Natrol Battles Competition In Focus on Core Markets By JACQUELINE FOX Staff Reporter Natrol Inc., the Chatsworth-based manufacturer of herbal and dietary supplements, continues to face fierce competition for shelf space from national retailers stocking up on their own brand of products. The company’s traditional markets vitamin centers, health food stores and specialty grocers remain loyal and relatively strong outlets, offering Natrol some relief. In addition, returns and reimbursements for damaged or outdated items for the company in 2002 represented only 8.7 percent of gross sales compared to 2001, when returns amounted to approximately 14.5 percent of gross sales. Nonetheless, Natrol has been operating in the red for the last two years and it doesn’t appear as though 2003 will wind up much different. The company lost $6.1 million on revenues of $70.3 million in 2002, compared to a loss of $20.3 million on revenues of $76.2 million in 2001. For the third quarter ending Sep. 30, Natrol lost $392,000 on revenues of $17,599. Natrol’s stock on the other hand has shown promise. After hovering at just above $1 a share for much of the first half of the year, the stock hit a high of $3.55 in September and remained at around $2.65 for most of the third quarter. The company’s stock closed at $2.65 on Dec. 18. “The competition from private labels remains very tough for us,” said Dennis Jolicoeur, Natrol’s vice president and chief financial officer. “However, we do see our core business solidifying, which we think is positive. Our rate of returns on products we are unable to sell has also declined substantially, down from 16 percent in 2001 to roughly 5 percent in 2002 and we are pretty happy with the stock price.” Closing units Natrol’s strategy has been to delete slower-moving and unprofitable products and reduce competition with private label “house” brands. In addition, Natrol also shuttered all but its warehousing and distribution units at its Prolab operations in Bloomfield, Conn. in August, slashing about 10 jobs and bringing some executives back to Chatsworth in order to consolidate operations for that division, which develops sports nutrition and performance enhancing products for athletes and others. “We have more people here in Chatsworth and more resources and by bringing folks out here we won’t have people working in isolation,” said Jolicoeur. “The impact of the Prolab consolidation won’t show up for 2003, but we do expect it to have an impact on our growth in 2004. We think the operation will be more successful here because our efforts will be much more coordinated. So, we are cautiously optimistic that we will see some moderate growth in the next year.” Natrol also manufactures Laci Le Beau Teas, as well as a number of products under its Essentially Pure Ingredients and Annasa lines. In addition to concentrating on core markets, company officials and others tracking the industry are hoping that beefed up legislative oversight of the sector may also help Natrol strengthen its numbers going forward. Several years after federal legislation was first introduced to toughen up regulations of the industry, the U.S. Food and Drug Administration has begun to crack down on unscrupulous manufacturers making false claims on their products, a phenomenon that ran rampant in the 1990s that resulted in an outpouring of negative coverage in the press. Industry standards “Laws have called on the FDA to come up with good manufacturing standards for the industry, and in March of this year they finally came out with a proposal for doing just that, but it took nine years to get here,” said Jon Benninger, director of business development for Natural Products Industry Insider, a Phoenix-based trade association for the industry. “When these new guidelines were first established earlier this year it was projected that 25 out of every 100 companies out there wouldn’t be able to fully comply. So the people who are going to be impacted are those who are operating illegitimately, and that will benefit the upstanding companies, such as Natrol.” Analysts that once covered Natrol have put the company on their back burners to essentially allow time for the industry to reconstitute itself. But Benninger says, despite Natrol’s financial woes, there are strong indicators the company will still be standing firm, once the dust settles.

