Fifteen years ago, Grand Avenue, in St. Paul, Minn., was a two-mile strip of automobile showrooms and repair garages, the kind of street St. Paulites visited only when they had to. Retail shopping in St. Paul was mostly accomplished not on streets like Grand Avenue, but in the self-contained, climate-controlled environments of the surrounding malls. Like cities and towns all over America, St. Paul had watched its bustling downtown retail centers dwindle and decay, their commerce following the fleeting middle class out into the suburbs.

Today, Grand Avenue presents a strikingly different picture. Close to 500 small stores, mostly owner-operated, line the street, selling everything from eyeglasses to ice cream. Brick minimalls dot the adjacent buildings, their walkways harboring cookware shops, clothing stores, and walkup restaurants. Pedestrians by the thousands shop and window-shop, stroll, eat and drink, and watch the crowds.

This too, of course, is a scene that has been replicated all ovr the United States. Ask anyone to name at least one district that has been revived or transformed by a proliferation of small new stores, and suggestions pour forth. Waterfront areas of Boston, Baltimore, New York City. Downtown sections of Chicago; Oakland, Calif.; Portland, Ore.; Pittsburgh. Smaller cities and suburbs as well. Listen to the answers closely, and the refrain you are likely to hear is, That's what's happening right here, in my town.

It is tempting to pigeonhole this flourishing of the specialty store as no more than the boutiquing of America, retailing's answer to the Rise of the Yuppie. In fact, however, the revival of small-store retailing typified by such places as Grand Avenue looks both more durable and more far-reaching in its impact than its evident trendiness would suggest. Not only are the new shops beginning to transform Main Street and its environs, they are indicative of some major shifts in the retailing industry itself.

The numbers are a good starting point in measuring the phenomenon. Departmentand variety-store sales, for example, grew only 37% (uncorrected for inflation) from 1977 to 1982. Specialty-store sales grew 56%, or roughly half again as much. Some specialty categories positively exploded: Bookstore sales grew 82%, sales of children's and infants' wear rose 92%, and toy-and-game-store sales rose a startling 112%. Projections by the Marketing Science Institute, in Cambridge, Mass., indicate that the trend away from general merchandising will continue. Even now, says Joseph Carideo, a partner with the New York City-based executive search firm of Thorndike Deland Associates, "general merchandisers are getting their heads kicked in by specialty stores." Thorndike Deland, Carideo adds, has seen a growing number of executives with MBAs in big retail organizations leave their jobs to work in smaller specialty shops (see "Retail Refugees," page 76).

Behind the rise of the specialty stores are some powerful demographic trends. For much of the postwar era, shoppers -- mainly women -- flocked to big stores, looking for standardized goods at the lowest possible prices. Today, despite the past decade's alternating bouts of recession and inflation, per-capita income is up, and households with two working adults account for a growing fraction of the population. "Two-income households value convenience," points out Mark Albion, a professor of marketing at Harvard Business School. "They want good store hours, close locations, quick entry and exit, excellent service, and in-depth selection of a particular product." They also seem to want products and ambience quite different from the standardized fare with which they grew up. "Consumers want to move away from the prepackaged, great shiny glass environments of the past," says Scott Ditch, a vice-president with The Rouse Co., which has developed some of the best-known urban shopping areas. "They want to walk into small shops and see merchants they know."

Without a doubt, large retailers as well as small ones can carve out niches based on today's shifting demographics and styles of life. The Gap Stores Inc., a successful chain of youth-oriented clothing stores; Crabtree & Evelyn, a chain of toiletries and accessories stores; Steve's Ice Cream Inc., once a tiny operation that now is planning to have some 300 outlets by 1988 -- all have helped build the specialty market. Leslie Wexner evidently had the right idea when he broke from his father's general clothing store some 20 years ago to start a more specialized retail shop. Indeed, the name of his now-famous $1.3-billion chain captures the trend that is sweeping American retailing: The Limited Inc.

But while large and small retailers alike can effectively play the specialty game, smaller companies continue to dominate specialty market share. For the retail industry as a whole, according to the government's latest figures, companies with four or fewer stores hold a 55% market share, and the figure is significantly lower in general merchandising and grocery. In most specialty areas, the share held by smaller companies is considerable higher: 70% in sporting goods and bicycles, 60% in eating and drinking establishments, 78% in children's and infants' wear, to name a few. Only in rare cases -- toys and games, for instance -- is aggregate market share in specialty retailing lower for smaller companies than for big ones.

