New York shoppers want the same national brands as the rest of the country, but retailers have learned, sometimes the hard way, that selling in the city is a somewhat different proposition.
Most retail brokers agree that setting up shop in the Big Apple is unlike any other urban market in the country – buyers arrive on foot, in numbers that are sometimes hard to adapt from sales models elsewhere. But as retailers have gotten more sophisticated, they’ve found New York shoppers’ “psychographics” – the behavioral data that explains how people move through the densely settled metropolis – to be a boon in their operations.
“Just the sheer volume of sales in New York is greatly disproportionate from the rest of the United States,” said Gary Ragusa, executive vice president of the Greenberg Group, a retail real estate advisory firm in Hewlett on Long Island. “Stores in New York will typically do three to five times what they do elsewhere in the United States, even in major cities.”
Ragusa said that a client he represented, the Levi’s Store, which has shops on Lexington Avenue and in Soho, reflects those numbers.
“The Lexington store probably did twice what the Soho store did, and the Soho store probably did twice what you’d see in other major American cities,” he said.
Over the years, larger retailers have become highly sophisticated in how they approach urban markets, said Gary Trock, first vice president at commercial real estate firm CB Richard Ellis.
“The definition of that sophistication is demographics, like the nature of the median family income,” he said. “They look at the population density, and an extremely important factor is the comparable sales of other merchants on the street on a dollar per square foot basis.”
New York is special because there are more than 100 central business districts squeezed into the tiny island of Manhattan, challenging some retailers to successfully operate separate stores in different localized market areas.
“The Gap, for argument’s sake, at one point was opening up stores 10 blocks apart from each other, because they were in different districts,” Trock said.
Central business districts are largely defined by how people move through the city. For instance, people don’t cross Houston Street if they’re shopping in Noho, said Jeffrey Roseman, an executive vice president at Newmark New Spectrum Retail.
“There are lines of demarcation, so you really can do, say, one store north of 14th Street and one store south of 14th Street,” he said. “There are some retailers, like Starbucks, that are probably on the same street but on the next avenue, because people on those streets primarily walk north and south, not east and west. Unfortunately, not enough retailers pay attention to that.”
Ragusa pointed out that H& has two stores on 34th Street – one at Seventh Avenue and another one about a block away at 1328 Broadway.
“Both of them do phenomenally,” he said. “But it’s almost a different shopping experience and a different shopper. The one on Seventh Avenue is your daily commuter and the other one is your tourist.”
Steven Schwartz, co-chairman of Retail Realty LLC, a retail real estate company, agreed that psychographics are very important in Manhattan.
“For instance, in the winter in Manhattan, people will typically walk down the sunny side of the street, so that’s good to take into consideration,” he said.
They also consider crowd control.
“What’s interesting is Rockefeller Center during Christmas season, for example,” Trock said. “They’ve found a diversion of traffic from people that commonly walk that way because they don’t want to deal with all that nonsense. Retailers look at all this stuff.”
Roseman pointed out that simply having heavy foot traffic doesn’t necessarily mean it’s a good street for a store.
“The biggest mistake retailers make is to come in one time, look around and commit to something,” he said. “If you really watch a street, you could see the people walking down it are too young, too old, not shopping, too ethnic, too not-ethnic. All that has to be taken into account.”
Those retailers looking to push their brand often have to take landmark buildings into account in Manhattan, Schwartz said.
“There are a lot of landmark buildings,” he said. “Also a consideration is that, while permitting can be very fast in Manhattan, there are often co-ops and condos upstairs that have a loud voice in what you do as a retailer.”
And dealing with powerful Manhattan landlords can be a harrowing experience, said Shawn Cho, an associate director with Dumann Realty, a commercial real estate brokerage and adviser. For foreign businesses, “I have seen their security get bumped up three, six or even nine months from the average, because their financials have not been set up in the United States,” Cho said.
Dov Charney, CEO of American Apparel, which now has 12 locations in Manhattan, said New York City is the chain’s core market, and New Yorkers have special shopping habits.
“In Manhattan, people want to have what they want – they want it in stock,” he said. “They’re not necessarily looking for bargains. They don’t mind paying the price. They want quick service. They want to walk in, walk out – and they don’t want to walk far. The stores can be relatively close together if they’re in different neighborhoods.”
One retailer that has studied and successfully adapted to the Manhattan market is Home Depot, which has stores on West 23rd Street and Third Avenue at 59th Street. “These two stores don’t look like the stores you’d find in Omaha, Neb.,” said Yancey Casey, a Home Depot spokesman.
While the square footage at the 23rd Street location, at 105,000 square feet, is within the range of other stores – which generally run from 102,000 to 130,000 square feet – it is a vertical space as opposed to a single-floor big box.
Product mix is higher-end than elsewhere, with door pulls, lamps, and Oriental rugs stocked at the expense of lawn and garden equipment.
“New York is a little more insulated than other markets,” Ragusa said. “If the job market suffers, it will hit us, but a little more indirectly; and it won’t hit the luxury segment as much, because you will still have your very famous, rich people from all over the world flying into New York to shop.”
It pays to pick – and sometimes buy – retail spots
Landlords of national retailers in New York know they can charge higher rents and make fewer concessions, because their tenants’ sales volumes are their own reward. Retailers will put up with these additional costs because New York City is the place to develop a brand name, said Gary Ragusa, executive vice president of the Greenberg Group.
“You are establishing yourself, not only with customers walking by, but also with the advertisers and marketing people that work on Madison Avenue,” he said.
The catch is that there’s a cost of doing business here, including rents that can go more than $1,000 a square foot in premium locations. For that reason, large retailers seek out prime corner locations. Adidas recently opened a 29,500-square-foot retail store on 610 Broadway with more than 200 feet of wrap-around frontage to showcase the merchandise, which can “justify the high rents,” said Shawn Cho, an associate director with Dumann Realty. “With consumers being more fickle than ever, large national and multinational corporations realize that business cannot be made by just price and quality,” he said. “It needs to be done through brand cultivation, brand marketing, brand image – everything emotional that relates to a brand.”
Large retailers may then opt to buy their own store space, which is what Louis Vuitton did at Fifth Avenue and 57th Street. “Landlords know everybody wants to come here,” Cho said, “so they don’t necessarily give you anything.”