Mega-Mergers Bring Valley Mixed Blessings By SHELLY GARCIA Senior Reporter Two large M & A; deals in 2003 put the San Fernando Valley on the national radar screen. That’s both good news and bad news for the region. The transactions reflect the growing size, stature and visibility of the Valley community, which has had to build back its economic base since the loss of much of the aerospace industry in the early 1990s. But with the two largest deals, as well as many of the smaller transactions that occurred this year, local companies will become part of organizations headquartered elsewhere, and that could dilute some of the benefit that often comes from a local corporate citizenry. “Even if employment stays the same, with corporate headquarters here you have that philanthropic center here,” said Daniel Blake, director of the San Fernando Valley Economic Research Center at Cal State Northridge. “So the Valley becomes first in line as the recipient for corporate philanthropy. To have the headquarters move, troubles me.” The planned acquisition of Wellpoint Health Networks Inc. by Anthem Inc. will move the corporate headquarters of the Blue Cross parent to Indianapolis, where Anthem is based. So far, officials have said they expect layoffs at the Thousand Oaks-based offices of Wellpoint to be minimal, but one of the primary goals of the merger is to streamline operations and cut costs, and in the corporate pecking order, resources typically go first to the parent company. Besides, it is likely that the top officials at the company will be headquartered in Indianapolis, largely removing the very people most likely to make decisions regarding the company’s involvement in community events and issues. That may not be the case with regard to the acquisition of Newhall Land & Farming Co. by a partnership of Lennar Corp. and LNR Property Corp., Miami-based real estate companies. The nature of real estate development requires companies to become involved in the communities where they operate. Still, the new management is likely to approach those duties somewhat differently than the home-grown managers whose children were raised and schooled on the land they developed. Both mergers are still undergoing a battery of regulatory and shareholder approvals. The Wellpoint deal, which is valued at about $16 billion, is expected to close in the spring. The Newhall sale, for just under $1 billion, could take place as early as the first quarter of next year. Shift in climate The moves were among a very few that took place during 2003, a year that saw companies remaining cautious about any large scale changes, but they also reflect a budding change in the M & A; climate, experts said. “While the M & A; river did not grow as much as we might have hoped, 2003 is likely to see the first yearly increase in terms of number of transactions since 1998,” wrote Glenn A. Gurtcheff and Jeff A. Rosenkranz, co-heads of Middle Market M & A; at USBancorp Piper Jaffray in the recently released report, Mergers & Acquisitions Insights; Middle Market M & A; Outlook 2004. “This signifies an important shift in momentum within the market that should carry into 2004.” Since 1999, which represented the height of the most recent M & A; cycle, companies have retrenched, tending to their own troubled balance sheets, a series of new reporting and corporate governance requirements and plummeting values on Wall Street. But recent reports of improvements in productivity, profits and stock market performance are leading some to conclude that the tide may be turning for the M & A; market. “M & A; is the ultimate expression of confidence,” said Steve Weisner, a partner at Zuma Capital Partners, a private investment firm in Woodland Hills. “The ultimate expression a CEO can make is to go out and buy another business, so they’re comfortable enough with their business to go out and buy someone else’s business, and you’re starting to see that.” Cautious approach So far at least, those that have ventured into the M & A; arena are treading carefully. Most of the deals are cash, not equity transactions, an indication that stock prices continue to be depressed and sellers see less value in paper transactions. And the finance market continues to be reluctant to value deals on a cash flow basis as lenders did in the 1990s. Weisner said the capital markets are still gun shy from that period, when deals made on the basis of the company’s anticipated cash flow came back to bite the lenders, and are opting instead for asset-based deals. The trouble is that many of the mid-market companies and much of the current economy is service based, with little in the way of assets on which to collateralize a loan, so a large segment of the economy is still shut out of any M & A; action. “When cash flow lenders are aggressive, the middle market improves,” said Weisner. “It’s confidence, and a willingness to believe the economy is going to gain momentum. We’re getting there. We’re not there yet, but it’s definitely getting better.”

