Downtown LA can't lure retailers, either

[Pete]

This past week, there was a announcement of a huge new mixed-used development in downtown L.A. that really wants to incorporate retail.

You’ll see that the downtown area has added tens of thousands of housing units and has thousands more in the permitting phase (plus hundreds of thousands that work in the area), yet many retailers are still apprehensive about moving down there.

Just wanted to provide this perspective on how hard it can be to lure chains to a downtown.




Retailers Not Sold on Grand Avenue
By Cara Mia DiMassa and Roger Vincent, Times Staff Writers
April 25, 2006

They have the world-class architect. They have the cutting-edge design. They have the financing. But Eli Broad and the other backers of the Grand Avenue project still face formidable hurdles in creating an upscale 24-hour vibe in downtown Los Angeles.

Building Frank Gehry's glass-curtained towers is just the beginning. The developers must lure back the kind of high-end retailers who began abandoning downtown Los Angeles 50 years ago.

Although Grand Avenue's developers say they are close to locking in a bookstore chain and a boutique hotel, they quietly dropped plans to build an art-house movie theater in the complex because they could not find one willing to take a chance on downtown.

Throughout downtown, developers are finding it is a lot easier to lure well-heeled condo buyers to the urban core than businesses. In what some see as an ominous sign, some of the historic bank buildings converted into lofts have filled their upper floors with new residents but have failed to find retail tenants for the street-level spaces.

Over the last year, downtown business groups have aggressively tried to persuade popular stores in places like Pasadena and Hollywood to open branches in the city center.

Despite tours and demographic presentations, many well-known chains, including In-N-Out Burger, Trader Joe's and Barnes & Noble, have so far said no to the area.

"The chains aren't interested yet," said Warren Cooley, project director of the Historic Downtown Retail Project, a city-funded endeavor to attract businesses downtown. "There's not enough population and critical mass. There are still challenges. The homeless issue on the street is a concern when real estate investigators from big chains look. That's sometimes something that concerns them."

Rick Caruso, the developer behind the Grove and several other highly successful shopping centers in Southern California, said he is taking a wait-and-see approach to downtown.

"We've looked at downtown a lot, and I have not been able to answer the primary question of who is my customer on evenings and weekends," he said.

So far, Caruso added, downtown's abundant daily office workers and growing number of residents still make up too small an audience to lure fashion boutiques and home furnishing stores. Landlords may be able to attract some retailers by offering reduced rent and other incentives, he said, "but good retailers are going to arrive well after their customer has settled in."

The struggling high-end retail base downtown is often obscured in the booming residential real estate market.

More than 6,600 new residential units have been completed downtown since 1999, bring in about 10,000 new residents.

Gehry's plan for a block of city-owned land just east of Walt Disney Concert Hall, publicly unveiled Monday, is designed to build on that residential surge, bringing more residents and services to the area, as well as visitors.

His designs call for building a dramatic glass-curtained 47-story tower, a 24-story tower and retail pavilions with shops, outdoor dining and rooftop bars on the block bounded by 1st, 2nd, and Olive streets and Grand Avenue. The project is to include 400 condo units, 100 affordable housing units, a boutique hotel, health club and spa.

Broad and other backers argue that their project is in many ways the tipping point for downtown Los Angeles. They said the project would connect fledging residential districts while creating a central hub around nearby cultural institutions, including Disney Hall, the Music Center and the Museum of Contemporary Art.

The Gehry buildings are to be the first phase of a $1.8-billion master plan that calls for eight new towers in the Bunker Hill area.

But the plan depends heavily on downtown's revitalization continuing unabated. Critics point out that the Grand Avenue business model would seem dubious if the downtown real estate market were to soften or if crime and the city center's homeless problems were to worsen.

The vast majority of the tower space at Grand Avenue is set aside for residences: 2,600 units through all three phases.

Downtown developer Dan Rosenfeld said that although long-term prospects for residential development are strong, the current construction boom would probably lead to oversupply and a sales slump at some point. Still, he said, he expects the housing and retail markets to flourish over time.

Bill Witte of Related Cos., Grand Avenue's developer, said Monday that he understands the Grand Avenue project faces challenges but believes it ultimately will succeed.

The developers said they hope to be able to announce some of the project's key retail tenants, including the boutique hotel and several restaurants, within three or four months.

Witte called preliminary interest in the project "remarkable" but also struck a cautious tone.

"This is not easy," he said. "When you are pioneering, it is never easy."

Boosters of the downtown renaissance, however, were less restrained, noting that 6,000 residential units are under construction and 5,700 more have received building permits or are being vetted for permits, according to the Downtown Center Business Improvement District.

"This is the last great urban frontier in this country," said Carol Schatz, president and chief executive of that organization and of the Central City Assn. of Los Angeles, a business advocacy group. "I don't think many people, including those working downtown, ever saw this as a place where people would live."

Schatz said downtown boosters made a conscious decision to concentrate on bringing residents downtown, with the hope that retailers would follow.

