DOWNTOWN — A walk down the Third Street Promenade on a mild spring day comes with the sound of fountains, laughter of outdoor diners and, occasionally, the roar of sports fans coming out of Yankee Doodle’s.
That last may change, however, as the owner of the building in which the sports bar has stood for over 20 years contemplates a major change in the use of the space, demonstrating the fundamental tug-of-war between restaurants and retail in the high-end shopping district.
If approved by the Santa Monica Planning Commission, the building with its tall ceilings, deep back end and expansive 7,500-square-foot basement will be converted from a 15,000-square-foot restaurant to one less than 10 percent of its size.
The outdoor dining aspect, which is highly prized on the promenade for its almost instant ability to enliven portions of the street, will remain and even expand slightly.
The rest of the space, including that unique basement, will transform into retail sales, although what retailers will occupy the newly vacant spot has not yet been decided, said Bill Tucker of Tucker Investment Group, the company that owns the building.
Tucker felt that the change was a necessary one. Although Yankee Doodle’s has been a mainstay of the promenade since 1991, the decision was made that the space was too big to comfortably support a restaurant.
“The street in general is better served when it’s moving forward, not staying static,” Tucker said.
In truth, the tale of Yankee Doodle’s possible departure is one that plays out frequently in the restaurant industry, particularly in a high-rent environment like the promenade with its deep blocks not necessarily conducive to the food business.
Although the promenade’s high foot traffic could attract restaurateurs looking to cash in on the tourists that flock to the outdoor shopping district, it also means high overhead from rent that can’t be mitigated through lower employee costs, said Nima Samadi, a restaurant industry analyst for IBISWorld, a Los Angeles-based industry research firm.
Restaurants have challenges worked into their business model, like the need to create menus that appeal to lunch and dinner crowds that also don’t become stale over time. Unlike retail stores which usually do not have to worry about their products going bad and shoppers can guide themselves through the shopping experience, restaurants must combat food wastage and require more employees like wait staff and bus boys to supplement the kitchen staff turning out meals, Samadi said.
Although industry average profits can be a healthy 6.3 percent for a chain and 6.2 percent for a single location, that still pales in comparison to the 8.1 percent return on a women’s clothing store.
It’s also notoriously difficult to keep a restaurant going. Research has shown the 90 percent failure rate on restaurants touted by media to be a myth, a study published in 2005 suggested that almost 60 percent of restaurants fail within three years of opening.
That gives landlords an incentive to switch out of the uncertain, sometimes messy restaurant business and into retail, which has a nearly built-in demand based on economic studies of the area.
A report released in 2012 suggests that the Downtown market will support between 100,000 and 200,000 square feet of new retail space, largely spurred by spending from international travelers, although roughly 50,000 of that could also be grocery stores to support new apartments in the area.
If that new space is not developed, rents on the promenade, already among the highest in the nation, are expected to increase.
Given restaurants’ importance to the delicate balance Downtown, in 2006 the City Council stepped in to prohibit ground floor restaurants from converting to retail spaces without a conditional use permit, what the Tucker Investment Group will request from the Planning Commission on Wednesday.
Despite their challenges, restaurants are recognized as a key player in making the Downtown a vital place to be, said Kathleen Rawson, CEO of Downtown Santa Monica Inc., a public-private agency that manages Downtown for City Hall.
The organization has a retail consultant on hand to help guide landlords in their selection of new tenants, keeping in mind the requirement imposed by City Hall and the overall health of the street — landlords sink or swim together on the promenade, and the mix of businesses and restaurants is a critical element of that equation.
Outdoor diners bring life and movement to the street, she said.
“We’re not a private shopping mall, we’re an authentic urban street, and the weather is perfect for it,” Rawson said.