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Owners taking painful steps to stay afloat in 2010

After working hard to keep their doors open during the worst economic downturn since the Great Depression, local small-business owners expect another tough year.

December 29, 2009|By Cyndia Zwahlen
  • Customer Thorne Smith examines a book at Eso Won Bookstore in Leimert Park. Co-owner James Fugate says he's switching to more bargain-priced titles next year to boost sales "and keep us in business a few more years."
Customer Thorne Smith examines a book at Eso Won Bookstore in Leimert Park.… (Genaro Molina / Los Angeles…)

Step through the glass doors of Eso Won Bookstore, the landmark but struggling Leimert Park shop specializing in African American titles, and you'll see shelves stacked with civil rights classics by Martin Luther King Jr., poetry by Maya Angelou and important fiction including James Baldwin's "Another Country."

Their ranks will be thinned substantially when co-owner James Fugate switches to more bargain-priced books when restocking his shelves next year in a bid to boost sales. Too much money is tied up in the slow-moving back-list tomes, which sell for $15 or more, he said.

"A lot of the history that we built our store on, that stuff has got to go," said Fugate, who with co-owner Tom Hamilton opened the shop in 1989.

He'll still carry new titles, but most of the older biographies and poetry books are going too. Fugate is going to turn them into cash in a sale in January or February, then use the funds to pay overdue bills and stock up on titles such as a recent edition of "The Penguin Guide to Jazz Recordings" or a Ralph Ellison biography that he can sell for less than $10.

"That will help drive our sales back up and keep us in business a few more years," said Fugate, who has no employees.

After working hard to keep their doors open during the worst economic downturn since the Great Depression, Fugate and other local small-business owners are taking painful steps to stay afloat in 2010, which is expected to be another tough year for most.

Commercial bakery owner Carol Head says it will be "survival of the fittest" again next year as her 40-employee business, Oliver's Artisan Breads in San Fernando, continues to shave expenses to make up for slower sales to restaurants that became even more price sensitive in 2009.

"I think it will be slower than any of us would like," said Head, who implemented a companywide pay cut of less than 10% this year that she considers painful but permanent.

Still, she's budgeting to add workers and buy more delivery trucks to handle a modest but steady increase in sales she expects as her bakery makes up the shortfall with new customers. Retail sales of a smaller line of packaged organic breads have held up as consumers make more of their own meals at home, Head said.

The success of such survival tactics is important to the state and the fledgling national economic recovery. Small businesses -- those with fewer than 500 workers -- employ about half of California's nonfarm and non-government workers, according to the Small Business Administration. Those operations historically have generated more jobs than they cut.

That role will be even more important during the recovery because large companies aren't expected to soon hire back the millions of workers they pared from their payrolls during the severe downturn.

At the same time, creating small-business jobs has gotten harder as lower sales crimp cash flow at many firms and tightened credit stymies start-ups and companies that want to expand. Lenders have pulled back dramatically on loans that small businesses need to grow or handle basic needs such as paying workers. And many firms that might qualify for a loan to expand are sitting on the sidelines until the recovery looks stronger.

Fewer dollars lent means less money flowing through the economy, lower sales for many small firms and flat or declining employment levels.

Small businesses are still suffering after 18 months of difficult times, said Don Mercer, Bank of the West's national sales manager for SBA lending. He foresees a lot of demand for the government-backed loans meant for businesses that don't qualify for conventional bank loans, but he doesn't expect other small-business lending to be as robust.

"There are a lot of dark clouds still hanging around," said Mercer, a senior vice president at the bank.

Commercial real estate is one of those clouds, he said. Struggling small businesses mean higher vacancy rates for many commercial landlords, which is making it harder for property owners to repay loans on real estate that is often worth less now than when they bought it, Mercer said.

Plans afoot to use federal bailout money to spur small-business lending will help smaller firms but won't solve the larger problem for many: not enough customers, said Jorge Corralejo, president of the Latino Business Chamber of Greater Los Angeles.

"It will be a tough year, even with programs that might begin to address some of these lending shortfalls," said Corralejo, who also owns a leasing company. "For a lot of folks, it will be a long time" until a recovery feels real, he said.

At Sew What Inc. in Compton, co-owner Megan Duckett isn't wasting time "sitting around whining about the economy," she said.

The 33-employee manufacturer of stage drapes for touring bands, schools and religious organizations has worked hard to keep sales at 2008 levels while using lean manufacturing techniques to cut costs.

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