“People are looking for a destination to shop,” said Lele Sadoughi co-founder Armand Sadoughi. “They want a place to go, not to just go to one store, but to hang out for a little bit.”
By Isabel Sami – Staff Reporter, L.A. Business First
Apr 4, 2024
Since Armand and Lisa “Lele” Sadoughi launched their online accessories boutique 12 years ago, online shopping trends have ebbed and flowed. When they opened their first retail location in Newport Beach, California, in 2022, the couple’s decision signaled a greater impulse in retailers recommitting to brick-and-mortar stores.
Armand Sadoughi said they felt it was the time to become an “omnichannel” retailer, with a physical presence to supplement their online one. Their boutique, named Lele Sadoughi after its co-founder, was ready to take the leap to in-person sales.
“Our stores let people see everything together, and it’s part of what makes the brand shine,” he told L.A. Business First.
Lately, the trend of in-person shopping has seen a resurgence, including in Los Angeles County, and developers are priming the region for continued growth. Nearly 1.6 million square feet of retail space is under construction in Los Angeles County, according to a Q4 2023 Southern California retail market report by Avision Young, with another 4 million proposed.
The retail market still has some catching up to do, however. In Q4 2023, NAI Capital found occupied square footage remained more than 1 million square feet below what it was in Q4 2020. While retail space occupancy improved last year, with an increase of 715,000 square feet quarter-over-quarter, nearly 18 million square feet were left vacant at year-end, coming off an all-time high.
Meanwhile, the average sale price for retail space increased almost 7% in Los Angeles County to $426 per square foot, as the average asking rent for direct space rose by 2% over the same period. But sales volume in 2023 fell 45% below 2022, and leasing volume in 2023 dropped 9%.
Even before the pandemic accelerated e-commerce demand, Allen Matkins partner Jonathan Lorenzen said he noticed the shift to online shopping as far back as a decade.
Now, people are simply ready to be back in stores, he said.
“If someone wants to go out to the store, they want to see a really nice product that’s unique, and if they want convenience, they’ll still go to those types of retail locations,” he told L.A. Business First.
The pandemic, he said, “led people to think more strategically and more efficiently about how they visit retail centers, so they don’t take it for granted now.”
The trip to the store became an “intentional effort” for consumers, Lorenzen said, and retailers have responded to that urge.
E-tailers’ transition to brick and mortar maintains high 3PL demand
Brendan Heegan, CEO and founder of Boxzooka, a third-party logistics company (3PL) that holds inventory for retailers with both online and brick-and-mortar stores, has seen the success of e-commerce firsthand. When retailers that work with Boxzooka receive orders on their website or need their stores restocked, Boxzooka ships the orders from one of its several warehouses spread out across the U.S.
While demand for 3PL has continued to rise due to e-commerce, Heegan said, in-person shopping has also driven a need for such business models.
“It’s no secret that brick-and-mortar retail took a dip across the country during the pandemic and post-pandemic to some degree, but we’re seeing a resurgence of retail,” Heegan told L.A. Business First.
Brendan Heegan, CEO and founder of third-party logistics company Boxzooka, holds inventory for retailers with both online and brick-and-mortar stores.
BOXZOOKA
For e-commerce brands that have established themselves online, the next “evolution” is to go brick-and-mortar, Heegan said, whether hosting a pop-up event or negotiating a short-term lease to dip a toe into the retail waters. Heegan said he’s seen several brands follow this model before signing long-term leases for a more permanent location.
Lele Sadoughi is one such example. Heegan worked with the Sadoughis to distribute their merchandise over the past few years and has watched as they opened five stores in the U.S., with the latest in Nashville. Armand Sadoughi said the “sheer density” of people in Los Angeles drew them to open in the area, reflecting the copasetic nature of retailers and consumers in the current retail environment.
How consumer preferences are shaping the retail market
With five Lele Sadoughi stores in L.A., New York, Nashville, Dallas and Houston, Armand Sadoughi said its clientele has comparable needs across all markets: a shopping experience with restaurants, entertainment and maybe a waterfront — an added bonus in Newport Beach, where foot traffic thrives along the coast.
“People are looking for a destination to shop,” he said. “They want a place to go, not to just go to one store, but to hang out for a little bit. It’s important to have other things going on so people sort of make a day or a half a day of it.”
Lorenzen of Allen Matkins has seen his clients respond to the same preferences from consumers. In his experience, the most deals are being brokered in areas with entertainment, the types of places where people go after work or over the weekend for “experiential retail,” a buzzword Lorenzen says came up often two years ago.
“It’s the same concept, but now I’m seeing it with historic-type towns, neighborhood areas that are unique but also have malls and larger developments,” he said.
Unique shopping centers and retailers, such as those with a specific niche or product customers can’t buy online, are finding added success, added Lorenzen.
Brick-and-mortar stores give customers a dose of instant gratification, Heegan said, spurred by both trying on and holding items and from taking a product home in the moment.
The only challenges Heegan could name were weather and location issues, such as parking, which is always a critical factor in retail, Lorenzen agreed. Shopping centers with challenging parking struggle more on average than those with ample parking for customers.
For Lele Sadoughi, sales flourished when the brand opened its first few brick-and-mortars. In 2023, the majority of the brand’s sales were done in-store, not online. Sadoughi pointed to the environment of “like-minded customers” where the stores operate, collectively drawing in more traffic.
“Similar brands attract a similar customer base to create a destination of sorts,” he said. “It’s important to create reasons for people to get out of the house and shop.”
Lorenzen said tenants seek locations that will generate visits, surrounded by other tenants that are also succeeding in the space and generating that “critical mass” of visits from customers.
Soft-goods retailers like apparel stores benefit from sitting beside quick-service restaurants and drive-thrus that bring consumers into a space frequently, with access and parking also playing critical roles, he said.
In L.A., Lorenzen said he’s seen growing success with clients in Venice’s Abbot Kinney and Century City. More than ever, his clients are seeking buildings with a “unique” feel, whether historic or older assets that can be morphed into creative spaces.
“That’s been a lot of fun, and you see that in Abbot Kinney-type locations,” he said. “I see that in San Diego too, where some older neighborhoods and really unique assets are being repositioned. The developers and landlords are doing a fantastic job working side-by-side with the tenants and driving a lot of growth and a lot of visits.”
Sadoughi said Newport Beach has been a prime location for the brand, keeping with the “casual, beachy vibe” the brand emulates.
He said in California, the brand sells a lot of sunglasses.
