California Comeback

“I don’t remember Rodeo Drive being as busy as it is now,” says Russell Fogarty.

Fogarty, of wholesaler and retailer Kazanjian & Fogarty Inc., doesn’t mean now as in right this minute, since rain – courtesy of El Niño – has washed out today’s bus tours and sent pedestrians scurrying for awnings bearing the names Chanel, Gucci, Cartier and Bulgari. He means now as in 1998. Rodeo Drive boasts America’s largest concentration of high-end fashion and jewelry stores and, if the sun were out, it would be alive with shoulder-to-shoulder shoppers.

A few years ago, riots, floods and earthquakes took the shine off of California’s sunny tourist industry. Today, visitors are back in force and the entire state is humming as well, enjoying a level of prosperity not seen in a decade.

California has become a “very, very good market,” exults Glenn Spiro, director of the jewelry department for Christie’s West Coast regional arm. In November of ’95, Christie’s turned its Beverly Hills satellite office into a full-fledged auction operation with the first in a series of “incredibly successful” jewelry sales. Christie’s auctioned 98% of the jewelry it put up for bid. Why?

“New money,” says Spiro. “New commerce. The entertainment industry.”

Economic bust. Just five years ago, California was in the midst of its worst recession in a half century. The jolting downturn began with defense cuts in the late ’80s that throttled the Los Angeles-based aerospace industry, the state’s major manufacturing sector. Next, the inflated real estate market began to nosedive. Between 1990 and 1995, housing prices fell an average of 15%; in the Los Angeles area, prices dropped an incredible 25%. New construction plunged by two-thirds. By 1994, California had lost a quarter million jobs, and the unemployment rate reached 9.2%.

“The state had two independent industries, aerospace and construction, suddenly going into sharp slides for different reasons,” explains Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. “And because aerospace was centered in Southern California, it bore the largest share of the recession.”

The air was so thick with pessimism that morale-boosters coined a catchy slogan to encourage business owners: “Survive to ’95.” Many didn’t. Foreclosures and bankruptcies grew commonplace. The state suffered “a tremendous loss of wealth,” says economist Levy. Californians curtailed their discretionary purchases and retailing plummeted 12% or 13%. “There were reports the recession was going to go on forever. People got very cautious and put off postponable expenditures for things like houses, cars and jewelry.”

“Everything slowed down,” confirms Mary Barr, owner of Charles H. Barr Jewelers in Newport Beach, a fast-growing upper-middle-class suburb in Orange County, south of Los Angeles. Long-established prestigious jewelry stores closed because they couldn’t sustain overhead when sales dropped. In San Diego, George Carter Jessop, the city’s premier downtown jeweler, found its estate jewelry business suddenly moribund.

Even on Rodeo Drive things got tough. Small-ticket sales dried up, says Fogarty. The posh shops were largely sustained by customers from Middle East sheikdoms, Russia and Mexico. Sales were unpredictable. Everything was hit or miss.

“Most of the stores here depend on specific, high-end, large value sales,” he says. “Those types of sales came along less often.”

Prosperity is back. Today California’s economic comeback is everywhere in evidence. The state has 450,000 more jobs than it did before the recession began. The film and television industry alone added 50,000 jobs in 1997. Companies making computers and ancillary products are expanding. Unemployment fell to 6.3% last year, closer to the national average of 4.9%.

Economists date the beginning of the California comeback to the fall of 1993. “That was the point at which there were more indicators signifying improvement than showing continuing decline,” says Tom Lieser, executive director of Anderson Forecast, a service associated with the Anderson Graduate School of Management at UCLA. Over time, he says, service jobs supplanted manufacturing jobs and international trade began to surge, keeping California’s ports busy. “By 1994, we were in a strong growth mode again, and 1997 was the best year in the decade so far.”

Lieser predicts California, where unemployment still exceeds that of the country as a whole, will be growing faster than the rest of the nation for the next three years. “Home prices have improved,” he points out. “Consumer confidence in the Pacific region has almost caught up to national measurements. So the prospects for retailers look good.”

“Indeed they do,” says Dale Condy, leaning on a display case of diamond rings at Gems of La Costa in Carlsbad. His sales were up 20% in 1996 and 15% last year. “We’re sitting right in the middle of explosive growth.”

