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Santana Finds the Way to San Jose

SAN JOSE, Calif. — Disasters of Biblical proportions are nothing new to Santana Row, the high-end retail and residential complex that finally opened here this month.<br><br>The dot-com bust resulted in economic turmoil here in Silicon Valley,...

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SAN JOSE, Calif. — Disasters of Biblical proportions are nothing new to Santana Row, the high-end retail and residential complex that finally opened here this month.

This story first appeared in the November 20, 2002 issue of WWD.  Subscribe Today.

The dot-com bust resulted in economic turmoil here in Silicon Valley, the area that has become synonymous with high tech. Then, in late August, an 11-alarm fire, considered among the largest in this city’s history, consumed part of a building, further delaying opening day.

So when sheets of rain fell on the day’s opening festivities here on Nov. 6, after six years of planning, building and rebuilding, developers and retailers could only chuckle.

“The only thing missing in its history is an earthquake,” quipped San Jose Mayor Ron Gonzales, no doubt unnerving Federal Realty executives, who just rebuilt a quarter of the 680,000-square-foot retail project, which sits on 42-acres at Winchester and Stevens Creek Boulevards. (There are an additional 1,200 residential rental units at the complex).

“Retailers are by nature superstitious,” said Steven Guttman, chief executive of Federal, speaking to the 100 or so guests huddled against the downpour waiting to enter the complex. “The mention of the e-word is scary because Santana Row is by far the single most important property in our portfolio [of 40 properties].”

Retailers, most of which signed leases after the late-Nineties boom here, stuck with the project even as the tech industry here peaked. St. John, Burberry, Gucci, Bottega Veneta, Tod’s and Escada all followed through with their sizeable outposts — ranging in size from Bottega at 1,082 square feet to St. John at 6,500 square feet — that turned Santana Row into another one of California’s impressive collections of luxury retailers.

Salvatore Ferragamo is set to open at the complex next spring.

Total general retail sales in San Jose in 2001 (the latest statistics available) were $28.2 billion, according to the California State Board of Equalization. Total apparel sales in San Jose in 2001 were $3.6 billion, according to the same source.

Despite the widely publicized dot-com bust, more than 1.7 million individuals here earn nearly $100,000 a year, putting the greater San Jose area second among the major 50 metropolitan markets in the U.S., according to 2000 U.S. Census Bureau figures. Retailers are banking on a chunk of that change, as well as that from the 200,000 households within a 10-mile radius that make more than $100,000 a year, not to mention the city’s 250,000 millionaires.

To do this, Santana Row manufactured a main street, a quasi-urban oasis in a suburban metropolis. About 100 architects involved in the project turned to Barcelona, New Orleans and New York’s SoHo for inspiration, creating store facades on ground floors of four buildings, each separated by car-populated streets.

It’s not all prefab. A 19th century French chapel facade was reduced to 2,000 pieces and shipped here in crates, reassembled and now operates as a greenhouse. Among the 16 fountains is one plucked from a small city outside Barcelona. Benches, grillework, windows, doors and railings from Europe have also been integrated into the center.

It was this European, city-like environment that attracted many of the tenants, including Tod’s chief executive officer Claudio Castiglioni, who attended the inaugural festivities.

“We loved the idea that it is really not a mall, it’s a community,” he said. The Santana Row Tod’s marks the Italian accessory maker’s ninth U.S. store.

Several moderate retailers went the extra mile to fit in, including Diesel, which constructed a floor-to-ceiling wall made out of locally cut stone and installed vintage doors as dressing rooms.

Ted Baker also feels at home. The London-based specialty chain opened its second U.S. boutique here after a location in Manhattan’s SoHo, putting into motion a retail expansion that will roll out 25 doors nationally over the next three years.

The next three units will go up in San Francisco, Los Angeles and Las Vegas — pending success here. “If we can establish that we can trade successfully here, then we’ll roll the rest out,” said Chris Browne, Ted Baker’s retail sales director, who oversees the company’s 22 stores and 40 in-store shops in the U.K. He declined to reveal sales projections for the 2,500-square-foot store, but noted, “My personal estimates are double what we’ve discussed as a reasonable figure.”

Podiatrist-cum–Los Angeles footwear designer Taryn Rose was equally hopeful. “There is really a woman here who’s interested in ‘reality’ fashion and that’s what we do,” said Rose, who chose Santana for her third store, after units in Beverly Hills and New York. At 800 square feet, she projects sales between $700,000 and $800,000 during the store’s first year in operation.

Santana Row executives said sales topped their expectations over opening weekend, declining to quantify what they called, a “solid start” to achieving first-year revenues of $700 to $800 a square foot, or nearly $550 million. (By contrast, the three-decade-old South Coast Plaza rakes in $700 a square foot annually.)

Even so, some analysts question whether Santana Row, situated directly across from Westfield Shoppingtown’s Valley Fair, home to Adrienne Vittadini, Louis Vuitton and Tiffany & Co., among others, will turn a profit any time soon (Santana Row’s revenue projections are based on those at the 16-year-old Westfield, which are also between $700 and $800 a square foot).

Sales tax revenues in San Jose during the last quarter were 20 percent less than the same period a year ago and unemployment is closing in on a high of 8 percent, according to the mayor’s office.

“Certainly Westfield is going to sit there and do everything they can to keep their customer base,” said Dale Achabal, director of the Retail Management Institute at Santa Clara University. “And the general economy, as weak as it is, is the biggest challenge for all retailers. Remember, we’re coming off a pretty high high. It was the epicenter of the high and now it’s the epicenter of the low.”

Next to fire and storms, long-term profitability is a walk in the park, believe Santana Row executives. “Every time there’s been an economic down cycle in this area, it has come back stronger,” said Guttman. “We’re not here for a week or a day. We didn’t lose a single retailer during the fire or the economic dip.”

A block of 37 stores that was destroyed in the fire, is set to open in the spring, including Theory’s first West Coast unit, Ann Taylor Loft and Chico’s FAS. The cause of the fire remains unsolved.

Babette Pinsky, owner of misses’ manufacturer Babette, whose fourth U.S. store was one of them, called the loss “devastating. Fortunately, we weren’t relying on it financially. But emotionally, it was a setback,” she said, fighting back tears on opening day. Babette is scheduled to open in the spring and Pinsky is confident it will reach her targeted sales mark of $700,000 its first year.

“We’ll just have to take this excitement and do it a second time,” she said.

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