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BOSTON — After soaring in recent years, retailing in New England has thudded to earth along with the regional economy.
This story first appeared in the December 24, 2008 issue of WWD. Subscribe Today.
“Watching everything disintegrate so fast is very disheartening,” said Debi Greenberg, owner of Louis Boston, one of the city’s iconic luxury shops, which sells Marni, Dries Van Noten and other designers. “I have had people walk into the store and look around, puzzled, and say, ‘You’re not on sale?’ It’s such an odd feeling, like I should apologize or something. So I say, ‘Well, we do have a sale in January. Please come back.’”
Greenberg plans for spring inventory to be light and hopes her competitors do the same in order to reset customers’ expectations about waiting for sales.
Until this fall, New England was cushioned from recession by thriving education, health care and research sectors. But those industries are hurting as federal grants dry up and college and university endowments take huge hits in the stock market — Harvard’s $36.9 billion endowment lost 22 percent, or $8 billion, in the last four months.
The skid is serious enough that the beloved Red Sox aren’t raising ticket prices for the first time in 14 years.
“The drumbeat effect, the message repeated over and over about how terrible it is, really takes a toll on the consumer,” said Jon Hurst, president of the Retailers Association of Massachusetts.
The Bay State, which represents about 50 percent of New England’s estimated $745 billion economy, took about a month to feel the impact of the seismic shocks of the financial crisis.
“Our sense is that November showed a recovery from the October drops. However, many stores remained below 2007 levels on a comparable-store and -month basis,” Hurst said.
A new breed of bargain hunters is doing more looking than buying on Boston’s trendy Newbury Street.
“The sale shoppers are so obvious,” said Jane Schlueter, co-owner of Dress boutique on Newbury that sells 3.1 Phillip Lim and Adam Adam Lippes, among others. “It’s happening more. [Retail markdowns] are out there in the news every day. People want to go out and find the best deal.”
In a sign of the times, Marc Jacobs closed its Collection business in September on the top two floors of his Newbury Street store to give more space for its fast-growing, lower-priced Marc by Marc Jacobs brand, which has been popular with students and European tourists. Gap Inc. closed both its Newbury Street stores, Gap and GapBody.
In the new luxury wing of Natick Collection in Natick, Mass., 20 miles west of Boston, specialty cosmetics store Blue Mercury and Stil, an independent boutique, closed this fall. Luggage retailer Bag ’n Baggage shut in May. There was no sign of activity recently at a Gucci storefront marked “opening 2008.”
The mall’s multimillion-dollar luxury wing, which opened in September 2007, “is like the empty restaurant where no one wants to eat,” said a Natick Collection tenant who spoke on condition of anonymity.
General Growth Properties Inc., Natick’s owner and the second largest U.S. mall owner, is negotiating with lenders. The company last week secured a temporary reprieve, pushing back an overdue $900 million mortgage payment to February. General Growth declined comment on Natick Collection.
The $2.2 billion The Talbots Inc. in Hingham, Mass., about 20 miles south of Boston, which is implementing a three-year strategic turnaround; has liquidated its men’s, kids’ and U.K. concepts; closed stores, trimmed staff and is trying to sell the J. Jill brand that it bought for $517 million. But Talbots’ third-quarter net loss increased to $167.2 million, or $3.13 a diluted share, versus a loss of $9.4 million, or 18 cents a share, a year earlier.
“In other times, layoffs in manufacturing and difficulties in the economy felt far off,” said Wendy Goldstein Pierce, a Boston publicist with luxury clientele. “Now it’s affecting people we know. No one wants to be conspicuous or disrespectful in their spending.”
Retailers are “pretty pessimistic,” said Alan Clayton-Matthews, an associate professor in public policy at the University of Massachusetts.
Hurst of the Retailers Association is projecting that the state’s holiday sales will decline 1 percent this year.
“We may be doing a little bit better than the nation,” he said. “Our housing is stable. Compared to what we thought we were looking at in terms of an energy situation, we’re doing far better than we thought.”
Massachusetts’ unemployment rate increased to 5.9 percent in November, the highest level since August 2003, from 5.5 percent in October. But it was still below the national jobless rate of 6.7 percent in November.
New England — crushed in the early Nineties when housing collapsed and jobs headed south — does not appear positioned to face the degree of hardship seen in California, Florida or Nevada, epicenters of this recession.
