Minimum wage, maximum sorrow for San Francisco bookstores

From Mark Perry.

"Proponents of the
minimum wage lawgovernment-mandated wage floor that guarantees reduced employment opportunities for America’s teenagers and low-skilled workers can’t possibly anticipate in advance all of the adverse and unintended consequences of artificially raising wages for unskilled and low-skilled workers. As an example of an adverse and unintended consequences that the citizenry of San Francisco didn’t anticipate last November when they overwhelmingly voted to increase the city’s minimum wage to $15 per hour by 2018, a San Francisco book store is closing. Reason? There’s a limit to how much a bookstore can increase book prices to offset higher labor costs because the publisher sets the list price of the book and it’s printed on the book cover.

From the website of Borderlands Books:

Borderlands is closing.

In 18 years of business, Borderlands has faced a number of challenges. The first and clearest was in 2000, when our landlord increased our rent by 100% and we had to move to our current location on Valencia Street. The steady movement towards online shopping, mostly with Amazon, has taken a steady toll on bookstores throughout the world and Borderlands was no exception. After that and related to it, has been the shift towards ebooks and electronic reading devices. And finally the Great Recession of 2009 hit us very hard, especially since we had just opened a new aspect to the business in the form of our cafe.

But, through all those challenges, we’ve managed to find a way forward and 2014 was the best year we’ve ever had. Overall, Borderlands has managed to defeat every problem that has come our way. At the beginning of 2014, the future of the business looked, if not rosy, at least stable and very positive. We were not in debt, sales were meeting expenses and even allowing a small profit, and, perhaps most importantly, the staff and procedures at both the bookstore and the cafe were well established and working smoothly.

So it fills us with sorrow and horror to say that we will be closing very soon.
In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st.

Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.

The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.

The other obvious alternative to increasing sales would be to decrease expenses. The only way to accomplish the amount of savings needed would be to reduce our staff to: the current management (Alan Beatts and Jude Feldman), and one other part-time employee. Alan would need to take over most of Jude’s administrative responsibilities and Jude would work the counter five to six days per week. Taking all those steps would allow management to increase their work hours by 50-75% while continuing to make roughly the same modest amount that they make now (by way of example, Alan’s salary was $28,000 last year). That’s not an option for obvious reasons and for at least one less obvious one — at the planned minimum wage in 2018, either of them could earn more than their current salary working only 40 hours per week at a much less demanding job that paid minimum wage.

Although the major effects of the increasing minimum wage won’t be felt for a while, we’ve chosen to close now instead of waiting for two reasons. First, the minimum wage has already increased from $10.74 per hour to $11.05 (as of January 1st) and it will increase again on May 1 to $12.25. Continuing to pay the higher wage without any corresponding increase in income will expend the store’s cash assets. In essence, the store will have less money (or inventory) six months from now, so closing sooner rather than later makes better business sense. But more importantly, keeping up our morale and continuing to serve our customers while knowing that we are going to close has been very painful for all of us over the past three months. Continuing to do so for even longer would be horrible. Far better to close at a time of our choosing, keep everyone’s sorrow to a minimum, and then get on with our lives.

Bottom Line: Over several decades, Borderlands Books was able to survive a 100% rent increase, the effects of the Great Recession, and competition from Amazon, ebooks and electronic reading devices. But they won’t be able to survive the voter-endorsed 
minimum wage lawgovernment-mandated wage floor that guarantees bookstores in the city will be forced to close down. And Borderlands Books is probably not an isolated case – many of the other book stores in San Francisco will likely face the same fate. In other words, the economic lesson here is “minimum wage, maximum sorrow” for San Francisco book stores.""