Up the road from Condy’s store, the new Four Seasons Hotel, a compound of sumptuous bungalows folded into an immaculate golf course, offers views of the distant Pacific. The hills along Interstate 5 between San Diego and Los Angeles are still green and gold, but now the green’s more likely to be the result of lawn fertilizer and the gold often gives way to the bright orange of Spanish tile, a roofing material covering subdivision after subdivision.

Jeanne Larson, co-owner of The Collector, a wholesale and retail jewelry business, recently opened a satellite operation inside the Four Seasons. The showroom, like her main store in nearby Fallbrook, specializes in colored stones, especially those coming from the tanzanite mine owned by her company. Larson remembers the early-to-mid ’90s as a time when steady clients moved, downsized their gift purchases or just disappeared. Now customers are more willing to buy luxuries. Still, Larson isn’t seeing the “spontaneous buying” of years past. “It’s going to be a while before it comes all the way back,” says the retailer, who guesses her sales will be up 1%-2% this year, 5%-10% in ’99.

Condy, who bought his Carlsbad store in ’89, on the cusp of the recession, enjoyed a sales spurt of 30% in his first six months of operation. Thereafter, “it got quite a bit softer. I wasn’t making my numbers anymore.” The self-described “GIA refugee” – class of ’72 – recalls million-dollar houses in La Costa going for $650,000. He remembers competing with going-out-of-business sales by 11 jewelers between Encinitas and Carlsbad. Worst of all was “not knowing if you could buy any new inventory, not knowing if you could buy any ads.”

Defining moment. A few miles north of Carlsbad, in San Juan Capistrano, Peter Hess, proprietor of Snyder & Snyder Jewelers, is still basking in the glow of a “triple-digit Christmas.” For him, the defining moment of California’s recession was when a real estate developer who purchased expensive custom pieces tried to return them to raise cash for bankruptcy court. “When Orange County went bankrupt in 1984, that definitely cost us sales,” says Hess, who moved into his current location, an inconspicuous mall a mile or two up the road from the Pacific Coast Highway, back in 1992. “I can think of three or four re-mount jobs I did, or was going to do, for teachers. They came back in and said no, because they didn’t know how much longer they’d be teaching.”

Marion Halfacre never worried much about the recession. At least he says he didn’t. Back in April of ’91, Halfacre relocated his Newport Beach store to Fashion Island, an Orange County mall renting to only the best retailers.

“Business was still pretty tough in Southern California,” says the transplanted Mississippian. “Real estate was dying. But we were growing a lot. Fashion Island had just done a huge remodeling and I saw relocating as an opportunity that might not happen again.”

Since that time, three of the four jewelry retailers in Fashion Island have disappeared. Halfacre, on the other hand, says he’s had double-digit sales increases every year since opening. Traditional Jewelers flourishes by offering a mix to complement the other high-end stores in Fashion Island. It carries over 20 watch lines, one-of-a-kind watches and watches selling for more than $50,000. His is “not a store to skimp on money,” says Halfacre.

Not every independent jeweler in Southern California can claim to be doing as well as Halfacre. Or anywhere near it, for that matter. It wasn’t just the recession that put many out of business, according to Allen Kessler, president of Kessler Jewelers in Burbank. Kessler, past president of the California Jewelers Association, says, “The jewelers of California suffered greatly and are still suffering in some areas. They’re having a hard time competing with mass merchants and major chains.”

In his own case, the recession and the change in retail dynamics have forced Kessler Jewelers to become more of a repair store. Burbank is a mere 10 minutes by freeway from downtown L.A. and “some customers feel they can get a better deal” at the Jewelry Center there, says Kessler. That perception has cut into the store’s big unit sales.

Standing on the sidewalk outside his store, Kessler scowls at sheets of wind-driven rain that are keeping sidewalks clear and stores empty. It’s the fourth day in a row of El Niño-inspired storms, but this is mild punishment compared with what’s going on 30 miles down the coast in Laguna, where creeks of mud are sweeping houses, cars and people down the mountains toward the ocean.

“One of the beauties of Southern California is we don’t have many days like this,” says Kessler. “Not even 30 a year. If we did, we’d die.”