When a major industry like retailing finds itself in the throes of a change like this, it is rather startling news. Big companies, after all, are supposed to muscle smaller ones out of the marketplace, not the other way around. And when rundown or declining areas all over America experience an economic transformation that draws consumers and taxpayers back from their suburban hideaways, maybe it counts as a front-page story.

What is most surprising about the small-store revival, though, is who the new shop-keepers are, and how they are going about their business. This isn't a trend that happened all by itself; rather, it is the work of a generation of entrepreneurs who are learning to run their companies in ways that would have astonished their five-and-dime-store predecessors. To survive, the new retailers have learned to pick and defend their niches with remarkable care; they have evolved sophisticated marketing and management techniques; and they have developed a healthy respect for the costs and benefits of growth. Along the way, they have changed a lot of people's conceptions -- including their own -- of what it is to be a shopkeeper.

The people engineering this transformation are an unlikely lot, and in many cases got into retailing for the most idiosyncratic of reasons.

* Iqbal Ahmed, nearly blinded in an accident playing squash, abandoned his plans to become an economist and instead went to work in a friend's sporting goods store. Today, he owns Athletic Experience, a gray-and-crimson-bedecked sports shop in Berkeley, Calif.

* Gary Huffman, a national sales trainer with 3M Co., saw his father suddenly lose hos job with a large corporation. Gary's wife, Dawn, watched her father suddenly quit his job as vice-president of another large company. Worried about their own futures, Gary and Dawn opened a homemade ice cream store in St. Paul.

* Lina Keeney, a toxicologist for a large pharmaceutical company, hated working with rats. She now owns a small franchised business in Haverford, Pa., called Mother's Work, which sells maternity clothes.

* Kate Lynott, a probation officer by day, spent her evenings doing needlework. Two and a half years ago, she opened a needlework store with her sister in Philadelphia.

A few years back, what these shopkeepers had in common was probably no more than a healthy measure of education and experience, unusual enough in the smallstore business. By now, however, they have lived through some similar experiences, and have evolved some similar answers to the problems of running a business as small as a retail store.

Niche-picking. "One of the simplest, easiest things to do is to open a retail store," says William Ress, a retail consultant. "Heck, everyone knows what a store is. But I'll tell you, people who open a store with that attitude in today's retail climate don't tend to make it. The days when you could rely merely on your intuition to grow your store are long gone." Gone, too, Ress might have added, are the days when a small store could be many things to many people. On the contrary, the new shopkeepers rely on finding, developing, and defending a sharply delineated niche.

Finding the niche, of course, can be tricky. Denise Cammell and her partner, Jacqui West, opened a successful children's clothing store, then an aerobics studio, only to watch both contend with increasing competition. "Similar stores cropped up everywhere, and we didn't want to be part of the crowd," says West. Today, the two women own La De Da, a women's casual clothing store in Berkeley. This time, they hope to distinguish themselves by manufacturing their own line of clothes. Maury Kershaw, by contrast, went the opposite direction from the competition right from the start. "Everyone thought fashion shoes were the rage," he says. "But while people admired high fashion in the store windows, they actually wore comfortable shoes on their feet." Kershaw's Walk Shop, also in Berkeley, offers a broad selection to comfortable shoes. Since he opened the store seven years ago, several large shoe companies have attempted to add a similar line, but without much success.

That may be because they are too big. The most successful of the new shopkeepers capitalize on their smallness in ways that bigger competitors simply can't imitate. When Billie Young and Mary Wilson opened Old Mexico, an import shop in St. Paul, they bought a van, drove to Mexico, hand-selected items ranging from ceramic fireplaces to ox yokes, and drove back to St. Paul. They repeated the pilgrimage twice each year. Bill parker, who was once a manager at a chain of discount record stores, found his harried days divided between policing shoplifters and pointing, robotlike, to rows of aisles where customers might find what they wanted. Now Parker runs Grand Music, in St. Paul, a small, comfortable music shop in which he can finally satisfy consumers looking for information. "They don't want a geographer simply standing in the aisles, pointing this way and that," explains Parker. "They want a helpmate so they know exactly what they're getting. They want to hear a record? We'll whistle the tune." At The Stitching Station, in Philadelphia, where Kate and Chriss Lynott sell counted cross-stitch patterns, the two proprietors estimate that they teach 40% of their customers how to do the detailed handiwork.

