By and  on June 25, 2008

Battered fashion retailers and designers in Southern California are bracing for another hit — a possible strike by the Screen Actors Guild that could cripple movie and television production.

SAG's contract expires June 30 and a walkout by the union's 120,000 members would be particularly damaging in a state where the unemployment rate is at its highest level in about five years, gas and food prices are rising, home values have imploded and the state budget deficit is estimated at $15 billion.

And it would come as retailers struggle to rebound from revenue lost during the more than three-month Writers Guild of America strike that ended in February and cost the state's economy an estimated $2.5 billion.

Jack Kyser, chief economist for the Los Angeles Economic Development Corp., said any protracted walkout might generate losses equal to, or higher than, the strike by writers. That scenario could cause a chain reaction among consumers squeezed for cash.

"This could be larger than the writers' strike and is already having an impact because people aren't starting production," he said.

Studios changed their shooting schedules in order to finish before June 30 and new productions are in limbo. That means thousands of actors, writers, crew members and technicians, stylists and other workers can't count on getting paychecks. Talent and management agencies and an array of entertainment-linked businesses also would be affected.

"This is not a pretty picture," Kyser said. "It's not just direct entertainment, it's ancillary services that are going to hurt. The below-the-line workers are the ones getting their brains beaten out here."

The economic impact is calculated through direct job and wage losses (actors, writers, crew and other production and postproduction workers), lost advertising, box-office and TV revenues, spending on costumes, catering and props and other equipment. The ripple effect on the local economy, from apparel stores to hotels and restaurants, is also part of the equation.

"This is not at all good news for retailers, who are already in a tough position and had a rough holiday season. Look at all the bankruptcies....A lot of people will be hurting for months," Kyser said. "The second half of the year, despite the federal economic stimulus package, is looking very, very grim."Designer Nanette Lepore, who operates stores on two of Los Angeles' hottest retail streets, Robertson Boulevard and Melrose Avenue, said she suffered during the writers' walkout and is now putting off a remodel of her Robertson Boulevard space in part because of the latest labor unrest.

"It's a direct impact," she said. "We do so much work with the studios, for wardrobe and the like, [and] have a whole lot of stylists who do movies coming in, so without them, things change a lot. This is big."

Lepore said sales expectations for her Melrose store, which opened in February, are difficult to estimate. "We're just recovering now from the writers' strike. It's hard to gauge the performance of a new venture and new business...when you're taking so many hits."

Tom Blumenthal, owner of the luxury gift emporium Gearys in Beverly Hills and president of the Rodeo Drive Committee business association, said the damage of a SAG strike might be lessened slightly by tourism from overseas.

A walkout "would affect everything, from retail to hotels and restaurants — all of it. It would really hurt," Blumenthal said. "Hopefully it won't be as bad as the writers' strike, which was particularly painful because that came during awards season [forcing cancellation of the Golden Globes], which is almost as big as holiday [season] for us.

"We're seeing an influx of foreign tourists right now, which is good for us," he said. "The recession and all the talk of the strike has slowed the flow, but not turned the faucet off."

Fraser Ross, who owns the Kitson boutiques, said a SAG strike, while not as perilously timed as the writers' walkout that coincided with awards season, would impact business for months.

"It's just one thing after another for us here. We can't catch our breath," said Ross, who has stores in Los Angeles and Glendale, Calif., as well as in Dubai. "For stores or small chains without locations outside of the city, I can't imagine how painful this could be for business."

In addition to other woes, California's economy was buffeted by heavy winter rains and flooding — yet another reason for shoppers to stay away from stores. And now in Northern California, brush fires are burning, triggered by drought and lightning.Retail sales are down in the most populous U.S. state and some stores, such as Gottschalks Inc., the Fresno, Calif.-based moderate-priced regional department store, have scaled back expansion.

Last month, John Martens, vice president and general manager of Neiman Marcus' Beverly Hills store, told WWD: "We're working hard for every dollar we get in the store today. It's not business as usual; times have changed. It's a very challenging time for us and for most retailers."

The economy "is all anyone's talking about," said Hillary Rush, who has operated her namesake boutique on Third Street in Los Angeles for three years. "The winter was rough — the economy, the strike, the weather...a little of everything."

Rush said some steady customers who bought novelty items have reconsidered their purchases and exchanged the trendier apparel for jeans or other basic items. She is reducing her orders and has been told by vendors that many of their customers are canceling apparel orders.

"I'm having a big shoe sale right now. I just have too much of that merchandise," Rush said. "I'm still bringing in new stuff, though, because otherwise you back yourself into a corner, trying to sell the same stuff as you were in January."

The loss of jobs in California already has reached a critical point.

The state last week reported that the unemployment rate in May jumped to 6.8 percent compared with 5.3 percent in the same year-ago period. In Los Angeles County, joblessness increased to 6.7 percent versus 4.9 percent a year ago. California has the fifth-highest unemployment rate in the U.S., behind Michigan, Rhode Island, Alaska and Mississippi.

The hardest-hit job sectors are construction and financial services.

Home prices in Los Angeles dropped 23.1 percent in April compared with the same month last year, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. Prices in 20 major U.S. cities fell 15.3 percent.

Negotiators for SAG and Hollywood producers have failed to bridge large gaps involving new media compensation and DVD residual payments, among other issues. A walkout would disrupt both movie and television production, although the union has granted waivers to independently produced films.The situation has an added complication because SAG and the 70,000-member American Federation of Television and Radio Artists, or AFTRA, are negotiating separately for the first time in about 30 years. AFTRA has reached a tentative contract with producers and results will be announced July 7. SAG opposes the pact as being weak and is campaigning to defeat it, arguing that AFTRA is undercutting its bargaining position. About 44,000 AFTRA members also belong to SAG.

Ratification of the AFTRA agreement would put pressure on SAG to cut a deal. And if an accord is reached, production could resume in time for the traditional start of the TV programming schedules.

Short of a strike, actors might decide to work without a contract or studios could stage a lockout.

"I have four things all on hold because of the strike," actress Rose McGowan said. "It's frustrating now, but potentially disastrous down the line."

Actress Vinessa Shaw, who's coming off of good reviews for "Two Lovers" at the Cannes Film Festival, said she returned to Los Angeles without any prospects, and was resigned to a work stoppage. "As an actor, you have to be prepared that it could all fall apart at any moment, and you have to be OK with that...but it's hard to be in limbo."

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