Faces of the News: Making A Mark in Their Own Way Bob Scott, director of the CivicCenter Group and vice chairman of governmental operations for the Valley Industry and Commerce Association saw his multi-year effort to obtain a separate U.S. Census district for the Valley come to fruition. The city council approved a motion to push for the changes at the federal level Dec. 5, following an earlier vote of support for the new district by the Los Angeles County Board of Supervisors. Scott was also chosen Nov. 7 as this year’s recipient of the Fernando Award for public service after six previous nominations. Robert “Bud” Ovrom resigned in February from his 17-year post as the city manager of Burbank to head up the Community Redevelopment Agency of Los Angeles. Ovrom called the move “the challenge of a lifetime,” but it was also considered risky by some who know both Ovrom and the inner workings of the CRLA because it pulled him out of small-town USA and put him in charge of one of the city’s most bureaucratic and beleaguered departments. Mary Alvord, assistant city manager in Burbank, was tapped to replace the widely popular Ovrom after a relatively brief search for his successor. Alvord immediately faced budget cuts and concerns over traffic in the community when she assumed her post. Tony Cardenas was elected to the Los Angeles City Council representing the Valley’s 6th district in March after serving three terms in the state Assembly. Cardenas, a Democrat from Mission Hills, also ran against former DreamWorks SKG executive Wendy Greuel in a runoff election in 2002 to fill the open 2nd District seat on the council. Greuel defeated him in that race. The vacancy arose after veteran councilman Joel Wachs resigned following an unsuccessful run for mayor of Los Angeles. Greig Smith was handily elected to the Los Angeles City Council representing the Valley’s 12th district in May. Smith took 61 percent of the votes against former LAUSD board member Julie Korenstein in a runoff election to replace his old boss, City Councilman Hal Bernson. Smith served as chief deputy for Bernson throughout his time in office. Bernson, after representing the West Valley’s 12th district for 24 years, was forced out by term limits in July. Accused by some critics as being soft on development in the area, Bernson was at the same time lauded for his efforts to better prepare the city for earthquakes. Jordan Levin, who joined The WB Television Network when it hatched in 1995, was promoted from entertainment president to CEO in October and will take over the position vacated by retiring CEO Jamie Kellner in May 2004. Under Levin WB will likely continue with its youth-oriented and profitable programming, experts say. Peter Paul, co-founder of the now defunct Encino-based Stan Lee Media, was corralled by federal authorities in New York in September. Paul, extradited from Brazil, will face conspiracy and fraud charges in connection with an alleged plot to pump up the stock price of the company and profit from stock sales. State Assemblyman Keith Richman, who ran for mayor in what would have been a new Valley city had the secession vote succeeded in 2002, was quick to form a new group to address the area’s concerns shortly after Measure F failed. He says with interest in a new secession drive apparently waning, The Valley Group is losing steam. David Russell, a professor of finance and insurance at Cal State Northridge, was appointed in April as the new director of the school’s Family Business Center. He has pledged to do more marketing of the center to increase its visibility in the area. Saul Gomez, who served as economic development director for the Economic Alliance of the San Fernando Valley for four years, left the association in May for a position with the Los Angeles offices of Ernst & Young. Jeff Brain, former president of Valley VOTE which led the secession effort, resigned his post and was succeeded by Joe Vitti, who said an L.A. breakup is currently off the group’s radar screen. He said it will focus on being a governmental watchdog. Michael P. Fronmueller stepped down from his post as Dean of the CSUN College of Business and Economics in July. He will continue to serve as co-director of the college’s District 3 Regional Lead Center for the Small Business Development Network in Los Angeles, Ventura and Santa Barbara counties, and has joined the faculty at the university’s Department of Management. Fred Evans, former Dean of Cal State Fresno’s Craig School of Business and Economics, was named interim dean.

Business Journal Moves Offices to Larger Quarters By JASON SCHAFF Editor Spurred by growth both in circulation and advertising revenue, the San Fernando Valley Business Journal has moved to new offices effective Dec. 22, doubling the size of its headquarters. The 8,500-circulation bi-weekly newspaper is now located at 21600 Oxnard St., Suite 250, in Tower 1 of the Warner Center Towers in Woodland Hills, 91367. According to Publisher Pegi Matsuda, the seven-year-old publication had simply outgrown its offices in a nearby location in Warner Center. Its new headquarters will provide greater room to expand operations. “Each year the Business Journal continues to grow and expand its readership, advertising revenue and its commitment to the San Fernando Valley business community,” Matsuda said. “Our new location offers us the opportunity to serve our readers and clients in a more operationally efficient environment.” Matsuda said she scouted new offices throughout the greater San Fernando Valley area but elected to stay in Woodland Hills because of its central location in the publication’s circulation area which includes the San Fernando, Conejo, Simi, Santa Clarita and Antelope valleys as well as the city of Glendale. Telephone numbers at The Business Journal, which will have a staff of 10 full-time employees in January, will not change.

