Downtown feels the lunchtime pinch

The tough economy appears to be dealing a double whammy to merchants in downtown Minneapolis whose business is geared to lunch-hour crowds of workers.

As the customer base shrinks, those customers who remain are paring back. They're eating out less and, when they do shop, scaling back purchases. The situation has some landlords easing rent by as much as 50 percent and offering other concessions to their downtrodden retail tenants.

"People are definitely keeping their pocketbooks closed," said the owner of one recently closed shop, who said she noticed customers purchasing cards instead of gifts.

Quyen Witthuhn, who, with her husband, Jon, owns and operates Pacifier, a children's boutique in Gaviidae Common, said shoppers who used to buy $40 outfits now opt for $20 items. "There's been a move toward more frugal gift-giving," she said.

Morton's the Steakhouse in RBC Plaza, a long-time venue for power lunches, dropped lunchtime service a few months ago. "There's no question our lunch business had slowed down and was no longer profitable," said Gary Young, a spokesman for the restaurant, which still does dinner business daily.

White-tablecloth restaurants aren't the only ones feeling the pinch. Two owners of moderately priced establishments, Mill City Pizza in U.S. Bank Plaza and the Checkered Apron Cafe in the Lumber Exchange Building, have recently closed their restaurants and filed for bankruptcy liquidation.

A weekday lunch hour finds plenty of empty seats in food courts at Gaviidae Common and the Northstar Center. Fewer fast-food outlets have lunchtime lines out their doors. A survey last fall by Pedestrian Studies, a Minneapolis firm that does annual studies on downtown skyway and sidewalk foot traffic, found 5 to 15 percent decreases in daily volumes, mostly due to lower occupancies in nearby office buildings. Founder Peter Bruce said buildings with clusters of food service operations saw larger drops in traffic during the lunch hour than at other times of the day.

"It makes me wonder if employees are bringing their lunches, or maybe just getting something at a quick-service place, taking it back to eat at their desks, and not wandering the skyways," he said. The study was done in mid-September, as the market was beginning its dive.

Andrea Christenson, vice president for retail for the Twin Cities office of Colliers Turley Martin Tucker, said that's exactly what she's doing now.

"I used to eat lunch out a lot," she said. "Now I go to Target and pick up a Lean Cuisine."

Christenson currently is marketing space in the 701 Building vacated by Bigsby's Cafe, a moderately priced restaurant that recently closed. Christenson said Bigsby's and other downtown restaurants are being hurt by a drop in catering as well as walk-in business. "Business travel is down, and companies are cutting back on ordering for meetings," she said.

Christenson said a challenge for many downtown merchants is the small window to ring up sales. There's more pressure to do well during the lunch hour, because they pay rent as if they were open all day.

Margaret Okey, owner of The Checkered Apron, said being open only for breakfast and lunch might have been a contributing factor in the failure of the restaurant, which only was open for about one year. She said her biggest problems were being undercapitalized and having higher-than-expected overhead costs.

Half off rent

Job cuts have taken their toll on the downtown market. The 20 largest employers cut 3,335 people last year, a 7 percent drop in downtown's workforce, according to the Minneapolis Downtown Council. The cutbacks have continued this year at several downtown law firms and at Target Corp., which has laid off 600 employees and decided not to fill another 400 vacant positions.

Christenson said some landlords are agreeing to reduce rents by as much as 50 percent. "Retailers are part of the amenities an office tenant looks for in a building so it's important to retain them," she said.

David Sternberg, senior vice president in Brookfield Properties' Minneapolis office, said his firm is working with retailers at its downtown properties, Gaviidae and City Center. He declined to be specific on the concessions being offered.

Gaviidae's occupancy at the end of 2008 was about 73 percent, slightly better than the overall average for downtown, according to figures compiled by Bloomington-based NorthMarq. However, it recently lost two tenants, Romeo+Juliet and StyledLife. City Center's retail spaces are about half empty, according to NorthMarq.

"Landlords are pretty realistic. They're willing to work with existing tenants because they're concerned about not having any alternatives if one moves out," Meyer said. "At the same time, they're pushing back with retail tenants, making sure they're doing everything they can to cut costs or market their businesses."

Susan Feyder • 612-673-1723