By Jorge Casuso
June 25, 2009 -- Last year’s holiday shopping season proved a bust rather than a boom for Downtown businesses, which saw sales drop by more than $9 million in the fourth quarter of 2008, as the nation’s economy took a nosedive.
The slump in holiday shopping may have contributed to a slight dip in Downtown sales last year overall of some $3.4 million, from about $431.2 million in 2007 to about $427.8 million, a decrease of less than one percent, according to an analysis of City sales tax revenues.
However, thanks to a dramatic $16.5 million hike in the sale of women’s apparel, increased sales on the Promenade last year helped offset falling sales in the rest of the Bayside District.
In fact, Downtown’s economy last year fared better than that of the city at large, which saw sales fall $122.8 million in 2008, or 8.9 percent, $80 million of that in the last quarter.
“The fourth quarter is when we really started to see the downturn accelerating,” said Dave Carr, principal budget analyst of investments for the City. “Hopefully by the second half of the fiscal year [January through June 2010] things will level off.”
Carr noted that sales figures can change as late tax payments are still being collected by the City. As a result, total sales figures have been adjusted for 2007, but not for 2008. Late payments could, therefore, impact the final total revenues last year
Robert O. York, real estate development consultant for the Bayside District Corporation, said he sees the local economy improving sooner.
“You can’t have no Christmas two years in a row. Last year was just a disastrous holiday season,” he said.
“Hopefully, things will stabilize and get into a better footing during the summer and into the fall. If you take away the holidays, you’ll see a lot of store closures.”
City officials expect the sales figures to continue dropping, at least through the rest of 2009, in large part due to a dearth of auto sales and the closure of Santa Monica Place for a major renovation. (Sales figures for Santa Monica Place are not included in those for Downtown.)
The proposed City budget for the 2009-2010 fiscal year assumes sales will drop by 8.9 percent during the upcoming fiscal year, which begins on July 1.
“It will take a few months to see the full impact of the economy,” City Manager Lamont Ewell cautioned during a press briefing last month. “We believe there’s a good possibility this economic downturn is different, and there won’t be this quick bounce back.”
Total sales across the upscale beachfront city dropped from about $2.942 billion in 2007 to about $2.82 billion last year, according to sales tax revenues.
But despite the general economic downturn, 2008 proved a good year for the Third Street Promenade, which saw total sales rise by $4.5 million, from $299.3 million in 2007 to $303.8 million last year. The sales hike came despite a fourth quarter drop of $4.6 million, from $77.2 million during the last three months of 2007 to $72.7 during the same period last year.
THERE WAS NO SILVER lining for businesses in the rest of the Bayside District, where sales dropped by $7.9 million for the year, from $131.9 million in 2007 to $123.9 million. The slump was most pronounced during the fourth quarter, which saw sales fall by $4.7 million, from $36 million in the fourth quarter of 2007 to $31.3 million during the same period last year.
The slump was in large part due to delayed store openings, York said. “There have been some lags in planned openings. Quite a few spaces were off line and will see a tick-up this year.”
There also has been a fall-off in sales at home furnishing stores, which have carved out a niche along 4th Street, York said.
“There’s a lot of furniture and design-related uses” off the Promenade, he said. “These have been impacted tremendously by the economy and by the housing market imploding.”
In fact, home furnishing stores in the Bayside District saw sales drop by about $1 million, or 7.8 percent, from $12.4 million in 2007 to $11.4 last year. The drop was far less steep than the 20.2 percent drop in home furnishing sales citywide.
Specialty stores saw on even steeper 32 percent drop on Second and Fourth streets, from about $12.1 million in 2007 to about $8.3 million last year.
The biggest sales gains on Second and Fourth streets were in family apparel, which saw sales rise by a dramatic 40.6 percent, from about $10.6 million in 2007 to nearly $15 million last year. Restaurants also saw a sales hike, from $39.5 million in 2007 to nearly $44 million last year, or 11.3 percent.
The opening and operation of REI in the old Toys ‘R Us space on 4th Street, as well as the opening of a slew of smaller stores and restaurants off the Promenade may account for the sales hikes, York said.
Family apparel and restaurants were the only categories that saw sales rise outside the Promenade during the fourth quarter.
THE RISE IN SALES on the Promenade can be almost entirely attributed to the success of stores that sell woman’s apparel, which saw a stunning $16.5 million increase, or 56.1 percent, from about $29.3 million in 2007 to $45.8 million last year.
The sales hike is likely do to the opening of a number of new stores on the Promenade that sell women’s apparel – H&M, Mango and American Apparel all opened in previously vacant spaces last year. In addition, Forever 21 clocked in its first full year on the popular strip, York said.
“You get a double tick when you had a long-term vacancy and then it went into an active use,” York said. “All of these stores would be high-volume businesses, so that could be a big tick up over ’07.”
Also boosting sales on the Promenade were specialty stores, which saw sales rise by 16.8 percent, from $225.528 million in 2007 to $263.346 million last year, an increase of $3.78 million.
Despite a fourth quarter hike and success outside the Promenade, sales on the Promenade of family apparel – the category with the biggest sales volume – dropped from about $113.7 in 2007 to $107 million last year, a 5.8 percent decrease. Restaurants on the Promenade also saw sales slide downward from about $47.3 million in 2007 to about $44.3 million last year, a 6.3 percent drop.
Also seeing sales decrease were stationary stores and bookstores, which saw sales fall by 11.4 percent last year, from $18.6 million in 2007 to $16. 5 million last year, and shoe stores, where sales dipped 1.8 percent, from about $12.2 million to $12 million.
Stores that did not fall into specialty categories also saw a drop in sales from about $55.6 million in 2007 to about $51.8 percent last year, a 6.9 percent decrease.
The Promenade was one of five business areas in the City that saw sales increase last year. The others were Lincoln Boulevard, ($3.465 million), the Airport ($2.35 million), Ocean Park Boulevard ($1.5 million) and Main Street ($1.22 million).
Two major factors in Downtown’s lackluster performance was the closure of Santa Monica Place, which was already nearly vacant when it shut down last spring, and a slumping tourism market.
The biggest sales drop in the city was in the struggling mall, where all the stores but Macy’s closed down for a major renovation, resulting in sales plummeting by $26.6 million last year.
THE OCEAN AVENUE hotel district and Pier saw sales fall by nearly $10.2 million last year as tourism fell. Hotels posted a decrease of $2.32 million in revenues, with sales in the fourth quarter dropping $1.85 million.
The downward trend is expected to continue. City officials expect hotel bed taxes to decline by 3.6 percent during the upcoming fiscal year, after a precipitous 28 percent drop last month.
“The market has changed dramatically in the last six months,” Ewell said. “We’re not seeing travel from abroad and businesses are shy after AIG’s fiasco,” he added referring to the lavish travel expenses reported by executives of the bailed-out insurance giant.
“Tourists are among your best shoppers,” York said. “They tend to spend more per capita for the time they’re there.”
Santa Monica business leaders say there are things businesses can do to increase sales, including boosting their advertising, collaborating with other local businesses and supporting the Buy Local campaign.
“You have to find a way to cut expenses, get out there and market yourself, be more aggressive and connect,” said Laurel Rosen, president and CEO of the Chamber of Commerce.
“Some people cut their advertising budget in hard times when they should be doing the opposite,” Rosen said.
Still, York is optimistic the Bayside District will bounce back, noting that it fared better than most other business districts across the country.
“Downtown Santa Monica is holding up extremely well in a terribly difficult time,” York said. “But that’s not to say there’s not a lot of pain going around.”
