bookstores that focus on new books are in a very, very difficult position.  I think we're the first bookstore to close because of this.  I'm damn sure we're not the last.  On the other hand, I can think of several stores that should be OK because of elements of their business structure.  Basically, many used bookstores, along with any shop that owns its premises, should be alright.

But, beyond bookstores, there's a larger class of stores that are going to have some trouble in the next few years.  Any small-to-medium-sized retailer is likely to have some problems and the ones that are under pressure from online and national retailers are really going to feel the heat.  For example take indy hardware stores like Discount Builders Supply or Cole Hardware.  They're getting squeezed on one side by places like Home Depot and Lowes, who undercut them on price (and, often, quality -- but that's another story) and on the other side by Amazon.com.  If you want cheap lumber, you go to Home Depot and if you want a cheap power or hand tool, you go to Amazon.

The higher minimum wage in San Francisco doesn't matter at all to Amazon.com or most other internet retailers.  It has no effect on them since none of their minimum wage workers are in SF.  And, for a national chain like Lowes, Target, or Best Buy, the higher wages they pay in San Francisco are insignificant when factored into the total wages they pay nationwide.

But the local stores like Discount Builders Supply or Cole Hardware carry the entire expense of higher wages without other locations to offset it.  Since retail workers are usually near the bottom of the wage scale, expenses are going to increase for local retailers, even if they don't pay minimum wage to start.  In other words, as the minimum wage increases, it will pass the current starting wage at many companies.  And, once it passes the starting wage and continues upwards, it may well exceed the current wage of lower level supervisory staff, which will require increases in their pay as well.  After all, one doesn't have much motivation to perform the more demanding duties of a supervisor if the pay is the same as starting wage.  Consequently a 39% increase in the minimum wage will increase payroll and therefore total expenses, even for companies that pay more than minimum wage right now.

I really hope that most of the small local stores in San Francisco will be able to adjust to these changes, but I'm not sure that they will be able to.

But why do I hope that?  What difference does it make?

I live here because it has character.  It's not Mall-Land-USA.  And that is really important to me.  Based on conversations with the other people I know who live here, it's important to them too.  But, if we make it harder and harder for our local businesses to operate here, we're going to lose them and the character that they bring.  In the end, more and more of the companies who can afford to pay our high rents, high payroll, and high taxes are going to be the companies that are in every goddam strip mall in the US.  And I think that will really and truly suck.

So, does that mean I'm against a higher, local minimum wage?  Not exactly.  I'm not sure what I think about it.  But I am pretty sure about some of the effects of it:

Prices are going to go up at businesses that have some flexibility (bars, restaurants, cafes, and so on -- probably even at used book and record shops, the few that are left).  I think that's a good thing.  People with more money tend to eat out more often and generally spend more, so the higher prices, which support a higher minimum wage, actually shift money from people with more of it to people with less of it.  I don't have a problem with people making a lot of money (good for them, in fact) but I do believe that income inequality is a big problem, especially in San Francisco.

Hotel prices are going to go up too, for much the same reasons.  There might be a downside there because that could decrease tourism.  Fewer tourists mean less business for places and people who depend on them.  But, on the other hand, it's not like there's going to be any shortage of people who are coming here for business and, expensive as it is, plenty of tourists go to New York City every year.  Let's call that effect a wash - part good and part bad.

As I mentioned, local retail businesses are going to suffer.  If they close as a result, that costs jobs and decreases the diversity of the city.  Also, local businesses tend to put more money into the local economy than non-local ones.  So, I'm going to call that a bad thing.

The whole picture is very complicated and trying to figure out all the winners and all the losers is probably impossible.  Which is why I'm not sure what I think about the law, overall.  All of us are going to have to wait and see how things are in a few years before any objective judgement could be made.

But, what pisses me off is that I believe that the law could have been drafted in a way that minimized a bunch of the negative effects for small businesses without diluting the positive ones very much, if at all.

San Francisco already recognizes, legally, that there are differences in the financial demands that a small business can bear versus a large business.  Both the gross receipts tax and the payroll tax it is replacing include exemptions for smaller businesses.  Likewise, the law requiring employers to provide health insurance only applies to businesses with more than 12 employees.  Further, the planning code treats businesses with a large number of locations differently from businesses with only a few, by way of the formula retail restrictions in the planning code.

But when City Hall was working to create a compromise minimum wage ordinance, the ultimate result was no consideration for small businesses.  Even the original proposal only gave smaller businesses one extra year to bring their wages up.  The final law actually gave larger businesses just as much time as was originally proposed for smaller businesses.  CORRECTION - Based on information at http://ballotpedia.org, the original proposal would have raised the minimum wage to $15 per hour by 2017 for businesses with less than 100 employees and by 2016 for larger businesses.  The final law set the final increase for 2018 for all businesses.  So, more time for everyone but still no consideration for smaller businesses.

I think that lack of consideration was a mistake and the small retail businesses in this city, along with all the people who benefit from them, are going to pay the price for it.

Would I suggest that small businesses should have been exempt from the minimum wage ordinance?  If they had been, this might play out differently.  Let's say that the new minimum wages applied only to businesses that either have more than 11 locations worldwide (that's the threshold for "formula retail" per the SF planning code) or have more than $1,000,000 per year in gross receipts (that's the threshold below which a company is exempt from paying business taxes in SF).  Realistically, just setting the threshold at $1,000,000 in receipts would be enough, since I doubt that there are any businesses that have 11 locations that don't make that much money.