Despite Changes in Health Care, Self-Funding May Be Answer By RICHARD REICH For many years, self-funding has been a popular way for medium and large employers to manage their health benefits in a cost-effective manner. With a self-funded benefits program, an employer becomes the primary risk-bearer and assumes what would typically be an insurance company’s role. Instead of paying for an insurance policy, the employer establishes cash reserves to cover the health care claims of its employees. Traditonally, employers have taken the self-funding route when faced with rapidly rising premiums. Managing the stability and predictability of health care costs then becomes critical. It is the unforeseen, catastrophic claim that poses the most risk to a self-funded program. We are now entering a new era in health care, with complex technologies, expensive new procedures and heavier utilization of services by an aging population. Does self-funding still make sense? The answer depends upon many factors, including the employer size, the employee population and the local regulatory environment. In general, self-funding has worked best for employers with at least 500 employees, since this creates a broader risk pool. However, companies with as few as 200 employees may find it makes sense, depending upon their circumstances. Employee demographics are an important consideration. Historically, one key advantage of self-funding has been their federal regulation. These plans are governed primarily by the federal Employee Retirement Income Security Act (ERISA), which includes far fewer mandates than are included under most state regulations. For companies choosing self-funding, the top priorities need to be maximizing predictability and keeping total expenses at or below budgeted levels. Fortunately, a number of tools such as stop-loss policies, carve-out disease coverage packages and disease management programs are available to manage risk. Basic stop-loss insurance protects employers from individual catastrophic claims and aggregate stop loss policies can protect against higher-than-expected overall claims. However, as a result of rapidly rising stop-loss rates and a shrinking employer reinsurance market, some companies have found it difficult to obtain the needed coverage. There are a number of new options for employer to ensure financial predictability carve-out insurance policies. They can be seen as either an alternative or complement to stop-loss insurance. A carve-out insurance program enables an employer to transfer financial obligations for a specific health care condition to a third party. Typically, these conditions are either high cost or unpredictable, or both. With a carve-out insurance program, risk is typically transferred on a “first-dollar,” or very low (i.e. $ 10,000), deductible basis as soon as a covered employee is identified as needing a specific service. Moreover, carve-out programs are available to help companies manage more than just catastrophic claims. For example, one less emergency room visit per year for an asthma sufferer can quickly add up to significant savings to an employer’s plan, especially when carried out over the variety of carve-out programs currently available. When purchasing a carve-out program, most companies hire an experienced health care consultant or broker to set up and select the best portions of a self-funded program. Richard Reich, based in Glendale, is a regional director for Evergreen Re, a provider of reinsurance and risk reduction products. He can be reached at [email protected].