Niche-picking and capitalizing on smallness allow store owners to compete with some formidable opposition. The Walden Book Co. and B. Dalton Bookseller chains have taken the bookstore business by storm in recent years, for example, but Michele Poire has survived her larger foes by offering personally tailored services that the chains would be hard put to match. Poire's store, The Red Balloon Bookshop, in St. Paul, sells only children's books; she opened it a year ago when she realized that the children's book section was one of the fastest-growing parts of her general bookstore, Odegard Books Saint Paul. Poire offers classes in children's literature for parents in search of nothing but the best for their growing youngsters; children's authors and illustrators visit the store; employees special-order and gift wrap. When a customer asks if Maurice Sendak wrote a particular book, Poire's partner, a former librarian, is likely to know the answer. And twice a week, there is a story hour. When it breaks up, hordes of children stream out the door, clutching complimentary red balloons.

Marketing. Small retailers, like a lot of small-business people, have access to a limited number of marketing tools. They can't offer big discounts or a wide variety of products, and heavy advertising is ordinarily out of the question. What they can do -- what they have to do -- is work with the space their store occupies, making the most of increasingly costly square footage. Lee Carpenter, an architect who runs a firm in Dayton that specializes in redesigning retail interiors, says he has seen his business take off in recent years as retailers have placed more and more emphasis on the store environment as a marketing tool.

"Ambience -- and variety -- are as important as the food," explains Chris Bangs, an owner of The Green Mill Inn, a pizza restaurant in St. Paul. The Green Mill Inn recently underwent its third facelift, at a cost of $100,000. Two other Green Mills in the region have been remodeled, each along different lines. At the Grand Ole Creamery, also in St. Paul, Gary and Dawn Huffman make their White Mountain Old-Fashioned Ice Cream inside the storefront window. "Display and aroma are everything," Dawn says. Nancy Gold, owner of The King's Collar, in Philadelphia, regrets the loss of her original retail space. Relocated in a building set back from the street, Gold doesn't attract the pedestrian traffic that used to see her, framed in the window, tape measure around her neck, designing custom shirt patterns.

Many retailers claim that the value of cosmetic changes shows up on the bottom line. Susan Karr moved By Hand, her handmade-clothing business, from a nondescript storefront into a loftlike space with wood interiors. There, although she hung identical merchandise, business increased by 400%. Customers, she says, insisted that the new location offered a much lovelier selection.

Unable to depend upon neighborhood or ethnic loyalties, the new retailers have to market their wares by creating their own communities of consumers. Alfred Peet, who set up a successful coffee and tea business in Berkeley, engendered a sense of community by opening a small coffee bar within his shop and offering freshroasted coffee at 25 cents a cup. Peet lured passersby not only with the inexpensive coffee and the aroma from his coffee beans, but also with the vision of a shop overflowing with good conversation. Joan Venturino, who may occupy the narrowest niche around -- her Bears To Go store sells only teddy bears -- has gone even farther to create a sense of community among her customers. Her latest brainstorm was a teddy bear reunion attended by the likes of Lauren Bearcall, Kareem Abdul Jabear, Humphrey Beargart, and a bear mitzvah boy, wearing a tallith. Venturino swears it's true: Two-hundred and fifty customers came from as far away as Missouri to reunite bears purchased at Bears To Go over the past four years.

Often, of course, specialization lends itself easily to a feeling of community between store owner and customer. Angela and David Jenkins refer to The Rosin Box, their comfortably littered Philadelphia dance shop, as their "living room." Doubling as an information clearinghouse for amateur and professional dancers -- many of whose photos line the store's walls -- The Rosin Box is filled with customers who buy and those who are just stopping in to visit. The Jenkinses keep a file card, complete with size and style, on dancers who buy ballet shoes from them. In the eight years they've been in business, they haven't once missed a dance performance to which a customer has invited them.

Because the new shops are typically clustered together, the shopping environment extends beyond the store's walls, and an individual store can be only as successful as its neighborhood. When a bustling but financially unsuccessful Berkeley restaurant went out of business, neighboring shopkeepers say their own sales dipped until the space was filled. "In the retail business, who is selling next to you is just as important as who you are," says Richard Bradley, president of the International Downtown Executive Association, in Washington, D.C. Shopkeepers, like first-time parents in search of similar friends, frequent one another's stores, use one another's services, and seek one another's advice. In New Haven, they organize street fairs and pool resources for joint advertising. In Philadelphia, they unite for affordable group health care. "Simply put," says Bradley, "it's matter of survival." (See "The United Way," page 69.)

