Executives at J.C. Penney and Nordstrom believe if they can make it here, they’ll make it anywhere. The robust performance of the retail sector may be trailing off, but national chains remain confident enough to test the promise of the old song “New York, New York.”
In addition to the national chains, discounter Loehmann’s is also expanding, and brokers say the current retail climate in New York City is particularly conducive to national stores seeking space.
“The economy of the city is great, and retailers want to expand,” said Andrew Oliver, managing director and principal of Sonnenblick Goldman.
“I’ve haven’t seen as much department store interest in New York over 20 years as I have in the past six months. They’re all circling the city, from the big stores like Nordstrom and Kohl’s to smaller ones, like Loehmann’s and Filene’s,” said Jeffrey Roseman, executive vice president and principal of Newmark Knight Frank Retail.
There is space to be had. “We have amazingly strong retail right now, the highest I’ve seen in 20 years,” said Cheryl Cohen, vice president at Mogull Realty, a retail brokerage firm. “People are clamoring for locations, and there is space. I’ve gone through markets where I couldn’t find anything for anyone.”
Nationally, department stores have surged in recent years, defying expectations that online and big box retailers would put them out of business. Shares of Macy’s, formerly known as Federated Department Stores, Kohl’s, and J.C. Penney have all increased at least 70 percent in value over the last three years despite a recent lag in same-store sales throughout the sector.
Penney finally finds a Manhattan home
J.C. Penney, which has had its eye on Manhattan for several years, recently found a location for its new store in the Manhattan Mall on Sixth Avenue and 33rd Street. It will take over two floors of space with 135,000 square feet for a store that is set to open in the fall of 2008, after work is completed on the interior by the owners, Vornado Realty Trust.
“Manhattan has been on our radar for a long time,” said Tim Lyons, spokesman for J.C. Penney. “We looked for a while, but it was just a matter of the right location, time and deal, and what would be workable.”
Neither Vornado nor J.C. Penney would disclose lease information.
In this case, the location — a block away from Macy’s flagship store in Herald Square — is definitely the linchpin.
“It’s one of the busiest intersections in America. There’s a very strong retail mix in that area, and it’s on great subway lines,” said Lyons.
“I think it’s going to be a fabulous store and a great opportunity,” said Roseman, while acknowledging that the Manhattan Mall is “off the radar screen a bit” to some shoppers. But the location, he added, is “one of the best retail crossroads” and the mall “is underrated, but has always done very well.”
According to Lyons, at 135,000 square feet the store will be “bigger than our off-mall box store but not atypical in terms of a mall store.”
Most of Penney’s new stores in off-mall locations are about 100,000 square feet, while their mall stores are sometimes as large as 150,000 square feet.
Brenda Romero, public relations coordinator for Penney, said that the store in the Manhattan Mall will be “completely representative of a brand-new, off-mall format J.C. Penney store.” That will also be true of the store’s merchandise, which includes clothing, jewelry, home merchandise, shoes and cosmetics, with a store-within-a-store space from Sephora, a strategy that has paid off in other Penney locations. There will probably not be a furniture department, but Romero said many Penney stores don’t carry furniture.
Loehmann’s takes new locations
Persistence has also paid off for Loehmann’s, the New York City-based discount department store, which opened a second Manhattan location on the Upper West Side in March. “We’ve been searching the Manhattan market since we opened our store in Chelsea 10 years ago,” said Fred Forcellati, vice president of advertising and creative at Loehmann’s.
Their new 37,000-square-foot location at 2101 Broadway, formerly a Gristedes supermarket, was “in play for a while,” according to Forcellati. “It had the right amount of space, and we had the ability to convert that space into a store, though we did quite a bit of renovation and removal.” The neighborhood was also part of the appeal. “The Upper West Side is doing well, and the store fits a niche there,” Forcellati said.
