For Whom the Registers Toll: Grove's Success Incomplete
By DANNY KING
The trickle-down theory is a work in progress at The Grove at Farmers Market.
Hailed as convenient, human-scale and aesthetically pleasing when it opened in March, the 575,000-square foot Grove is on track to draw the 22 million visitors projected by developer Caruso Affiliated Holdings in its first full year.
Revenues are on track to dwarf those at more established retail centers, and Caruso has just swung a deal to sell its record-setting movie theater to its operator for about $30 million.
But the overall success of the center, on Third Street east of Fairfax Avenue, has not spread to everyone. Retailers and real estate brokers said a number of stores are not doing the sales volume to justify high rents and common area charges.
"The movie theaters, Nordstrom and the restaurants are doing well. The Gap and Banana Republic that's another story," said Chuck Dembo, partner at Beverly Hills real estate brokerage Dembo & Associates, who has worked with brokers that have done deals at The Grove. "For the retailers that you would find everywhere else, it's nothing spectacular."
Taken as a whole, the Grove's performance would be the envy of most mall operators. The 41 retail stores only five spots remain vacant are averaging "well above $500 a square foot" on an annualized basis, according to Rick Caruso, president of Santa Monica-based Caruso Affiliated Holdings.
By comparison, Westfield Shoppingtown Century City and Marina del Rey's Villa Marina Marketplace grossed $515 and $450 a foot in 2001, respectively, according to the International Council of Shopping Centers. Hollywood & Highland is averaging just $294 a foot on an annualized basis, according to developer Trizec Properties Inc.'s second quarter earnings report, released in August.
"We are well beyond expectations. The traffic is terrific and people are buying," said Caruso, who added that the Grove's Pottery Barn, Crate & Barrel and Reference stores are all among the top West Coast performers for their chains. "We've hit the cover off the ball."
Most impressive has been the performance of Pacific Theatres at the Grove.
Embellished by an ornate lobby, stadium seating and private loge boxes, the complex has become the highest grossing theater in L.A. County, according to box office tracking firm Reel Source Inc. For the week ended Dec. 5, the Grove's 14 screens grossed $221,000, 16 percent more than the $190,000 grossed by the No. 2 theater, the 17-screen Bridge Cinema de Lux at the Promenade at Howard Hughes Center.
"Every week, they're doing those types of numbers," said Robert Bucksbaum, president of Reel Source, who added that the Grove is consistently ranked among the top 10 grossing theaters in the country. "It continues to draw from all audiences."
When The Grove was developed, Caruso retained ownership of the theater, signing a management contract with the exhibition chain that included an option to purchase the 14-screen facility. The two finalized a deal late last week for Pacific to buy the complex for about $30 million.
"I never intended to stay in the theater business," said Caruso. "Every theater chain has called up and expressed interest in that theater."
Jeff Smith, a spokesman for Pacific Theatres, declined comment.
Costs adding up
While some of the Grove's six restaurants, which include local operators Marmalade and Wood Ranch BBQ & Grill, are grossing more than $1,000 a foot in annualized sales according to Caruso (who would not identify the restaurants), two chain restaurants are not faring as well.
Corner Bakery Caf & #233; and Maggiano's Little Italy are doing "average" and "slightly on the lower side of average" business, according to Tim Smith, spokesman for Dallas-based Brinker International Inc., parent company of both chains.
While Smith would not disclose projected revenues, the average Corner Bakery and Maggiano's gross $1.8 million and $10 million, respectively, according to Brinker data.
Gap Inc. officials declined to talk about specific store performance, but word in the local real estate community is that its three Grove operations Gap, Baby Gap and Banana Republic have fared less well than other retailers in the center.
That would be in keeping with Gap's performance nationwide. All four of the company divisions Gap Domestic, Gap International, Banana Republic and Old Navy have seen year-to-date negative growth for same-store sales. As of Nov. 2, Gap Domestic reported an 11 percent drop in year-to-date comparable store sales, while Banana Republic reported a 4 percent decline for the same period, according to Gap's third quarter filing.
Lagging sales at Maggiano's, Corner Bakery and the Gap units, coupled with higher than average common area charges, could have their effect on the bottom line, according to Dick Carter, broker at L.A.-based May Realty Advisors.
"I'm not sure how anybody makes a lot of money over there," said Carter, who represented a number of restaurant tenants that looked at but ultimately passed on the Grove.
"Are our common area expenses more than other outdoor areas? Yes. Are they comparable to indoor malls? Yes," said Caruso. "From a retailers' point of view, if someone can be successful in an indoor mall, they can be more successful in one of our properties. Our pricing is competitive."
He said he had not had complaints from tenants about the common area charges.
Rents at the Grove range from $5 to $6.50 a foot net of taxes, insurance, utilities and common area fees, according to both Carter and Dembo comparable to upscale shopping districts along Robertson Boulevard and Montana Avenue. And whereas a typical indoor center charges $1 a foot per month in common area charges, Caruso is passing along the cost of his design touches at closer to $2 a foot.
As a result, a Corner Bakery or Maggiano's that grosses the typical $600 and $850 a foot in annual sales could be paying out $84 per foot in annual occupancy costs, far above the 8 percent maximum budgeted by most restaurant operators, according to Carter.
For Chico's, a 1,600-square-foot women's accessories store that opened at the Grove in March, high rents come with the territory.
"It does make it a little challenging for the bottom line," said Charlie Kleman, chief financial officer of Ft. Myers, Fla.-based Chico's FAS Inc.
He would not disclose the rent paid at The Grove, but said that the store was averaging $1,000 a square foot in annualized sales, exceeding the companywide average of $847. "But I'd rather have a good store with high rents than a bad store with low rents," he said.
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