Cities with large regional malls have seen their sales tax revenue drop sharply during the recession, but things have been even worse in Escondido because the city is also the landlord for Westfield North County.
Instead of suffering from just a roughly $360,000 drop in annual sales tax revenue at its mall, Escondido has also seen its annual revenue from leases and landlord profit-sharing at the mall drop by about $330,000.
These shortfalls have been part of a roughly $10 million revenue decline that has forced the city to lay off dozens of workers this year, reduce employee compensation and make deep cuts to libraries, recreation, police and fire.
"It's really not good for the city when the mall struggles," said city finance chief Gil Rojas. "It's a big deal."
Escondido received more than $4.8 million in combined revenue from the mall during calendar year 2007, but a rash of vacancies and sluggish sales lowered that total to about $4.1 million in calendar year 2008 -- a drop of nearly 15 percent.
Recent high-profile vacancies include Oggi's Pizza, Orange Julius, Dairy Queen, Crown Books and Lane Bryant. A count of individual stores last week found that more than a dozen of the mall's roughly 125 storefronts were vacant.
Mall officials, who did not return several phone calls seeking comment for this story, have camouflaged the vacant storefronts by covering them with cardboard saying "exciting new retailer coming soon," or by using the vacant storefronts to advertise goods and services available elsewhere in the mall.
Shoppers interviewed last week said the mall's attempts to obscure the problem had failed, contending that it would be impossible not to notice the vacancies and dearth of customers.
But most shoppers also said the mall still felt vibrant and bustling, and that it was far from becoming a "ghost mall." Signs in the mall say that more than a dozen new stores and restaurants have opened recently, including Sunglass Hut and the extremely popular Apple store.
And City Councilman Sam Abed said Westfield's plan to spend more than $100 million renovating the mall as soon as the economy recovers is one of the city's best hopes of eventually recovering some of its plummeting revenue.
An unusual relationship
Westfield owns the land under most of its malls, but Escondido and the company have an unusual relationship because Westfield North County was not built on private property -- it was built on 83 acres at the southern edge of Kit Carson Park.
Consequently, the 50-year lease that Westfield signed in 1982 provides the city slightly more than $1 million per year in guaranteed lease revenue and a few hundred thousand more in profit sharing. The profit-sharing number fluctuates with the number of vacant stores in the mall and the revenue they generate.
Since the mall opened as "North County Fair" in 1986, it has been a boon for city finances in good economic times.
Annual sales tax revenue from the mall climbed from $1.8 million in 2001 to just under $3 million in 2006. But it fell slightly to $2.9 million in 2007, and then dropped a sharp 12 percent to $2.5 million in 2008.
Revenue from leases and profit sharing has not climbed as dramatically over the years. It hovered around $1.7 million for most of the past decade before spiking up to $1.9 million in 2007. But it dropped just below $1.6 million in 2008 after the recession began -- a 17 percent decrease.
The decrease is even sharper if the $1 million in guaranteed lease revenue is removed from the equation. The bonus money the city received based on Westfield's lease profits and store performance dropped from $836,000 in 2007 to $508,000 in 2008, a 39 percent decrease.
A time to persevere
The struggles at Westfield and the rapid turnover of tenants have not been particularly surprising, according to Harvey Mitchell, chief executive of the Escondido Chamber of Commerce.
Stores and restaurants need to have high profit margins to survive at the mall, where rents are more than double those of most of Escondido's other shopping plazas, he said.
In addition, companies from out of state often shy away from California during recessions because of the state's high labor costs and other "job-killer" laws, Mitchell said. Because the mall features mostly national chains, it suffers badly in a recession, he said.
But Mitchell said he was confident the mall would bounce back.
"Whenever I'm there, I still see a lot of people walking around," he said. "Everybody's just got to hold on and keep a positive attitude."
Shopper Joanna Stewart of Rancho Penasquitos said last week that a greater number of sales has kept her coming to the mall, despite the vacancies.
"It seems a lot emptier here -- even on weekends," said Stewart. "But there have been sales everywhere to attract more customers."
Shopper Joe Noble, visiting from Palm Springs, said North County residents should be grateful that their regional mall is doing as well as it is. He said the regional mall in his area, which has been hit extremely hard by the real estate crash, has far more vacancies.
"This place seems great to me," Noble said.
Call staff writer David Garrick at 760-740-5468.
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