Borderlands along with a host of other businesses would be exempt from paying higher wages and wouldn't be facing the upcoming battle to raise income to make up for it.  But we wouldn't be unaffected by it.  In three years, if I wanted to hire someone or even keep my current staff, I'd have to either be offering wages that were competitive (i.e. close to $15 per hour) or I would have to be offering something else that was attractive enough to make up for a much lower wage (i.e. good benefits, super-flexible hours, perks like free books, and so on). If I couldn't do either of those things, I'd go out of business or have to downscale so that I didn't need to have any employees.  If the law had been written that way, it would have given me, and a lot of the other business owners out there, the opportunity to try to work out the problem in a flexible, imaginative way.  That wage structure would also offer an advantage to small businesses during their most delicate time -- when they're just getting started.

Of course, I suspect that the standards that I suggested above are probably not the right ones, or are not at the right levels, but hope they were useful for the purpose of example.  But the basic idea -- that we could have had two (or more) levels of minimum wage based on a businesses' size -- could have made the next three years an interesting renaissance for small businesses in the city.  Instead I think that they're going to be difficult years indeed.

The bottom line is that the new law places a greater burden on small businesses without any accompanying action to ease the strain.  In essence, business owners like myself are being asked to spend a lot more money to operate and there is nothing coming our way that even begins to make up for that added expense.  I think is some validity in the argument that, if income goes up, than spending increases, which means more sales for businesses.  But I don't think that increase in income creates enough spending to offset the added expenses for businesses.

Is the only thing that would have helped an exemption from the minimum wage?  Not at all.  It could have been a break on our business licenses or business property tax (San Francisco is one of the few cites that levies that tax, by the way -- it means that each year I pay taxes on every bookshelf, fixture, computer and other piece of equipment in my store).  It could have been incentives to landlords to offer us lower rents or a system of low-rent, city-owned buildings to act as business "incubators" or city-backed, low-interest loans so business owners could buy our buildings.  If there had been the will and interest, I'm sure there are many things that could have been done to support small businesses and increase wages.  But nothing has been done at all.

I don't actually find the lack of concern that surprising.  Places like Borderlands Books, Flax Art & Design, Cliff's Hardware, Amoeba Records and Lost Weekend Video aren't Uber, Twitter, or AirBnB.  When it gets down to it, I don't think that anyone with real power in this city gives a damn about small businesses anymore.  I hate to be so cynical, but there it is.

However, I do think that there are many, many people still in SF who do care about small businesses, local artists, musicians, and all the other little, insignificant people and endeavors that used to be a cardinal part of our heart and soul.

But then I wonder -- if that's true, why is the incumbent mayor running without any real challenger?

There's no way in hell I'd want Ed Lee's job,  and I loathe politics.  But I'm about to have an awful lot of spare time.  If someone were running for mayor who I believed cared about the people who've lived here for 10, 20, 30 years and the businesses they run -- I might suddenly feel a burning urge to volunteer for their campaign.  On the other hand, for the early part of my life, I never believed that the powers-that-be could ever be anything other than a problem for me.  But then I opened Borderlands and my viewpoint shifted.  Given how the last 18 years are ending, I'm thinking that is a choice that I should revisit.

This post was updated on 2/6/15 at 8:34 pm to correct errors about the details of the original minimum wage proposal.

6 comments:

  1. Alan,
    I loved the few times that I have gone into Borderlands Books and geeked out about all the Sci-Fi books. I just hope that the fans of Borderlands can do something to help.

    Sincerely,
    Lauren Wiersema

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  2. The economic realities of doing business in San Francisco are unique. Surrounded by communities with lower wages and competing with online retailers that undercut prices and negotiate with hardball tactics to force publishers into tiered pricing means all businesses in San Francisco are becoming harder and harder to operate.

    I've loved Borderlands Books and appreciated the sense of wonder and comunity you brought to bookselling.

    For those people who don't know Alan, henis one of those wonderfully competant individuals that is anle to decide he wants to do something, and then finds a way to make it work. I've already seen some negative comments regarding the store's impending closure, and given Alan's attempt here and elswjere to explain hia decision, all I can say is obvioualy, anyone who blames Alan for this doesn't know him or the challengea of an Independant bookseller.

    To Alan and all at Borderlands, I wish you all the best.

    Bobby Daves

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  3. Hi Alan. I heard there's going to be a meeting sometime, for patrons of store to discuss possible solutions to the min wage crisis? Maybe I missed it already. If not I hope someone will inform me, I'd like to come as a show of support.

    I too favor a rise in min. wage but I think your idea of a two-tiered approach is a good one. I do have one suggestion beyond that--the city could allow for some businesses to apply for subsidies for wages, based on the business's cultural contributions, and other considerations. This would allow the city council to safe face--they wouldn't have to repeal the law but they could still address the issue. They would add rather than subtract something.

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  4. To the extent one pines for a law that applies only to Other People - making only Them pay more for the same thing, one is on soggy philosophical soil indeed.

    If minimum wages are supposedly justified by the benefit they bring to employees, then it should not matter whether the -employer- is larger or smaller. An employee of a small firm "deserves" just as much "benefit".

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  5. I wish I'd known any of this when the ballot measure was up. I think it's incredibly difficult to survive on the minimum wage as is in this city, and that also eventually leads to the decline and fall of many of the businesses that make SF SF, because techie hipsters may not patronize that particular non trendy little family run restaurant when they can have yet another frigging wine bar instead, and the workers are also consumers who go out less, so.

    I would think.

    But I absolutely see what you're saying, and it blows chunks that it wasn't conceived and written with the survival of small independent businesses in mind as well.

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  6. Loving your pictures and the original and beautiful way you have put your story across - you're an inspiration and I am following your journey - awesome work!

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