Fancy South Korean grocer PK Market to open first U.S. store in downtown L.A.

September 27, 2018

By Roger Vincent | Los Angeles Times

At popular new supermarkets in Seoul, customers can do more than order a prime cut of meat, trimmed to their wishes. They can sit down at a small eatery in the meat department and order a grilled meal, or dine on tempura and sushi where fresh seafood is sold.

Mixtures of groceries and casual dining are sprouting in upscale markets all over, and Angelenos will get to see a South Korean version of one after that nation’s largest retailer launches its first U.S. outpost in downtown Los Angeles.

PK Market, which also sells prepared foods to go, is expected to be a competitor for Whole Foods Market and other high-end grocers in the region.

The South Korean grocer has leased the first three floors of the former Ville de Paris store at 7th and Olive streets, which was the height of fashion when it opened in 1917 but was last used for jewelry-making and sales.

Landlord Atlas Capital Group is renovating the brick-faced structure for retail and office use. PK Retail Holdings, a subsidiary of South Korean retail giant Shinsegae, agreed to rent nearly 52,000 square feet, about half of the building.

Shinsegae is a massive diversified retail company that took in more than $28 billion in revenue last year. It operates department stores, supermarkets and convenience stores.

It’s E-Mart chain of hypermarkets — similar to Walmart Supercenters — recently garnered amused headlines in the U.S. with its new six-packs of bananas of varying ripeness enabling consumers to eat an optimally ripe banana on consecutive days. Shinsegae, which means New World in Korean, also operates standalone stores with separate product lines such as electronics, beauty supplies and toys.

PK Market is a new concept for the company. So far there are only two stores in Seoul, with a third on the way. Some large signs in the stores are in English because PK Market is targeted to young internationally minded consumers in South Korea who often speak English, a spokesman said.

Terms of the PK Market lease in Los Angeles were not disclosed, but listed asking rents for the building suggest the deal is valued at more than $40 million.

When it opens at the end of next year, PK Market will have an equal mix of groceries and food and beverages for sale, company spokesman Neil Stern said.

PK Market may have a food hall on one floor and a grocery mart on another, or mix the two together in equal parts the way it does in South Korea, Stern said. Its third floor will contain company offices.

“This is a pilot store for the U.S.,” Stern said. “They will learn from it.”

PK Market operators will also learn how they fare going head to head against Whole Foods. The market’s location in the building now called 7th & Olive is a stone’s throw away from a Whole Foods store at 8th and Olive streets. The downtown Whole Foods features an in-store bar and restaurant called Eight Bar that is separated from the grocery shelves.

New York retail analyst Burt Flickinger expects PK Market to challenge Whole Foods despite the chain’s acquisition last year by Amazon.com Inc. for nearly $14 billion.

“PK Markets are very good operators,” Flickinger said. “They can really run the table against Whole Foods and get scale beyond this opening salvo of a store.”

The Southern California grocery business is highly competitive, he said, but there are many desirable store locations available to PK Market there and elsewhere in the country as retailers with large footprints such as Kmart, Sears and Sports Authority close branches.

Many mall landlords may be willing to offer PK Market discounted rent to get the market to fill big gaps in their shopping centers, Flickinger said.

Still, launching a supermarket chain in Southern California is not without peril — other big players have foundered in their attempts.

British supermarket giant Tesco launched Fresh & Easy markets a decade ago and ended up in Chapter 11 bankruptcy protection. Northwest supermarket chain Haggen and Japanese convenience store operator Famima had grand plans but bailed out a few years ago.

Meanwhile, with its new Amazon ownership, Whole Foods is better positioned than others, retail consultant Jonathan Ziegler of Santa Barbara said.

Amazon has deep pockets and potent delivery skills that improve its competitive flexibility, he said. Already, Amazon has cut some prices at Whole Foods, made products available on Amazon’s website and leveraged its Amazon Prime service by offering discounts to members.

As for the L.A. strategy of PK Market, “testing it next to a strong operator like Whole Foods makes a lot of sense,” he said, and there is room to grow in the region.

“Southern California is a sizable market with many mouths to feed and a lot of ethnic diversity,” Ziegler said.

Whole Foods did not respond to a request for comment.

PK Market considered renting a former Fred Segal store in Santa Monica and other Westside locations before settling on downtown, said real estate broker Mike Condon Jr. of Cushman & Wakefield, who represents 7th & Olive landlord Atlas Capital.

A development boom in recent years has lifted the once-forlorn blocks around 7th & Olive. Hundreds of apartments have been built there, including the new high-rise Atelier on Olive Street where monthly rent for a two-bedroom unit can top $10,000.

A $250-million makeover has transformed the nearby Bloc shopping, hotel and office complex. Vacant 1920s office buildings were turned into hotels including the NoMad, a 12-story deluxe inn on 7th Street that was once the L.A. headquarters of Bank of America founder A.P. Giannini.

Another former 1920s office building on 7th Street houses loft apartments and Bottega Louie, one of the highest-grossing restaurants in the region.

“Owners of some of the historic buildings on the block are really stepping up and turning them around,” Condon said.

The pending arrival of PK Market is also an indicator of growing Korean influence in downtown L.A., where the owners of Korean Air last year completed the $1.35-billion Wilshire Grand Center hotel and office tower.

Negotiations on the PK Market lease took place in the 70th-floor lobby bar of Wilshire Grand’s InterContinental hotel, Condon said. “That’s where the deal was banged out.”

The Wilshire Grand is five blocks west of PK Market’s location on 7th Street, which was once downtown’s premier shopping corridor. In 1917, The Times reported that “pick-and-shovel men” were busy building the new West 7th Street shopping district that would include a new location for Ville de Paris, which was then on Broadway.

In an ad for the new store after it opened later that year, Ville de Paris declared 7th and Olive to be “the center of fashion’s concourse” and offered ladies’ dress hats of beaver and velvet for as much as $35 — the equivalent of nearly $700 in today’s dollars.

Today, “downtown L.A. is a transforming market,” Stern said, with potential PK Market customers among thousands of residents as well as office workers in the financial district.

PK Market could stir a battle among the region’s big supermarkets, Flickinger said.

“It’s going to be a slugfest,” he said, “where the winners are Southern California shoppers.”