The Amazon Effect Hits Fifth Avenue

From The Wall Street Journal:

Global retailers once seemed to pay whatever it took to lease space on Manhattan’s Fifth Avenue. That doesn’t appear to be the case anymore.

The section of the avenue that stretches about 10 blocks from Saks Fifth Avenue at East 49th Street to the southeast corner of Central Park is one of the city’s major tourist attractions, boasting luxury brands like Gucci, Rolex and Tiffany & Co.

Real-estate brokers said that for years many major retailers were willing to accept thinner margins or even absorb losses at a Fifth Avenue location because the prestige and marketing power of the address was worth the cost.

But the rise of e-commerce has made it tougher for fashion houses and other retailers to justify sky-high rents when sales at the Fifth Avenue store—or for the company overall—have been in a slump.

The result: It isn’t only outdated malls and poorly-located shopping centers in the American heartland that are struggling. One of the world’s most-trafficked and premier shopping corridors is feeling the strain, too.

“A lot of these Fifth Avenue stores are emotional brand statements and almost churches to the brand,” said Oliver Chen, a senior equity analyst at Cowen Inc. But rent expense matters too, he added.

. . . .

On those prime blocks the availability rate, which reflects vacancies and expiring leases that haven’t been filled, reached 25% in the first quarter. That is down only slightly from 27.5% in the fourth quarter—the highest availability rate since Cushman began tracking the Fifth Avenue strip in 2006. In the first quarter of 2018, the availability rate was 17.4%.

. . . .

In recent months, other apparel retailers such as Gap Inc. and Tommy Hilfiger have closed their flagship stores along Fifth Avenue to focus more on their e-commerce platforms as part of a new strategy to have fewer stores, the companies said. Tommy Hilfiger also closed its store on Collins Avenue in Miami as it reshapes its retail strategy in North America.

Ralph Lauren Corp. also closed its flagship Fifth Avenue store in 2017.  The space has remained vacant since.

Link to the rest at The Wall Street Journal

8 thoughts on “The Amazon Effect Hits Fifth Avenue”

  1. No, more ‘to everything its time must come’.

    A new and very large mall opened next to my high school in ’77. You can find it by seeing where RackSpace is in SA …

    I’m betting ever higher rent it killing 5th Ave faster than Amazon is.

  2. The company I used to work for had to give up offices on Fifth Ave. a few years ago as being too expensive. The expense never made sense to me. Same for the offices on The Strand in London.

  3. The company I retired from has a few floors at the top of a building on 5th Ave. A lot of NYC types preferred it to the Long Island HQ and the sales people liked to invite customers for conferences on 5th Ave.

    Eventually, the company shrank the Long Island office and grew the 5th Ave location. I imagine the bean counters had the numbers to justify it. No doubt moves like that drive up 5th Ave rents.

    Personally, I thought 5th Ave was more interesting than Long Island or Jersey.

  4. Apparel retailers have been in a slump for many years now. Most of the other vanity product retailers on Fifth Avenue are still there. Although, since the local activists don’t appear to want any new potential customers (like Amazon HQ employees) to move into the city, that could change.

  5. The underlying issue are the rents, not Amazon. If the storefronts are staying empty for years on one of the premier shopping streets in the economic capital of the richest nation in the history of mankind then there is a fundamental disconnect between what the landlords feel the space is worth and what it is actually worth. I’m guessing that for some screwy tax reasons it makes just as much economic sense for the landlords to take a loss keeping the space empty than rent it out. Anyone know NY tax law? Because I’d bet dollars to donuts that there’s little incentive to rent out the spaces for anything less than a ransom, and to instead tax some form of tax credit.

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