The recent spate of retail bankruptcies and liquidations among national chains has set off a tidal wave of store closures across the country.
However, while those thousands of retail stores are going dark nationwide, New York City is another story.
National chains are opting to close fewer stores, or even none, in the city that grants them an unparalleled branding platform and sales-volume opportunity, brokers said.
The stores that are closing here are mom-and-pops or local merchants. The sputtering economy, unraveling of the financial sector and the credit crunch, coupled with high New York City rents, is pressuring some local merchants to shutter their doors or scramble for cheaper locations, brokers said.
Yet the picture is not entirely grim for smaller retailers either. As the big chains halt expansion in New York City, rents could come tumbling down, opening new doors for local merchants, some brokers argued.
Throughout the country, the number of store closings among national chains is soaring.
The International Council of Shopping Centers’ survey of U.S. retail store closings identified 4,632 establishments slated for elimination between January and September of this year.
That figure — which excludes the fourth quarter of 2008 — already eclipses the full-year closures of 4,602 units for 2005.
Using statistical modeling, the ICSC projects about 148,000 U.S. retail establishments will close in 2008, with the holidays expected to prompt a huge spike in closures.
But while big chains like Starbucks, Circuit City and Ann Taylor are closing many of their stores nationwide, they are shuttering a miniscule number in New York City.
“Chains don’t close here as quickly because despite the economic problems, there are a lot of people with a lot of money,” said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman Real Estate.
“Eight million people in a relatively small area means a lot of pedestrian shoppers walking by and attracted to your stores,” she said.
New York also gets unrivaled tourist traffic, even in down times, which fuels foot traffic and retail sales, brokers said. Indeed, New York City stores are often a chain’s highest volume units, brokers said.
Macy’s fabled flagship on Herald Square is estimated to generate a hefty percentage of the retailer’s total volume, noted Andrew Mandell, a broker with Ripco Real Estate.
When Kmart filed for Chapter 11 bankruptcy in 2001 — then the biggest bankruptcy in retail history — it shuttered a massive number of stores, but its Manhattan units remained untouched because they generated millions in sales, recalled Mandell.
The same pattern is being repeated today. Circuit City, for example, is closing 155 stores nationwide, but only four in New York City: one in Manhattan, two in Brooklyn and one in the Bronx.
By contrast, the retailer is “closing 13 in Phoenix and its surrounding suburbs,” noted Consolo. “So New York City is still healthier for them.”
“I would think [Circuit City’s New York units] are the top-performing stores,” added David Rosenberg, executive vice president of Robert K. Futterman & Associates.
In addition, a Manhattan store often serves as an iconic marketing statement for a retailer, which can have a halo effect on its entire chain. “Certain stores are for branding and advertising purposes,” said Amira Yunis, executive vice president of Newmark Knight Frank, citing the tony Ralph Lauren and Gucci stores on Madison Avenue.
For its part, Starbucks is closing 600 stores nationwide, but just 11 in New York City, including four Manhattan locations.
The coffee giant operates about 180 stores in Manhattan, said David Firestein, president of Northwest Atlantic, who is Starbucks’ New York City broker.
“In the city, particularly Manhattan, the closures are much less than around the country, and even in suburban markets you’ll see more,” he said.
The mom-and-pop picture
Smaller, individually owned stores face a different reality.
Local, independent retailers that don’t have the backing of a large chain are feeling squeezed by the economic malaise.
What’s worse, in New York City, “rents stay high — even if they’re no longer skyrocketing,” Consolo said. “That’s what makes it tough for mom-and-pops.”
The credit crisis is especially tough on smaller businesses.
These days, banks are loath to issue credit to large retailers, let alone small ones, Yunis said.
For smaller merchants, “credit is used to pay bills, buy inventory … and in a bad market, they use credit to sustain themselves. That lifeline is not available now,” she noted.
Recent local casualties include the Lounge Space in Soho —the high-end retailer will be replaced by a Victoria’s Secret — and hipster bar/comedy venue Rififi/Cinema Classics in the East Village, which will grant Buffalo Exchange its first Manhattan store when the Arizona clothing chain moves in, Consolo said.
Some restaurants are also having a tough time weathering the slump.
“Not surprisingly, given the restaurant/café turnover during good times, eateries are struggling and being replaced by chains,” Consolo said.
This fall, the Black Pearl closed shop in Chelsea. The Hog Pit, a barbeque/bar spot, replaced the seafood restaurant in less than a month.
Restaurant chains from suburban stalwarts Houston’s and the Cheesecake Factory to BLT, the star-chef franchise, are now eyeing spots and “competing with the niche players,” Consolo said.
On the flip side, the sour economic climate could mean mom-and-pop retailers — from food merchants like delis and yogurt shops to dry-use tenants, such as apparel and shoe stores — are poised to pick up locations, brokers said.
That’s because some spots are sitting vacant, as banks and national chains have ceased expansion.
Also, the collapse of the financial sector of the last few months has frozen retail real estate deals, Mandell said.
As a result, “there’s a real downward pressure on the rents — the phones are not ringing,” Rosenberg said.
If rent was $200 a square foot for a location, it has now dropped to $125 a square foot, Firestein added.
“There’s an attitudinal adjustment among landlords,” he said.
Brokers indicated that the smaller guys are starting to put out feelers. Amanzi, a tea shop with one location in South Carolina, is opening a store in Tribeca this month. The retailer is paying an estimated $170 a square foot for a spot on Chambers Street, said Jacqueline Klinger, vice president of Northwest Atlantic, who brokered the lease.
“I’m a big believer in the idea that when markets start to suffer, [mom-and-pop] retailers tend to thrive when chain stores are struggling,” Mandell said.
“They are more nimble with operating at a local level. They can change the dynamics of a store, the merchandise, lower price points. They can cater to what’s happening in the streets in the local economy.”
Holiday reckoning
After all the presents are opened and the champagne is popped, it’s judgment day for retailers.
Experts predict the demise of more big chains. The ICSC estimates that 73,000 stores will close in the first half of 2009.
And in New York City, the weak will perish come the New Year, brokers said.
“A lot of retailers do the bulk of their annual business during Christmas,” Mandell said. Retailers teetering on the edge “will reap the benefits of the holiday” and close after Christmas, he noted.
“In retail, more stores close in January than any other time of the year.”