In the retail crisis, the shutters are coming down even in New York
There is a lot to do in Manhattan – but shopping? Maybe not so much these days. Once one of the hottest markets on the planet, New York’s retail sector is suffering.
Surveying the empty storefronts on Fifth Avenue, holidaymaker Gill Stewart, from Stokesley in Yorkshire, said she was surprised by the number of vacancies. “We’ve come across a few places that are empty or under refurbishment, certainly many more than we expected,” she said. As the family wondered which direction to go in, Stewart noted that her teenage children, Nathan and Eleanor, weren’t even clamouring to visit the shops.
Her daughter confirmed that the focus of their New York experience was shifting. “In the past, we’ve bought things without the intention of shopping,” Eleanor said. “On this trip we haven’t unexpectedly got anything.”
Attitudes like that should give New York’s retailers and legislators pause for thought. The city is by far the largest tourist destination in the US, and whether that is for sightseeing or shopping, the decline of the Manhattan consumer experience could limit the city’s appeal.
On Fifth Avenue, Vince Wang and his family, visiting from Shanghai, said China had also been hit by a retail downturn, but it was a surprise to find the same trend in Manhattan. “Chinese who shop for luxury goods often do so in the US or Europe, but compared to 10 years ago a lot of shops have disappeared,” he said.
The striking deterioration of some of Manhattan’s most popular shopping districts was underscored by the decision on Monday by Barneys, the city’s famous fashion emporium, to seek bankruptcy protection.
The dire financial position at Barneys has emerged as other retail landmarks in the city have already closed their doors. Lord & Taylor – one of the city’s largest department stores, with an entire building on Fifth Avenue – recently closed down; its space was sold off to WeWork, the office rental company, and Amazon.
It is worse outside Manhattan. Over the next five years, one in every four malls in the US is projected to close, Credit Suisse says. Already, the square footage of dead malls in the US covers more land than the city of Boston.
But given Manhattan’s enviable exposure to tourist dollars, the retail collapse in New York shows that the malaise isn’t limited to out-of-town centres. High-end luxury goods purveyors along the retail corridors of leading cities, including New York’s Madison Avenue, Rodeo Drive in Beverly Hills, and Chicago’s “Magnificent Mile”, are all suffering.
According to recent estimates, certain swaths of Manhattan now have vacancy rates of 25%, when 5% is considered normal. And the carnage is getting worse, with the US forecast to lose 12,000 stores this year – far above 2018’s record losses of more than 5,800 sites.
While Barneys’ management has promised to keep its twin Manhattan stores operating, the company’s financial difficulties – blamed on rising rents and too few visitors – comes as city legislators consider measures to staunch store losses.
While the city can do little about competition from online retail, New York’s mayor, Bill de Blasio, recently described empty storefronts as a “growing problem in our neighbourhoods” and said he was “very interested in fighting for a vacancy fee or vacancy tax” to penalise landlords who prefer to keep stores empty while they search for top-dollar rents.
The proposal could trigger conflict between city officials and landlords. Many landlords are now hedge funds and institutional investors who may enjoy tax advantages from leaving their properties vacant and who, in any case, prefer to rent to store chains prepared to sign multi-year leases.
By imposing a tax on store owners who keep properties vacant, De Blasio said, the city would “encourage landlords to turn their properties over more quickly and ensure that small businesses have an opportunity to rent them at a reasonable level”.
But the question of when, or if, the losses will begin to affect New York as a tourist destination is harder to answer. The city drew a record-high 65.2 million visitors in 2018, the ninth straight annual increase. While most of the rise came from domestic visitors, tourists accounted for $44bn (£36bn) in spending. The city’s hotels sold 37.7 million overnight stays that generated more than $620m in taxes.
On Madison Avenue last week, many tourists said they had noticed the loss of stores, and while it had yet to affect their enthusiasm to visit the city, it may yet. “New York is shopping: it’s a very important part of it,” said Dhani Singh, visiting from Norway. If it wasn’t good, she added, “I would think again about it.”
A downturn down under?
After 27 years without a recession, the Australian economy is finally faltering. Growth is weak, wages are stagnant and the country’s once-buoyant housing market has slumped more than 10% in the past 18 months.
Not surprisingly, the retail industry has not escaped the pain. The country’s venerable department store chain David Jones – the antipodean equivalent of John Lewis – has declared the retail sector in recession and the 48-branch group is now worth less than half the A$2.2bn (£1.2bn) the South African company Woolworths paid for it in 2014. David Jones’s long-time rival Myer is also under a cloud and is closing stores and boosting its online operation.
The current reporting season could well throw up more nasty surprises. Analysts expect such stalwarts of the country’s myriad shopping malls as Harvey Norman and JB Hi-Fi to deliver poor figures in the coming days.
Part of the reason for the downturn is basic economics. “Australian consumers are mortgaged to the hilt,” says Eleanor Creagh, a market strategist at Saxo Capital Markets in Sydney. “Household debt is incredibly high, the savings rate is low and it’s only so long that consumers can whittle away at their savings as they watch their biggest asset, their house, decline in value.”
But it is not just slowing growth that is behind the downturn: the twin spectres of international competition and online shopping are beginning to haunt Australia in the same way as they do in the UK and the US. Discount stores such as Target, Kmart and Big W, for decades the go-to destinations for cheap household goods, toys and clothes, are all feeling the heat, which has increased since Amazon started trading down under at the start of the year. Big W, owned by Woolworths, has been especially badly hit and is closing 30 of its 180 outlets.
The ever-cut-throat world of fashion retailing is no different. Long-established fashion chains such as Roger David, Ed Harry and Pumpkin Patch have fallen by the wayside amid the arrival of international fast-fashion brands such as Zara, Uniqlo and H&M. Martin Farrer
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