On their last lunchtime trip to Lipman's, Shirley Rodowsky and NormaBehlke stood side by side in the petite section and picked through the few forlorn dresses left on the racks.

Friends and co-workers at Farmers National Bank, the shopping partners used to browse almost every day at Lipman's, the dowager of clothiers on Annapolis' Main Street. But their lunchtime ritual is ending now that the city's oldestmerchant is going out of business.

Following the family shoe store, Saddler's Hardware, the Haunted Bookshop and the dime store, Lipman's is closing after 86 years.

Hurt by the recession and demographic changes in downtown Annapolis, the owners have decided to retire. Joan L. Smilow and Marlene S. Lipman, granddaughters in the founding family, are considering selling theColonial-era building.

When the last dresses are cleared out, thebuilding will stand empty, a legacy of a bygone era and the 12th vacant store on Main Street.

Lipman's was one of the few locally owned businesses left on the street since the tourist boom transformed Maryland's capital in the 1970s and '80s.

Stiff competition for commercial space drove the rents up from less than $10 per square foot atthe start of the decade to what shop owners called an "artificial high" of $40 to $50. By 1988, many smaller business could no longer afford to lease space near the picturesque City Dock.

National chain stores willing to pay higher rates replaced the hardware, furniture and grocery stores. Only a handful of buildings were still available on a street that was almost deserted in the 1960s.

The economic downturn of the past two years aggravated the problems faced by once-thriving small businesses. But the recession also has forced landlords to drop their rents, making Main Street more affordable again, said Larry Vincent, owner of Laurance Clothing at the top of the street.

With 16 stores empty once again between Church Circle and the waterfront, business owners have plenty of room to negotiate, he said.

Vincent sees potential in the recession for luring back one-of-a-kind shops. Ethnic restaurants have moved into upper Main Street, and several investors have approached him in recent months about opening new shops, he said, raising hopes for "some exciting and innovative businesses" to continue the Main Street tradition.

Other business leaders believe the street's image has been irrevocably changed. Annapolis'gentrification from a fishing village to a tourist-choked vacation spot near the Chesapeake Bay has left little room for the old retailers, they say. The dime stores, soda fountains, grocery stores and poolhalls are all gone.

"There was a time when you could go from the bottom of Main Street to the top and get everything you needed," saidMayor Alfred A. Hopkins, strolling toward Church Circle last week. "I don't think we'll ever have that again."

Donald Hunter, president of Hunter Interest Inc., real estate economists hired recently by the city to study the changes, agrees.

"There may be some flattening of rents, but I don't think you're going to get a lot of mom-and-pop stores coming in again," he said.

Many long-time Annapolis residents have greeted the shift toward expensive boutiques, fern bars andT-shirt shops with dismay. Customers cried last week when they learned Lipman's was closing.

"When I first came here, everyone in townknew everybody's

name," said Mary Ellen Gardner, an Eastport resident who shopped at Lipman's. "Not any more."

Alderman Carl O. Snowden, who leased an office on Main Street but moved recently to a less-expensive space off Duke of Gloucester, said he's bothered by what some have dubbed the "Banana Republicanization" of Main Street.

"It's unfortunate, because I think what makes your downtown unique and special is the small merchants," he said. "It's hard for me to look at a Banana Republic and see how it fits into a historic district."

Some retailers argue that the street has just as many locally owned shops as in the 1940s and 1950s. Vincent points out that "the A&P; andfive-and-dime were chains, too."

Other merchants emphasize popular changes, such as the new presence of ethnic restaurants on Main Street.

The exotic smells of curry and sesame oil mingle with the aroma of crabs and Old Bay these days. First came a Northern Italian restaurant, then a sushi bar, followed by an Indian restaurant.

"MainStreet is being discovered by ethnic restaurants, and it's kind of nice," Hunter said.

Rajinder Singh and Mandeep Singh, who ran a take-out busi

ness in downtown Baltimore, decided to open their firstrestaurant on Main Street. Even though the rents were higher than inBaltimore, the brothers said they were lured by Annapolis' atmosphere and the lack of competition from other Indian restaurants.

Most of the downtown restaurants used to feature seafood dishes, said MikeRiordan, owner of Riordan's restaurant, located at City Dock for 15 years.

"We have more diversification down here now," he said. "I think it's a good mix. It offers people quite a few choices as far as eating and shopping."

Vincent and other merchants hope the city will take steps to encourage and protect that mix of family shops and restaurants.

A coalition of business and civic leaders is studying the changes on Main Street to determine what "our economics should be," said Mary Burkholder, director of economic development.

With anestimated 4.5 million visitors each year, Annapolis has come to relyon its tourist trade. The Ward One Sector Committee is studying the changes to decide whether the city should offer incentives to small businesses or develop into a "specialty niche," such as Nantucket, Mass., which trades on its waterfront image and specializes in upscale seaside shops and restaurants.

Meanwhile, merchants on Main Street are wondering who is next. Fleet Feet moved to another location, abandoning a shop that still has "Family Shoe Store" emblazoned in the brick entrance.

Laura Ashley replaced the Singer sewing machine store. Green's drug store, where Alderman John Hammond used to slurp ice-cream sodas as a child, became Lipman's. Now, the department store isfollowing Read's drug store and Wilken's Clothing.

Even Pete Palaigos, who turned his pool hall into an upscale pub, is talking of throwing in the towel.

"I don't think I'll be here much longer," he said, adding that he feels the itch to retire more frequently these days.

"I think the mom-and-pop days are gone. The assessments are too high. What's left is the people that can afford the high rents -- the chains."

Although he changed with the times, Palaigos said he still "sort of misses" the days when his place was Pete's Pool Hall, alocal hangout. "I miss the environment, the youngsters growing up," he said.

He also misses his friends who ran the old stores and is saddened to see Lipman's leaving. But he's philosophical about it, asis Ann King, the manager of Lipman's for 38 years.

"This is the last of this type of store," she said. "We served four generations here. But everything comes to an end sometime."

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