Amid reports of the U.S. economy expanding at its fastest clip since 1984, rising consumer confidence and healthy holiday sales, six cities in the western region remain in their own economic microclimates.
This story first appeared in the January 14, 2004 issue of WWD. Subscribe Today.
The unveiling of Gov. Arnold Schwarzenegger’s budget last week did little to quell the concerns of the apparel business community.
Attempting to close a $15 billion deficit for the fiscal year beginning in July, the $99.1 billion budget takes $1.3 billion from local governments and delays transportation projects, moves that observers say could hurt manufacturing.
“By taking money from cities and counties, locally they may cut back services or raise [business] fees — this is somewhat disquieting news,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.
Kyser estimates that the state’s GDP will see an inflation-adjusted 2 percent rate of growth, slightly down from 2.2 percent last year. Though jobs are expected to increase in the state by 0.9 percent due to the tech recovery, growing aerospace contracts, and new home building, Kyser said the forecasted 2 percent rise in the household employment sector — which counts independent contractors — for 2004 means tax revenues and income might leak out from the state’s purview.
“Pony up” has been the mantra already heard by all business owners as state regulations push up costs. The signing of SB 2, the measure that will require employers to pay for health insurance, and the continuing jump in workers’ compensation rates aren’t allies of employment.
Workers’ comp reform is working its way through the state legislature and a referendum drive to repeal SB 2 is now in the court of appeals in San Francisco. Resolving these issues, along with the industry’s growing underground economy, is a front-burner concern, said Victoria Bradshaw, the state’s undersecretary of labor and acting secretary of labor.
“Clearly, apparel is an important industry and we see these issues as priorities and disadvantages for the small employers,” Bradshaw said.
Year to date, the apparel industry in Los Angeles County has lost 5,300 jobs, down to 68,000. Textile employees have lost 15 percent of jobs, down to 10,000.
November provided a morale boost when the state’s unemployment rate dropped to 6.4 percent, the lowest since January 2002, from a revised 6.7 percent in October, though the news was tempered by a decline in payrolls. Los Angeles County saw its November jobless rate drop to 6.8 percent from 7.1 percent on a seasonally adjusted basis.
Kyser said to bet on tourism in 2004, with two new shows coming to Universal Studios and Disneyland. Retail sales in the region also should perk up, he said, buoyed by new developments. The Citadel, an outlet center in Commerce, 20 minutes south of Los Angeles, is undergoing renovations.
“There is a recovery under way,” said Kyser. “You’re seeing a pretty decent economy at the national level. I’m expecting a good year at regional levels.”
Despite the signs of progress, junior resource Rampage maintains a conservative mentality going forward, in step with its consumers and retailers.
“Everyone is trying to hang on for flat business,” said owner Larry Hansel.
Hansel, however, isn’t pulling back. The company’s exploring retail licensing opportunities in Russia, it launched a fragrance for back-to-school and it’s preparing to launch a new spring campaign.
In 2000, it was the dot-com fallout. In 2004, it’s Proposition L. The ordinance, passed in November, boosting the city and county’s minimum wage to $8.50 is threatening to uproot this city’s business community. The long-suffering apparel industry — whose contractors and ancillary service providers have dwindled 33 percent to 400, according to trade group San Francisco Fashion Industries — is sure to feel the effects.
“We’ll see a fair percentage of contractors moving out of the city and county or they will shut their business,” said Randall Harris, executive director of SFFI.
Julienne Weston, owner of Weston Wear contemporary clothing, said she expects contractors to pass on their higher costs to her. As a result, she plans to enter a partnership to own a sewing contractor by next year.
“That’s the only way to secure the product unless we go oversees, and I’m a strong believer of trying to support the U.S. economy,” she said.
Weston hopes her 23-year-old business, down 20 percent last year, will remain on par in 2004. She’s counting on newness to help it along, including her new lingerie line called Twilight that bowed last August, with plans to offer more customer prints and extra embellishments.
