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Retailers Finding A Market Downtown

D.C. Shopping Gets A Resuscitation
By Michael Barbaro Washington Post Staff Writer Wednesday, October 13, 2004; Page A01

In downtown Washington, once synonymous with the demise of urban retail, upscale men's clothier Jos. A. Bank has beaten internal sales predictions by 15 percent one year after opening. Hecht's is completing $15 million in renovations to its Metro Center department store. And developers are putting the final touches on a 275,000-square-foot shopping complex with five national chains. After a series of false starts, the old downtown shopping district east of the White House is experiencing what store owners, retail brokers and city leaders describe as a retail revival, one that is slowly transforming a landscape dominated by restaurants, banks and cell phone stores. In the past five years, nine national retailers -- including H&M, Jos. A. Bank, Barnes & Noble, and Borders -- have opened stores downtown, more than twice the number in the preceding five years, records show. Developers and brokers credit the surge to pent-up demand for downtown shopping, a growing population of private-sector employees and an aggressive effort by city leaders to court retailers. "The retail tide is coming back in," said John Asadoorian, a retail broker in the city. City leaders say there is still much work to be done, but the retail growth has begun to chip away at the perception of downtown as a sterile home for law firms and federal agencies that closes for business at 5 p.m. Gradually, Washington area residents are beginning to regard it as a worthwhile place to shop. Downtown worker Gloria Gaskins, 43, lives in Lanham. But instead of darting for the suburban malls after work, Gaskins asks her 17-year-old daughter to take the Metro into the city to browse the aisles at Hecht's and H&M, the Swedish apparel retailer, which opened a store in the old Woodward & Lothrop building at 11th and F streets NW in 2003. Retailers "put better stuff downtown," Gaskins said after leaving H&M with her daughter on a recent shopping trip. Now comes the biggest test yet of downtown's ability to sustain a major shopping center. In early November, developers will celebrate the grand

opening of the 275,000-square-foot Gallery Place in Chinatown, the largest investment in downtown retail in two decades. The complex, at 7th and H streets NW next to the MCI Center, features a United Colors of Benetton, Ann Taylor Loft, City Sports, Urban Outfitters and an Aveda store and spa on the street level. Above them will be a 14screen Regal Cinema movie theater, downtown's first major-release theater. Just east of downtown, in Union Station, is a nine-screen majorrelease theater. "You are always a little nervous about a new retail project, but this is one where you are definitely nervous," said Michael L. Pratt, a retail broker at District-based Madison Retail Group, which represented several of the tenants inside Gallery Place. He said he thinks the complex will prove successful but said Chinatown "is not yet a proven area." When it comes to retail, the same can be said for much of downtown. There are only 13 major national retailers downtown, an area bordered by 15th and 6th streets and Massachusetts and Pennsylvania avenues NW. In all, they occupy about 410,000 square feet, or about one-fifth the amount of space inside Tysons Corner Center in McLean. Throughout downtown, there are pockets of run-down storefronts in what brokers say should be prime retail real estate and renovated spaces still waiting for retail tenants -- a fact developers blame on the slow process of signing stores to tight urban sites, which are more complex to operate in than larger suburban shopping centers. Douglas Development Corp., which owns the former Woodies building, finished renovating the building's first-floor retail space a year ago, but only one tenant, H&M, has moved in. Two others, shoe retailer DSW Shoe Warehouse and discount clothing chain Ross Dress for Less, have signed letters suggesting they intend to, and a third, home-furnishings store Crate & Barrel, has expressed interest. "These things do take time," said Douglas Development President Douglas Jemal. Recalling that downtown was a vibrant shopping center decades ago, he said: "It took 40 years of abandonment for F Street not to be considered a shopping district. It will take a few years to return it to one." Some of the holes will soon be plugged. Three large sites are either under construction -- or about to be under construction -- in the 10-block area bordered on the north end by the old Convention Center and to the south by the FBI building. Developers say that when they are finished, by 2008, about 60,000 square feet of new retail space will become available.