VALLEY BRIEFS Scheib Stores See Gains Earl Scheib Inc. recorded a 6.8 percent increase in same- store sales for the second quarter ended Oct. 31, although the company continued to lose money for the period. The Sherman Oaks-based company, which operates paint and auto body shops, recorded a net loss of $424,000 or $0.10 per share on revenues of $12.9 million for the quarter. That compares with net income of $764,000 or $0.17 per share on revenues of $12.8 million for the year-ago period Last year’s net income was attributable to the sale of real estate during that period. In commenting about the most recent performance, Earl Scheib CEO Chris Bement noted that same-store paint sales had increased for the second consecutive quarter and total sales increased compared to the prior year period despite the decline in the number of paint stores. “In addition, overall operating expenses, even in the light of significantly increasing insurance costs, were reduced and the financial liquidity of the company has improved from last year,” said Bement. Nexsan Nets $17 Million Woodland Hills-based Nexsan Technologies, a producer of digital storage products, secured $17 million from a group of investors led by VantagePoint Venture Partners, to add to an earlier-secured $13 million with the money going to fund expansion and growth, said vice president of marketing Brendan Kinkade, adding Nexsan has been growing “rapidly.” RRE Ventures, Gesfid First Gen-e and a syndicate of other individual investors formed by Beechtree Capital were involved in the first major round of venture financing for the company. Gesfid, which was involved in previous seed rounds is overseeing the development of Nexsan. Domenico Grassi, senior advisor at Gesfid, said in statement his firm believes Nexsan will “continue to dominate” the storage market. Nexsan received several industry awards, including Storage Magazine’s ‘Product of the Year’ for products that span uses from corporate, graphics, medical imaging to animation, special effects and financial on-line transaction data. VantagePoint manages more than $2.5 billion worth of capital investment in the IT industry. Hospital’s Early Gifts It is time for gift-giving, and the Weingart and Ahmanson foundations certainly have done their part already. The two philanthropies presented the Valley Presbyterian Hospital of Van Nuys with gifts totaling $600,000. The gifts from the Los Angeles-based philanthropies came within less than a week of each other and are designated to go toward construction at the hospital. Weingart’s contribution was $500,000 and Ahmanson’s was $100,000. In a statement, the hospital said the gifts bring its funds raised to $4.15 million of a $5 million campaign called Shaping Tomorrow. Hospital board members, physicians and employees, as well as a host of other donors have already contributed funds to the campaign. The hospital is building a new 127,000 square-foot tower that will include critical care and general acute care services and a children’s center, as well as help it comply with state-imposed seismic building codes. NTS Reports Revenue Jump National Technical Systems Inc., a Calabasas-based business-to- business IT services provider, reported a 21 percent increase in revenues for its third fiscal quarter, and a 35 percent increase for the first nine months of the fiscal 2004 compared to those from the previous year. The company said revenues were driven by increased testing in the military/defense sector and higher revenues from the company’s tech solutions business, as well as the fiber optic portion of its engineering and evaluation segment. Total revenues for the fiscal 2004 were $25.6 million, and for the first nine months, the company’s revenues totaled $79.6 million, compared to $58.9 million in fiscal year 2003. Dole Buys Pineapple Farms Dole Food Co., Inc. last week said it bought $15.3 million worth of Costa Rican pineapple farms. The company is the world’s largest producer of fresh fruit and vegetables, with reported revenues last year of $4.4 billion. Mimaki Comes West Mimaki USA Inc., a Georgia-based US subsidiary of Mimaki Engineering Company, Ltd. will open its first West Coast Regional Sales Office in the Conejo Valley on Jan. 1. The manufacturer of wide-format printers and cutting machines leased 8,500 square feet of space from Westcord Commercial Real Estate Services of Westlake Village for $600,000. The lease is for five years. Disney Goes Mobile Walt Disney Internet Group, a North Hollywood-headquartered Internet properties manager for The Walt Disney Co., launched its first Internet site for its wireless content offerings. Disneymobile.com will feature exclusively Samsung Telecommunications America mobile phones in its programming.