Management. "You open a store out of innocence -- like the way you have a child -- only to discover that you have to protect it, take care of it, and always be there," says Marilyn Rinzler, owner of Le Poulet, a chicken store in Berkeley.

"It's no easy life," adds Stephanie Johnson, owner of Little Dickens, a children's clothing store in St. Paul. "And the big question you have to ask yourself is, Do you want to be there all the time? I learned that the hard way. . . . I thought I had things up and running, that I could spend more time away. Slowly, insignificantly at first, my sales began to slip. I discovered that while employees are important, no one can substitute for me."

Shopkeepers have always known long hours. Today, however, many find they also have to familiarize themselves with computers, survey research, consultants, and business education -- all matters that, in the past, might have been the exclusive concerns of large retailers.

Again, experience has been the teacher. Shortly after Michele Poire and Dan Odegard moved their bulging bookstore -- Odegard Books Saint Paul -- to a larger location, for example, their marriage broke up, and Poire was left to run the shop. Accustomed to running the business with her husband in a laissez-faire manner, Poire suddenly found herself swamped. Employees lacked direction, returns piled up, and morale was low. Poire sought help from a business advisers' group, which suggested she draw up an organizational chart; to her amazement, she herself appeared in three quarters of the boxes.

Poire proceeded to learn how to delegate. Today, Odegard Books Saint Paul has five managers and 31 employees, and anticipates $1.5 million in sales.Several employees take business courses at the store's expense, an investment Poire believes is good for the company. To clarify job descriptions, every employee signs a position contract that describes Poire's expectations and standards. And to stay on top of the latest publications, Poire has employees present book reviews to the staff at monthly meetings.

So thoroughgoing an approach to management isn't as unusual as you might think. Iqbal Ahmed, the sports-shop owner, found that he, too, needed a consultant and some fundamental changes to develop a successful business. Twenty-five years ago, Ahmed went to work at Jim Davis Sporting Goods, an old-line Berkeley sports shop; later, he and his wife bought the store. "And what a store it was!" recalls Ahmed. "No focus, no organization. The only thing missing was moose heads and guns." Eventually, sales stopped growing, rent skyrocketed, and Ahmed and his wife divorced. Selling the business, he decided to start fresh, with a new approach to running a store.

First, Ahmed hired some small-business consultants, for $3,000. They had him write down his objectives; they also advised him to give his store a name that captured what he was selling and that would work well as a franchise. Ahmed came up with Athletic Experience, then proceeded to computerize his inventory and conduct consumer surveys. Discovering that his best customer was not looking for price so much as quality, Ahmed opened his store in a well-to-do neighborhood in North Berkeley. There, he plowed $10,000 into a swanky remodeling job, complete with gray carpet, crimson columns, and neon sign. After three months in business, he has already broken even.

What looks like a simple store, in short, may represent a substantial investment of time and money. Before the Huffmans opened their ice cream store in St. Paul, they took ice cream courses, read ice cream books, and apprenticed themselves for weeks at a time to the owners of five different homemade ice cream businesses throughout the country. Finally, with an initial $25,000, they opened their own shop two years ago. Their research paid off: Lines formed, sales soared, and the book The Very Best Ice Cream and Where to Find It named Grand Ole Creamery the "best in Minnesota."

Growth. The Green Mill Inn attempted to franchise and failed. Now, for some perspective on what it takes to grow a business, co-owner Chris Bangs is putting together an outside board of directors. "We need some help seeing the forest through the trees," he explains. Bangs has gone back to school for a business degree. Meanwhile, his company is growing anyway: With three locations, The Green Mill is now looking into new point-of-sale computers to track inventory. Sales recently reached $6 million on an annualized basis.

Like Bangs, small retailers all over the country are experimenting with approaches to growth. These include opening additional stores, working to increase sales per square foot, diversifying product lines, expanding their space, franchising, and introducing mail order. Some even double as consultants, as Gary and Dawn Huffman plan to do. Anticipating competition, the couple has decided to profit from it first. Using their spacious store as a training school, the Huffmans plan to teach other aspiring ice cream makers what lies behind Grand Creamery's scoop.