On the site of the old convention center, at New York Avenue and 9th Street NW, there are plans to create 300,000 square feet of retail space by 2009, where several developers advocate building a small, upscale department store, such as Saks Fifth Avenue or Bloomingdale's. Developers say a high-end department store -- which city leaders have pursued, unsuccessfully, for years -- would create the equivalent of a mall anchor, a retail attraction big enough to lure shoppers into the city's core. Downtown has just one department store, mid-priced Hecht's. "It would add enormous stability to the market," said Gallery Place developer Herb Miller. The city will offer up to $30 million to lure retailers downtown, which should help landlords fill up the new space. The money is earmarked for high-attraction retailers -- as determined by a committee -- and is designed to be repaid through the retailers' sales taxes. What's more, several tourist attractions are set to open downtown over the next few years. Now under renovation, the National Portrait Gallery, at 8th and F streets NW, will reopen in 2006. Seven blocks away, the former National Bank of Washington building at 14th and G streets NW, which once housed Hahn's shoe store, may become a museum memorializing the Armenian genocide of 1915. Supporters are raising money for the project. But until these various efforts are completed, the center of downtown will remain -- and, most importantly for retailers, feel -- disconnected and unfinished. "It is definitely a work in progress," said Gerry Widdicombe, director of economic development for the Downtown DC Business Improvement District, a group of property owners that promotes development. "There is no critical mass yet, but the tipping point could be any day now." Or, as Andre Turman, an 18-year-old District college student said of downtown shopping, "It's not like a mall. It's pretty limited." The District is following a well-worn path for cities recovering from blighted urban cores: First come the restaurants, which cater to office workers and tourists, next a smattering of apartments, whose residents can support small shops and drug stores, and finally major retailers, national chains with the size and name recognition to attract large numbers of shoppers. "Retailers are always tentative," said Anita Kramer, director of retail development at the Urban Land Institute, a District-based think tank. "They need to have their customer base."

Slowing the growth is the small size of downtown's residential population. Much has been made of the city's success in attracting new apartments and condominiums, but as of 2003, downtown had only 8,000 residents, an unpersuasive figure for retailers used to plopping down stores in, say, Bethesda, with a population of 55,000, city leaders and retail brokers say. The steadily gentrifying neighborhoods north of downtown, such as Logan Circle and the U Street corridor, have triggered their own retail revivals, but for now they remain largely disconnected from the traditional downtown, retail brokers said. So what is driving retail growth? Downtown workers. As of last year, there were 379,000 employees downtown, according to the Downtown DC Business Improvement District group, up about 23 percent from 1996. Within the 110 blocks covered by the group, the fastest job growth is not among government workers, but in the business and legal services sector. The average employee in that zone earned a salary of $62,000 last year, making downtown's daytime population a lucrative market for retailers. Lisa Branco, a 33-year-old consultant at Booz Allen Hamilton Inc. who works in the District, says she "hates the mall." During her lunch hour, she stops at the new Ann Taylor Loft on 7th Street NW. "This is much better than driving an hour, parking the car in a garage and battling the teenagers," she said. Wendy Elsasser, an Alexandria resident who works downtown for the federal government, said walking the streets there "used to be scary." Now "it's turning around," she said as she finished browsing inside Hecht's downtown store. Today she does about 40 percent of her shopping downtown at lunch and after work. "There are just more shopping offerings now," said Elsasser, 52. One of them is Jos. A. Bank, which moved into 11th and F streets NW, a block it still shares with a vacant storefront and a variety store selling cigarettes, candy and adult videos. Fine men's clothing stores have thrived on retail-rich Connecticut Avenue and Friendship Heights. But downtown represented untested -- and risky -waters for a company that sells $1,000 suits. "We worried we were a little ahead of our time," said Robert B. Hensley, Jos. A Bank Clothiers Inc.'s executive vice president for stores and operations.

They don't worry anymore. The downtown location has become one of the chain's best performing in the Washington area. Its biggest customer: affluent men who work in the area and would rather buy their suits, ties and cufflinks a few blocks away at lunch than at a crowded suburban mall after work. What they buy says much about demand for high-end goods downtown. When it opened, Jos. A. Bank stocked much of the store with a line of mid-priced suits that sell for between $400 and $500. But brisk sales of the store's higher-end suits prompted the company to make more room for lines that sell for $700 to $1,600, said Gary W. Cejka, senior vice president of store operations. Downtown's only remaining department store, Hecht's, has discovered the same demand for higher-end merchandise. Responding to repeated requests for better merchandise in its Metro Center location at 12th and G streets NW, the department store has introduced three new clothing designers -- Michael Kors, Marc Ecko and Emanuel Ungaro -- upgraded its cosmetics section and expanded its women's handbag department. In all, Hecht's is pumping $15 million into its downtown store, an investment its parent company, May Department Stores Co., originally resisted when executives analyzed the store's small nearby residential population. "The way demographic data is compiled, they could not appreciate what was happening downtown," said outgoing Hecht's president and chief executive Frank J. Guzzetta, who argued the city's growing office and residential population could sustain a higher-end store. Retailers across the country are looking at the same numbers, and so far, most are not ready to take a bet on downtown Washington. But the early success of Jos. A. Bank and H&M, coupled with the opening of Gallery Place, is viewed as strong evidence that downtown retail is on the rebound. "I don't know of another downtown area of 12 or 13 blocks that seen this much investment over the past five years," said Eric W. Price, the District's deputy mayor for planning and economic development. "It's happening slowly, but it's happening."