Newness at retail is what Jaxx owner Susan Jones is banking on for boosting customer interest this year. Her two-year-old boutique in the Haight district has done well enough with C&C California shirts, Louis Verdad separates and Twelfth Street by Cynthia Vincent blouses to keep a sales decline at a minimum.
“Denim isn’t the only option anymore,” she said. “People are looking for more individual looks that will help us.”
The Union Square Association, comprising 257 retail, hospitality and service companies, said its vacancy rate has fallen to about 10 percent, down from 15 percent a few months ago. “We’re seeing improvement in numbers — such as hotel occupancy and convention bookings — which bodes well for retail,” said Linda Mjellem, executive director of the association.
Hard hit by technology’s vanishing act, Portland-Vancouver has weathered three years of declining employment, and in November, posted the highest unemployment rate among the nation’s 51 largest metropolitan areas, according to the U.S. Bureau of Labor Statistics. The Portland-area rate, at a seasonally unadjusted 7.2 percent, was down from a June peak of 8.9 percent.
Portland’s not all wet, however. Employment grew by 1,800, the strongest November showing since late 2000. John Mitchell, economist of the Western region at U.S. Bank, expects to see the job-growth figure rise this year as the area benefits from a tech uptick.
“We’ve had four consecutive months of increases in adjusted employment — that’s good news,” he said.
Art Ayre, employment economist with the Oregon Employment Department, said overall state employment (excluding farm payrolls and self-employment) is expected to rise 1 percent in 2004 compared with a decline of 0.6 percent last year. He said the growing health care industry and rise in private educational services are at the heart of the job sources. Also, despite the state’s past troubled job market, it has witnessed steady population growth of 1 percent annually for the past three years, which is expected to continue in 2004, drawing retirees whose lifestyle brings in additional service industries, Ayre said.
The community’s tourism market also had a good run this past summer, benefiting from improvements and events in the area, such as the expansion of the convention center, the U.S. Women’s Open golf tournament and the Lewis & Clark Bicentennial.
Mercantile boutique owner Victoria Taylor said her downtown location adjacent to hotels helped her sales climb 11.5 percent last year. Nearby high-rise condos and apartments filled with young twentysomethings has also prompted her to remix her inventory, which includes Burberry, Lacoste and Isda.
“We’re taking it younger and faster as younger people move into the urban neighborhood,” she said.
Mitchell said it’s difficult to get an overall read on retail sales since the state operates without a sales tax. Some local consultants are predicting increases of up to 4 percent. Positive factors are new mall development in the county and mall expansions. Washington Square in Tigard, 10 miles west of Portland, one of the state’s largest centers with almost 1.3 million square feet of space, plans to add a four-level parking deck and 100,000 square feet of space for up to 25 retailers by 2005.
One of hardest hit by dot-com woes and layoffs in the high tech industry, Seattle is set to get some relief in 2004.
Local economists say 27 months of declines since January 2001 are beginning to level off, spurred by job growth in health care, education, construction and financial institutions.
“Retail sales are still weak but it looks as though the bottom of the trough has passed us,” said Roberta Pauer, Seattle economist for the Washington Employment Security Department. “In 2004, we should expect modest growth and 2005 should bring good growth.”
Washington gross state product growth in 2001, the latest figure available, was $223 million, an increase of 2 percent from $218 million in 2000. Washington economists expected a higher growth rate in 2004, between a 4 and 6 percent increase.
Mad cow disease discovered in Washington in December has not helped the area’s economy but hasn’t hurt it, either. Dr. Changmook Sohn, state economist for Gov. Gary Locke, said the economic impact of the diseased cow has been minimal. “We’ve had canceled [beef] orders and also returns from Korea and Japan, but we have not seen retail or any other kind of activities affected.”
In fact, retailers there are brimming with optimism.
