South Coast Plaza

South Coast Plaza is an upscale luxury shopping center, the largest mall on the West Coast.

Its sales of over $1.5 billion annually are the highest in the United States. 250 retailers represent the highest concentration of design fashion retail in the U.S, with the second highest sales-volume in California. South Coast Plaza defines the luxury shopping experience with extraordinary boutiques, personal shopping services, and upscale amenities all within a short distance of the world’s most magnificent beaches and vacation resorts. South Coast Plaza is recognized internationally for its unparalleled retail collection and award-winning restaurants.

History

Costa Mesa was incorporated ion June 16, 1953. The Segerstrom property that would eventually be developed into South Coast Plaza was annexed to Costa Mesa in 1957. By the 1960s the Segerstrom family was convinced that the newly incorporated City of Costa Mesa would be in need of increasing tax revenues in order to expand community development and services. With this in mind, the Segerstroms reasoned that the city would be supportive of a major Segerstrom retail development.

City officials and real estate experts advised against this reasoning, warning that such a development would never succeed because the proposed site it did not have enough of a residential population base within a five mile radius to support it. If a retail center was to be built in Costa Mesa, Henry Segerstrom knew that its success would ultimately depend on Interstate 405 and where it would be located as it passed through Orange County on its way to San Diego.

Transportation

With due diligence, Henry Segerstrom hired a shrewd and politically sensitive land-planning consultant in 1962. C.J. Segerstrom & Sons, led by Henry Segerstrom and the consultant, lobbied to have the state highway planner reroute the southern section of the San Diego Freeway through Segerstrom property, the future home of the retail site they planned to develop. Although the area was still predominantly a farming community, Henry Segerstrom understood that a realignment of this major highway through his family’s property would further the family holdings into the future economy of Orange County and set the stage for considering still other uses for its properties, such as cultural and entertainment amenities.

Anchoring Retailers

The major department stores—Sears, the May Company, the Broadway, and Bullocks—had been watching the population growth of Orange County. During the 1960s, Sears and the May Company decided they would jointly develop regional shopping centers in California. Sears approached Henry about building a shopping center on his family’s property. The eastern estate manager of Sears, John Wadham and Henry Segerstrom met and agreed to work together on the project. Sears then brought in the May Company and although everyone involved in 1962 knew that a freeway was planned adjacent to the Segerstrom property, it was not apparent which of the two stores would be sited directly next to it. Sears and May Company negotiated between themselves and once they agreed, South Coast Plaza began construction and the May Company was built closest to the freeway. In March 1968, a year and a half after the May Company opened, the San Diego Freeway also opened.

Architecture

Plans for building an enclosed retail shopping center progressed in tandem with the construction of the new freeway between Los Angeles and San Diego. The latter would enable hundreds of thousands of county residents to be within a 30-minute drive of the retail center. Once prestigious anchor stores were secured for the first phase of the center’s plan, Henry Segerstrom began to interview architects for the project, settling on Victor Gruen Associates, a firm that pioneered shopping mall design. Established in Los Angeles in 1951, the firm was the first to design and build a completely enclosed, air-conditioned shopping mall in the United States.

The first planned section of South Coast Plaza was designed with removable panels that would enable the center to be extended and expanded if needed. The design and development of South Coast Plaza was undertaken with an exceptionally large-range point of view for expansion and a long-term ambition to be the largest and most successful retail center in America. In turn, these decisions and commitments would ensure a prosperous future for the residents of Orange County.

Expansion

South Coast Plaza opened to the public In March 1967 and almost immediately began to enlarge. After six years, the shopping center had approximately seventy specialty stores and then expanded further in 1973 with the construction of South Coast Plaza Village, bringing restaurants, more shops, and cinemas into the overall complex. When a hotel was built in 1975 and a park was created in front of it, the nucleus of the 77 acres was formed and a master-planned South Coast Plaza Town Center was realized.

“Rents for retailers are high at South Coast Plaza but they are “carefree rents.” Henry Segerstrom defended this position, noting that the Segerstrom firm employs its own security and maintenance teams. Each year South Coast Plaza maintained a marketing budget of $10 million or more and spread its advertising over a 100 mile radius in California and the West Coast, as well as marketing efforts internationally. Tenant stores paid for common fund expenses that included lighting, air conditioning and other facility items. The reasoning was that if business thrived, everyone one would share the bounty with the Segerstrom firm through a percentage rent system. That is, if a store’s sales went above an agreed target, a further rent was charged on the higher totals.