"You can't sustain retail with just a 9-to-5 office population," she said. "It just won't happen."

A key test for Grand Avenue's viability is expected next year a few miles south, near Staples Center. That neighborhood, known as South Park, has seen the city's biggest boom in condo construction, and many observers of downtown development predict the neighborhood services will follow.

The long-awaited arrival of a Ralphs grocery store next year, Schatz said, is expected to be "a second coming. They were here in 1898 and left in 1955, and the fact that we can support a full-scale brand market in the core of downtown Los Angeles has significance above and beyond the market itself."

[floater]

That's very interesting. It just goes to show that retail must be generated from within, from local entrepreneurs who care enough to take a risk. I believe in the value of chains to get things started, but sometimes it takes a local to believe in an area. Who would have thought that independent films and mod lounges would have a market in downtown OKC?

[metro]

Well said. Many people often site OKC as the textbook example of sprawl. Let us not forget our bigger competitor Los Angeles has the same problems.

[John]

What's nesting in that guys hair?

[metro]

Looks like Lyle Lovett's brother

[floater]

Looks like Lyle Lovett's brother

That was my first instinct as well.

[The Old Downtown Guy]

An excellent piece Malibu. Very informative about the state of retailing today. Perhaps a crystal ball for downtown OKC's future on a smaller scale.

I also agree with what Floater said. History tells us that it will be locally owned stores and shops, many of which will be new enterprises, that will provide the first wave of new urban retailing. It will be the John A. Brown's and Katz Drugs of the 2000s that provide the back bone for new OKC downtown retail development, not WalMart or Walgreens.

Chains have a set list of demographics that require large numbers of potential customers that fit their models to be within a certain distance from any new location. Even the projected 5-10 year housing numbers of 3000 to 5000 living in downtown OKC won't support chains moving downtown, and quite frankly, if none of them ever venture downtown, it will be fine with me. The one exception is a large grocery store. Success in the grocery business requires established and proven business models and efficient distribution. The City's report on their effort to attract a Whole Foods or similar retailer to downtown will be out soon and we will get a better idea of when we can expect a ribbon cutting. Even if we get a much coveted Whole Foods, there is still a trade-off to attracting an established chain. They have grown over several years and added specialty areas that are common in nearly all grocery stores now, such as a bakery, deli etc., which may make it difficult for new individually owned shops with similar offerings to take hold. There are always trade-offs. Time will tell.

Downtown retailing won't happen over night either. Chains can lease large spaces that fit their corporate concept and be open in a matter of a few months; not so with new businesses that start small and grow over time. Why on earth would anyone be the least bit interested in Old Navy or Abercrombie or any of the other mall stores opening downtown. Big name department stores will very likely stay away too but small specialty shops like the already successful men's store, Teena Hicks will thrive and expand. B.C. Clark never left. As some of these new housing projects get going, new retailers will emerge to lease those small street level spaces. Some will survive and grow, others will spend too much on fixtures and finish, go broke and provide a foundation for the next tenant.

What could be more fun than watching the process, meeting the new shop owners, sampling their wares and being part of their success on a personal level. Something that chain expansion doesn't afford. As a side note, both megga-chain Hobby Lobby and the once very successful but then bought out and now defunct Sound Warehouse started in the early 70s within a few blocks of each other on NW 23rd Street in very small spaces with little more than the cardboard boxes their merchandise arrived in for fixtures.

[Pete]

It may be difficult due to suppliers and local liquor laws, but if I was going to invest in a retail concept in OKC it would be a specialty food store (ala Whole Foods or Trader Joes) for the area just north of downtown.

It might take local investors to make that happen, because only they can see the potential and need with the added motivation of wanting to improve the community.

As we all know, chains see the world differently and typically rely on a handful of in-house real estate people to crunch numbers and spit out the best bets. They are not into taking risks or looking outside their own strict models.

[BDP]

Many people often site OKC as the textbook example of sprawl. Let us not forget our bigger competitor Los Angeles has the same problems.

Well, they both have these problems because they both had the same development plan: no plan. One thing LA has been able to do that OKC has not is create small districts with urban-like semi-pedestrian oriented centers. Like LA, OKC will always be a drive and commute first type of place, but you see many wanting to live in neghborhoods where they can walk to many services. We should actually look at LA's problems and realize that they are our problems in 20-30 years if we don't think differently about it.

I actually think that, while they're having problems luring retial, the fact that LA can attract that many residents to downtown is a success and shows that it can be done in a similarly minded city like OKC. I also think that OKC's downtown is much more central to all of its communties in a way that LA's downtown is not. At least, OKC's downtown feels more central than LA's, especially of all things that most people associate with LA.

Downtown, I think, needs to offer a different kind of shopping in terms of experience and/or merchandise for it to work. I can't see the same chains already in the city making much of an impact downtown. If it is going to be a chain, it has to be one that can see the value of entering the market with one centrally located location rather than the 4-5 it often takes to reach our market of 600+ Square miles.