Three Sonoma County merchants thrive despite online retailers and chain stores

Retailers face a brutal environment between Amazon's dominance in the digital marketplace and changing consumer trends seen in the struggles of shopping malls across the United States.

The obituary list is growing: Radio Shack, Sports Authority, Toys R Us and Wet Seal among others. A white paper issued by Green Street Advisors, a Newport Beach research and consulting group, put the sector's current state in brutal terms:

“2017 was a tough year for most retailers and retail real estate owners, as the retail sector continued to suffer from a secular change. All types of brick-and-mortar real estate face tremendous uncertainty,” the report stated.

While many national chains are struggling, three local businesses have found their own success. They are expanding with a formula: offer customers specialized service and a product they cannot obtain elsewhere.

In fact, two of the entrepreneurs were honored last month by the U.S. Small Business Administration's California office. Mercedes Hernandez of Bow N Arrow Clothing in Cotati was named young entrepreneur of the year and Gia Baiocchi of The Nectary in Sebastopol was named women-owned small business of the year by the office.

“Long term, our future will rest with entrepreneurship,” said Mary Cervantes, business services director for the Napa and Sonoma Small Business Development Centers, a nonprofit group that provides counseling and workshops for small-business owners. For example, its next workshop is on May 2 and focuses on how local businesses can compete online.

In fact, the retail sector is the second- largest employer in Sonoma County with 30,000 employees, said Ben Stone, executive director of the Sonoma County Economic Development Board.

“That's one reason it's important: It's a major job source,” Stone said. “It's a major way to get new income from outside the area. … They (visitors) come here and leave the money.”

Small businesses have become so crucial that the board worked with eight local banks four years ago to create a microlending program with Working Solutions, a community development financial institution. The program provides up to $50,000 for startups to get initial funding at a time when most banks will not lend to them.

Hip Chick Farms in Sebastopol has become one of the program's biggest local success stories. But Bow N Arrow Clothing, The Nectary and Taqueria Molcajetes - a Santa Rosa-based Mexican restaurant - all have used it as well to obtain key funding at the right time to flourish.

“It's there to take them to the next level,” Stone said.

The Nectary

Baiocchi faced a dilemma about a year after starting her business, a juice and smoothie bar that opened in 2014 in The Barlow district on the city's eastside. Her shop only had 500 square feet of space, which was not enough for the juicing and fermenting she does daily to provide fresh products to her health-conscious customers.

“I was originally storing stuff in a friend's freezer … at my house and the garage,” said Baiocchi, 40, who previously worked as a chef at a vegan restaurant on a Hawaiian island. “It was not sustainable.”

At the same time, she was buying out her partner.

Baiocchi turned to Working Solutions and applied for a $45,000 low-interest loan for a nearby production kitchen. The local Small Business Development Center also provided a consultant to help her map out a business strategy for the future.

Those decisions proved to be crucial, especially as Baiocchi soon realized the production efficiencies would allow her to open another location and bring in more revenue. Her adviser also helped her find a spot on the Healdsburg Plaza to open a new store in a creative way.

The deal allowed Baiocchi to take over and renegotiate the lease from the business' previous owner, who wanted to close their shop on the Healdsburg Plaza. That strategy prevented the space from going on the market with a higher rental rate than she could afford. The Nectary's second location opened last summer, and now her business has gone from four employees to 40. She plans to open two more locations in the area.

The Nectary is able to stand out in The Barlow because it's one of the few health-food places - along with the bar at Guayaki Yerba Mate - in the midst of a bunch of tasting rooms and taprooms. But nearby is Whole Foods Market, now owned by Amazon, which offers its own smoothie and juice bar and sells retail juice products.

Her store's distinct advantage is its sourcing of ingredients - the almond and cashew milk is made in the production kitchen - and the originality of her drinks. For example, her “Green Dragon” drink includes bok choy, dandelion greens, kale, cilantro, celery, cucumber, lemon and burdock, which is a traditional Chinese medicinal herb.