Financing

Although the Segerstrom family were successful farmers and developers, in the early 1960s they did not have the financial resources to build such a large shopping center. The credit limitation on the family business was approximately $850,000. The father of Brad Lundberg, a fraternity brother of Henry Segerstrom’s at Stanford University, was Louis Lundberg, then head of the California Chamber of Commerce. Louis Lundberg would become chairman of the Bank of America with offices in Southern California. Henry Segerstrom negotiated credit from the Bank of America through Lundberg and was offered a $5 million loan to proceed with the project. The terms were with a fixed interest of 5½%.

In December of 1962, Robert Clements, the architect who had designed the Segerstrom family office building in Santa Ana, informed Henry Segerstrom that Sears was looking for a new store site. Segerstrom and his land-planning consultant, Ted Adsit, met with John Wadham, the Western real estate manager for Sears and learned Sears was indeed interested. The chain store had recently completed a shopping center in Buena Park, 22 miles north and east of Costa Mesa. Sears also asked May Company to join it in the proposed Costa Mesa shopping center project.

During the early study phase, Henry Segerstrom hired Larry Smith, a land development economist from Seattle and his associate, Jerry Rogers, to analyze the economic situation in Orange County. They understood that the market in Orange was quickly growing and Henry Segerstrom decided to build and to increase the initial size of the project by an extra 100,000 feet for future expansion.

Compromises

As construction continued through the mid-1960s for South Coast Plaza, the Segerstrom family sold store sites to Sears and May Company for $1 apiece, on conditions that the retailers pay to have roads paved and electric and water utilities installed. This agreement allowed the Segerstrom family to economically extend those utilities in order to build their larger envisioned project. May Company opened its store in 1966. In 1967 South Coast Plaza, with May Company, Sears, a Woolworth store, and more than 60 smaller shops opened —one year before the 405 Freeway was completed in March 1968.

Borderless Marketing

In 1967 and 1968, the merchants’ association of South Coast Plaza confronted Werner Escher, the director of marketing, promotion, and international tourism for South Coast Plaza. They were unhappy and concerned about a lack of customer traffic.

To rectify the situation and attract visitors to the new center, Escher tried staging car shows, ice skating performances, and an antiques fair—all with questionable results. Then in 1969, Escher proposed an Alaska festival. He contacted the Governor of Alaska, Keith Harvey Miller at the time, and the Governor of California, Ronald Reagan. In 1969 both heads of state came to open the Alaskan trade and travel show at South Coast Plaza. It was a good marketing extravaganza. Escher staged a dogsled race (on wheels instead of blades) between the public officials of Alaska and California. The success of the Alaska festival led Escher and Henry Segerstrom to stage the British Expo international event the following year,.

This event was also a huge success. The foray into international showmanship was a turning point, leading in subsequent years to festivals for French, Italian and other countries’ fashion and merchandise, expos that are commonplace today. The reactions to these shows led Henry Segerstrom and his marketing professionals to form valuable relationships with Japan and China as those economies rose in the ranks of international tourism. Henry Segerstrom referred to his approach as “borderless marketing.”

Today more than 30% of South Coast Plaza’s customers come from outside Southern California and as many as one fifth come from abroad.

Distinctive Retail

When In 1972 Henry took the his family to Seattle to evaluate the Doubletree Hotel chain as a possible tenant for a hotel near South Coast Plaza, he was also taken to a retail store called Nordstrom. High impressed with its efficiency, polite sales staff, and the quality of its merchandise. Henry became interested in the company.

Henry was introduced to John McMillen, one of the sons-in-law in the Nordstrom family. McMillen introduced Segerstrom to Bruce Nordstrom, who was chairman and grandson of John Nordstrom, the 1895 founder of the company. Nordstrom was a modest Northwest company in the 1970s, and only beginning to consider expansion outside of Alaska, Washington, and Oregon.

After four years of negotiations, Nordstrom agreed to open a store in South Coast Plaza. In 1978, Nordstrom leased a 150,000 square foot South Coast Plaza store, later to enlarge it, and it became the most productive store in the entire Nordstrom company.  After Nordstrom opened, South Coast Plaza continued to add important retailers to the center.

In 1976 and 1977, Henry Segerstrom and his wife Yvonne, invested in the companies of Andre Courreges and Yves St. Laurent as well as in the designer Halston in order to bring them to South Coast Plaza. Henceforth the retail center in the heart of Orange County would stand distinctively apart from others, not only locally but also across California and among the national fashion meccas of Michigan Avenue, Chicago and Fifth Avenue, and New York.

By the 1980s, Henry Segerstrom recruited one specialty retailer after another—bringing in Tiffany’s in 1988 and Chanel in 1990. Henry Segerstrom knew many of the tenants personally.  South Coast Plaza continues to define the luxury shopping experience with more than 250 boutiques, including Gucci, Louis Vuitton, Prada, and Apple stores, as well has a number of fashionable restaurants

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