Retails sales in the city of Napa are slowing down, dropping one percent in the second half of 2007, city officials reported.

Further decline is expected during 2008, with numbers for the first half of the year due later this month, said Robin Klingbeil, a city analyst.

Napa continues to outperform many parts of California, but the national downturn is being felt here, Klingbeil said.

Tax revenue from general retail sales dropped 5 percent last year, but restaurant and food sales remained strong, Klingbeil told the Napa City Council last week.

City revenues from service station sales were up 10 percent, reflecting the higher price of gas. Napa receives 1 percent from the county’s 7.75 percent sales tax, or 4.5 cents per $4.50 gallon.

Revenues from construction-related purchases, including home improvement stores, was down 10 percent, the biggest drop in any sales tax category, Klingbeil said. The decline in home sales and home construction is having an impact, she said.

Klingbeil noted that four Napa shopping centers had record sales in the second half of 2007. They were Bel Aire Plaza, Napa Premium Outlets, Redwood Plaza and the Genova/Longs center on Trancas Street.

Three other centers had their second-highest sales: downtown, the Wal-Mart center and Jefferson Square on Trancas Street, containing Ross and Safeway.

Sales at South Napa Marketplace dropped to their lowest level since 1999, with the opening of the Wal-Mart Supercenter in American Canyon last summer the likely reason, Klingbeil said.

Sales tax is the city’s second-largest revenue source after property tax, providing Napa with 22 percent of its general revenue, or $12.4 million, last year, Klingbeil said.

Wine is fine

Klingbeil’s report provided statistical evidence for why downtown continues to add wine tasting rooms and restaurants: They generate more sales per square foot than other retail shops.

Tasting rooms average $794 per square foot, while restaurants make $664 per square foot, Klingbeil said.

The highest store sales were jewelers, with sales of $450 per square foot. Gift and specialty stores tallied sales of $142 per square foot, while soft goods stores registered $127 per square foot.

When an economic consultant massaged the city’s economic numbers, it became clear that Napa is losing a lot of retail sales to stores in other cities and counties, Klingbeil said.

This loss, called “leakage,” was greatest in home furnishings, appliances, wholesale building materials, office equipment, recreational gear and electronic equipment, she said.

Leakage was lowest in the apparel, restaurant, liquor store, auto parts and repair and service station categories, Klingbeil said.

The clothing stores at Napa Premium Outlets have strong sales, which boosted the results for apparel, she said.

Councilman Mark van Gorder said higher gas prices could have a “silver lining” for local merchants if residents do more of their shopping at home.

Why is downtown’s sales performance so strong? Councilman Jim Krider asked. Mostly because of restaurants, Klingbeil said.

The city continues to try to solicit stores in categories where the city is lacking, said Jennifer LaLiberté, senior project coordinator in the city’s Economic Development Department.

This is a tough time to recruit retail since stores are suffering nationwide, LaLiberté said.

Yet because downtown is going through a construction boom, with new hotels and retail space, the city is in a “strong position” to recruit new merchants, she said.

“With all that’s happening downtown, we’re definitely catching people’s eye,” LaLiberté said.

Since 1999, the private sector has invested $376 million in downtown construction, with projects worth $215 million currently under way, she said.

Government spending was $150 million, with about half tied to the flood control project.

In the next few years, Napa may add some 300,000 square feet of commercial space, including 44,000 square feet at the Riverfront on Main Street and 31,000 square feet at Napa Crossing at Olivieri Corner, a proposed center opposite Bel Aire Plaza.

When Gasser Foundation lands develop behind South Napa Marketplace, the city could gain 110,000 square feet in stores and a movie theater.