Besides tourists, The Nectary has cultivated a sizable customer base among local residents who are concerned about nutrition and wellness.

“I want to bring a healthy lifestyle more accessible to more people,” Baiocchi said. “That's my mission.”

The Nectary has started offering cooking classes and pop-up dinners around healthy eating, with a special focus on digestive health. Given its agriculture tradition, Baiocchi contends that Sonoma County could attract wellness tourists similar to the way it draws fans of beer and wine.

“It's a focus on helping people make healthier choices into their diet,” she said.

Taqueria Molcajetes

This Santa Rosa-based Mexican restaurant started in 2015 with an investment from co-owners Dionisia Valdovino and Zacarías Martín as well as a loan from Working Solutions, which made it possible to open the business for about $170,000 in overall startup costs. The two had previously worked for another taqueria.

“Our food is really Mexican. The seasoning and our tortillas are made by hand every day and all day,” said Martín, 37, who grew up in the Mexican state of Jalisco.

The 57-year-old Valdovino was a native of the Mexican state of Michoacán and has been serving birria - a spicy meat stew - for more than 20 years.

The restaurant's specialty is molcajete, a dish served in a stone bowl used for grinding ingredients - essentially the Mexican version of a mortar and pestle.

“We have a sauce based on dried chipotle chili, it's a typical sauce of the state of Jalisco,” Martín said of the dish. “There's no other restaurant that has it here. We have three different molcajetes, one of pure seafood, another of meat and another vegetarian.”

The taqueria's authenticity has allowed it to stand out in the very competitive Mexican food marketplace of Sonoma County. It's also been helped by its location on West College Avenue, right next to the Safeway supermarket, which replaced the G&G Supermarket that closed in 2016.

In fact, only about a third of its customers are Latino. Safeway, he said, has brought customers into the restaurant who likely wouldn't have visited the place if it was located elsewhere.

“The employees of Safeway all go have lunch with us. Safeway has a lot of American customers who are now our customers. They pass by for their burrito or they enjoy a delicious margarita, a michelada,” Martín said. “We have the patio that in the summer is full every Friday, Saturday and Sunday. And during the week, lunch time and dinner time we're always full.”

Its success has the owners looking for a new location in Petaluma. “We have a lot of customers that come from Petaluma and Napa. In the future, not for the moment, but we do contemplate opening in Napa also,” Martín said.

Bow N Arrow Clothing

Hernandez faces the daunting challenge of competing in a changing apparel marketplace against online retailers who have taken out such well-known stores as Bebe, American Apparel and The Limited.

The 23-year-old's strategy has been to offer boutique clothing for an affordable price to her mostly millennial clientele, though some of her customers are from Generation X. For example, most of her customers cannot afford a fashionable T-shirt at a $50 price tag. If they do buy something that expensive, they immediately feel guilty, Hernandez said.

Instead, many of her clothing items range from $18 to $32 per item. What the store sacrifices in pricing, it makes up for with repeat customers - some of whom have gone to work for her, she said. Many of her customers are Sonoma State University students who are on limited budgets.

“I just don't mark up so high,” she said. “I was a college student before starting out with my store.”

She also works with vendors from Los Angeles to get ahead of the latest styles and trends, which may later appear at larger stores such as Forever 21 months down the road.

“We get new styles every week,” she said.

The Working Solutions loan was pivotal for Bow N Arrow Clothing because it allowed the store to buy its initial $12,000 inventory of clothes, Hernandez said.

“I got denied by a couple banks,” she said.

Hernandez recently experienced a setback when she closed a San Rafael location after five months, which she thought would work because it was close to Dominican University of California. Her lesson? Stick closer to the original store and go hyperlocal for customers who already are aware of your business.

“We were new to Marin,” she said. “When you think of shopping, you don't think of San Rafael.”

She has not given up on expansion and is looking for a new location in Santa Rosa. A representative for Santa Rosa Plaza recently called her, suggesting that she explore some vacant spaces in the shopping mall.

Hernandez declined, looking for something less traditional around downtown.