The Critical State of Business in WeHo : Part 1

The following letter was sent from Genevieve Morrill, President and CEO of the West Hollywood Chamber of Commerce regarding the critical state of business in West Hollywood. Almost 60 businesses met on friday, August 31st with City Manager David Wilson, asst City Manager Jackie Rocco, economic development director Laura Biery and Paolo Kespradit. The hour long meeting went on for over 90 minutes. We will discuss the meeting in Part 2: The critical state of business over this Labor Day Weekend.

Dear Honorable Mayor and City Councilmembers,

Thank you for taking time to meet with us and review our request. We are asking City Council to please, seriously consider the unprecedented challenging circumstances West Hollywood’s business community are facing and work with us to help retain our existing businesses and hopefully attract new business to our City:

Situation Analysis:

West Hollywood’s Entertainment Nightlife Districts have long been significant economic drivers for our community. The Sunset Strip, and its history, have been a mecca for rock and roll, concert venues, and luxury hotels. Since the pandemic, there has been very little pedestrian traffic, and since the closing of House of Blues in 2015, there are only a few music venues left on the boulevard. Additionally, the Standard Hotel closure was a big blow to Sunset, especially its east side. The Standard created a lot of foot traffic from both visitors and locals. The locals would use the pool during the summer and then afterwards patronize other Strip businesses, getting people south of the Strip to walk up the hill. The Standard did that for the boulevard! It’s been over two years since the venue closed and it could be several years before the property reopens.

Our Rainbow District, once a haven for gay people – today redefined as the LGBTQ+ hub of Los Angeles, feels less safe and increasingly unaffordable. Statistically, the new generation of nightlife patrons are more pressured financially, so are spending and drinking less at our venues. Nightclubs and bars are faced with customers who choose to save money by drinking or consuming beforehand, arriving at our hospitality venues more and more already intoxicated.

Our restaurants are facing even more dire circumstances and, with the exception of our new venues, are experiencing steep decreases in the numbers of and spending by customers, especially since the short- term surge that took place after the pandemic reopening. Universally, our tried-and-true restaurant venues are seeing steep declines in net revenues along with increasing difficulty hiring and retaining staff.

The resulting reduction in gross revenues per patron, compounded by the steep increases in operating costs, has resulted in vastly declining net revenues and further reducing, if not eliminating, profitability. Despite full clubs on the weekends, some say that entertainment and LGBTQ nightlife has migrated to Silverlake, and/or unregulated warehouse parties. Sadly, the problem is more that the steep rapid increases in operating costs across the board, including rent, labor, food and beverage, materials, and other expenses are killing profitability and, as we’ve seen already, resulted in many restaurants, bars, and retail venues closing.

West Hollywood is one of the most progressive cities in the country. And as such, touts the highest minimum wage and paid time off in the nation. Our West Hollywood businesses pride themselves in treating their staff with the utmost respect and appreciation they deserve and offering the best possible working conditions.

If this alone were all we were dealing with we might survive the next few years; however, the stark reality is that in 1.9 square miles our labor force is 26% hospitality where we are facing more and more difficulty finding staff for both in front of and in back of house; a global supply chain challenge; huge increases in food, beverage, supplies, and other materials costs; labor costs increasing as much as one- third in less than three years; a historically long, wet, and cold winter, which drastically reduced business; the highest inflation rates this century; ever skyrocketing rents on top of outstanding back due rents still owed from the pandemic moratorium; and outstanding COVID related loans yet to be repaid. All of that, coupled with customers who also have less disposable income to spend, given the inflationary environment, has produced dire consequences for small and large businesses alike. This is not exclusive to West Hollywood. In fact, anyone selling products/goods is in this same position.

To make matters worse, businesses across the board have been forced to materially increase prices to make ends meet, resulting in substantial consumer push back and reluctance (especially from low- and mid-income customers) to dine or spend money on food and beverages outside of the home. Therefore, those patrons are doing their best to spend less in the face of increased prices and costs, even further decreasing a business’s sustainability.

The critical issues confronting The Sunset Strip and Rainbow districts are further exacerbated by the deleterious effects of the streetscape construction impacts continuing to be felt throughout the Design District. Businesses, especially on Melrose Ave and Robertson Blvd, have for many months seen foot traffic and business cut by 60% or more. Those negative impacts spill over to the Santa Monica Blvd corridor/Rainbow District businesses due to the overall fewer visitors, shoppers, and diners coming to the west end of West Hollywood.

