Bottoming Out.

Consider 2008 a prelude of what’s to come next year for Orange County’s retail sector.

The county’s shops, restaurants and auto dealers were among the hardest hit this year. The pain stands to carry over into 2009.

Some,clothing shops, restaurants and specialty stores,could see marginal improvement from 2008, according to economists at Chap-man University in Orange.

Auto dealers, home furnishing stores and building materials sellers are in for another year of decline, though the losses may not be as steep as in 2008.

Local retail sales for 2009 are forecast to be $38.3 billion, a 0.9% decrease from 2008, according to Chapman. Sales declined 1.4% to $38.6 billion in 2008 from 2007.

The sector is one of the closest corollaries to the larger economy. Chapman’s economic forecast released this month puts it like this:

“Consumption is largely a function of disposable income. But sharp job losses and rising unemployment near double-digit levels point to declining disposable income.”

Another telling indicator of a bad year to come: Personal income is expected to grow 2.5%, down from an estimated 2.9% increase in 2008, a 4.9% rise in 2007 and a 6.2% increase in 2006.

Retail sales are expected to see a turnaround in late 2009. But things won’t necessarily feel a whole lot better next year.

2009 is likely to see fallout from this year’s downturn with more store and auto dealer closures and trouble at malls and shopping centers.

“This situation is deeper and darker than anybody thought,” said Robert Cohen, executive vice president and head of the Los Angeles office of New York-based Robert K. Futterman & Associates, a retail leasing agent and consultant.

Store Closures

The list of retailers that’ll close stores in early 2009 is long: Cach & #233; Inc.; Circuit City Stores Inc.; J. Jill Group Inc.; Gap Inc.; Foot Locker Inc.; Zales Corp.; Pacific Sunwear of California Inc.; AnnTaylor Stores Corp.; Starbucks Corp.; Home Depot Inc.; Pep Boys-Manny, Moe & Jack; KB Toys Inc.; Dillard’s Inc.; Lowe’s Cos.; Macy’s Inc. and J.C. Penney Corp.

Many of the chains have stores at local malls and shopping centers. As national retailers go out of business, expect to see some shopping center closures, Cohen said.

Other retailers have put expansions on hold, making tenants hard to come by for malls.

“It’s very hard to lease,” said Katy Noel, senior director of real estate for Kimco Realty Corp. “There’s just not a lot of excitement.”

The New Hyde Park, N.Y.-based shopping center owner owns Fullerton Town Center and Anaheim Plaza.

Existing tenants are asking for lower rents or lease terminations, Noel said.

“As long as the tenant is trying to pay their rent, we will work with them,” she said.

Some tenants just have stopped paying, according to Noel.

Noel said the retail climate is the worst she’s seen.

Unless it becomes easier to get credit, retailers aren’t going to be able to get the financing to open a business or expand, Noel said.

Even franchises, such as Ann Arbor, Mich.-based Domino’s Pizza Inc., are having a difficult time getting financing, she said.

“There’s not a lot I can do,” Noel said.

Kimco continues to aggressively go after tenants, she said. Its leasing agents are on the lookout for mom and pops that can relocate to its malls.

But mom and pops are having trouble staying in business.

There’s evidence that retail is overbuilt as developers rushed to put up shopping centers during the housing boom, said Jerry Nickelsburg, an economist at the University of California, Los Angeles.

Courting of retailers,and sales tax revenue,by local governments helped lead to overexpansion, Nickelsburg said.

Auto dealers, among the most eagerly sought by cities, are part of the hardest hit.

But dealers aren’t suffering just because of saturation, recession and missteps by automakers, according to Nickelsburg.

“Consumers know a lot more and there’s more competition among dealers,” he said.

A reduction of dealerships will lead to better prices and a healthier industry, according to Nickelsburg.

Through October, auto registrations, a barometer of new vehicle sales, were down 20%, making 2008 one of the worst years ever for local auto dealers. In the U.S., auto sales were down 13% through October.

The Costa Mesa-based Orange County Automobile Dealers Association predicts a 4% drop in local auto registrations in 2009.

It’s unclear how the recession might affect the county’s largest shopping center by sales, South Coast Plaza in Costa Mesa.

The center fared well for the 12 months through June. Sales were up 9.5% to $1.3 billion.

South Coast Plaza is bullish for next year. Its mix of luxury retailers, several exclusive within the county, will carry the center through the year, said Werner Escher, executive director of tourism marketing.

“There’s momentum,” he said.

“South Coast Plaza is not your usual mall,” said Jack Kyser, founding economist for the Kyser Center for Economic Research at the Los Angeles Economic Development Corp., which also tracks OC.

“South Coast Plaza has cachet, so if you’re a middle- to upper-income household, that’s where you’ll go,” he said.

Luxury Sales

But luxury retail won’t be spared in 2009, according to Robert K. Futterman’s Cohen.

Luxury sales hit a wall in August, and that trend is expected to continue into 2009, he said.

Many people at the top are cutting back significantly, Cohen said, citing a report from New York-based American Express Co.

“People are losing values in their homes and their investments,” he said. “It’s also the mood.”

People don’t want to be out of step with others who aren’t so well off, he said. Conspicuous consumption has slowed.

Beyond 2009, retail isn’t likely to be what it’s been for the past couple of years in terms of consumer spending and the way retailers do business, Nickelsburg predicted.

Retailers are likely to get leaner and meaner next year.

Some will go online and many will find ways to automate. Self-checkout at grocery stores could become more pervasive, he said.

Are there any bright spots?

As retailers consolidate or go out of business, some prime real estate is going to go on the market, Cohen said, “stuff you never thought would come available.”

Some of retailers expected to fare better in 2009 include health and beauty stores, food stores (with more people cooking at home) and discount stores, such as Wal-Mart Stores Inc.

MALL TO WATCH: ANAHEIM GARDENWALK

Anaheim GardenWalk has all the makings of the ideal mall.

It has a great location, right next to Disneyland. There’s beautiful landscaping and entertainment, including an upscale bowling alley and a posh movie theater. Some big-name restaurants out front beckon visitors.

But business is hurting.

The mall, which opened in June, appears to be a victim of bad timing.

While GardenWalk could have staying power, it’ll be difficult for the mall to gain momentum in 2009.

It will be challenged to recruit tenants as many national chains have put expansions on hold.

GardenWalk is 80% leased but only 65% occupied. Some retailers that have signed leases may not end up moving in.

Also uncertain is how long some of the stores that are there now will be able to survive.

The mall’s developer, San Diego’s Excel Realty Holdings, is hoping the mall will be fully leased by the second half of 2009.

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Sherri Cruz