CRE players crave Amazon action

All eyes are on the e-commerce giant as it opens physical stores

May.May 26, 2016 12:00 PM

From the special retail issue: With the latest news that mammoth e-tailer Amazon might be opening 300 to 400 brick-and-mortar stores across the country, retail real estate brokers and owners are eager to cash in on the opportunity.

While the $107 billion company has been mum about its rumored bookstore plans and declined to comment for this story — and General Growth Properties‘ CEO Sandeep Mathrani, who broke the news of the hundreds of store openings, has since clarified that he had “not intended” to speak on Amazon’s behalf — many industry players have been vocal about where the company should put down roots and why old-fashioned storefronts make sense.

“To me, it seems natural that [Amazon] would want to open a flagship,” said Robin Abrams, the vice chairman of the retail brokerage the Lansco Corporation, which, like many intermediaries, has contacted the company with the hope of winning a client.

Much like Warby Parker — the Internet eyeglasses company that has had success with its brick-and-mortar endeavors — executives at Amazon have likely come to believe that “even when people shop online, they like to browse and touch and feel,” Abrams told The Real Deal.

Analysts and observers initially thought that the first location in New York, which is expected to gain at least one Amazon store in the near future, would be 7 West 34th Street, a 12-story, 477,000-square-foot masonry office building across from the Empire State Building.

In 2014, Amazon inked a 17-year deal for all the office space in the building, which is owned by Vornado Realty Trust and has two retail storefronts on the ground floor. In November of that year, Amazon spokeswoman Kelly Cheeseman told Bloomberg News that the e-commerce giant had no plans to expand downstairs.

“We have leased this building primarily as corporate office space and we intend to sublease to other tenants the ground-floor retail space,” Cheeseman said.

Craig Panzirer, a Vornado senior vice president for leasing at the building, did not return a call from TRD requesting comment.

For her part, Abrams said a more upscale area like Upper Fifth Avenue or Soho would be a better fit for an Amazon store in Manhattan. But Steve Rappaport, a senior managing director of the New York retail brokerage Sinvin Real Estate, pointed to Broadway in Midtown as a prime location for the e-tailer to set up shop.

“The bow tie in Times Square would be an announcement to the world that you exist as a retail store,” said Rappaport, who like several brokers interviewed for this story said he would be eager to take on Amazon as client. “Amazon is a company that wants to be all things to all people.”

While Securities and Exchange Commission filings for the notably opaque company offer few clues about Amazon’s larger offline plans, the November opening of a Seattle bookstore called Amazon Books was the company’s first step into bricks and mortar.

Located in a shopping center in the University Village neighborhood, the 7,500-square-foot facility carries 5,000 to 6,000 titles, which are priced about the same as on the company’s website. Shoppers can use an app to scan a book to be sure that its price isn’t any higher than what’s found on Amazon’s site. Amazon devices are also sold there. Meanwhile, Jennifer Cast, a former Amazon executive, returned to the company last year to oversee its Amazon Books division.

An anonymous source “briefed on the matter” told the New York Times in early February that more stores were planned, though on a much smaller scale. Since then plans for an Amazon store at Westfield University Towne Center, an outdoor mall in San Diego, have also surfaced, according to local news reports.

Still, the reason why Amazon wants to invest in pricey real estate to expand its book sales is not entirely clear. The firm reported $35.75 billion in sales in the fourth quarter of 2015 and last year turned a profit for the first time.

Some analysts assume that the company might be goaded by the increase in number of independent bookstores in the last several years. Barnes & Noble — the last major bookstore standing in many markets after the collapse of Borders several years ago — may also be a target.

Abrams said that Amazon stores would likely function as giant billboards, much like bank branches that don’t see many transactions. “I guess it’s so people understand that Amazon is in the book space and to further expose and build the brand,” she said.

Yet Amazon may be just reading a retail trend. Despite being hunched over their smartphones much of the time, young people actually still seem to like stores. Millennials make 75 percent of their purchases at physical stores, a 2015 Cushman & Wakefield report noted. This is a generation that likes to do a lot of its shopping in brick-and-mortar stores, said Peter Levine, an agent for the Westport, Conn., office of  Charter Realty & Development Corp.

And for landlords, there are obvious upsides, as Amazon bookstores could end up filling stores that Amazon and other online merchants have, in a sense, helped gut, Levine said.

“They could backfill those spaces,” he told TRD. “It’s very encouraging.”

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