Crime and the situation with the city’s unhoused, especially those who are mentally ill, has also exacerbated problems as visitors, employees, and residents want to feel and know that they are safe to enjoy and be out in our walkable city. There is safety in numbers – numbers of businesses open, numbers of people walking the street, numbers of customers, numbers of eyes watching the goings on, and in the numbers of Sheriff’s deputies patrolling the streets. We need a strong, visible Sheriff presence on our streets for our patrons and residents to feel confident enough to venture out, especially at night. A safe environment means economic growth in all sectors must be protected.

Rising costs across the board in our economy affect all consumers in the same way, which also includes businesses – not just individuals. The City must be sensitive to that fact by providing fair and balanced support to both businesses and their employees. This includes all the measures listed below.

It is our assessment that if the City is willing to make reasonable modifications to the recently enacted minimum wage policy, it will springboard a dynamic, healthy response to a diverse economy that ultimately results in uplifting everyone – which is what we want and what we believe the City intended.

West Hollywood is home to many different business types, so it stands to reason that addressing the needs of its economy cannot be done with a “one-size-fits-all” solution. This is a perfect opportunity for the Creative City to be first in finding a creative, fair, and locally legal pathway to address compensation in an industry with proven highly tipped workers. Much like the City has already done with its Living Wage ordinance for city contracts, it would not be difficult for Council to modify our Minimum Wage ordinance by bifurcating the policies so that those full-service restaurants utilizing the NAICS Code 722511 would be kept at the state’s rate, while other businesses stay with the City’s current policy, unchanged.

Business owners, managers, and staff are a team. We have observed some third parties that seek to divide management and labor, which in our estimation is often for their own gain. What we know though, is that businesses and their staff rise and fall together. The people we employ chose to work at our famed West Hollywood businesses, and we sought to hire these valuable team members. We are mutually dependent on and appreciative of one another; we must be – business doesn’t work without the workers and workers don’t work without the businesses. We are not in oppositional conflict with each other, as some outside entities want us to believe. Staffing shortages are an all-too real issue. To assert that businesses do not appreciate, value, and nourish the very people who enable them to stay in business is absurd.

Restaurants, bars, nightclubs, and hotels provide good jobs with plenty of room for advancement and money to be made to help support our workers and their families. We need a dynamic wage order that is responsive to the realities of West Hollywood’s diverse business community. The business community and City share a joint responsibility – to foster and create sound, responsible business practices that allow our community to flourish and continue to provide stable jobs, great work environments, and opportunities to grow and advance with us.

Consistent with that responsibility, let’s please work together to create a dynamic, workable, fair, and enriching pay structure. The marketplace is too competitive for businesses to ignore the importance of its staff; if we disregard or underappreciate the hard work our staff puts in, they will understandably leave for better positions elsewhere.

What can be reasonably expected of a responsible business when labor costs reach 37% to 40% at the same time cost of goods goes up by 30%? Put another way, what kind of net profit is possible when you have only 30% of gross profits to cover rent, utilities, taxes, and countless other necessary costs? How do responsible businesses make that calculus work – they adjust. They make difficult decisions that most often reflect painful choices that impact the least and consider the greater good. Businesses compensate by cutting labor hours, going automated, or self-serve and no one wins – we fall together; both employee and the operator lose.

West Hollywood can learn valuable lessons on how policies that are averse to good business practice can seriously damage the community’s economic wellbeing. Prior to the pandemic, Santa Monica enacted the highest minimum wage and PTO, highest sales tax, reduced its police numbers, and failed to address its homeless issues. At the same time, Santa Monica focused instead on pet issues, closing vital lanes of traffic, tearing down essential parking, and disregarding anyone with an alternate view, even if they were business operators and stakeholders. The result, five years later, is that the city seriously damaged its economy. The Santa Monica Promenade now has 40% vacancies. DTSM is in dire straits. Its own tourism department has no expectation of growth prior to late 2024, and that’s assuming there is no recession.

Santa Monica has shown us where West Hollywood too could be headed if we don’t shift course now. It usually takes five years or so to really see the undeniable negative impacts of policy changes, but two years in we are already feeling devastating impacts. As such, we implore West Hollywood to thoughtfully consider meaningful modifications that make it possible for us all to avoid Santa Monica’s fate and instead allow our community to grow and thrive.

