Web Squeezes Out Apparel Firms

The success of Web startups in San Francisco is coming at a steep price to the local garment industry.

SAN FRANCISCO — Nancy McAndrew, owner of the knitwear firm Nan Alexander here, has a tough road ahead. Faced with a 400 percent increase in rent in an industry where she can't even pass on an increase in the price of cashmere to her customers, she has scaled back dramatically and is moving to a dreary part of town. The reason for the rent hike, which is typical of apparel manufacturing areas all over the city, is a simple exercise in industrial Darwinism: the invasion of the dot-coms.


This is ground zero for the Internet, and Web companies are thriving. But their success is coming at a steep price to the local garment industry.


In fact, the outbreak of dot-coms is likely to put an end to the current landscape of apparel manufacturing in Northern California, according to industry analysts. Neighborhoods here have already changed dramatically in the past two years with the birth and explosive growth of Web companies.


Lining some of the city's most industrialized areas are newly polished neighborhoods of brightly painted condominiums. Young executives bike to work and eat at trendy bistros surrounded by gutted out buildings that have yet to be converted.


Dot-coms, flush with venture capital money, have infiltrated industrial areas where the apparel industry is concentrated and forced rental rates to triple, quadruple and, in some cases, quintuple.


Rental rates in San Francisco's South of Market area, known as SoMa, have gone from $18 per square foot to between $45 and $60 per square foot per year, according to real estate company figures.


The Bay Area, which includes San Francisco and Oakland, is home to about 160 apparel manufacturers, including Esprit de Corp., Jessica McClintock, Byer California, Levi Strauss & Co. and Gap Inc. There are also an estimated 400 contractors in the area.


Larger makers like Jessica McClintock, which owns its own building and property, probably won't be affected, but smaller to midsized manufacturers and contractors who lease space will be hit hard.


Approximately 70 percent of all apparel manufacturing is done in the SoMa corridor, a four-square-mile area bordered by Market Street and Townsend from First to 12th Streets, according to Randall Harris, executive director of the San Francisco Fashion Industries, which has 250 members, including manufacturers, contractors and associates.


"We are smack dab in the middle of dot-com world, and it is only a matter of time," warned Harris. "In two to three years, when the [current] leases are up, 75 to 80 percent of all of these companies will be up against the wall."


He estimated that up to 24 contractors and manufacturers have already closed their doors.
"The scary part of the problem isn't how many have already been hurt," said Harris. "There may be several dozen who don't even know yet because they are a year away from their leases being up."


Bill Benton, a broker with CB Richard Ellis who represents tech and dot-com companies, predicted that apparel companies will move further south out of the city, though they are somewhat restricted because other cities are also catching on to the dot-com mania.

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