Bookstores move to the basements

Rising rents force even the big chains to relocate
By Barbara Thau | May 01, 2008 08:09PM

Chelsea lost a mainstay of its cultural nerve center last month when its block-long Barnes & Noble closed its doors for good after 14 years on Ladies’ Mile.

The store has fast become the seminal symbol of the micro- and macro-challenges facing the national bookstore chains in New York City: Soaring rents and competition from online retailers such as Amazon.com are pressuring Barnes & Noble (with nine Manhattan stores) and Borders (with five Manhattan stores) to carve out a more affordable real estate model that includes multi-level stores and basement locations.

These book chains are also exploring ways to jazz up their New York City stores to boost foot traffic and offset costs — such as partnering with another retailer the way Duane Reade has added Chase ATM machines to its drugstores, brokers said.

Battle for book chains

Nationwide, the souring economy, surging online book purchases and competition from discounters such as Wal-Mart and Costco have eaten into the book chains’ profit margins.

Borders is now exploring a sale of the company, and there have been whispers that Barnes & Noble could scoop up its rival.

“Their profits have not increased proportionate to the rent increases in New York City,” said Andrew Mandell, a broker with Ripco Real Estate. “Add to that equation online sales, and it becomes that much more prohibitive” to open stores in this market.

The book chains’ online arms are also cannibalizing business from their retail stores, added Robin Abrams, executive vice president of the Lansco Corp., which specializes in commercial leasing and consulting.

“And they’re competing with all the people in the market looking for large space,” Abrams added.

Back in 1994, Mark Finkelstein, president of Retail Strategies, brokered the lease for Barnes & Noble’s Chelsea store at 675 Sixth Avenue between 21st and 22nd streets.

The store was among the first big-box chains to redefine the old Ladies’ Mile shopping district — a sobriquet coined at the turn of the century when department and specialty stores in Beaux-Arts-style architecture lined the avenue. Retailers such as Bed Bath & Beyond followed suit.

When Barnes & Noble was first leased, the rent was $35 per square foot. “Now they’re asking $250 to $300 per square foot — some ridiculous number,” Finkelstein said.

In today’s retail climate, the low-margin bookstore merchants can’t cough up that kind of rent, brokers noted.

High rents not only did in Barnes & Noble’s Chelsea location, but they also prompted the closing of its Astor Place store in December, said spokesperson Carolyn Brown. The chain now has 16 locations throughout the five boroughs.

“Like all New York City retailers, we face issues including prohibitive rents, finding the right space, finding enough space, etc.,” she said.

These days, it’s the apparel merchants, including European tenants such as Zara, H&M and Topshop, that are able to pay those exorbitant rents, brokers said.

Barnes & Noble’s Chelsea location could be leased to an Apple or a Sony-type store, “a designer food hall — but not Trader Joe’s or Whole Foods,” a big apparel chain or a drugstore tenant, said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman and the exclusive leasing agent for the location.

Retailers such as Crate & Barrel’s hipster spin-off CB2 and Japanese merchant Muji have eyed the spot,
she said. Unfurling a new blueprint

Barnes & Noble and Borders said they are not retreating from the New York market. But the chains are being nudged to build a better mousetrap in the city.

“They’re taking into account the new realities,” said Ben Fox, president of Winick Realty Group.

Borders operates five New York City stores, and there are no plans to close any of them, said Ann Roman, director of corporate affairs for the retailer, calling some of those stores “highly successful.” She added, “We actually plan to grow in New York City in the near future.”

However, the Borders on 57th Street and Park Avenue is rumored to be on the selling block, though the chain is expected to open a new unit in Columbus Village on the Upper West Side, brokers said.

Like Borders’ planned store in Columbus Village, Barnes & Noble’s upcoming store on 86th Street and Lexington Avenue has little or no prime, ground-floor retail space — a key element of the new bookstore blueprint.

It will replace Barnes & Noble’s two Upper East Side stores — including one right nearby — which will be closing.

These days, “the Big Boxers can’t afford to have a lot of ground-floor space,” said Gary Trock, senior vice president of retail services for CB Richard Ellis.

Barnes & Noble was able to shave rent costs by occupying space on two lower levels in the new location, which is slated to debut next year.

“This gave them the volume of space and also made it affordable to have a 60,000-square-foot store, which is one of the bigger stores,” said Trock, who is brokering the lease. “It’s much less expensive than having a full, ground-level store.”

The rent for ground-floor space on the Upper East Side is about $175 per square foot compared with $50 per square foot on a lower level, brokers estimated.

Book chains are also seeking ways to breathe new life into their stores by mixing in new retail components.

The concept is nothing new.

Barnes & Noble and Borders have housed Starbucks and Dean & Deluca coffeehouses, respectively, in their New York City stores for some time.

But new partnerships are in the works, such as Barnes & Noble’s teaming up with Papyrus, the stationery store, said one broker, calling the idea a new hybrid.

“If a traditional bookstore can’t compete, they have to do something new and special to attract people to the retail environment,” Consolo said. “Everyone has got to reinvent themselves to compete in the most challenging retail environment we’ve seen in 10 years.” These hybrid retailers, such as book/wine stores, pepper other cities like Boston and Washington, D.C., she noted.

In-store shops can also be meaningful revenue drivers.

Co-branding has the potential to “contribute 10 to 20 percent toward the rent and create traffic,” Trock said.

With Starbucks, for example, Barnes & Noble “gets rent and a percentage of their sales,” Consolo said.

It also encourages shoppers to linger longer — and, in theory, buy more books.

Here to stay

The closing of Barnes & Noble’s Chelsea store has tapped into fears that the city’s book chains could go the way of Tower Records, which was killed by the online revolution, and Blockbuster Video, on life support due to competitors such as Netflix.

Brokers, however, balk at the notion. There is a different psychology to buying a book than a CD or renting a movie, they said. And New Yorkers pride themselves on being culture vultures, so bookstores are poised to remain part of the fabric of the city.

“The New York City customer is a very sophisticated customer,” Mandell said. “The arts are very big here, and people like to go to bookstores. There is a certain [something] about picking up a book off a shelf … people like to linger in a bookstore, have coffee.

“I like to think it’s part of the culture here,” he said.