AP Photo/Kathy WillensASSOCIATED PRESS
Three retailers — Lord & Taylor, Ralph Lauren and Gap — recently closed or will soon close major flagships in Manhattan.
Last week on RetailWire, this confluence of announcements opened up a broad discussion about what the closures might say about the well-being of these retailers, and the value of flagship stores in general.
“Notwithstanding the additional value flagships provide, the underlying financial realities of these retailers also needs to be weighed — flagships, by definition, are high value assets and if the flagship store is significantly unprofitable, the motivation to sell these sites and close the stores will be strong,” wrote Mark Ryski, CEO of HeadCount Corporation. “Ultimately, I believe that closing a flagship — and especially the stores noted in the article — should be a very last resort. The fact that these retailers have made the decision to do so is very telling of what shape their businesses are actually in.”
“I’d say that in all of these cases, the retailers concerned did not have a strong enough proposition to support the economics of a large flagship store,” wrote Neil Saunders, managing director of GlobalData. “A flagship is expensive, especially in a city such as New York. That means it has to generate significant volume, play a role in driving the brand and sales through other channels, or both. If it doesn’t do these things, there is little point in having it.”
“Flagships are only valuable when they maintain their importance in terms of reinforcing brand equity and conveying the brand’s reason for being on a large sustainable scale,” wrote Joan Treistman, president of The Treistman Group. “That’s what begins to justify their cost and any possible negative entry on the balance sheet.”
Lord & Taylor shuttered its store at 38th St. and 5th Ave. last Thursday. In October, owner Hudson’s Bay Company sold the 11-story building, which opened in 1914, to the WeWork space-leasing company for more than $850 million.
In April 2018, Ralph Lauren closed its flagship store on 55th street and 5th Avenue less than three years after opening it. The closing came amid declining sales and profits. Polo has another flagship on Madison Avenue as well as seven other smaller stores.
On Dec. 26, Gap confirmed it will close its flagship at 54th and 5th Ave. in January. The three-story flagship opened in 1998.
On its third-quarter conference call in November, Art Peck, Gap’s CEO, said the company would look to close “hundreds” of Gap stores as it shifts focus from growth to profitability. Said Mr. Peck, “It includes some amazing flagship stores around the world that we’re evaluating with an objective eye on which ones provide sufficient value to keep. Collectively, the flags have meaningful negative contribution.”
The Fifth Avenue location was formerly Gap’s only flagship in New York City, until 2017 when it opened a second in Times Square.
Some on RetailWire’s BrainTrust consider the developments for all three chains to be a bellwether – hopefully for the better.
“The state of retail occupancy in Manhattan reflects trends across the country, exacerbated by historically high rents,” wrote Dick Seesel, principal of Retailing in Focus. “But it’s still hard to watch iconic brands like Ralph Lauren close unprofitable stores. Hopefully, the ongoing strength of the NYC economy and tourism business will change the landscape — but not necessarily in the traditional shopping magnets.”
“Regrettable? Yes,” wrote Cynthia Holcomb, CEO of Prefeye. “The romance of shopping Fifth Avenue reinventing itself? I hope.”
Lease rates have come down slightly in Manhattan, and other brands, including Chanel, Nike, Levi’s and CoverGirl, opened flagships last year.