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SAN FRANCISCO-Skechers USA quietly opened the largest store in its chain in San Francisco’s tony Union Square shopping district a couple of weeks ago. Known for its shoes, the publicly-traded retailer from Manhattan Beach, CA, has taken over a three-level, 7,500-square-foot Art Deco building at the corner of Powell and O’Farrell streets, a prime corner location that sits on the city’s streetcar line on block from Union Square.

The historic building, located at 200 Powell, had been vacant since it changed hands in 2006 for $12.6 million, or $1,575 per square foot. The owner is Blatteis & Schnur, a Los Angeles-based national retail brokerage firm that in 2005 began investing in real estate with equity from Washington, DC-based ASB Capital Management. The sellers were Mary Chan, Tony Hui and Kenneth Hui.

“We believe it’s one of the top vacant corners in all of San Francisco; it’s the only available premiere location I’m aware of in lower Union Square where someone can have full-building identity,” a Blatteis & Schnur executive told GlobeSt.com at the time of acquisition. “We’d like to get it leased immediately; the demand is there. However, we are focused on finding the right tenant as our partner.”

The street and second levels of 200 Powell have 17-foot and 18-foot ceilings, respectively; the basement level has 13-foot ceilings. Prior to leasing the building Blatteis & Schur completed a full interior and exterior renovation that included a seismic retrofit and uncovering and resorting the building’s Art Deco façade. Architect Charlie Kridler, a principal at Gensler, headed up the design team. An executive with Blatteis & Schur was not available Tuesday for comment, but it’s clear that the company opted to hold out for the right tenant. Skechers reportedly signed a long-term lease.

A mid-2007 rent survey by Colliers International found Union Square to be the second most expensive rental market in the US, with an average street-level asking rent of $485 per square foot per year for retail space fronting Union Square. One block off Union Square, where Skechers is located, the street-level rents would be in the low $300s per square foot and the blended rate for all three levels would be approximately $120 per square foot, local sources tell GlobeSt.com.

Indeed, the Powell Street corridor starts with Gap Inc. and Forever 21 at Market Street. Moving toward Union Square, there’s Sephora, Urban Outfitters, and French Connection. Sharing the intersection with Skechers is Starbucks, Lids, and H&M, a clothing retailer from the UK.

“Historically, Powell Street has delivered lesser tenancies; in the last couple of years, however, it is seemingly the hottest retail street in San Francisco,” the Blatteis & Schur executive told GlobeSt.com in 2006. “Where Post Street might be considered high fashion, Powell is very quickly becoming the hip, young, trendy street.”

Skechers’ store at Powell and O’Farrell is what the company calls a concept store. Its concept stores are located at either marquee street locations or in major shopping malls in large metropolitan cities. The concept stores have a three-fold purpose for the company; to show off its full product line and showcase cutting-edge concepts; to generate maximum exposure through signage, store front and interior design; and to serve as marketing and product testing venues.

The showcasing is necessary because its wholesale customers (third-party retailers) on average carry no more than 5% of the Skechers line in any one location, and because highly visible branded brick-and-mortar locations are a well-known marketing tool.

The company’s other concept store locations include New York City’s Times Square; Hollywood and Highland in Los Angeles; Dallas’ Northpark Center; Las Vegas’ Fashion Show Mall; Seattle’s Bellevue Square Mall, and Woodfield Mall outside Chicago. Internationally, the company has concept stores on Oxford Street in London; in the Alstadt District in Dusseldorf; in Toronto’s Eaton Centre; and on Kalverstraat Street in Amsterdam.

Skechers net sales for the third quarter were $403.2 million, only marginally higher than the same period in 2007, when net sales were $395 million but a record nonetheless because it was the first time the company’s net sales topped $400 million. Net earnings for the third quarter were $28.3 million versus net earnings of $24.7 million in the third quarter of 2007. The net earnings benefited from a tax break resulting from an advance pricing agreement reached with the Internal Revenue Service that will lower the company’s ongoing effective annual tax rate to 27% from 34%.

“Although we achieved record revenues, we did not grow quite to the degree that we had expected in our domestic, international and retail businesses due to the economic climate,” Skechers CFO Fred Schneider said in a statement. “However, based on our high single-digit backlog increase and reports from our key retailers, we believe that our product is well-positioned in the marketplace and will withstand the current economic challenges.”

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