Until recently, grand projections for new stores in the city were common: Retailers regularly announced that they were rolling out 10, 20 or even 40 new stores in years to come.
These announcements were intended to signal a retailer’s strength and leverage its bargaining power with brokers. Expansion was the expectation. Many retailers, logically enough, seemed to feel that adding locations boosted their credibility as well as their market share.
What a difference a few months makes. With the recent volatility of the stock market and the challenging economy overall, many retailers are retrenching — some are slowing down their expansion plans, while others are closing locations. “I don’t expect to hear of massive expansions in New York City now,” said Barry Fishbach, executive vice president, Robert K. Futterman & Associates. Retailers who are already here may have normal growth, “but nothing aggressive,” he added.
The situation is expected to get bleaker, as some predict this will be the worst holiday season in years. Already this year, a dozen large retailers have filed for bankruptcy, including Linens ‘n Things and the Sharper Image, and more are expected to file after the holiday season.
With the already challenging economy and now expectations of a slow Christmas, projections that retailers made six to nine months ago may now have been scaled back to little or no growth, Fishbach said.
The about-face for many retailers comes after several national chains publicized aggressive expansion plans here. Arby’s, for example, said this summer that it would open 41 more locations in three boroughs within the next decade, while TCBY recently told The Real Deal it planned to open 10 to 20 locations over the next few years. Dunkin Donuts wants to triple its store count to 15,000 nationwide by 2020.
For other chains, however, previous expansion plans have been scuttled. Only two years ago, dental chain Vital Dent said it would open 25 new stores in Manhattan, adding to the nine locations it had throughout the city. Now only four remain.
Perhaps even more surprising was the news earlier this year that Starbucks planned to close a number of stores, including 11 here. The company also scaled back its store openings: In January, it had projected opening up 1,000 locations nationwide in the 2009 fiscal year, but by this summer, that number had fallen to fewer than 200.
The shift in retail projections raises the question: How much do retail projection numbers mean to brokers anyway? Are growth forecasts useful information that they can take at face value, or should they be discounted, especially with today’s economy?
For Amira Yunis, executive vice president and principal at Newmark Knight Frank, if a retailer told her now it had plans for many new locations, “I would sit down and discuss it with them,” she said. She said she’d ask the retailer, “What research have they done? Why did they decide they needed that many stores in New York?”
Yunis added that retailers “may be positioned to [expand], but you have to talk to them about it. Retailers get overzealous.” She encourages her clients to “slow down” and noted that now some of them are being rewarded for their patience by picking up prime locations, such as corners where banks used to be. “They’ve been waiting for this opportunity,” she said.
Although financing is now harder to get, for those that have it, “there’s more space available now that the market has softened,” said Robin Abrams, executive vice president at retail brokerage Lansco Corp. For retailers who want to get in this market, it could be “an opportune time to roll out in position,” she said.
Elliott Dweck, senior retail specialist at Besen Realty, said, “The proof is in the action.” He meets regularly with Dunkin Donuts, which is “very aggressive” about expansion. The chain even underpredicted the number of openings it would have in the city last year, as it planned for 25 but opened 30 instead, he said.
Overall, however, Dweck doesn’t recall seeing projection numbers that seemed too large or false. “You have to believe them because they did the research,” he said of the retailers. “In order for them to grow they have to expand.” Also, companies are always trying to break into the New York market, he added, pointing to the handful of yogurt chains that have taken hold, as well as interest from West Coast chains, such as chicken-and-biscuit chain Bojangles.
Other brokers, however, took these large rollout forecasts with a grain of salt even before the financial meltdown hit, said Robert Hebron IV, an associate broker at Brooklyn-based Ingram & Hebron. Every company has a long-term plan that looks at the next two to three years, he said, and if things sour, the strategy changes and they “run for cover.”
One well-known national chain told him two years ago that it planned to open 100 locations in Brooklyn within two years; its stores are closed now.
In other cases, a chain may say it needs 10 locations, Hebron added, but ends up only going with two. He wonders if sometimes the company knew that ahead of time. “Are they really telling us the whole story?” he said.
Large rollout numbers apply to several types of retailers, such as cell phone companies or banks, which can support multiple locations in the city, said Fishbach.
If a chain is national, it has “greater credibility” when giving expansion expectations — for example, it may have already grown at a similar rate in another part of the country, he said, thereby proving itself.
As far as the landlords are concerned, however, it all comes down to who will be paying the bills and not about how many locations the retailer expects to open.
A landlord likes the idea of renting to a national chain because that means a corporation is behind the lease and the property will be well-maintained, Hebron said.
Hebron recently worked with a building owner in Brooklyn Heights who had retail space available after a well-known restaurant closed after decades in business. For his next tenant, the owner wanted only a national chain, as he was relocating down to Florida and didn’t want the headaches of a small operator — just a steady check every month.
Renting to a small independent operator is more risky, Hebron noted. “If it goes belly-up, everyone is in trouble,” he said.
Overall, however, if companies “are not slowing down until the dust settles, they’re not going to be successful,” Hebron said. “Every prudent company has to be rethinking its business plan now.”