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Continued: Small business: Betting on what's ahead for an area

  • Article by: TODD NELSON , Special to the Star Tribune
  • Last update: January 13, 2008 - 3:43 PM

An area that's been popular with entrepreneurs of late is the North Loop neighborhood in downtown Minneapolis.

Business owners took note as young adults moved into lofts and condos developed in old warehouses and industrial buildings and into new construction that followed. The prospect of a new Twins ballpark, and the crowds of fans it will draw to the area when it opens in 2010, added to the appeal.

The potential has drawn new retail shops, clubs, restaurants and other locally owned businesses and has prompted some existing ones to expand or update.

The question for those investing in the North Loop, and one for other entrepreneurs to consider, is when will the promise become a reality? Can they hang on until what looks like a good bet proves to be a great one?

Among those grappling with such issues is Jason Cobb, owner of Java J's Coffee at 700 Washington Av. N.

Cobb opened his coffee shop in October 2005 after doing extensive research on the North Loop location. He bought a loft in the same building but later moved a few blocks away to get a little distance from his work.

"I like living downtown," Cobb said. "Everything is down here, all my friends are down here, it's a neat area. So much growth has happened all around us, it's a perfect location. I knew my shop was probably a year too early, so I budgeted for a loss."

If he had waited, he said, the 2,300-square-foot retail space he bought with a silent investor might have been out of his price range.

So, while he has waited for neighborhood traffic to increase, he has gradually made changes to his offerings.

Wine bar, menu additions

When Java J's opened, it featured an enclosed space that businesses could reserve for meetings, Cobb said. When that didn't do as well as expected, he opened up that area and converted it into a wine bar, with a selection of wine and beer to boost nighttime business.

He also has expanded his menu, from muffins and breakfast sandwiches to soups and catered sandwiches. He added pizza and appetizers for evening customers. Once the ballpark opens, he may add specials such as boxed to-go items that fans can take on their way to the game.

"We try to listen to what our customers ask for," Cobb said. "It's not just our vision of what the customers should be eating and drinking."

His most recent addition was a DVD rental machine, after he noticed the neighborhood had no video stores. Since the beginning, Java J's has hosted shows for local artists and displayed their work; the shop also has been the site of retirement and other parties.

Cobb had worked in IT for 10 years before his job was outsourced. A severance package supported him while he spent a year planning his shop. "I always wanted to own my own business and work for myself," said Cobb. He took inspiration from his father, who sells insurance independently and once owned his own restaurant.

A longer-time view

Just up the street, Conrad Segal, president of Penco Artists' Supply Warehouse, takes a longer view of the surge of interest in the North Loop. The company started about three decades ago when he joined his original partner in selling pens to businesses after school; the lineup expanded as people at ad agencies and design shops began asking for art markers and paper.

Penco moved to its present site, 718 Washington Av. N., in 1990. The company spent much of last year, Segal said, on a $300,000 expansion of its retail space after buying the other half of the first floor of the building it occupies.

The building's owners were converting it to condominiums, so Penco had no choice but to change, Segal said. Moving was not an attractive option so he and his business partner and brother, Fred Segal, got a Small Business Administration loan to expand their space.

That means more room for what have become Penco's top-selling products -- ink and paper for inkjet printers, which they sell to corporate and commercial accounts that still include designers and ad agencies as well as architects.

"It's the same business -- ink and paper, markers and layout pads," Segal said. "It's just the way it gets put onto the paper and into the system has changed."

The store still stocks markers and other old-fashioned supplies, which young people often buy to draw manga- and anime-style cartoons, Segal said.

Commercial sales are growing, and Internet sales, through Penco's online store, top $1 million a year. The retail expansion has provided room to carry name-brand items that have been popular with online customers.

Penco hopes to avoid a repeat of its missteps in the 1980s, at its first retail location on Lake Street in Uptown. The store ended up carrying lots of gifts, watches and custom-made neon signs, all of which pushed the art supplies to the back. The company filed for Chapter 11 bankruptcy.

The challenge so far has been generating revenue from the larger retail area, which opened a year ago. "The store probably does between $40,000 and $50,000 a month, so it's about a $600,000-a-year store," Segal said. "You talk to most retailers and we have a pretty big retail business. It's just with the economics of it, it's got to be a bigger retail business to justify the expense."

The store has been hosting events for students from local art programs, hoping to build sales among fine art clients. Segal said he hoped people on their way to the stadium will notice the store, especially the art kits for children.

"While the neighborhood has evolved, it hasn't totally transformed yet," Segal said. "It hasn't reached that critical mass yet. Hopefully you come back 10 years, five years from now, with the ballpark functioning, I think you'll see this neighborhood will have come along. And our hope is that we'll be along with it."

David Frank, chairman of the North Loop Development Association, said the neighborhood hopes the next phase of development, along with more housing and mixed-use development, will include more service businesses, like a dry cleaners and a grocery store.

The association is carrying out a tree-planting program and supports plans by Mayor R.T. Rybak and others to turn Washington Avenue into a pedestrian-friendly shopping street, Frank said.

The expert says: Dave Brennan, co-director of the Institute for Retailing at the University of St. Thomas Opus College of Business, said the North Loop today "is really more on the come rather than [about] what's there today."

"I think it will come, but it's going to take a pretty lengthy period of time between the Twins on the one hand and the condo development on the other," Brennan said.

The changes that businesses like Java J's and Penco have made "are symptomatic of businesses that are not able to get enough from their existing business model," Brennan said. "It's going to be some time before either one is going to live up to their full potential. ... The deal for the business owner is basically survival at this point."

The key is for such businesses to have enough capital to see them through until the ballpark opens, Brennan said. "A better thing for the long term would be more condominiums, because that provides continuous support."

Few if any chains have moved into the North Loop, which reduces competition for independent small-business owners but also is telling. "When the chains come in, that's what basically certifies there's a lot of potential in an area," Brennan said. "That hasn't happened at this point."

Todd Nelson is a freelance writer in Woodbury. His e-mail address is todd_nelson@mac.com.

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