A SPECIAL REPORT ON THE SOUTHERN CALIFORNIA ECONOMY : THE SOUTHLAND’S INDUSTRIES : Shoppers Abound, but Retailing Is Not as Big a Bargain

Westside Pavilion, a baby boomer’s dream mall on the busy corner of Pico and Westwood boulevards, has a problem: success. With shoppers bursting the seams of the 2,300-space parking facilities, the center’s developer wants to build an additional 1,000 parking spa c es across the street, but first it must win over residents who fear even more congestion.

Brace yourselves, Southern Californians. The future undoubtedly holds many such conflicts as developers and residents grapple with the problem of retail growth in a city where land is at a premium but the appetite for purchasing seems insatiable.

Whether the quarry is food or fine art, miniskirts or microwaves, Los Angeles is regarded as the nation’s happiest hunting ground for shoppers. The area is home to perhaps the biggest potpourri of retail outlets in the nation, from membership warehouse clubs to surfer boutiques. And it is the rare retailer that doesn’t try to go after a piece of this affluent market.

Large centers such as South Coast Plaza and Beverly Center have taken on tourist-attraction status, vying with Disneyland, Hollywood and Venice Beach for the business of visitors.

“Some people like the beach, some the pool, some the nearby parks,” one retail consultant observes. “But everybody shops.”

As fast-growing Southern California heads into the 1990s, observers expect retailing to continue to be a relative barn burner of an industry. Last year, an estimated 200,000 stores, restaurants, dry-cleaning and other establishments served the area’s 13 million residents, generating nearly $87 billion in sales. Those numbers are guaranteed to grow as 2 million additional residents pour into the Southland by 1995.

But retailers will face a number of challenges, too, including a leveling off of per-capita spending, a dearth of prime locations, a shift toward more Latino and Asian residents and intensifying competition.

“On a per-capita, inflation-adjusted basis, spending on apparel today is less than in 1975,” notes Sarah A. Stack, a securities analyst with the Los Angeles investment firm of Bateman Eichler, Hill Richards. “Sales per square foot for department and discount stores are also less than in 1975.”

Although Southern California is buoyed by population growth, she says, “we’re not completely insulated from those trends.”

Clearly, the influx of thousands of people into the area each month creates more sales opportunities for retailers, but it also creates challenges.

The regional mall business, for years the merchant’s path to quick and easy growth, is just about tapped out, now that most of the attractive sites are spoken for, retailers and developers say. With fewer new malls, merchants will have to become more innovative about finding locations in existing centers or in rehabilitations of shopping streets in cities and towns. Department stores will shrink and specialize as they squeeze into smaller spaces.

The Hahn Co., developer of the successful, 2-year-old Horton Plaza in downtown San Diego, foresees “continued growth in retail but probably not to the degree it has been in the past,” said President and Chief Executive John Gilchrist. “There will be selected (regional) centers built, but not in the same number.”

Many retailers and developers expect another major New York-based retailer or two, notably R. H. Macy & Co., to enter the market, intensifying competition in an area that already wages knock-down, drag-out warfare for customers. Marginal operations will fail or merge with stronger competitors as labor and other costs rise.

Meanwhile, the aging baby-boom population--increasingly made up of working couples with growing incomes and young children--has tired of the self-service style of shopping that proliferated in the 1960s and ‘70s and now seeks convenience and coddling. (For service, the nearly unanimous opinion goes, Nordstrom has set the pace, and other retailers are scurrying to catch up.) In addition, mall patrons want to be entertained, be it by grand-piano players, funky restaurants, movie theaters or offbeat merchandise.

Another key factor in the future of Southern California retail is the changing demographic mix. According to a forthcoming report by the Palo Alto-based Center for Continuing Study of the California Economy, Latinos, the area’s fastest-growing segment, are expected to make up nearly 34% of Los Angeles County’s population in 1995, up from 30.5% now. Asians will account for 12.8% of the county’s population in 1995, up from 10%.

“Shopping in Southern California is going to be shaped significantly by changing cultural and demographic trends,” says Philip M. Hawley, chairman and chief executive of Los Angeles-based Carter Hawley Hale Stores, owner of the Broadway department store chain. “The question is which merchants are going to see that and adapt to it.” Winning over ethnic customers will require sharper merchandising, such as stocking smaller sizes for Asians, he notes.

“If you look at this market since World War II, when it began exploding in a consumer sense, it has always seen new entrants--whether Target, Mervyn’s or Nordstrom. It has never suffered for new retailers,” Hawley adds. “But we’ve never seen the cultural or demographic changes we will see in the next 10 years.”

In the next decade, shoppers’ attitudes and wishes will carry more clout with retailers and developers, according to Raymond L. Watson, vice chairman of the Irvine Co., a major Orange County-based developer. “I think the future of shopping is that the customer is the absolute king,” he said. “Customers want things at the right price, presented in a way that is interesting to them and exciting.”

Excitement is one thing, developers say, but thrills and chills are another. Nick Winslow, a Los Angeles consultant on real estate and land use, does not foresee many developments going the way of the gigantic West Edmonton Mall in Alberta, Canada, which has had mixed results with its combination of ice-skating rinks, roller coasters and retailing.

“I don’t think the correct mix is amusements and retail,” said Winslow, president of Harrison Price Co. “But a case can be made for entertainment and culture with retail.

“We have gotten a little bit tired of the homogeneity of the big, enclosed mall. While convenient and comfortable, it’s not very much fun.”

If developers seem to be playing down the idea of regional centers right now, it could have a great deal to do with the fact that most logical sites have already been used. As a result, Winslow notes, a number of conventional retail centers--streets such as Main and Montana in Santa Monica and malls such as Westside Pavilion and the Galleria at South Bay--are being redeveloped, and that trend will accelerate.

Where space is not a problem--in the inland areas of Riverside and San Bernardino, for example--Winslow foresees the growth of outlet malls, selling brand names at a discount through manufacturers’ retail outlets. Such centers are already popular in the Northeast, Midwest and Southeast.

In addition, he said, more malls will devise festive, mixed uses, with offices, movie theaters, street entertainers and here and there a performing arts center.

Another concept likely to catch on is hypermarkets, gigantic stores selling food and general merchandise under one roof. Such stores would “fulfill the one-stop shopping urge but (have) the element of entertainment that is not present currently at big discount stores,” said analyst Stack.

At Westside Pavilion, where parking can be a nightmare, owner Westfield Inc. is attempting to reach a compromise that will assuage residents, small businesses and mall patrons, but the effort is proving costly, said Westfield President Richard Green. “The only way some of these things will be solved is by private developers. . . . The city doesn’t have the money.”

For supermarket operators, the exploding Latino population and the concurrent growth of two-income families provide enormous opportunities, said Sandra Bane, an audit partner with Peat Marwick Main & Co. in Los Angeles.

Vons, one of her clients, is addressing the area’s changing demographics with a variety of formats, including the upscale Pavilion, the Latino-oriented Tianguis and Vons food and drug combination stores.

Vons’ Pavilions and Ralphs Grocery’s Giant stores, which offer a variety of services for customers at different ends of the economic spectrum, are concepts that will catch on, Bane said. “The trend will be of consumers going to either volume discount or high quality (and service),” she said.

Stores with higher-income shoppers, Bane said, will try to “direct the customer to prepackaged, precooked meals--the deli counter, the juice bar, areas with more margin for the grocer and a convenience for the shopper.”