In June, Loehmann’s signed a lease for a 42,000-square-foot location in Rego Park, Queens. The space, at 97-77 Queens Boulevard, was formerly occupied by CompUSA. Katz & Associates represented Loehmann’s in the lease transaction.
Department stores on the way back
Renewed retail interest in New York comes after a period of difficulty.
“Department stores have come around,” said Oliver. “Ten years ago they went out of favor, and lots of stores were sold to Federated Department Stores or had high debt or other financial issues, and then came out of it.” Lord & Taylor is one of those stores; originally owned by the May Company, it was bought by NRDC Equity Partners from Federated (the parent of Macy’s) in October 2006. A spokeswoman for the chain said that “business is on the uptrend” at the 600,000-square-foot flagship, which will remain in its current Fifth Avenue location.
While the weak national housing market is starting to take its toll on the department store sector, mid-market stores like Kohl’s have performed very well in recent quarters. Profits more than doubled over the decade, rising to $1.1 billion in 2006 from $458 million in 2001. The number of stores also doubled, to 834 at the end of 2006 from 382 at the end of 2001. Kohl’s sold an average of $224 worth of merchandise for every square foot of space in its store, compared with $171 for Macy’s and $166 for J. C. Penney.
Kohl’s would not comment for this article.
Getting creative with footprints
For department stores currently eyeing locations in Manhattan, brokers say patience and an open mind about footprints are required. “The difficult thing about New York is that it’s hard to find 100,000 square feet, but stores are being more creative and looking at unorthodox pieces of space,” said Roseman.
Bloomingdale’s Soho store is most often cited by brokers and retailers as a prime example of a department store that has managed to be very successful in an untraditional format. The Soho store is 79,000 square feet spread out over six levels; the flagship store at 59th Street and Lexington Avenue takes up an entire city block. “Bloomingdale’s downtown is doing phenomenally; they made it a different store, adjusted the space and played it to the neighborhood,” said Roseman.
Retail rents are also more affordable downtown: According to figures from Cushman & Wakefield for the first quarter of 2007, store space in Soho went for about $225 per square foot, whereas retail rents on the Upper East Side, where the uptown Bloomingdale’s is located, can range all the way up to $1,500 per square foot.
Nordstrom shops for a space
Those figures could bode well for the Seattle-based department store chain Nordstrom, which hired the Madison Retail Group, a retail and brokerage firm, to guide it in its search for a location in New York City. Nordstrom has had Manhattan in its sights for some time, but the decision to retain the Madison Retail Group is an indication that the upscale retailer is ready to get serious.
“The search has gone on for a while, with starts and stops, but essentially, hiring us is a clear indication that they’re now fully engaged in seeing whether something can be brought to fruition,” said Stephen Stephanou, principal of Madison Retail Group. “We’re assisting them in analyzing locations, looking at the traffic lines of other retailers and helping them understand the market.”
Stephanou declined to comment on the specifics of what locations the chain was considering. He did say that while Nordstrom was open to looking at existing locations, new development was also an option.
“It’s almost always easier to find an ideal situation with new construction because it’s difficult to retrofit a building, particularly one that has office space,” said Stephanou. “It’s one thing if you’re creating a two-level boutique, but it’s another thing if you’re trying to create a department store of 200,000 to 300,000 square feet, which is the amount of space Nordstrom is looking for.”
Gene Spiegelman, executive director at Cushman & Wakefield, has worked with Nordstrom in the past. “Our discussions with them go back to 2005; they were looking at a retail space of about 85,000 to 105,000 square feet spread out over four levels at 1880 Broadway,” said Spiegelman. “But the space was too small, and they weren’t convinced that the West Side was where they wanted to land their first store in New York.”
“Nordstrom is known for their tremendous selection,” said Oliver. “They’re used to having a lot of space, and they don’t necessarily want to compromise; they may feel a smaller store doesn’t portray their image, and they want to stand out.” But it’s possible that Manhattan may force them to bend those rules a bit. “They may have to readjust their thinking and realize that a multilevel can work,” says Oliver.