Coffee-seller Peet, one of the earliest of the new breed of retailer, used a variety of growth strategies to build his business into a $1.5-million, five-store operation. Opening a retail shop in Berkeley in 1965 with $14,000, Peet was among the first retailers to import his own coffee beans and roast them on the premises. When the growth of his company forced him to move his roaster to a warehouse location, he began a wholesale business on the side, which in turn led to a thriving mail-order business. With his coffee in great demand, Peet eventually opened two more retail shops. Last year, Peet's business was sold to Starbucks Coffee Co., a Seattle-based coffee retailer and wholesaler to which Peet had supplied coffee in earlier years.

At The Stitching Station, in Philadelphia, Kate and Chriss Lynott have grown their business through diversification. Specializing in cross-stitch patterns, the two sisters originally sent their customers' completed samplers to a custom-framing company. Dissatisfied with the quality of the framing, the Lynotts decided to set up a frame shop within their store; a year later, they attribute around 30% of their sales to the in-house framing service. Similarly, at The Rosin Box, in Philadelphia, Angela and David Jenkins added exercise and aerobics wear to their once strictly dance line; sales increased 10%.

Kadie DeMay and her partner, Dinny Prichard, experienced the pitfalls of growth when they decided to open additional stores. In 1981, DeMay, a divorced housewife with no discernible career skills, borrowed $3,000 and bought out Prichard's co-owner in a clothing store for professional women in St. Paul. When sales for Just Grand quickly outstripped DeMay and Prichard's projections, hovering at close to $300 per square foot, the partners thought they were pretty hot stuff -- "You know, entrepreneurs, off and running." DeMay smiles wryly. "I was romanced by that word and by developers who told me to open a shop here, another there. If the bottom line showed a profit, well, I said, 'Let's make more money.' I was seduced by the glamour of growth."

Within 14 months, the two women opened nine shops, hired a total of 35 employees, and found themselves in over their heads. "Suddenly, you're talking about three-tier management. You can't control everything yourself," says DeMay. They bought an IBM personal computer to track the explosion in stores and inventory. "Calculating the numbers by hand, we couldn't consolidate the information fast enough to do us any good. Every day we needed to know what kind of volume we were doing, in which kind of clothing. We needed to track 'open to buy' figures, how much money we will have to spend to replenish the stock in anticipation of what we'll sell."

Although they worked around the clock, DeMay and Prichard couldn't keep pace with their growth; service faltered and profits dropped at an astonishing rate. They were forced to retrench. "Just because you double your volume and double your square footage does not mean you double your sales," says DeMay. Today, the sobered partners, joined by two others, own three stores with projected sales close to $1.5 million. The hardest thing? "Having to fire employees." Still, concludes DeMay, she has learned some things: "You can't be undercapitalized, you've got to keep your target clear, and you can't be all things to all people."

Hamburger stands, "writes the management theorist Peter F. Drucker in his recent book Innovation and Entrepreneurship, "have been around in the United States since the nineteenth century; after World War II they sprang up on big-city street corners. But in the McDonald's hamburger chain -- one of the success stories of the last 25 years -- management was being applied to what had always been a hit-and-miss, mom-and-pop operation."

Something of the same might be said about the new generation of small stores. There have always been small shopkeepers, and -- for a century or so, anyway -- there have been large, well-managed retail businesses. But there haven't always been small, intensively managed, growth-oriented stores. Nor have there been shopkeepers willing to leave or pass up wellpaying opportunities to devote themselves to running a retail outlet. The new stores may be run by moms and pops in a literal sense, but they are not what is ordinarily meant by mom-and-pop enterprises.

How durable the new generation of stores will be, of course, remains to be seen. Some will rise or fall with the trendiness of their wares: When Lucy Mackall, owner of Have Heart, in Boston, created the printed shoelace, she started a craze that sent her sales soaring. Just as swiftly, her shoelace sales dropped dramatically. In other cases, a product's very success may induce small retailers to sell out to larger businesses, just as such specialty manufacturers as The Haagen-Dazs Co. and Celestial Seasonings Inc. sold out to Fortune 500 companies.

But while small businesses individually must contend with the stresses of impermanence, as a group their impact is likely to be lasting. The wave of specialization in retail has inspired a new segment of the population who find in retailing a challenging opportunity and a chance to make some money while indulging in the perennial American passion for being one's own boss. This new breed of small shopkeepers has combined some of the warmth and style that characterized former retail days with the services and skills required by a more sophisticated age.

That, of course, may not make a retailing revolution. But it certainly makes a difference to Grand Avenue in St. Paul, and to Grand Avenue's counterparts all over the United States.