Financial Impacts to WeHo Businesses:

• Full-service restaurants are now at 40% Labor, which is unsustainable.
• Gratuities paid out to highly compensated staff with no concomitant adjustment in hourly wages, like 43 other states allow.
• Business owners are required to pay taxes on the gratuities.
• Businesses that pay percentage rent are facing increased rent expenses flowing from increased prices.
• Bad weather has negatively impacted business in the second half of 2022 and Q1 and Q2 of 2023.
• Gross revenue and sales taxes based on gross receipts do not translate to profitability.
• “Hidden” costs of higher wages – additional Workers Comp Insurance costs and increases for Liquor Liability Insurance due to higher gross receipts.
• Unscheduled time off due to PTO on top of a tight labor market makes scheduling staff overage extremely difficult.
• PTO for part time workers is not reasonable for temporary servers in hospitality businesses, a volatile market.
• Sales Tax increase.
• 6 – 7% inflation.
• City improvement construction, developer construction, utilities undergrounding, while necessary, important, and will be appreciated, have had deleterious impacts on affected businesses.
• Retail price inflation causing higher goods and labor costs makes restaurants and hotels unaffordable for our locals.
• Competition with surrounding areas at lower pricing

Our request to City Council is as follows:

• Moratorium on new minimum wage increases through 2025 or until the rate aligns with the City of Los Angeles.
• Align wages and benefits with Los Angeles.
• Rollback of PTO time or at least eliminate PTO for part-time workers.
• Business License fees waived.
• Parking Credit fees waived.
• Patio fees (including new applications for Outzones) and Permit fees waived.
• Sales Tax waiver.
• Amend the Minimum Wage ordinance to create a different minimum wage structure applying only to NAICS Code 722511 businesses (full-service restaurants) that aligns with the state’s $15.50 rate. Be the first in the nation to find a legal pathway!
• Provide new funds and grants to substantially increase marketing for local businesses.
• Reinstate temporary signage allowances such as A-frames; banners; etc.

We thank you for your consideration and respectfully request that you acknowledge the challenges West Hollywood businesses are facing and invest the time and resources to work with us to develop solutions.

Sincerely,

The West Hollywood Business Community
(names continue to sign on. List as of 7.10.23)

The City does not have a record of business closures and is unable to provide us with data or a methodology to get that information. In that vacuum, collectively, we have compiled a list of only those business closures that we are aware of; for that reason, we assume this list is not exhaustive.

Lost Businesses

that we know of (during COVID and post-pandemic; post policy):

• 8oz Poke
• 24 Hour Fitness
• AAA auto service
• The Abbey & The Chapel (not lost, for sale)
• Ago
• Amarone
• AKAZUMA
• Bank of America
• Basix
• Beauty Collection
• Birdies
• Blue Mercury
• By the Way Burger
• CABO CANTINA
• Chase Bank
• Chop Stop
• CockDog
• Coffee Bean
• Conservatory
• Continental Kitchen
• Cousins Maine Lobster
• Doheny Room
• Flaming Saddles
• Flavor of India
• Flower Burger
• Gelatofest
• Gold Coast
• H&M
• Halal Guys
• Hamburger Haven
• Hedley’s
• Heritage Antique Cars
• Holloway Motel
• Il Piccolino
• King & Queens Cantina
• Kitchen 24
• Lemonade
• Leo Flowers
• Lucques
• Marcello von Berlin
• Marinate
• Marix Café
• Meridian Spa
• Oh Mi
• ON THIS DAY by John Varvatos
• Optometrix
• OWN – West Hollywood
• Pacific Hills School
• Pacifique
• Phonomenal
• PUMP
• Raffi Jewelers
• Rage
• Rock & Rover
• Rounderbum
• Sameday Health
• Sprouts
• Starbucks
• Subway
• Tabarka Studio
• Traktir & Royal Gourmet
• Taste
• Terner’s Liquor
• The Chad Allen
• The French Apartment Gallery
• The Standard Hotel
• The Wing
• Tortilla Republic
• UNCOOL Burgers
• Union Bank
• Unity
• Warrior Restaurant
• Weingarten Nostat, Inc.
• Wrap Star
• Yogurt Stop

Businesses that changed business model:

• The Den on Sunset – concerted local pub into fine dining
• Sweet Greens – no servers

Businesses forced to relocate:

• Amarone (now in LA)
• Gym Bar (still weho)
• ZPizza (still weho)
• Bossa Nova (still weho)
• Trust Hair (LA)
• Lily Lodge – moving in Sep