Los Angeles is the most expensive place to do business in Southern California. That’s why many companies set up shop outside city limits.
But Lucky Brand, an apparel company known for its jeans, is doing the opposite. It moved from Vernon to the Arts District in downtown Los Angeles last month. Executives insist it won’t cost them more in the long run.
Lucky and C.E.G. Construction, a developer that built its new headquarters, got some incentives to make the move to downtown easier. Also, Lucky will need much less space after moving its warehouse out of state.
And it’s not alone. A year ago, apparel maker Evy of California also moved from Vernon to downtown Los Angeles.
Both companies decided to move as Vernon was facing the threat of disincorporation. If the city had been dissolved, businesses feared they might face higher taxes and utility rates. Legislation that would have abolished Vernon didn’t pass, however.
When Lucky executives announced the company was looking to move to downtown in 2010, L.A. city officials stepped in to ease the transition. Mayor Antonio Villaraigosa’s office arranged a meeting with leaders from seven departments to meet with Lucky and its developer to facilitate the permitting process.
Trace Chalmers, president of C.E.G., said consolidated meetings cut months out of the process.
“In most cases, building officials don’t necessarily see it as their job to expedite everything,” Chalmers said. “But when the mayor’s office is involved, everyone hops to it.”
Matt Karatz, deputy mayor for the office of economic and business development, said the apparel company was eligible for state tax credits because the new location is in an enterprise zone. Lucky will get $37,000 in tax credits over five years for each new employee the company hires who meets certain conditions.
Also, the city gives companies in the enterprise zones a new-business rate discount for the Los Angeles Department of Water and Power. Lucky will save 35 percent on utilities the first year. That discount will diminish over time and will end at 10 percent in the fifth year.
Vernon’s utility company has historically had cheaper rates than those in Los Angeles, but after the threat of disincorporation and in the face of extensive debt, the city plans to increase rates at least 40 percent by 2017, putting the utility more in line with L.A.-area rates. In 2010, the Business Journal reported that a company paying $30,000 each month for utilities in Vernon would be charged about $40,000 by the DWP.
L.A.’s Community Redevelopment Agency offered C.E.G. $250,000 to do off-site improvements in Lucky’s new neighborhood, such as putting in and upgrading sidewalks, streetlights and driveways. But the state eliminated redevelopment agencies in February; it’s not certain C.E.G. will receive that money.
But the main reason that the move to downtown won’t cost Lucky more is because the company has outsourced its warehousing.
Instead of leasing five buildings and warehouses as it did in Vernon, the company has condensed its offices into one building. Lucky outsourced its warehousing to Ohio, where New York-based parent company Liz Claiborne (which will change its name to Fifth & Pacific in May) does its distribution.
Lucky has a 10-year lease for the 46,000-square-foot building at 540 S. Santa Fe Ave. Architects for the company collaborated with C.E.G. to build the $15 million structure on what had been an empty lot. Chalmers, Lucky’s new landlord, said the lifestyle company spent an additional $500,000 to customize the building’s interior with things like tin ceilings and crown molding.
Chalmers would not disclose what the company pays for rent, but said that creative office space in the Arts District today goes for $1.50 to $2 a square foot per month, not including utilities or taxes. That implies Lucky could be paying between $69,000 and $92,000 monthly. Office space in buildings like those the company rented 10 years ago in Vernon today goes for about 52 cents a square foot.
Lucky executives said the move will be good for its 250 employees’ morale and, by extension, their productivity. The Vernon site was in an industrial area, while the downtown site is near restaurants, shops and cafes, and is closer to employees’ homes. (Evy executives cited the same reasons for its move in an article published by California Apparel News recently.)
“We’re trying to think about quality of life for our employees,” said Dave DeMattei, Lucky’s chief executive. “We wanted a little more community, a place where people could walk to get lunch if they wanted.”
The new space has floor-to-ceiling windows, skylights and an open floor plan.
“We wanted employees to be able to engage with each other and be more creative,” said Patrick Wade, Lucky executive vice president and creative director.
Larry Kosmont, an L.A.-based economic development consultant, said that the apparel maker made the move regardless of costs, which he believes will be higher for the company in Los Angeles.
“In general, Vernon tends to be a better financial and service deal than downtown Los Angeles. But that’s not always a sufficient reason for relocating,” Kosmont said. “Lucky’s move seems to be location and facility specific.”
