By  on February 27, 2008

Rodeo Drive doesn't want to give up top luxury billing.

Like a Hollywood star entering middle age, the Beverly Hills shopping mecca started to show some wrinkles in recent years. Slowing sales and competition from venues such as Melrose Avenue, Melrose Place and Robertson Boulevard combined to challenge its superstar status.

Despite the slowing economy that is hitting housing, entertainment and finance sectors in California, a flurry of store makeovers led by European brands and new leasing activity are infusing Rodeo Drive with fresh energy.

Dolce & Gabbana, Fendi, Ferragamo, Bottega Veneta and Versace are among the brands that recently overhauled stores. Rene Caovilla is to launch its first West Coast unit in March next to the new Jimmy Choo space, Loro Piana is opening this summer and Miu Miu, Missoni and Rock & Republic plan to launch this year.

A number of factors are at work in Rodeo Drive's renewal, not the least of which is the scarcity of available leases, making competition for space intense.

"Rodeo is really hot right now because there is such limited footage on the street — it's not like Madison Avenue in New York where there's 10 blocks of prime retail. It's three blocks instead," said Jay Luchs, senior vice president at CB Richard Ellis, who has brokered leases on the street recently. "Most tenants are in long-term leases, so when something comes up, it's rare and creates serious competition in terms of rent."

Rents are as high as $50 a square foot, and prices have spiked over the past year, Luchs said.

This is happening amid overall macroeconomic gloom. However, Fendi chief executive officer Michael Burke, speaking at the company's store relaunch, said, "Things may look somewhat unstable in the U.S. economy right now, but it's important to stick to a long-term plan."

Rodeo Drive has always relied on tourists. The city attracts almost five million a year — 40 percent from overseas — who spend about $1 billion. With the record weakness of the dollar, the climate is right for attracting more shoppers from abroad.

"There's a lot of tourism to New York and L.A. and everything is a bargain, so that's helped shore things up," said Jack Kyser, chief economist for the Los Angeles Economic Development Corp.

The newcomers and refurbished spaces are part of a Rodeo Drive lineup that includes Giorgio Armani, Bally, Cartier, Chanel, Christian Dior, Gucci, Prada, Tiffany, Versace and Louis Vuitton, among others. Rodeo is the centerpiece of the so-called Golden Triangle shopping area bounded by Santa Monica Boulevard to the north, Wilshire Boulevard to the south and Canon Drive to the east.

A late-fall opening for the 200-room Montage Beverly Hills hotel is also driving some of the optimism because it is expected to be a draw for wealthy visitors.

Another promising sign is the planned new headquarters of the William Morris talent agency that will be built at nearby Beverly Drive and Wilshire Boulevard. The expanded 200,000-square-foot space replaces the existing offices nearby and will integrate a mix of retail uses.

"The Montage is really the feather in our cap, and William Morris will further support our retailers and shore things up," said Tom Blumenthal, president of the Rodeo Drive Committee merchant association, and owner of Gearys, a luxury tableware and gift retailer.

The most recent annual statistics from the city of Beverly Hills show that the triangle, including Saks Fifth Avenue, Barneys New York and Neiman Marcus on Wilshire Boulevard, had combined gross taxable sales of almost $1.4 billion in 2006 compared with $1.2 billion the previous year. Last year's tally will be released in May.

The Los Angeles Economic Development Corp. said gross taxable sales on Rodeo Drive gained 12.6 percent in the period of 2003-'04, falling to 7.6 percent in 2004-'05 and 5.2 percent in 2005-'06.

Rodeo has seen ups and downs, particularly after the Sept. 11 attacks when tourism dropped. As recently as six years ago, rents were about $22 a square foot and there were multiple vacancies. The challenge is heightened because of the duplication of brand stores in the Los Angeles region.

"Not only are there other areas that have risen to prominence and taken attention off Rodeo Drive, but the expansion of a lot of these big conglomerate brands has detracted from the exclusivity of Rodeo Drive," Kyser said.

There are Louis Vuitton and Tiffany stores in nearby Century City. Dior, Gucci and Louis Vuitton are in the Beverly Center mall. Many other Rodeo Drive brands operate in South Coast Plaza in Costa Mesa, Calif., about 50 miles from Beverly Hills.
"One of the challenges has been that retail streets like Robertson and Melrose have more of the unique local stores, while on Rodeo, it's major designers that have their stores in New York City, London, Hong Kong, everywhere," Kyser said. "It's not unique to some of these visitors and overexposure is an issue."

For example, Melrose Place is home to Marc Jacobs, Oscar de la Renta and Carolina Herrera, among others. Even in the $30-a-square-foot range, Melrose Place rents are far less than on Rodeo, though it doesn't have the level of foot traffic, which is fine by retailers who cite the appeal of the street's intimacy.

"It is this charming little enclave, which has a unique and private feel, a little more off the beaten path, but with a very high-end character," Luchs said.

Robertson Boulevard features Kitson, Lisa Kline, Kiehl's and Intermix to appeal to a young, hip consumer, and Dolce & Gabbana's D&G concept and Chanel are set this year to be Robertson's first designer megabrands. Melrose Avenue is home to Diane von Furstenberg, Paul Smith and Nanette Lepore and Balenciaga, Karl Lagerfeld, Alexander McQueen and Vera Wang Bridal and Lavender label stores are planned.

Given the costs of Rodeo Drive, "retailers might as well be anywhere else in Los Angeles that's less expensive if they are just going after local business," said architect Peter Marino, who led the redesigns of Louis Vuitton and Fendi on Rodeo and will overhaul Ermenegildo Zegna and Dior next year.

Keeping the look of the stores fresh is an important factor in drawing sales and attention, Marino said.

"A lot of the stores were sporting a dated late-Nineties look — that ultramodern phase," said Pamela Baxter, president of Dior's U.S. operations. "Luckily, people are now returning to individual design. For us, that will be a classic European look, more of a luxurious French villa feel."

In 2003, the city of Beverly Hills undertook an estimated $40 million overhaul of the median, landscaping and sidewalks along Rodeo. In December 2004, the city lined the new medians with 20 Baccarat chandeliers — $1 million worth of fixtures that have reappeared to adorn the street each holiday season since.
"That's really helped retailers reengage with the city in finding it a contemporary luxury locale," said Alison Maxwell, Beverly Hills' director of economic development and marketing. "We've bounced back as a destination for luxury retailers. There's been a lot of investment in the existing buildings lately — that's great for us because it's a show of confidence in the area and it shores up other merchants, as well."

Other touches have followed, including benches and new landscaping. One recent proposal called for the city to tear out the concrete sidewalks along the drive and install green granite walkways. It was scuttled when merchants balked at the high cost.

Even with all the reinvestment and new arrivals, concerns linger over the fallout from the 14-week writers' strike, negotiations on a new contract with the Screen Actors Guild and other economic issues.

"There's a lot of uncertainty out there, and the top end is the last to feel the effects, so it may take some time," Blumenthal said. "It hasn't affected us yet, but that's not to say a month or two or three down the road that it might not."

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