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A Valley of Shopkeepers
Old-line merchants, watching dot-coms implode, are adapting--and thriving
Welcome to the new Silicon Valley, where stocks are cheap, people are nervous, and everybody carries a flashlight. A year ago, venture capitalist John L. Doerr was bragging that we were witnessing the "largest legal creation of wealth in the history of the planet." Now, tech stocks are in the dumps, pink slips are flying, and those uberbooster VCs who got us into all this are off huddled somewhere counting their money, trying to ignore the dying bleats of the dot-coms they launched. And for your winter enjoyment, there's a fresh hell: rolling blackouts. Local radio announcers give the daily likelihood of power outages across our energy-strapped region in the same breath that they relate Nasdaq's daily jitters and earnings shortfalls. You hear these gloom indexes and think: Hey, what happened to our little reinvention-of-the-universe science project anyway?
I was chatting about all this recently with Clark Kepler, a lifelong Silicon Valley local whose family has owned Kepler's Books & Magazines in Menlo Park for 40 years. We were having coffee next door to his bookstore at Cafe Borrone, an eclectic Valley hangout whose paper napkins have launched a thousand business plans. Not long ago, "there was a feeling that you'd better run hard or you were going to get run over," Kepler admits, and in some ways the slowdown is welcome. And yet, he fears that we're simply "in the eye of the storm" that the Internet has unleashed, and he's sure that more technological upheaval lies ahead.
By all rights, guys like Kepler are among the few that should be gloating a little bit here in Lake Wealthbegone. After all, they outlasted many of the dot-com vandals and visigoths who were licking their chops at the prospect of "distintermediating" books, pet supplies, groceries, gardening tools, and all that other charming stuff whose traditional merchants help make our communities tick. Fueled with seemingly endless supplies of venture capital and promising infinite selection at rock-bottom prices, dot-coms had local merchants in their gunsights. George Roberts, a third-generation grocer and owner of Roberts Market in tony Woodside, listened to his prominent venture-capital customers and neighbors' grand plans for grocery delivery outfits such as Webvan Group Inc. (WBVN) "They had so much money, they were like the government. As long as you have somebody else's money, you're King Kong," he says, chuckling.
The pressure's off a bit now, but these merchants are far too smart to think the game is over and they've won. On the one hand, they did well by relying on the things they've always done best: Did Pets.com Inc. (IPET) ever sneak your pooch a cookie? Could Garden.com Inc. (GDEN) ever replicate the economics of the beloved local nursery, where you go to get watering advice from somebody with dirty fingernails and pay for it by buying plants and supplies you don't need? But successful merchants stuck to what they knew--and embraced the best of what the e-explosion offered to make their businesses work better.
Quite a few local merchants, in fact, did not withstand the dot-com blitzkrieg, though they typically were not driven out by the success of outfits promising unprecedented service for unsustainable prices. Instead, they were ousted by the absurd rents the King Kongs were willing to pay for Silicon Valley office space. Some time ago, Kepler, for example, had to move his bookstore's business office several towns away, to Belmont, because he simply couldn't justify paying the rent for the office space above his store.
Trimming costs like that helped Kepler add the services the Internet was teaching customers to demand. Although Kepler's has long had one of the largest inventories in the San Francisco Bay area, customers suddenly started coming in carrying printouts from Amazon.com Inc.'s (AMZN) more-than-2-million-book list, many of them out of print or otherwise rare. "It used to be people could come in and order those books, and I could get it for them in four to six weeks," he says. But online bookstores fundamentally changed his customers' expectations. "Now, I can usually get something in maybe three to seven days, but those same customers will wrinkle their noses and go: `Gee, I don't know, I really need it today."'
So now he has a Web site where folks can order from their desks, and Kepler works with nearby deliverEtoday.com to get a minimum $50 order to customers the same day if needed. "The lifestyles of my customers today have changed so much--it's go, go, go, and everyone is running. I have customers who say: `I want to hold a book, feel it, smell it.' But I look at my nephew, and he and his generation don't have that attachment. Things are changing, and I have to adapt to it." (For a take on how small businesses can thrive on the Web, see page 56.)
At least he now feels as if his competitors also have to make a profit. "We had a really wonderful Christmas," Kepler says. Sales were good, but even more satisfying, he adds, was hearing "people say things like: `It's so nice to see lines in here. That must mean Kepler's is doing O.K.' Another couple said: `We could have ordered online, but we wanted to come in and support Kepler's."'
Roberts always has banked on common sense, experience, and the personal touch as the keys to his success--though even he now has a nifty site where locals can find specials or peruse the market's wine selection online. These days, Roberts smiles when he occasionally sees those tan-colored Webvan trucks pulling into his parking lot, their drivers dashing in to buy a few items Webvan couldn't supply. It's no surprise to him that online grocers are up to their aprons in red ink. "My father and grandfather used to deliver groceries to peoples' homes in San Francisco with a horse and buggy," he says. "I used to make deliveries in a two-tiered truck when I was a teenager. I know how extremely difficult it was to satisfy customers profitably in those days, and it would be way more costly today." Besides, he adds, "people like to come into a grocery store." Especially his, where friendly butchers will give you side-dish ideas for those plump New Zealand lamb chops.
If New Economy architects had one glaring shortcoming, it was their visible disdain for bona fide experience. Challenge their assumptions and they'd often roll their eyes like adolescents sick of hearing about granddad's five-mile, barefoot march in the snow to school. Asking a guy like George Roberts for a common-sense take on the grocery biz before investing hundreds of millions of dollars in trucks and servers probably seemed unthinkably old-fashioned. That's one reason Webvan drivers now come to Roberts for help in filling their orders--at full retail.By Joan O'c. Hamilton, Joan_hamilton@ebiz.Businessweek.comReturn to top