Trending

Survival of the retail fittest

<i>Who wins -- and who loses -- in a down market<br></i>

Which New York retailers are riding out the recession and which are suffering?

Typically, the extreme ends of the market — luxury stores like Saks Fifth Avenue and discount mass-merchants like Wal-Mart — prove recession-proof. By contrast, mid-market chains like the Gap usually suffer.

Here in New York, many generalities hold true, but the massive influx of free-spending foreign tourists and the huge population of office workers add slightly different nuances to the demand picture.

Brokers say retail categories that are growing in New York, despite the soft economy, include fashion (both luxury and cheap chic) and drugstores that sell essentials at affordable prices. Those pharmacies are expected to continue inking leases.

As far as losers, American purveyors of home furnishings and furniture, categories vulnerable to competition from cheap imports, were already suffering before the recession. Many are now being hit even harder, which is impacting stores in New York. In fact, in the last several months national chains Bombay Company, Levitz and Domain have filed for bankruptcy protection. All have shuttered local stores or are in the process of doing so.

Meanwhile, after an expansion tear that included snapping up many prominent ground-floor locations, banks are catching their breath, struggling to overcome the fallout from the credit crunch. Local brokers expect less demand from banks in the months ahead. The prediction is that banks will zero in on smaller sites, rather than larger corner places, if they do take space at all.

For their part, many mid-priced fashion chains are feeling pressure as their budget-conscious shoppers scale back. This is particularly true for Ann Taylor, Ann Taylor Loft, Gap and Old Navy. A wide array of international newcomers that were not in New York during the last serious economic downturn, retailers such as H&M, Uniqlo and Mango, are providing intense competition for the middle-market client’s scarce discretionary dollars.

“Now we have 20 companies selling basically to the same customer — it’s more competitive out there,” said Robin Abrams, executive vice president at Lansco, a brokerage that specializes in commercial leasing and consulting.

A fashion fix

Sign Up for the undefined Newsletter

New York’s status as a global fashion capital helps keep cash registers ringing even when locals pare back their spending. According to the city’s tourism and marketing arm NYC & Company, in 2006 visitors spent $24.71 billion here. These days, major shopping strips such as Fifth Avenue or Broadway are crowded with tourists toting shopping bags.

Several kinds of fashion retailers — luxury, international, fast-fashion and discounters — are growing their presence here to serve both tourists and well-heeled locals. Foreign retailers in particular are capitalizing on the dollar’s fall, the surge of tourism and a growing awareness of their brands. At the luxury end, fine jewelers and European designers continue to build stores in New York. Recent deals include May leases by jeweler Finlay at 529 Fifth Avenue and Hong Kong-based store Carat, which sets upscale synthetic gems in precious metals, at 509 Madison. Luxe German fashion brand Hugo Boss took 9,000 square feet at 555 Broadway, buying out the lease of previous tenant, ailing Ann Taylor.

Demand for affordable fashion has fueled growth of Spanish fast-fashion chain Zara and discount shoe emporium NYZ Outlet. Earlier this year, Lansco signed a deal for Zara for a 21,600-square-foot multi-level space at 500 Fifth Avenue, its sixth Manhattan store. Jeffrey Paisner, who worked on that deal at Lansco and has since joined Ripco Real Estate Corp., says Zara is still actively seeking deals in the city. Meanwhile, NYZ Outlet clinched a deal for a multi-level 18,000-square-foot store at 378 Broadway.

“What’s been discussed over the past year, and is going to continue, is that fashion and luxury brands and international retail will fare well because people are still buying and there is very strong tourist activity,” said Lansco’s Abrams. “[Manhattan] is a little bit insulated.”

Brokers expect stores which sell necessities, like Duane Reade and Walgreens, to continue to expand. As reported, Duane Reade has inked numerous deals lately, including at 893 Manhattan Avenue in Brooklyn, 162-30 Cross Bay Boulevard in Queens, and at the huge new Upper West Side residential development Columbus Village. Walgreens, meanwhile, is coming to Times Square with a 16,200-square-foot space at One Times Square, slated for a summer opening, and took 12,000 feet in Brooklyn at 7002 13th Avenue.

“Rich or poor, you need toothpaste,” said Ben Fox, president of Winick Realty Group, which represented Duane Reade in two recent deals for new stores.

A retail category that suffered in the last two recessions was furniture and home furnishings stores; these chains generally saw longer periods of stock price decline and significant price depreciation, compared to other kinds of stores, according to a February 2008 report by Manhattan equity research firm Telsey Advisory Group. The shops are certainly getting hurt in this market: Local closures include the Bombay Company stores at 900 Broadway in Gramercy, and a location on Bell Boulevard in Bayside, Queens. Likewise, New York-based Levitz has pulled the plug on all its stores, including units in Harlem, the Bronx and Downtown Manhattan.

The downfall of these long-established chains is leaving some room for smaller-scale growth by trendy newcomers. These range from Japanese home furnishings store Muji to CB2 (a contemporary, youthful spinoff from Crate & Barrel), which both made Soho debuts last year. Muji reflects the international retail boom, while CB2 is said to seek very low rents.

But on the whole, brokers say caution dominates.

“No one is being that aggressive in this marketplace,” said Jedd Nero, executive vice president with the retail services group at CB Richard Ellis. “They are waiting to see how much more shakes out.”

Recommended For You