08 February 2009

Land Grab

A.D. Freudenheim, The Editor

Here’s a thought: maybe the recession—and the corresponding impact on commercial real estate prices—will benefit existing and new small and boutique shops in New York City. It’s a situation calling out for a better and more creative approach to business development.
The debate over the proliferation of “big box” retailers (and big box banks) in New York is longstanding. I am a proud Costco member-shopper, and patronize Fairway, a big box grocery if ever there was one. While there has been much angst over fair pay and union practices at some of these kinds of stores, including over whether WalMart has a place in New York City, they also often offer legitimate value in terms of job creation and cheap(er) goods. (For two good articles on this issue, see John Tierney’s piece in The New York Times from July 21, 2000, and Virginia Postrel’s article in the December 2006 issue of The Atlantic, “In Praise of Chain Stores.”)

At the same time, small shops and “boutique” brand stores offer an equally valuable shopping experience. Generally, the appeal of both rests less on price point than on the intimate knowledge that owners and employees usually have of the products on sale. And for both, it is (in part) a matter of scale: the larger a store’s stock, the less likely it is that the store’s employees will have great knowledge of each of their products. Likewise, the exceedingly wide range of products available in large stores often precludes stocking the more eccentric, low-sales-volume merchandise some customers may desire.

For example: it seems completely natural to me that the appliance and technology chain Circuit City is now bankrupt. While I am sorry for 30,000 employees who will lose their jobs, three separate instances of terrible service at two Manhattan stores was enough to convince me that this was not a good place to shop. Even if the prices were reasonable, the sales staff was generally not: they lacked in-depth knowledge about all but the most high-volume products, and were indifferent to basic customer service. Confidence-deflating salespeople make for depressed sales numbers.

Contrast the Circuit City approach with that of the average Apple store where you get what you pay for: great products with great service. Everything about the experience—including being able to book a “personal shopper” in advance—indicates that Apple understands that its customers deserve to be treated not only respectfully but with respect for their intelligence. This is, in part, a matter of hiring smart staff and training them properly, but it is also a function of the focus involved in Apple’s product line. A manageable range of products means it is possible for staff to learn in great detail about the items they sell.

The same can be said of other kinds of products and stores. Innovation Luggage, another chain store, has a perfectly fine selection of mass-produced, mass-product bags for the mass market. I have shopped there once or twice myself. But if you want a bag that is more creatively designed, something customized to different kinds of styles and purposes, you have to look elsewhere—like Peter Hermann, in New York, which sells smaller, harder to find brands. My favorite shoulder bag, by Mandarina Duck, cannot be found at most big chains, while the terrific computer tote we bought for my wife a few years ago is a true original: a product of the innovative and artistic Schlepp Berlin.

Let’s not forget bookstores, about which I wrote a few years ago. The closing, in 2006, of the fraternal twin book stores Murder Ink and Ivy’s Books and Curiosities was a terrible day for my Upper West Side neighborhood. Even worse—or perhaps just ironic—is the fact that the store fronts that housed those shops have sat empty since December 31, 2006. Only now, more than two years later, is one of them seeing a new tenant (yet another mobile phone chain). Jay Pearsall, who owned the book stores, would have every right to be angry, and also to revel in schadenfreude at a landlord whose rising rents put Pearsall out of business but also kept the spaces unrented for another two years.
My dream of a series of new boutiques and small stores is probably just that, given the state of the credit markets. But commercial real estate vacancy rates are high and rising, not just in Manhattan. If landlords changed, ever so slightly, their perspective on what makes a successful tenant, they might find themselves able to reverse the drain. Landlords could, for example, become limited business partners with their tenants for renewable terms; lease payments could be made based on the success of the business, which would make the success of the business in the best interests of the landlords themselves. If that sounds like a money-losing proposition, ask yourself what sounds better: unrented storefronts for the duration of the recession—or renting out that space, generating some (initially modest) income, and aspiring to achieve higher rents while also contributing to the success and stability of a given neighborhood?

This is not a foolproof strategy, as the closing of the Oscar Wilde Bookshop shows; not every business can be saved, and not every business will succeed. That is not the point. A strategy of seeking to maximize profits by looking exclusively for the largest commercial retail partner is not sustainable; there will never be enough big box partners to satisfy every available rental space. In urban and suburban communities alike, retail diversity is important—there is value to be found in many stores beyond the savings of dollars and cents—and landlords would do well to figure this out, and take advantage of it. In fact, we would all benefit.

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