Hollywood & Highland turns corner with shift of emphasis to Angelenos.

Hollywood & Highland is no longer Tinseltown's White Elephant.

For the first seven months of 2005, sales were up 12.2 percent from the like period a year earlier and sales for July, the most recent period available, were up 16.3 percent.

Sales reached $110 million last year, up from $63 million in 2003 when the complex was bought by CIM Group Inc. "It's not where we want it to be," said CIM principal Shaul Kuba, who expects sales at the center to exceed $125 million this year. "But I know we are heading in the right direction."

The gains exceed the industry average, even among stronger performing malls and shopping centers that are getting single-digit percentage increases, according to Rob York, a principal with retail consultancy Fransen Co.

CIM purchased the complex, including the 640-room Renaissance Hollywood hotel and the Kodak Theatre, for $201 million, a fraction of its $640 million construction cost.

Part of the growth can be attributed to an upswing in the overall economy, a healthy rebound in tourism and a continuation of a nightlife-fueled Hollywood revival. And unlike the complex's original developer, Trizec Properties Inc., the new owners are purposefully moving away from tourism and more towards local residents.

In two weeks, Virgin Entertainment Group Inc. will open its West Coast flagship megastore at Hollywood & Highland, where it's replacing a duty-free shop. It will be competing with Amoeba Music Inc.'s wildly successful Hollywood store on Sunset Boulevard, although Michael Townsend, who advises Virgin on North American real estate transactions, said the Virgin store will sell to a different customer base. The Hollywood & Highland store, he said, will be radically different from even Virgin's nearby store at Sunset and Crescent Heights boulevards.

Also, within the last year, Lucky Brand Jeans, American Eagle Outfitters Inc. and AZ3 Inc.'s BCBG Max Azaria opened stores in the complex. Later this week, Muginoho USA Inc. is opening a Beard Papa Sweets Cafd. a popular East Coast bakery concept that serves oven-fresh Japanese cream puffs.

CIM is also investing $20 million in renovations, much of it on making it easier for shoppers to navigate the center's tricky layout. A five-tiered escalator has been installed that allows shoppers on Hollywood Boulevard direct access to the center's top-level stores and eateries, including Wolfgang Puck's Vert and Grill Concepts Inc.'s The Grill on Hollywood.

Kuba said that when the Virgin store opens and construction on the complex's renovations are complete, he expects a 7 percent jump in sales volume, increasing year-over-year sales to 20 percent. "The whole construction was taking a setback on sales a little bit," he said.

Kuba recognizes that the complex must ramp up its entertainment offerings, though he says that recent moves, such as bringing in the Chicago Theatre Group Inc. to manage the Kodak, are taking it in the right direction.

And CIM is marketing more than the center itselE "Our message has nothing to do specifically with Hollywood & Highland," Kuba said. "It's more 'Hollywood is changing' and now is the time to get in."

Refocusing retail

But even now, crowds are filling the center's corridors and courtyard--many of them local residents. Merchants who track their customers by ZIP code are reporting increases in local "consumer traffic" of between 10 percent and 12 percent, according to CIM Group. The merchants also say they are now getting substantially more repeat business from ZIP codes within a five-mile radius.

The center is close to generating a level of sales that developers had expected before the Sept. 11, 2001 terrorist attacks--only two months before the center's opening--sent the economy into a tailspin.

Based on CIM's experience as owners of retail buildings along Santa Monica's Third Street Promenade and Pasadena's Colorado Boulevard, Kuba told L.A. officials that focusing on out-of-towners made little business sense. "The tourist population that comes to Hollywood, they are on a time clock to see what they can," Kuba said. "They don't have time to spend."

Meanwhile, Kuba said people with high levels of disposable income who live in dense neighborhoods surrounding Hollywood Boulevard were driving several miles for services they couldn't get closer to home.

Helmi Hisserich, director of the Community Redevelopment Agency's Hollywood Project Area, said tourists will always come to Hollywood for its hotels, entertainment museums and to put their hands in Marilyn Monroe's prints in front of Grauman's Chinese Theatre.

What was missing, she said, were crowds going to restaurants and enlivening the boulevard's pink-starred sidewalks. "If you only aim for tourists you actually miss a big part of the market," she said. "Only tourism becomes tacky. It becomes a tourist trap and we don't want Hollywood to be a tourist trap."

The changes aren't bothering the boulevard's existing tourism-serving business. according to Tej Sundher, general manager and part-owner of the Hollywood Wax Museum and Hollywood Guinness World of Records Museum.

Sundher, whose firm tracks visitors and foot traffic, said both the number of locals and tourists coming to Hollywood this summer increased substantially from a year earlier. "Targeting the local market doesn't hinder or hurt the tourism market," he said. "Tourists are attracted to hustle and bustle. The more of that, the better."

Hollywood & Highland hasn't just been hampered by a four-year tourism drought--it's also had to compete with other venues, including the ArcLight Cinerama Dome and the Grove. The latter, Rick Camso's development, became a retail juggernaut drawing shoppers from a broad region of L.A., including Hollywood.

At Hollywood & Highland, a final phase of construction is about to begin. CIM Group is installing an elaborate water fountain in the central courtyard. Kuba believes that the fountain will make people want to linger at the center.

"People love water features," he said. "It is sort of gives people a feeling of a sense of place. It calms everybody down a little."

Staff reporter Rachel Brown contributed to this story.