Manhattan retailers are stuck between a rock and a hard place. The continued freeze in consumer spending is forcing some retailers to do the once-unthinkable: close desirable Manhattan locations, including flagship stores — which are valued as much for the marketing boost they provide by being located here as for their actual sales.
Retailers, however, can’t just go dark, for they are often bound by leases that render them unable to walk away without paying huge penalties. As a result, high-profile national chains such as Ethan Allen, Home Depot and Borders are turning to subleasing to unload spaces that are prominent but costly.
Smaller companies, including hipster Soho sneaker boutique Yellow Rat Bastard and luxe furniture firm Maurice Villency, are also actively seeking subtenants for prominent Manhattan sites.
“Viewpoints have changed — a couple of years ago, everybody was doing a flagship store, and wanted a showcase for a brand, but many of these stores no longer make sense,” said Robin Abrams, the executive vice president at Lansco Corp. who is marketing Maurice Villency’s flagship at 200 57th Street at Third Avenue.
It’s not new for Manhattan retailers to seek subtenants — just ask shoe tycoon Kenneth Cole, who has been trying to find a taker for his struggling Rockefeller Center flagship for years — but brokers have noted that the weak economy is sparking a substantial increase in availability.
Short-term subleases for a year or less are becoming more common, and many of the “pop-up” stores sprouting in Manhattan are sublease deals. Italian luxury fashion brand Krizia, for example, recently signed a deal to sublease space at 805 Madison Avenue from bankrupt women’s clothing chain Searle.
“[Subleasing] is becoming more common than at any time I’ve ever seen before, even in the last few downturns,” said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman who represented Searle in the deal. “It’s become the new vogue.”
Tenants who sign subleases often save substantially on rent. Yellow Rat Bastard is seeking subtenants for a space it took at 483 Broadway at Broome Street after Sept. 11, when Soho was hurting and rents were substantially lower than they are now. The space — across the street from Manhattan retail’s hottest new flavor of the month, Topshop — is less than half the current market rate now, Abrams said.
Yellow Rat Bastard is considering relocating further south in Soho. Such a move would mean another jump within the neighborhood for the retailer, which moved to 483 Broadway in January 2008 from the space Topshop now occupies.
For their part, subtenants get to test a market without taking on the risk of a long-term lease. In addition, they can also save substantial buildout costs. Gene Spiegelman, executive vice president at Cushman & Wakefield, estimates that a retailer leasing a 1,500-square-foot store might spend $600 a foot to build out new space, but could save 90 percent of those costs by subleasing a space that already has high-quality finishes and fixtures in place.
As retail margins evaporate in the recession, some chains with properties that have been available for years are marketing them afresh — with substantially lower price tags.
Brokers said that’s the case with the 42,000-square-foot Borders at 461 Park Avenue on the corner of 57th Street. Borders, which has teetered on the brink of bankruptcy in recent months, once tried to make a profit on the space by offering a sublease for $4.5 million a year.
Widely regarded as a challenging space with awkwardly situated escalators on the first floor, the site had no takers.
Now, the troubled retailer has retained lease disposition firm DJM and brokerage Lansco to market the site for $3.5 million in annual rent.
Consumers’ new embrace of frugality is buoying some firms, such as wholesale clubs Costco and BJ’s, which recently inked deals to take over three local Home Depot leases. Brokers say discount apparel retailers and inexpensive home furnishings stores are in the market now to become subtenants, too.
These firms can take their pick in once-hot areas: on Madison Avenue, on the Upper West Side and in Soho.
On Madison, Cushman & Wakefield counts at least four subleases available in the ailing corridor from 57th to 72nd streets. The firm is exclusively marketing the sublease for 692 Madison, occupied by bankrupt luxury accessories firm Lambertson Truex.
Mirroring the contracting housing market, furniture sales are plummeting, forcing local furniture retailers to retrench. Lansco has been seeking subtenants for Maurice Villency’s 26,100-square-foot flagship, with an asking rent of $3.4 million a year, on a lease that runs through 2022. Competitor Ethan Allen is working to sublease its 18,000-square-foot store at 101 West End Avenue, which has about eight years left on the lease.
Ethan Allen has closed the West End Avenue store and is focusing on a newer store at 1010 Third Avenue, said the firm’s broker for the sublease, Joanne Podell, executive vice president of Cushman & Wakefield. The furniture retailer does not need the expense of two large Manhattan stores.
“There’s no room for fat in your costs at this time,” she said.