To start, Sutter is not kid friendly. There are several shops that I already wont let my children in because the content is inappropriate (glass and other breakables). The shops I do take them in require me to hold their hands while we shop (now that's fun!).
As far as "what do we tell our children?", you tell them that the store is inappropriate for children. What's so hard about that? Why do you want to avoid that conversation? You should all be talking to you children about sex if you want them to grow up to be responsible, healthy, sexual beings. I really don't see the problem there. I have to tell my children all the time that they can't go into a store at the Galleria Mall even though it appears to have toys and other fun stuff in it. They have t-shirts and other items that contain sexually explicit and other wise bad language. What do I tell them? The truth! The difference is that this store has no sign warning of its contents. It is my understanding that the lingerie shop will.
I also take offense to the comment about "other seedy elements such as tattoo parlors". I have three beautiful tattoos and in no way would consider myself seedy! I got my last tatoo here in Folsom at a place that the city folk tried to keep from opening as well. They had most of the same complaints about it some how corrupting our youth and bringing a bad element to Folsom even though there was already a bar right next door! The tattoo parlor has taken precautions to be responsible with their craft and does not allow children in the store and will not tattoo anyone who has been drinking or obviously using drugs. I also have it on good autority that eventually the city warmed up to the idea and even hired one of the artists to do face painting at the grand opening of the aquatic center!
Steve is right. There are much bigger concerns we should be rallying against!
Just my two cents! Aren't you glad I am moving to Memphis! One less "liberal" to contend with!

What place did you get your tattoo? My husband needs to get one changed.