Real Estate Market Has Supply Shortage By SHELLY GARCIA Senior Reporter The only thing standing between 2003 and a record for real estate sales was 2002. That is, the descent of interest rates to record low levels was so steep and it lasted so long, that by the time 2003 rolled around much of the inventory was depleted. “2002 was just a record year for sales,” said Melissa M. Ertek, market research analyst for Los Angeles County at Grubb & Ellis Co. “so there wasn’t enough product out there for them to buy. Any product that came online, sellers were getting multiple offers before it made it to a listing service.” The story was the same whether it was residential or commercial real estate. And as supply depleted, prices climbed ever higher. In the residential arena, single family home sales through November in the San Fernando Valley totaled 12,690, compared with 12,756 for the same period in 2002, according to the Southland Regional Association of Realtors. But the real difference came in prices. Median home prices in the Valley reached $399,000 in November, 2003, up nearly 21 percent from $331,100 in November 2002. The supply crunch wasn’t much different in the commercial markets, where transactions were flat or down slightly, but prices soared between 2002 and 2003. In the Valley, 38 office buildings totaling 3,864,871 square feet changed hands through Dec. 16, 2003, compared to 26 properties totaling 4,908,288 square feet in the full year 2002, according to data provided by Grubb & Ellis. Prices jumped a whopping 30 percent to an average of $212.81 per square foot for the same period in 2003, compared to an average per square foot price of $164.10 in 2002, the Grubb & Ellis data revealed. On the industrial side, 106 properties totaling 3,380,025 square feet were sold in the Valley through Dec. 16, 2003, compared to 111 properties totaling 3,537,023 square feet in the full year 2002, Grubb & Ellis reported. The average price of an industrial building for the same period in 2003 was $87.92 per square foot, compared to $75.75 per square foot for the full year of 2002, according to Grubb & Ellis. In some cases, prices rose high enough in these commercial markets that many buyers found the profit from sales more attractive than the revenue streams these buildings were generating from leasing. In other cases, the availability of financing coupled with the low cost of money drove businesses to look for facilities to buy instead of renting. “With SBA programs, it’s cheaper to own than rent,” said Gary E. Mozer, CEO at George Smith Partners, a real estate financing and consulting firm in L.A. “Both in absolute dollar basis and when you look at the after-tax consequence it’s magnified.” Transactions in the multifamily market were down considerably in 12 of the 17 submarkets in the San Fernando Valley, according to a report just issued by Hanes Investment Realty Inc., but cost per square foot climbed anywhere from 6.3 percent (in Studio City) to more than 45 percent (in Chatsworth), the data revealed. “There’s definitely fewer sellers because the properties are doing so well,” said H. Bruce Hanes, president of the brokerage that specializes in multifamily properties.

Smaller Centers Grapple With Closure of Retail Chains By SHELLY GARCIA Senior Reporter The new owners of the Brown Center in Tarzana barely had time to toast the close of escrow when Toys ‘R’ Us Inc. announced that it would close 36 Imaginarium stores, a move that plucks one of the most prominent anchors and a centerpiece of the Tarzana Business Improvement District from the complex. Imaginarium is one of at least three national and regional chains that have closed or consolidated in the past year or so, effectively shuttering about two dozen store units mostly in smaller shopping centers around the San Fernando Valley. While center operators insist that these closures are part and parcel of a continually churning retail landscape, there is increasing evidence that the recent events are a sign of a more long-term trend. “The box market of stores between 25,000 and 40,000 square feet is slow and steady, but not really exploding,” said Chris Wilson, president of Wilson Commercial Real Estate, a real estate brokerage that specializes in retail properties. “And the only places where those tenants are aggressively pursuing sites is in major power centers that have a Kohl’s, Wal-Mart or a Target.” Shopping centers are continually evolving as retail trends come and go. But the growing dominance of these major discount chains along with the consolidations among other retailers has made business more challenging for smaller complexes. “I think what you’re seeing is further consolidation of retail sold at fewer locations that are more super-store oriented,” Wilson added. Just days after the announcement of the closure of Imaginarium, which will also affect The Commons at Calabasas and a smaller strip center in Studio City, FAO Inc. announced for the second time that it would file for bankruptcy protection and could close its remaining FAO Schwarz, The Right Start and Zany Brainy stores before year end. Earlier, Strouds Acquisition Corp. liquidated its linen stores; Wherehouse Entertainment Inc. shuttered the majority of its 400 units, Best Buy Co. closed