Closings: Schools, churches, day-cares and businesses

Why retailers are fleeing Fifth Avenue

Exterior view of the recently refurbished Calvin Klein Store, complete with a floor-to-ceiling installation by Sterling Ruby and the debut of Raf Simons Fall 2017 collection on Madison Avenue in New York taken on September 1, 2017.

Midtown Manhattan has been one of the most coveted spots in the world for fashion houses. Now, it’s emptying out.

Calvin Klein announced Thursday that it would close its Madison Avenue store in the spring. It joins an exodus that includes Ralph Lauren (RL), Lord & Taylor and Henri Bendel. Gap (GPS) also said over the holidays that it was on its way out, and Versace is reportedly looking to leave Fifth Avenue, too.

The departures show how the role of the flagship fashion store has changed. In many cases, high rent in Midtown Manhattan has made a physical store there untenable. And changes in consumer behavior have forced many of these brands to rethink their strategies.

PVH Corp (PVH) — which owns Calvin Klein and Tommy Hilfiger, among other brands — said it needs to restructure to “evolve the traditional luxury fashion model” for the digital age.

High costs

High-end brands used to use their stores in Midtown to attract wealthy New Yorkers and tourists. The stores often carried a brand’s full inventory in a elaborately designed displays.

“The expensive costs of those flagship stores were justified by the ‘billboard’ effect,” said Steve Dennis, a retail consultant and former executive at Sears and Neiman Marcus. “It was more about branding than the 4-wall profitability.”

Each of the companies leaving Midtown faces its own set of challenges. But in general, the value of cavernous flagships is coming under pressure as more customers shop online and on their phones.

L Brands (LB), which owns Henri Bendel, Victoria’s Secret, and Bath & Body Works, said it would close Bendel to improve profitability and focus on its beleaguered Victoria’s Secret brand. The Gap is shuttering hundreds of stores as part of a broad overhaul.

The number of vanishing retailers has left a mark on the district: From 49th to 60th street on Fifth Avenue, the availability rate of leases at the end of 2018 hit 27.5% — up from around 5% a decade ago, according to data from real estate firm Cushman & Wakefield. The availability on Madison Avenue last year was 28.2% from 57th to 72nd street.

“Real estate has become very expensive in New York,” said Thomai Serdari, a strategist in luxury marketing and branding who teaches at New York University’s Stern School of Business. “It puts a lot of pressure on brands financially if you maintain stores that basically have no traffic.”

The asking price-per-square-foot of retail space from 49th to 60th street on Fifth Avenue at the end of the year was $2,668, nearly $500 more than it was a decade ago, according to Cushman & Wakefield.

New flagships

Other brands and retailers are rethinking their New York flagships instead of leaving the city.

Tiffany’s (TIF) classic Fifth Avenue store is undergoing a three-year renovation. The fully re-designed store is set to open in 2021 as part of the jeweler’s focus on attracting younger, hipper customers to its engagement rings.

“Tiffany is a textbook example of what is happening in retail,” Serdari said. “Finally, they are catching up. They have missed opportunities in the past, but they understand that they have powerful brand and the brand was not expressed well in real life.”

Tiffany is trying to create an experience around its Blue Box Cafe and introduce the brand to a new clientele, she said.

Nike (NKE) opened a six floor, 68,000-square-foot “House of Innovation 000” on Fifth Avenue in November after shuttering its old Niketown store.

There are no cash registers at the store, so shoppers have to check out using the Nike mobile app. They can also scan QR codes on clothes to send them straight to fitting rooms, and book sessions with Nike experts to talk about sneakers and clothes for training. The store carries a lighter merchandise selection, too.

Nike Direct President Heidi O’Neill called the company’s new store a “flagship of the future” in an interview with CNN Business in November. She hopes it will define how shoppers interact with the brand in Nike’s own network of stores, online, and at other retailers’ locations.

“We think about flagships as big monoliths,” O’Neill said at the time. “This store can be responsive to a New York City sport or culture moment. We can change this space up overnight, which you don’t think of with flagship retail.”

Other neighborhoods

While Fifth Avenue may have lost some its luster, retailers are making efforts to reach New Yorkers and tourists in other neighborhoods, said Wendy Liebmann, chief executive of consulting firm WSL Strategic Retail.

Nordstrom (JWN) is opening a store on the city’s West Side, while Nieman Marcus is opening a store in Hudson Yards, a developing district in western Manhattan. Westfield Oculus and Brookfield Place, two shopping areas at or near the World Trade Center, are also becoming popular for brands.

“Flagships still work to set a tone,” Liebmann said. “What better way to tell your story than where you can control the message?”

Around SoHo, retailers and brands that were born online — including Everlane, Nordstrom, Warby Parker, Allbirds, and MM.LaFleur — are opening flagship showrooms without a lot of inventory so they can appeal to wealthy Millennials.

“A new idea like Allbirds that is trying to develop the local American market would have no business spending all their money on Fifth Avenue,” Serdari said.

Notice: you are using an outdated browser. Microsoft does not recommend using IE as your default browser. Some features on this website, like video and images, might not work properly. For the best experience, please upgrade your browser.