Ground Floor Retail Space and the DTLA Of It All

Looking at vacant space in the Social District, either for potential green space or blank walls for murals, the parking lot next to what used to be Bank of America on Hill Street frequently catches my attention. I probably think more about 30 years of banking trends than most people trying to look at our neighborhood as a canvas for what's possible. 

In the 1990s, as ATMs became more ubiquitous and mergers created less differentiation in the industry, thousands of branches across the country closed. Following the 2008 recession, this trend intensified as mobile banking apps, broadband, and smartphones put access to financial institutions and transactions within easy and cost controlled reach. It started in the banking industry, but by 2011, the term retail apocalypse was prevalent in multiple sectors that had historically relied on physical locations to drive the majority of sales revenue. By 2017, major brands like Toys “R” Us, RadioShack, and Sears were among many to declare bankruptcy. That same year, Amazon surpassed Walmart in U.S. market value and began its purchase of Whole Foods. 

By the time the pandemic began in March of 2020, stores like Rite Aid were facing $4 Billion in debt and facing bankruptcy as changing consumer patterns led to an overbuilt retail environment in most communities, across nearly every sector.  To avoid the same fate as Rite Aid, in 2023 Walgreens announced plans to close about 1200 stores by 2027, and CVS initiated plans to close the same number by 2025. These plans coincided with Amazon launching its first national tv ads for Amazon Pharmacy in 2022.  

Two Downtown pharmacies – a Walgreens at 7th and Hope and a CVS at 12th and Flower – are among the closures. As with everything downtown, the collective initial response is to blame the DTLA of it all – disorder, theft, and homelessness. The truth is a lot more complicated. While leakage (a retail term for loss from theft) is likely part of the reason these stores were chosen for closure, pre-pandemic consumer trends meant even newer stores started out with far less traffic and a narrower path to profitability than what is required in the best of circumstances to justify the brick-and-mortar investment. Fewer customers, means less staffing, which leads to more leakage. It's a cycle anyone who has been to the CVS in our district witnessed. 

The CVS joins Healthy Spot DTLA and the Gallery, two other businesses that have closed over the past few weeks. But in neither case is it fair to blame the DTLA of it all for the closures. Healthy Spot was a popular neighborhood dog groomer and pet supply store that couldn't reach an agreement with the property owner to extend its lease. The Gallery was a multi-sensory dining experience that combined a prefix menu with immersive art. It was an interesting idea, but demand didn't match their ambition or reserves.     

When I speak with both developers with vacant ground floor space and potential lessees, costs on both sides are often prohibitive to a deal moving forward. And while thousands of square feet remain vacant, planning guidelines and best practices continue to require additional ground floor inventory as part of every new building that breaks ground in downtown. This abundance of supply has not yet tipped the market towards what potential business investors. I am among the group, as a former chair of a planning commission and thinking about the economics of downtown space for 20 years, that argues we need to rethink ground floor space as an amenity that feeds the residential rates and not independently bankable revenue. However it's been difficult to pivot and bend an entire industry and land use regulation around this approach – even if the market is slowly forcing it.  

Amidst the closures, there are successes. The South Park Pharmacy is a neighborhood gem. Pine and Crane is a model in the food space, Prank has set the bar in the beverage space. Between Level 8 and the restaurants at LA Live, millions of visitors to Los Angeles Convention Center and Crypto.com arena are experiencing food and beverage concepts that span trendy to traditional. While they may gear more towards visitors, they need resident support just as much as our more established neighborhood favorites. 

As a business improvement district, we are using data and outreach to understand how we can support existing businesses and attract new ones. Localized impacts – the DTLA of it all – are critical factors. In the next few weeks, we'll be launching a new website with multiple tools to help promote the neighborhood to potential business owners and differentiate the Social District from other parts of downtown. We're also continuing to invest the majority of our resources in keeping the neighborhood clean and safe. Creating a dynamic environment full of thriving businesses, even with these headwinds, remains our top priority. I don't think most of us decided to live in a culturally rich and walkable urban environment to have our toiletries delivered in cardboard boxes and our food delivered by a robot.