down about 150 of its Musicland division units, including Sam Goody stores, and Kmart Corp. and J.C. Penney Co. Inc. both underwent considerable downsizing. The closures hit a range of centers, from enclosed malls like Glendale Galleria, which lost its FAO Schwarz and Zany Brainy stores, and Westfield Shoppingtown Topanga, which lost a Right Start; to Laurel Promenade in Studio City which once housed a Wherehouse unit, and Ventura Boulevard, where Strouds had two locations, in Studio City and Encino. Some of the spaces, such as those at Glendale Galleria and Shoppingtown Topanga, were quickly filled again. But finding new tenants has taken longer for others, particularly the smaller complexes. Vacant sites At Laurel Promenade, where the Wherehouse closed about one year ago, a new tenant has not yet been signed. The Strouds Studio City site also sits vacant. It was two years before Imaginarium was signed to replace a vacancy left when Limited Brands decided to close two of its freestanding store units in the Brown Center. “We had offers on the space, but they weren’t the right offer for the mix we were looking for,” said Brad Pearl, vice president of leasing and acquisitions at Newmark Merrill, the former manager of the Brown Center. “There’s no doubt from a leasing standpoint a lot of work goes into every lease we sign and a lot of scrutiny. We’re certainly not happy about the situation, but we understand.” Some center operators say the continual churn of retailers can often present opportunities. When JC Penney and Kmart left Fallbrook Center, it gave the owners an opportunity to completely overhaul the mall, bringing in Kohl’s and Home Depot, among other stores. And when FAO Schwartz left Glendale Galleria, it presented a perfect opportunity to bring in Talbott’s, a store the mall had been courting for some time, said Janet LaFevre, senior marketing director for the Galleria. “The last couple of years have been kind of challenging, but there is always a normal cycle of new concepts coming forward and old concepts fading away,” said LaFevre. Most center operators say they need a solid roster of national retail chains because it helps with financing terms, but, especially where smaller malls are concerned, having a mix of independents can also help differentiate the center. Those stores are not always easy to lure they don’t expand at the rate of the chains and they are in high demand. “They’re tough to get,” said James Ashton, president of AFC Commercial Real Estate Group, which has represented the Commons and The Grove, among other centers. “Eveyone wants them so they’re not paying big rent and they’re getting a lot of tenant allowance. But if we can fill up 25 percent with that unique tenant from New York or San Francisco or Laguna Beach, that’s what makes it.” Upgrade planned The new owners of the Brown Center share that outlook. “Whatever happens at Imaginarium is not going to affect our plans,” said Bryan Gordon, CEO of Pacific Equity Properties Inc., a Santa Monica-based developer that closed escrow on the Brown Center about two months ago. “We’re looking to upgrade the tenancy, not only with national credit tenants, we’d like a mix of local tenants as well.” Gordon said he envisions more of a lifestyle approach for the 85,000-square-foot center, with restaurants and other areas to congregate. Although he wouldn’t say how much, Gordon added that the company is prepared to make an additional investment into renovating the center. “Imaginarium departing sooner than anticipated would probably partially bring forward that phase,” he said. Tarzana’s Business Improvement Association is also optimistic about the opportunities that may result from the closure of Imaginarium. “Wal-Mart had 20 percent of sales in the first week of holiday shopping,” said Greg Nelson, president of the Tarzana Business Improvement Association. “How do you compete with that? I’m hoping the BIDs are able to compete because they’ll have some stores with character.” To some degree, the stores that are now closing reflect categories that have passed their prime on the retail scene. The lion’s share of toy sales have moved to Wal-Mart and Toys ‘R’ Us, and the emerging category of electronic and digital toys are now being sold at stores like The Sharper Image and Radio Shack. Likewise, the rise of the Internet has taken its toll on record sales and, with them, record stores. “Look at record stores,” said Michael Lushing, senior leasing manager for Westfield Corp. “For forty years, record stores were huge. They’re all gone. Between downloading music or buying stuff at Wal-Mart and Target, these guys have no chance.” Meanwhile, new categories are emerging and expanding. The Galleria has added several personal care stores like L’Occitane that sell fragrances and lotions, and at Shoppingtown Topanga, the former Right Start space will be taken over by an extension of Victoria’s Secret devoted to beauty products. “The players change,” said Lushing. “It’s categories that didn’t exist before that exist now and categories that were there five years ago are gone.” Shifting Retail Landscape Some of the store groups closing. Parent Unit Toys ‘R Us Imaginarium Kids ‘R Us FAO Inc. Zany Brainy FAO Schwarz The Right Start Best Buy Co. Sam Goody