Shopping Frenzy of Recent Years Expected To Cool as Consumers Tighten Spending.

THE retail industry in Los Angeles has been chugging along at a fairly fast clip for the past several years, but in 2001 it should run into a detour.

Economists are predicting that retail sales will grow by only 5.8 percent in L.A. County compared with about 10 percent in 1999 and 1998. When you factor in a predicted 3.3 percent inflation rate and population growth, that is pretty flat.

Retail sales in 2000 are expected to total $69.5 billion. In 2001, it is estimated that will inch up to $73.5 billion.

"We are finally seeing a downturn," said Jacquelin Fernandez, a retail expert and partner with Deloitte & Touche in Los Angeles. "Consumer debt is back at an all-time high, confidence is down, gas prices are going up and the stock market is down. You add up all these factors looming and some are pretty weighty factors."

It would be tough to match the shopping frenzy that fueled the retail industry in 1998 and 1999 when the dot-com industry was riding high and the stock market was increasing at a galloping pace. People felt rich even if they didn't have a lot of money in the bank. Their investment portfolios were growing nicely and visions of stock options were dancing in their head.

But now those options, in some cases, are worth little, and stock portfolios are shrinking as fast as they expanded.

"We are likely to have a reasonably soft year," said retail consultant Ed Lubieniecki with Cap Gemini Ernest & Young. "I don't think there is as much discretionary spending around. Although the odd part is I think people's real cash flow is probably up. But I think they have made some paper cuts (in their portfolio)."

Negative factors

While Los Angeles' economic outlook is brighter than the rest of the nation, there are some factors on the horizon that will affect the retail industry.

Next summer, the Writers Guild and the Screen Actors Guild are threatening to strike. Actors and writers on the picket line would have a devastating effect on the entertainment industry.

If there is a strike, there will be less disposable income to spend, affecting the entertainment-dependent areas of Burbank, Sherman Oaks, Studio City, West Los Angeles and Santa Monica.

Even if the strike doesn't occur, there will be some slowing in the TV and film industry because production companies already are stockpiling movies and shows for next year.

Furthermore, 40,000 Los Angeles teachers are threatening to strike early next year.

Add to that the near certainty that manufacturers will be cutting back their work forces in 2001 due to rising energy costs and softer demand for goods.

That and other factors will challenge retailers next year.

Ruth Otto Tewalt already knows that. As general manager of Sherman Oaks Fashion Square, she believes mall sales, which average $400 per square foot, will increase about 5 percent. But she is cautiously optimistic right now. "We have the entertainment industry in our back yard," she said. "The strikes are a real possibility. We don't know what they will bring."

Right now the new year is bringing new retailers to the upscale Fashion Square, which is anchored by Bloomingdales and Macy's. The Discovery Channel and J. Crew will open stores there next year. The Gap and The Gap Body are expanding their space from 7,000 to 12,000 square feet.

While retailers will have to ramp up their one-day Saturday sales and discount coupons to get customers into stores, they will also be facing more competition on the high- and low-end of the spectrum.

The Grove

The Grove at Farmers Market, near Fairfax Avenue, will open next fall, down the street from the Beverly Center. At 640,000 square feet, the open-air mall will have 50 upscale stores and restaurants including Nordstrom and flagship stores for The Gap, Banana Republic and Crate & Barrel.

"The Grove is going to have a major impact on Westside retail," said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. "It's going to be very powerful."

Also on the horizon is a major expansion by Wisconsin-based Kohl's Department Store, a middle-of-the-road retailer whose clientele is similar to Target customers. The company, which has 300 stores primarily in the Midwest and mid-Atlantic, wants to open 35 stores in the Los Angeles area. Kohl's already is slated to open an 87,000 square foot store in Ventura and is scouting for locations in L.A. County and the Inland Empire.

Competition already squeezed out HomeBase Inc., the Irvine-based home improvement chain that lost the retail battle to giants Home Depot Inc. and Lowe's Cos.

HomeBase announced in early December that it would close 22 stores in Southern California and convert another 62 into home furnishing stores called House2flome.

Home furnishings is one area expected to do well next year, said Kurt Barnard, a retail industry watcher who publishes Barnard's Retail Trend Report. "For the last two or three years, home sales have gone through the roof," Barnard said. "Any time you have homes occupied by first-time homeowners, they buy a lot of furniture and need things for the house."