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An epidemic of specialty store closings and consolidations is sweeping through the Los Angeles region as retailers succumb to the recession.
Mulberry, Sergio Rossi and bankrupt Lambertson Truex have shut on exclusive Melrose Place, the shopping enclave that is home to Oscar de La Renta, Marc Jacobs, Carolina Herrera and a recently opened Chloé store, among others. Lambertson Truex and Mulberry closed in February and March, respectively, and Sergio Rossi shut in December.
This story first appeared in the April 22, 2009 issue of WWD. Subscribe Today.
Lisa Kline, whose namesake store has been a staple on Robertson Boulevard for almost 14 years, said she might eventually consolidate her three stores on the street — women’s men’s and children’s — or seek to renegotiate the rents. In addition, Kline said she is trying to get out of the lease on a fourth store on South Beverly Drive in Beverly Hills.
“I have my feelers out there,” said Kline, who emphasized she will stay in business. “I don’t know what I’m going to do. I like the stores having their own space, but the whole point is the rent is outrageous and Robertson isn’t busy right now. There are so many vacancies on Robertson now, I’ve lost count.”
Nearby cities such as Santa Monica and Venice Beach are hemorrhaging retail tenants as well.
Dozens of stores have closed along Santa Monica’s Montana Avenue, a main shopping thoroughfare, including contemporary boutiques Jane Smith, Saylor and Il Primo Passo shoes. In Venice, a handful of merchants have called it quits or soon will on Abbot Kinney Boulevard, where contemporary boutique Wolf shut its stand-alone store and consolidated to another location.
“You can have the most amazing store and merchandise, but you can’t make people buy things,” said Becca Moon, the manager of Dewey, a boutique that plans to close at the end of April. “There are no small stores opening anymore, and the ones around us in the neighborhood are closing.”
Small stores aren’t the only retailers affected.
French Connection, the U.K. brand that had three Los Angeles boutiques, has shuttered its stores at the Beverly Center mall and in Pasadena, leaving it with one local store on Santa Monica’s Third Street Promenade.
Frédéric Fekkai is set to close a flagship salon on Rodeo Drive in Beverly Hills and expand his salon on Melrose Place in Los Angeles.
“Melrose Place is a newer, more modern location that more accurately represents the brand,” said Denise Davila, a spokeswoman for the Procter & Gamble-owned brand. “This will ultimately drive business to a single location, which is what we want.”
Rodeo Drive, the area’s highest-profile shopping street, appears to be withstanding the downturn better than others because most tenants are major companies. However, there are some vacancies.
Active Ride Shops, a Mira Loma, Calif.-based surf and skate chain, which filed for bankruptcy last month, closed stores in Westwood, Simi Valley, Irvine and Mission Viejo.
The latest developments come a few months after painful local retail losses such as the exit of Tracey Ross’ iconic boutique on Sunset Plaza and the shutdown of Kira Plastinina, the teen chain that closed its U.S. stores seven months after opening 12 units, including six in Southern California, on Robertson Boulevard, Beverly Drive and the Third Street Promenade.
On Robertson Boulevard, high rents negotiated at the peak of the retail real estate boom are haunting merchants and driving out tenants such as American Apparel, as well as contemporary stores Madison and Diavolina, which have relocated to nearby Third Street.
Throughout the Los Angeles area, “for lease” signs are proliferating in empty storefronts, a stark reminder of the troubled market conditions. The stretch of West Third Street between the Beverly Center and The Grove shopping centers, once a bustling boutique corridor, has suffered a wave of closings. At least 18 retail spaces were listed for lease this month.
“These trendy retail streets have high rents and the merchants are, in turn, selling expensive merchandise, so customers are turning away because they’re still concerned about what’s going on with the economy, to say nothing of their employment prospects,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. “We will continue to see the smaller, single owner or mom-and-pop stores close and it’s quite sad. The bombs are just starting to fall in commercial retail world.”
By the end of 2008, the retail vacancy rate was 3.5 percent compared with 2.3 percent the previous year, according to NAI Global figures.
The Golden State’s economy, the eighth largest in the world, has suffered a steep dive during the economic downturn. California’s 11.2 percent unemployment rate in March was the fourth highest in the U.S., topped only by Michigan, Oregon and South Carolina. Joblessness in Los Angeles County shot up to 11.4 percent last month, and retail was among the hardest-hit sectors, losing 18,000 jobs year-over-year. Manufacturing saw even steeper losses at 31,000 jobs.
California has the nation’s third highest foreclosure rate after Nevada and Arizona, median home prices are falling, tourism is declining and container traffic at the ports of Los Angeles and Long Beach, the world’s largest, has plummeted. State legislators in February raised taxes and cut spending to close a $42 billion budget deficit, but the state is forecasting another $8 billion gap for the fiscal year ending in July 2010.
The retail upheaval reflects a segment of the fashion business that’s particularly vulnerable, said Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at the University of Pennsylvania’s Wharton School.
“The small businesses are hanging by a thread right now,” she said. “It was bound to happen when everyone plays in the same space, and contemporary is the most tenuous, as consumers were always of the aspirational variety. Aspirational customers don’t have the money to spend — it’s not just that they’re not in the mood, as some people say. They don’t have the money.”
High rents mean punishing overhead for store owners now struggling with razor-thin margins, declining foot traffic and sales volume, slashed budgets and unstable relationships with vendors.
“Our Robertson [Boulevard] store has been hit hard because so many people have moved out because the rents got so high,” said Stacey Bendet, co-founder of Alice + Olivia. “That whole area is in flux. People are shopping differently and spending differently and it’s no longer apropos to go into a store and buy 20 things.”
Retailers not laden with debt or with expiring leases may be able to renegotiate or relocate to spaces owned by landlords who are eager to lure tenants and willing to offer cheaper rents because of the slowdown.
“If retailers aren’t [renegotiating], then they should be,” said David Solomon, chief executive officer of NAI Global’s ReStore division.
Dan Fagan, a board member on the Montana Avenue Merchants Association in Santa Monica, said some landlords are working to help sustain retailers.
“There have been reductions of up to 50 percent on rent from landlords; some 20 to 30 percent, although we still have a few landlords who are holding out or raising rent,” Fagan said. “After this recession, we hope to have a more improved street for those who make it through.”
The anxiety level among merchants is being heightened by continued bankruptcy filings and consumer spending that shows no signs of rebounding anytime soon.
Expansion on Robertson of major brands such as Chanel and Ralph Lauren that can afford to pay higher rent changed the face of the street that was once dominated by small niche boutiques, and store owners said having the major labels makes it hard for smaller operators to survive.
“Robertson is too high a rent factor for any smaller stores, and it’s going to go completely corporate — it’s already going that way,” said Mark Goldstein, who, after his rent tripled, moved his Diavolina and Madison stores from Robertson into a larger, but less expensive, custom-built space around the corner on Third Street.
Some retailers said the problem has been worsened by too many multiline boutiques throughout Los Angeles, an expansion that paralleled the housing boom.
“It was all the hype,” Lisa Kline said of Robertson Boulevard, as well as other shopping venues. “Suddenly everyone wanted to be there, and there’s so much saturation on the street. All the streets in L.A. are like that now: Sunset Plaza, Third Street, Montana. It’s not the same cute little shopping districts anymore. I don’t know how it’s going to evolve because you can’t get a read on the customer. They’re not there.”