The Real Deal New York

Foreign retail sets up shop in NY

October 26, 2007
By Sarah DiLorenzo

When real estate brokers talk about foreign retail brands moving to New York, it sounds like an American history teacher covering the early 20th-century waves of immigration.

For example, “If they can make it in New York, then they feel they can make it anywhere.”

Of course, before foreign retail brands make it here, they have to come here. Choosing a store location in Manhattan is daunting for any retailer new to the market, and brokers said that fear is compounded for foreign clients, who are aware they don’t know the market and are eager to see a return on high New York City rents.

While it may look like a wide-open field, there are a few small corridors where retailers new to New York congregate, brokers say. Where stores go depends on who their customers are, of course, but also where the upstarts are from.

“41 East 57th Street is the Ellis Island of luxury. Chanel, Vuitton, Celine all started in that building,” said Robert Cohen, executive vice president at Robert K. Futterman & Associates. Even if they don’t choose that particular address like those retailers, luxury brands still tend to pick that neighborhood.

“If it’s luxury, it’s obvious,” said Faith Hope Consolo, chairman of the retail division at Prudential Douglas Elliman, when asked where designer brands open their first New York store: “Madison, Fifth, 57th.”

These streets are filled with European brands, mostly because luxury seeks luxury. Consolo also said that Japanese retailers, for instance, tend to cluster near one another regardless of the product they’re selling.

For all foreign retailers, however, she said it’s about “where they feel safe,” whether that means grouping by nationality or price range.

“Madison is very important for someone to be recognized throughout the world,” Stuart Ellman, executive director of Judson Realty, said. “There’s a tremendous amount of branding involved” for luxury brands that set up shop on Madison.

As it turns out, companies at the opposite end of the spectrum also choose similar locations for their stores, albeit for very different reasons. Madison and Fifth also have something to give ready-to-wear labels. Stores like Sweden-based H & M and Spain-based Zara “need bodies,” Cohen said, which means they “need high-profile locations.”

Cohen said that while it may seem counterintuitive that luxury and discount brands would look for the same locations, major chains like H & M do sales volume similar to that of designers like Gucci, though H & M reaches those numbers with greater volume, while Gucci does it with higher prices.

A store on a highly trafficked street like Fifth Avenue can also serve almost like a billboard, many brokers said. “Sometimes taking a site on Main and Main is like taking a full-page ad in the New York Times,” Consolo said, especially important to foreign retailers who often forego advertising as a way of keeping costs down.

Zara’s parent company Inditex, for instance, said that when it chooses a location, it is looking for the “best commercial locations.” A company spokesperson explained that its “stores, especially our windows, are our ad campaign.”

While many of these stores are seeking to make a name for themselves in New York, they are still particularly sensitive to a certain kind of foot traffic: that of tourists from their home country.

Making it in New York has cachet, and these stores, especially the ready-to-wear chains, want the news to travel back home.

“It’s very important for them to feel that they’re being seen by people from their home country,” Consolo said.

Making it in New York, however, is not just about proving something to the people back home; it might also be central to the business plan of a company.

Putting a store on Madison might be a company’s way of getting the attention of Wall Street, Consolo said. They might “pick a location that’s well known and that will look good on their report,” she said.

Consolo explained that having a store on Madison is often a prelude to a company going public and issuing an IPO, or initial public offering, and therefore a way to introduce the store to Wall Street analysts whose opinions will affect share price.

Consolo also contends that one store in New York can be worth five in Europe, adding that stores here do “more sales per square foot than anywhere in the world.”

Of course, the drawback of putting a store on Fifth Avenue is that while the location may bring in a lot of customers, the retailer has to pay a top-drawer rent, a scary thought for a nervous company making its first foray into the New York market.

Cohen acknowledges that before a company starts doing that kind of business, “their first few deals may be stressful, stressful on the bottom line.”

In this way, American retailers have a leg up on foreign retailers. An American chain knows its customer base better and can pick a location more specifically tailored to it, and possibly save a bundle on rent.

More importantly, American chains have established customer bases, so they don’t need to make as much of a splash in New York, Cohen explained. A chain like Abercrombie & Fitch might eventually open a flagship on Fifth Avenue, but “they don’t do it first,” he said, giving them time to test the market in a less expensive locale.

Edgy retailers spurn Fifth Ave.

Even among foreign retailers, there are exceptions to the Fifth-first-and-then-the-world rule. Niche designers like Alexander McQueen and Stella McCartney, both from England, opened their stores in the Meatpacking District, which has become the “it” location for edgy fashion.

These stores have a narrower customer base, said Robert Cohen, executive vice president at Robert K. Futterman & Associates, and don’t need to broaden it the way the chains do. In fact, to a certain extent, their success depends on being rarefied.

“They like the Meatpacking because it makes a statement about their brand,” he said, about who they want to shop there and even about who they don’t want to shop there.

Of course, in a process similar to gentrification, as the Meatpacking District becomes a mecca for high fashion, successful ready-to-wear brands will eventually also want a piece of the pie.

“My guess is that you will see H & M in these very funky areas in the coming years. It’s just a matter of time,” Cohen said.

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