Nonetheless, major projects are being scaled back or halted — most prominently the $700 million One Franklin/Filene’s redevelopment in the heart of Boston. Mayor Thomas Menino has made a $40 million pool available to developers seeking bridge loans to finance city projects stalled by the credit crunch. Boston was successful with a similar financing instrument for hotel developments after the Sept. 11 terrorist attacks.
But not everything has stopped. Boston Properties is building Russia Wharf, a mixed-used complex that will include 30,000-square-feet of retail, is scheduled for completion in the fourth quarter of 2010. The company also received approval from the Boston Redevelopment Authority to build two more towers at the Prudential Center. Construction on Boston Properties’ 888 Boylston, which will include about 100,000-square-feet of retail space, is set to start in the spring.
Though speculation has swirled about the site, the $1.5 billion Westwood Station suburban megacomplex in Westwood, Mass., about 20 miles south of Boston, is 80 percent leased and going forward with construction, said the developer, New England Development Co.
Legacy Place, a $200 million lifestyle center including Anthropologie and Whole Foods in Dedham, Mass., about 20 miles south of Boston, is 95 percent leased and moving toward a summer 2009 opening, a spokesman for developer S.R. Weiner said.
Patriot Place in Foxborough, Mass., is open and its restaurants are prospering, said Brian Earley, general manager of the 1.3 million-square-foot retail-entertainment megacomplex at Gillette Stadium, home of the NFL’s New England Patriots.
“We are in a much better position than if we were looking to start construction today,” he said.
The New England Regional Economic Partnership, a forecasting organization, is predicting a “significant recession,” with 3.6 percent of the region’s jobs lost and unemployment potentially rising to 8 percent by mid-2010.
“When we look at this era, I think we’ll see that retail was as overbuilt as the tech sector was a decade ago, underwritten by the boom in housing,” said Jeff Carr, director and senior economist of the New England Economic Partnership.
In another blow, the Massachusetts State Pension fund and several of Boston’s most prominent philanthropists, including former clothing manufacturer Carl Shapiro, 95, a major patron of the Museum of Fine Arts in Boston, lost millions in an alleged Ponzi scheme orchestrated by financier Bernard L. Madoff, who was arrested last week. In addition, an ice storm last week cut power to an estimated one million business and residential customers in the region.
Like Massachusetts, New England as a whole has warmer and cooler spots in the economy.
Rhode Island has been hardest hit, with huge losses in the housing market and a lack of strong employers to compensate. It has the nation’s highest unemployment, at 8.8 percent, and the lowest number of housing starts in 30 years, said Edinaldo Tebaldo, professor of economics at Bryant University in Smithfield, R.I.
“We were the first state to enter recession and may be one of the last ones to leave,” he said, projecting that the state will lose 23,000 jobs next year and not see growth until 2011.
In Vermont, winter resort bookings are up over last year but may be vulnerable to cancellation if market psychology worsens, Carr said.
The vacation-home market, propelled by affluent New Yorkers and Bostonians, also has weakened.
“We’re seeing lawyers trying to get creative about getting their clients out of purchasing contracts without losing their down payments,” Carr said.
Maine’s retail bellwether, L.L. Bean, is cutting back on the seasonal workers it hires but is not laying off employees, said Charles Colgan, public policy and management professor with the University of Southern Maine. The state is hoping that a $2 billion to $3 billion investment from the Obama administration related to wind farms and electricity transmission tunnels will materialize as “green economy” jobs.
In Connecticut, “reasonable restraint on building and in subprime gimmick lending” mean the state is in decent shape, said Ed Deak, professor of economics at Fairfield University in Fairfield, Conn.
He said the state’s insurance industry and 700 hedge funds are vulnerable. One silver (or perhaps golden) lining for Connecticut is the new retail and hospitality market catering to gay couples. Connecticut and Massachusetts are the only places in the U.S. where same-sex couples can legally wed.
In Hanover, N.H., Dartmouth College plans to cut 10 percent of its operating budget after losing $220 million from its endowment. Although home foreclosures have leveled off, the state can’t avoid getting swept into the national turmoil, said Dennis Delay, deputy director of New Hampshire Center for Public Policy Studies. “We can’t avoid recession,” he said. “Now we’re looking at ways to minimize collateral damage.”