Ritzy mall goes on spending spree

Shoppers might not be ready for new luxury stores and pricey restaurants just yet, but the owner of ritzy Fashion Island in Newport Beach is betting they will be soon.

Over the next couple of years, developer Irvine Co. will spend more than $100 million to upgrade the shopping center. Plans call for opening a Nordstrom department store and Dean & DeLuca gourmet grocery, adding new fountains and a 24-foot-high water wall and enhancing the Mediterranean-inspired architecture and landscaping.

Construction of the lavish project begins at a time when mall traffic is down, retailers are struggling to stay afloat and few consumers are spending freely. But Fashion Island executives say recession or not, they have to keep sprucing up the property to retain longtime shoppers and attract new ones.

“It’s important for all retail centers to reinvent themselves over time,” Keith Eyrich, president of Irvine Co. Retail Properties, said in an interview Thursday.


“Are we affected by the current economic situation? Of course,” he said. “But we don’t focus on that when we take on a project of this magnitude. The economy will turn, the economy will come back. It’ll be great when we come out of it to have this center at its peak.”

With 1.5 million square feet of retail space and stores including Neiman Marcus, Bloomingdale’s and Juicy Couture, Fashion Island is already one of Southern California’s shopping powerhouses.

The open-air center is visited by more than 13 million people a year and sits on 75 acres overlooking the Pacific Ocean.

The project -- dubbed the Renaissance II -- is the center’s most sweeping renovation in 25 years and is scheduled to be completed by November 2011, with some new stores opening before then.

Remodeling plans are already underway and aren’t expected to affect daily mall operations.

Retail property owners often choose to remodel an existing center when opportunities to build new developments shrink, said Michael Niemira, chief economist of the International Council of Shopping Centers. But the latest recession has been so severe that overall shopping center construction spending is down, he said.

Irvine Co. executives acknowledge that few malls would be willing to take on such a massive project during the economic slump, which has slammed all sectors of the retail market.

In particular, luxury stores -- which dominate Fashion Island’s lineup -- have been hit especially hard. This month, Saks Inc. reported that sales at stores open at least a year plummeted 26.6% in May compared with the same period in 2008; at Neiman Marcus, sales fell 23.3%.


But several local mall executives said there’s no downtime when it comes to keeping up with consumers’ rapidly changing tastes and shopping habits.

“It’s a dangerous notion to think you’ve built a property and it’s great and it’s going to be great forever,” said Rick Caruso, who owns several Southern California retail centers, including the Grove in Los Angeles. “You have to operate it strategically every day. All of that is to drive business in good times and bad.”

Despite the economy, South Coast Plaza in Costa Mesa is adding Prada and Miu Miu stores in the next few months, designing a new Louis Vuitton VIP suite and spending more money to promote the center, said Debra Gunn Downing, the malls’ executive director of marketing.

“In the retail industry, it’s so important to be fresh and new and to continue to invest the dollars, even in a soft market,” she said. “We’re really building for the future.”


Although Fashion Island’s new look is expected to last for more than a decade, shoppers can always expect some “subtle face-lifts,” said Rob Elliott, Irvine Co.'s senior vice president of urban planning and design.

“We want to create an experience that people want to return to and a place that retailers want to be,” he said. “The environment is not stable -- it’s what’s hot, what’s now.”

Reza Etedali, chief executive of retail investment advisory firm Reza Investment Group, said that although “it’s counterintuitive” to upgrade Fashion Island now, it could actually be a smart financial move.

With demand for new construction down, well-funded companies such as Irvine Co. “can really take advantage” of lower prices for labor and materials, he said.


Last year, the company completed its exclusive Resort at Pelican Hill, a luxury hotel in nearby Newport Coast.

“If you have capital to do improvements, this is probably one of the best times to do it,” Etedali said. “There’s significant cost savings to do remodeling and repositioning of assets right now.”

And once the economy improves, the newly upgraded center could be better positioned than its competitors, said Niemira, of the shopping centers group.

“The fact is that the U.S. economy -- and California’s economy -- will not be in recession forever,” he said. “The timing might be just right to begin to freshen the property so as to roll out that newly renovated center when the luxury market demand upturn is back.”