After all, this is the home of Nordstrom, one of the star performers in December, posting a 9.1 percent increase in same-store sales that far exceeded expectations. Total sales rose 12.2 percent. The Seattle-based better department store chain has been building its bottom line more rapidly than sales. In the third quarter, it more than doubled its profits by 146.8 percent to $45.5 million on sales that grew only 7.4 percent to $1.42 billion from $1.32 billion a year ago.
And at high-end specialty store Mario’s, customers have renewed interest in shopping. “We’re seeing people that we haven’t seen in a few years,” said Jennifer Serna, store manager.
Sin City should be known as Sales City. After all, shopping is this city’s third most popular pastime after gambling and entertainment. With more than 4 million square feet of retail space, 35 million visitors in 2002 helped rack up $7.65 billion in sales.
Average sales per square foot at stores in Vegas is among the highest in the country. Only Bal Harbour Shops in Bal Harbour, Fla., beats The Forum Shops at Caesars Palace, ringing up average sales per square foot of $1,300 last year.
No wonder a host of retailers put the city above Los Angeles in terms of priority, including Roberto Cavalli, Kohl’s and Zara, all of which opened stores there in 2003.
“Between gambling addictions and shopping addictions, Las Vegas has been having better growth than the national economy in 2003,” said Keith Schwer, professor of economics at the University Nevada, Las Vegas.
The national economy improving, low property taxes and a general trend toward increased shopping activity from visitors are the fundamental structural changes positively affecting the area’s economy. Gross state product is expected to grow between 1.5 and 2 percent above the national level growth projection of 4.4 percent, or 6.4 percent, estimated Schwer.
The local economy is gaining momentum from a labor market that’s up 3 percent, unemployment that’s leveled off to about 5 percent — below the national unemployment rate of 6 percent — and taxable retail sales up more than 10 percent. “That’s not likely to change in 2004,” he added. “And with population growth in excess of 4 percent, we’re still considered one of the fastest-growing cities in the U.S.”
That’s not to say Las Vegas doesn’t have its issues, Schwer added. Over the holidays, the city was named a prime terrorist target. A spokesman for Gov. Kenny Guinn’s office said New Year’s Eve parties on the strip expected 350,000 people, but 270,000 actually showed up because of terrorist threats coupled with a rare snow shower that hit the desert. “Las Vegas shows vulnerability at times when national issues like wars and terrorist threats surface because concerns for safety affect the travel component,” he said.
The embodiment of the sun god it’s named for, Phoenix ranked fourth in 2003 out of 28 major employment markets in the U.S., according to economist Elliot Pollack, who runs his namesake consulting firm out of Scottsdale, Ariz.
People are lured to the Phoenix metropolitan area because it’s one of the more affordable housing markets in the U.S., sustains solid job growth rates and has a climate suitable for second homes and/or retirement. Gross state product is expect to grow by 6.5 percent, according to Pollack.
“Some 40 states reported employment declines and Phoenix is up 1 percent,” he said. “Employment-wise, the city is weak by historical standards but strong relative to other U.S. cities.”
Population is also up, growing at a 2.7 percent rate in 2003, which indicates 95,000 people moved into the city last year. That means construction of another mall is on the horizon.
“For every 250,000 people who move here, we get a new mall,” said Pollack, noting there are six regional malls in the planning stages in and around Phoenix, roughly 10 miles apart from each other.
In fact, 3 million square feet of retail space is being developed, mostly by big-box retailers like Kohl’s, which opened 10 stores in the region in 2003.
Apparel sales are looking good, too. “I think consumers are on the bullish side, especially in Phoenix, where the housing market continues to be white hot and growth continues to be [among the] fastest in the country,” said a spokesman for Gov. Janet Napolitano.
Glory Agenter, owner of four area Glory Bee’s misses’ boutiques, said her business has picked up. “People aren’t as cautious as they were even in the last month,” she said. “The economy is turning around and people are hearing that in the news. They are willing to start taking chances. I’m very optimistic for 2004. It’s going to be good barring any unforeseen tragedies, the only real ‘if’ we all still think about.”