"All those big-box stand-alones and mall anchors--that space will have to be refocused," says Mendelson. "Mall construction going forward will have to be without the anchor model. Leases for mall space that stipulate stores don't have to pay rent when there are no anchors in place will be another reason for change when owners see how tough things will become. Entertainment centers focused on movie theaters will also face serious problems. It will take creative reuse of space.
"There's a lot going on out there in retail," he adds. He points to chains such as Office Depot, Staples and Comp USA and asks, "How many places do you need to buy computers?" He explains, "There's no profit margin in them. The direct sellers are reaching people over the Internet and all these stores buy their computers from the same manufacturers, so how can they compete in terms of pricing or what they're offering?"
Similarly with clothing stores he says the recent closures of such chains as Bradlees and the financial difficulties of those that remain are no surprise. He says with such little difference in merchandise these days from one store such as Wal Mart to another such as K Mart, a shakeout is inevitable. He also points to grocery store chains such as Grand Union, now closing after having been bought in a bankruptcy auction.
"The difference in Manhattan to other markets is that even when Bradlees," he continues, "for example, vacated its space, the location here on West 14th Street is on top of one of the most trafficked subway stops in the city. With Union Square there and Guess' new anchor flagship going in nearby, it will rent. Its only disadvantage is it's landlocked.
"Also," he adds, "Manhattan has Hermes, Cartier, Luis Vuitton, and other staple names. They're not going anywhere. Even if they didn't do any business for a while here, one would never know it. They're international and they have the ability to keep paying the rent here. Additionally, because there still is a housing shortage, people are moving into neighborhoods that were not residential before and those new neighborhoods need new businesses to support them. Look at Whole Foods. It's 50,000 sf no one expected, but look at all the people shopping there, like they fell out of the sky."
He adds that while there is space in the city that has been overpriced, particularly he says in "mature neighborhoods" where rent doubled its usual rate because of the tight market and soaring economy of last year, the prices will come down and rent will begin to normalize somewhat. He says the fringe areas will feel it, but even here in the five boroughs, he says it won't "feel as crushed" as in suburban markets in New Jersey or the rest of the nation.
Mendelson concludes explaining that stores such as Lechters were in financial trouble before they ever rented some of their space, so their demise is expected. He says frankly with so many stores selling the same things, it's a wonder it hadn't happened sooner. As far as damage to the retail sector as a whole, "We're a self-fulfilling prophecy. The more people think there are problems, the less consumer confidence there is and so the less they spend. The stores already hurting will not make it. Only the strong will survive."
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