business

Family businesses don't have the deep pockets to handle extreme markdowns that cut into their profit margins, and they don't have the leverage to push back on suppliers when goods aren't selling.

Laying off staff means that the owners clock in twice the hours at little or no pay. Their safety net? Pretty flimsy. The Small Business Administration (SBA) reports that lending is down 60 percent from last year. In Minnesota, SBA loans were down an average 37 percent in December and January.

Even in good times, banks can be jumpy about making loans to small business. And many small businesses already have borrowed against homes to set up shop, leaving them little collateral for fresh loans at a time when credit is tight. Many owners are relying on credit cards to fund their businesses.

Throughout the Twin Cities, small independents are trying to think of creative ways to try to stay afloat. Some, like American Guitar & Band, have created a strong enough niche that they're doing well. Others, like Betsy's Back Porch, pulled up stakes. Here's a street level view from a half dozen mom-and-pops.

Suka-rama Boutique in the Park

Location: St. Paul | In business since: April 2006

Status: Sales down 30 percent from last year

Owner Sue Rohricht launched her global-themed shop of brightly colored clothes, jewelry and home décor out of her home 2 1/2 years ago, and was instantly overwhelmed with orders and the chaos of living with inventory in her living room. She made the leap to her own shop on Como Avenue two months later.

The winds of the consumer spending slowdown arrived at Suka-Rama in April, and by November they were in gale force. As of January, sales at the store were down by almost a third compared with last year, Rohricht said.

She sent out e-mail promotions to her customers, and asked them to forward them along, hoping a little guerrilla marketing would bring in people who might just buy a pair of $3 earrings or an $8 bracelet.

Her eight part-time employees, most of whom weren't dependent on a Suka-rama paycheck, didn't complain when she cut back their hours to reduce payroll expense. Then Rohricht set about looking for other ways to bring in cash.

She re-ignited her real estate staging business, which she had let go dormant while launching the store, and picked up some freelance jobs doing technical writing. In December she added a phone line at the store so she could work a $10-an-hour job taking customer service calls for weight loss pills and other infomercial products.

"I'm just trying to find anything to do while I'm here to bring in money," she said. "You can't just call on your customer base and say, 'Come spend money.'"

Suka-rama isn't above water. The lease comes due in June, and if sales don't pick up, Rohricht will face a tough decision.

"The savings I used to get this business going are gone," she said. "I still have a mortgage to pay, bills to pay. But if I can manage to bring in enough money from all of these other venues to keep afloat and ride this out, I'll be very happy."

Grand Oriental Rugs

Location: Edina | In business since: 1978

Status: Sales are down by a fifth

Kurosh Amrami (in photo above with wife Soheyla) has seen business cycles come and go in his three decades in the Oriental rug business, but nothing like this. Business is down 15 to 20 percent for the year. In the past two months -- just as he moved into an expansive new space in Edina's Centennial Lakes Plaza -- sales plunged 50 to 60 percent, he said.

Grand Oriental's rent at the new location is higher than at its previous spot on St. Paul's Grand Avenue. But he and his wife, Soheyla, believe their handmade rugs from Iran, Turkey, Afghanistan, China and elsewhere will fare better among the nexus of high-end furniture shops in the area.

Amrami, who grew up in Iran, learned the rug-merchant trade from his father. He puts a premium on quality and customer service, but has seen business from his core customer -- with a household income of $75,000 to $100,000 -- "almost completely dry up."

He has cut the advertising budget and beefed up his e-mail and direct mail contacts with customers. He's also looking to conduct seminars on how to spot good-quality rugs aimed at both consumers and interior designers.

His business model is at a disadvantage because, as he jokes: "You've only got so much floor to cover."

Rugs range from $150 to $75,000, with the average sales price $2,000 to $3,000. With an inventory of 3,000 rugs -- most of it already paid for -- he's not adding to his stock these days. Said Amrami: "Sometimes I look at it and say I wish I had some of those in cash."

Zelaz

Location: Online at zelaz.com | In business since: June 2008

Status: Closed mall store to focus on home parties and online sales

Janet Polach has had a whirlwind introduction to the world of retail. In the span of five months, she has taken her idea of selling clothes for teen and "tween" girls from two mall-based kiosks to Ridgedale Center in Minnetonka and, now, back to her home, where she's making sales through house parties and a beefed-up online site.

Zelaz (her teenage daughter Alex's name spelled backwards, phonetically) fills a gap between the junior department and its sometimes too-grown-up looks, and children's stores that appeal to a much younger crowd.

With jeans priced under $100, as well as tops, bottoms, dresses and accessories, Zelaz aims for affordable quality, said Polach, who added a line of women's clothes after realizing that busy mothers could save time shopping alongside their daughters.

At a recent sale at Polach's St. Louis Park home, 12-year-old Claire Kramer found some shorts and jeans for spring, and a scarf for her sister. Her mother, Sheila Kramer, found a pair of jeans, too.

Claire, a sixth-grader at Valley View Middle School in Edina, said she liked shopping "much more, coming to a house ... and a cat!" she said, as "Butterscotch" lolled on the sun-streaked carpet.

Added Sheila: "I like the look and style here, and that my daughter isn't going to look the same as every other child walking down the hallway."

