REGIONAL REPORT : Lingering Recession Tarnishes Southland’s Image as Retail Heaven : Economy: Analysts blame long-term structural changes in the region’s economy and an oversupply of stores.
Southern California once was the promised land for retailers, but these days it’s more like paradise lost. While merchants in other parts of the country are noticing erratic signs of recovery, many of the Southland’s department stores, clothing shops, car dealers and restaurants remain mired in hard times.
“Most of the major chains are down, and some are way down,” said John Golisch, a partner specializing in retailing for the accounting firm Arthur Andersen & Co. in Los Angeles. “I don’t know of any segment that’s doing well.”
The best news, retailers and analysts say, is that a few Southern California retailers--mostly discounters--reported sales increases in August, and business overall may have bottomed out. But for now, Southland stores are closing, survivors are slumping, and workers are losing their jobs.
Even the recession-resistant supermarket business is feeling the pinch. Vons, the No. 1 supermarket chain in Southern California and until recently a leader in sales growth, says its sales are “down slightly” in the current quarter at stores open more than one year.
Nationally, the picture is cloudy too. On Friday, the U.S. Commerce Department estimated that retail sales fell a surprising 0.7% in August, the worst decline in seven months.
In Southern California, however, the situation appears to be far worse. Preliminary government figures for June, the most recent local data available, show that retail sales in the five-county greater Los Angeles area were off 3.8%--even without taking inflation or population growth into account.
Retailing always is a volatile business, but lately the upheaval locally has leaped to new levels. On Monday, for instance, Hartmarx Corp. announced that it will close its 18 Silverwoods men’s and women’s stores in Southern California by shortly after Christmas. Hartmarx said the Santa Ana-based chain was doomed by declining sales during the past few years and rising real estate-related costs.
Why have things gotten so bad? Analysts blame the severity of the late-arriving local recession, long-term structural changes in the region’s economy and an oversupply of stores.
“The recession arrived in California late, and it’s still there, (while) the rest of the country seems to be pulling away from it,” said Thomas H. Tashjian, an analyst with First Manhattan Co. in New York. That is particularly true in Southern California, which is lagging the Bay Area in rebounding from recession.
By the sheer dint of its vast size and its ever-increasing population, the Southland will remain over the long run a tantalizing market for retailers that aren’t already here. Depending on how you measure it, Southern California is either the No. 1 or No. 2 retail market in the country. In the five-county region, sales totaled $111.6 billion last year.
Still, the loss of thousands of high-paying aerospace jobs and the exodus of other manufacturers figure to do long-term damage to both the economy and the area’s image as retail heaven. On top of that, Southern California is over-saturated with retailers drawn here over the past decade.
“Now everyone is in Southern California, and they’re cutting each other’s throats,” said Kurt Barnard, a consultant and publisher of the newsletter Retail Marketing Report.
One leading consulting firm has predicted a massive shakeout that, by the end of the 1990s, will wipe out the owners of about half of the nation’s stores and will leave the country with about 10% less retailing floor space. Southern California’s merchants are expected to be particularly hard hit.
Already, the dim fortunes of Southern California’s retailers are darkening the region’s overall economic outlook. The July employment figures, the latest available, show that Los Angeles County has 644,500 retailing jobs--down 13,200 from a year earlier.
What’s more, government officials are expected to revise downward the job totals for retailing and other major local industries when final figures are released. “This is a much more serious recession than anyone is talking about right now,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County.
Among retailers, some of the worst off are department stores, clothing shops and restaurants. Carter Hawley Hale Stores--whose flagship unit, the Broadway, is the biggest department store chain in Southern California--has been in bankruptcy since February and continues to post weak sales.
Buffums, a regional department store chain founded in Long Beach 87 years ago, closed its doors this spring. National chains such as J. C. Penney and May Department Stores, owner of Southern California’s May Co. and Robinsons department stores, have also been hurt by the region’s weak retail sales.
“Companywide, we’re seeing signs of improvement, but the California market and the Northeast are not as strong as the rest of the country,” said Duncan Muir, a spokesman for J. C. Penney.
Restaurants hurt by the economy range from L’Ermitage, the fancy French eatery that was a local institution until closing in July, to the slumping Carl’s Jr. chain.
Another longtime area retailer, Leo’s Stereo, also recently decided to shut down. Circuit City, the consumer electronics retailer, says its sales nationwide have recovered over the past two months, but results at its Southern California stores lag behind.
Analysts said California retailers known for their low prices have, in many cases, fared the best--apparently by attracting consumers who are trading down. Some examples: Clothestime, Pic ‘N’ Save and Ross Stores.
An executive with Crown Books said the chain’s sales in Southern California have remained strong through the recession, perhaps because books are a relatively cheap form of entertainment. Still, the types of titles being snapped up have changed: “How-to” books are hot, but expensive art books are gathering dust.
And even in the face of the recession, there have been tremendous success stories. Ikea, the home furnishings retailer based in Sweden, reports that 1.6 million people have visited its 240,000-square-foot Burbank store since it opened 10 months ago.
“If you try to offer value for money, bad times aren’t a problem,” said Goran Carstedt, president of Ikea North America.
Ikea is building another store in Fontana set to open in the spring, and it is negotiating for a third site in the Carson Mall. Even if economic growth slows down in Southern California over the long term, the area is attractive to the company simply because of its size, Carstedt said.
“If you come in with products and services that already exist, then you’re in trouble if there isn’t economic growth. But if you come in with something new, the market is a big one,” he said.
Department store chains such as Bullock’s and Fresno-based Gottschalks and the Salt Lake City-based supermarket chain Smith’s Food & Drug Centers also recently have taken steps or announced plans to expand in Southern California. Crown Books and Bookstar are busy opening new, giant-size bookstores.
Particularly attractive to retailers are Southern California’s fast-growing outlying communities. In fact, despite the sharp decline nationally in the development of regional shopping malls, construction began last week on the Valencia Town Center, a big mall in the Santa Clarita Valley.
Jack Gould, a consultant specializing in locating new sites for retailers, explained that many of the nation’s other boom markets also are slowing down. On top of that, they aren’t gaining population as quickly as Southern California. So, he reasons, even if the long-term outlook for the Southland’s economy is dimming, the area still offers more promise than most other parts of the country.
The current development slowdown is “a temporary pause,” Gould said. “Southern California is, relatively speaking, a major growth market.”
Declining Retail Construction
The following figures reflect the change in construction spending on stores and related retail buildings in January--July of this year versus the same period in 1990. During the first seven months of 1991, retail construction totaled $522 million in the six-county area and $909.3 million statewide.