WILLIAMSBURG -- Whether scanning the 1900s postcard collection or studying unearthed relics, visitors to the Fife & Drum Inn in Williamsburg are reminded that history surrounds them.

The inn's historic significance dates to co-owner Sharon Scruggs' grandfather, A.W. Hitchens, a merchant who sold his Duke of Gloucester property to the Williamsburg Restoration Committee. A bit later, in 1933, he erected the building that now houses the Fife & Drum, using the upstairs for apartments and the lower floor for retail space.

The Scruggs family converted the apartments into a nine-room inn seven years ago.

The first level of the building is home to several retail shops. Natives of the Williamsburg area, Scruggs and husband Billy enjoy living and working in the city limits.

"Williamsburg has a small-town atmosphere," Billy Scruggs said. "We like the friendliness."

The Fife & Drum Inn is one of many businesses in the city. The city's two largest employers are the College of William and Mary and Colonial Williamsburg Foundation.

College students between the ages of 18 and 25 make up half the city's population.

"The economic engine here is our hospitality industry and retail sales," said Michele Mixner DeWitt, economic-development director. "Williamsburg has the highest retail sales per capita in the state and the lowest tax rate of all the cities in Virginia."

Even though the 9.2-square-mile city has no manufacturing or industrial activities, it does have many professional-services businesses such as attorneys, accountants and doctors.

Fleming's Engraving & Awards Inc. has been in Williamsburg for more than 20 years. Owner Fleming Buck Jr. started his company in his garage in 1985. He's been in his current location since 1988.

"I started out making trophies and name tags, but I grew out of the garage," he said. "I bought an existing engraving business and changed it to Fleming's."

Today, Buck has seven employees and has expanded his product line to include gifts and promotional products.

"Williamsburg is a tourist town, and we reap the benefits of tourist-related businesses like hotels and timeshares," he said. "Also, William and Mary is a great source of work for us."

The Jefferson Restaurant is celebrating its 50th year in business. Mark Wright's grandfather opened the eatery after moving to Williamsburg from Greece. At any time, patrons can find four generations of the family working in the restaurant.

"We like Williamsburg because it's a quiet, friendly city," Wright said. "Everybody knows one another."

Even though it can't grow beyond its current boundaries, the city is experiencing expansion. A 30,000-squarefoot Health Evaluation Center is being built downtown by a private developer.

"The center will be doing exclusive physicals," DeWitt said. "People who come will get a head-to-toe evaluation. It works well with the fact that we are a destination. [People] who are getting physicals can bring their family."

The city also is in the process of redeveloping areas for new business.

"That's part of our strategy," DeWitt said.

Colonial Williamsburg recently sold 350 acres to Riverside Hospital. If plans are approved, the property would house a hospital and a residential community along with retail and office space.

Roseland Property Co. is developing High Street Williamsburg, a mixed-use development on a 55-acre tract sold by the city to Roseland.

"We've cleared the site and built the welcome center," Roseland partner Daniel Aston said.

"We are starting the second phase of site infrastructure."

The retail portion of the development will include a Movie Tavern, where moviegoers can have dinner while watching a film.

Aston believes High Street will bring people back into the city.

"It will create options and an urban lifestyle right here in the middle of the city."