Polach donates 5 percent of each sale to a nonprofit focused on helping at-risk girls. She has at least four house parties coming up in the next few months; the majority are fundraising events -- where she ups the donation to 15 percent.

Polach tapped into long-term savings and credit cards when banks balked at her month-to-month lease arrangement at Ridgedale. Her work as a leadership coach is paying the bills these days.

Customers like Claire and Sheila Kramer are "what keeps me going," she said. "But it does have to pick up," Polach said. "I don't need people to spend $300 and $400. I need them to buy a shirt or two."

Betsy's Back Porch Coffee

Location: Minneapolis | In business since: January 2002 | Status: Out of business

The southwest Minneapolis neighborhood where Betsy Killion operated her namesake coffee shop was so loyal that when a 2007 road construction project caused her sales to fall so far and so fast that she hung a "going-out-of-business" sign on her front door, the neighbors held a fundraiser.

The event raised more than $10,000 -- enough to keep Betsy's Back Porch on its feet until the highway overpass near the cafe was rebuilt.

But the gesture couldn't stave off the collateral damage to the business last fall when the nation's financial markets crashed. In December, Killion hung up that sign again, for good this time.

"It was so painful," she said of the decision to close after seven years in the neighborhood. "I felt like I let people down."

Killion thought she was winning back some of the customers who had changed their morning caffeine fixes during the eight months the highway bridge was down. But when the housing crisis bled into the stock market, taking jobs and retirement portfolios with it, coffee suddenly became a luxury item.

"To maintain a business, you have to have the regulars," Killion said. "An amazing number of people come in every day and spend $6 or $8 on a cup of mocha and a scone. It doesn't take the loss of that many of those people to affect the bottom line."

American Guitar & Band

Location: Maple Grove | In business since: 2000, moved to current location in 2008 | Status: Profit margins "never been better."

When Cory and Stephanie Lake began scouting for a location at which to expand their upscale guitar boutique from St. Paul, they headed to Maple Grove in large part because of the 3,000 or so students involved in band and orchestra classes in the immediate area.

The couple got to work building that end of the business, inviting music teachers in for breakfast brainstorming meetings, and asking parents, teachers and students to design their "dream music store," said Stephanie Lake.

The result is a 5,000-square-foot store that sells every instrument imaginable, from guitars to drums to horns, as well as amplifiers and accessories. All 10 classrooms are Internet-wired, and there's a coffee lounge and a place for moms to hang out and read fashion magazines if they want. Truffle, the nearly 3-year-old black pug who serves as the store's mascot and icebreaker, is ever present.

Perhaps because American Guitar & Band established a strong toehold in a niche market, it hasn't been hit as hard as stores that sell clothing, furniture and knickknacks. The store raked in about $1 million in sales this year, and has maintained sales as the economy has headed south.

Black Friday sales tripled this year, driven by greater name recognition and an in-store drawing for a $700 guitar, Cory said. Online sales are beginning to expand as well, now about 40 percent of the business. Customers from 85 countries have bought merchandise online.

"It's been very apparent for some time that the economic climate was changing dramatically," said Stephanie, a decorative art historian who designed the space. "We saw it as an opportunity to get organized and become a more efficient business, without letting go of our values for quality and uniqueness."

The couple kept the ad budget small and worked the e-mail list to promote private concerts, special deals and benefits. In December, they turned the heat down 2 degrees in the front and 4 degrees in the lesson rooms, and saw their energy bill drop $150.

Cory slowed inventory purchases to conserve cash and started bundling products together to sell as packages. He said they long ago gave up trying to come within quarters of prices offered by mass merchants, such as Guitar Center, on basics such as strings.

"We're finding that people think it's OK to spend more if you get more service," he said.

Elsworth

Location: Downtown Minneapolis | In business since: March 2008 | Status: On a steep learning curve

When the Star Tribune wrote about Keith Dorsett's new men's clothing store last year, he was just opening the doors to a new adventure after a career working at Dayton's, then Marshall Field's and, finally, Macy's.

"I made some mistakes," said Dorsett, looking back over Elsworth's first year in business. "And it's even more amplified with the economy being what it is."

His biggest fault was being too generous with discounts, Dorsett said, which cut deeply into profit margins.

But Dorsett did some things right. He avoided getting in over his head in credit-card debt, he said, and he hired a good salesman.

And when he got the SBA loan to launch the business, Dorsett made a prescient decision: He paid some of his vendors upfront and then set aside some cash. When times got tough, not only did he have some liquidity, but he also had a track record of paying his debts, which made his vendors more willing to be flexible.

"This coming season, I won't ask for any favors, but I know I'll only buy as much as I can sell," he said.

Dorsett is looking for creative ways to reach new customers, including doing some cross-promotions with a personal trainer whose client list might overlap with his own. He also will hold more special events at the store. At a holiday party in December, customers lined up at the cash register with jeans and cashmere jackets in hand, although the sales paid for only about a quarter of the cost of the event.

Dorsett said it took him the better part of the year to stop thinking like a salesman and start thinking like a businessman. This year, he plans to hire a consultant to come in every six months and assess the business.

"I know clothes coming and going," Dorsett said. "I don't profess to know the numbers. But I do know that even though it's a scary time, people still have to dress."