NEW YORK--Galeries Lafayette will pack up and go back to Paris Nov. 1, leaving 80,000 square feet of space ripe for Nike Town to create a sports lover's amusement store in Trump Tower.
This confirms stories appearing in these columns for several months.
Galeries opened in September 1991 and struggled ever since to build a business touting the French image here with all French merchandise. But the store never achieved its sales goals and could
not overcome burdensome rent and other expenses to break into the black.
Observers said the French retailer's sole U.S. store was out of step with modern American retailing and the dynamics of its neighborhood, did not carefully consider its competition and never got the merchandise right. The store could not generate the sales it needed to survive, despite its high-profile position at Fifth Avenue and 57th Street.
Retail watchers also said Nike will be an asset to the elite--though changing--shopping district known for such posh emporiums as Bergdorf Goodman, Chanel, Tiffany's and Cartier. The character of the neighborhood changed dramatically when Warner Bros. opened last October, bringing an atmosphere of flashy entertainment that appeals to a broad range of tastes and pocketbooks.
Donald Trump said Nike has signed a letter of intent with his organization to open a Nike Town sporting goods superstore in the Galeries space. He added that a lease is expected to be signed within the next two weeks.
A Nike spokeswoman said, however, that no lease has been signed, and until that happens, the company will not comment.
According to sources, rent for the Nike space should be around $10 million.
"Warner Bros. and Nike are two of the hottest stores around," said Trump, who rented space in his Trump Plaza hotel and casino in Atlantic City to Warner's. "They're breaking records down there on a daily basis, and every time I look across the street here, I see crowds of people waiting to get in. Nike Town is Chicago's number-one tourist attraction. So we can either fight that trend or go with it."
Trump said he has been approached by a lot of other retailers for the site, which has access from Fifth and Madison Avenues and 56th and 57th Streets.
After months of denying that the Galeries store here would close, Galeries chairman Georges Meyer said Tuesday in Paris, "We feel that this is the best solution."
Meyer explained he could not disclose this information earlier due to legal constraints imposed by his group's agreement with The Trump Organization.
Galeries said it would put its resources behind its growing French business, Nouvelles Galeries department stores, acquired in 1992--not behind a deficit-ridden store.
"It was simply riskier to keep the store open than to close it," said Meyer, at a cocktail party at the flagship Tuesday night. "I don't regret the experience; I regret that the circumstances weren't better."
Meyer said one of the main reasons behind the store's failure has been the dollar's weakness against the franc.
"We knew the rent in the beginning, but when we signed the lease, the rate was 7 francs to the dollar. Now it's 5.3 francs to the dollar. In a store where 90 percent of the product is French, we became 40 percent more expensive." Meyer said Galeries had not figured that into its financial planning.
Regarding whether the image was French enough, Meyer said, "What we showed was France in the Nineties. Maybe Americans have a different image of France. They often think the image of France is Versailles."
A dejected-sounding George Graf, president of the store here, said Tuesday the operation was difficult from the beginning.
"The fixed costs of operations were untenable for a store of this size," he said. "Rent, interest and taxes accounted for 75 to 80 percent of the operating loss, which was $4.4 million last year."
Galeries pays $8 million annually in rent to Trump Tower. Its lease expires in 2008, and it is paying $30 million to $35 million to get out of the deal.
James DeWinter, senior site consultant with The Greenberg Group, a real estate firm, said the rent was "reasonable for the area."
"Other retailers have paid that and more. It's a one-of-a-kind location, internationally known and very visible. There's more to the equation than just rent," DeWinter added.
Galeries will begin its "Going back to Paris" sale today.
"We're doing it ourselves, not using an outside liquidator," Graf said, adding that the advertising will be in newspapers, on bus sides and bus shelters.
The business was growing at a rate of about 6 percent a year, he said. Margins had improved to 41 or 42 percent, and the operating loss was narrowed by 15 percent in 1993 against 1992.
"It was a clean business, and it was healthier," Graf said.
Galeries was using about 40,000 square feet of its total of 80,000 square feet for sales space.
Graf said the store was current in all its bills to vendors. He will keep an office here to take care of any unfinished business. The company will remain incorporated in the U.S., out of Delaware, in case there are any other opportunities the parent company might want to evaluate here in the future.
Graf said he had not thought much about his own plans. He said his first concern was for the 180 people who work for the store, and helping them find jobs. Only one employee, the general merchandise manager, was from Paris, and would be returning there.
"It's a crowded playing field in New York," he said, "and we were at somewhat of a competitive disadvantage when we started."
He explained that there were restrictions on certain lines the store could carry because of existing arrangements that French manufacturers had with other Manhattan retailers.
"When I came in, we changed that and started working with unknown names, bringing in fresh goods from young designers," he said. "It was working."
In 1993, Galeries had sales of about $20 million.
Galeries said "bonjour" to Manhattan three years ago. After a blockbuster first weekend, raking in sales of $500,000, interest in the store fizzled. It did not meet plan for its first Christmas and fell short of its goal of about $10 million for the store's first four months in business. Still, it kept its annual sales goal of $35 million to $40 million in place.
During its brief tenure here, Galeries was continuously tinkering with its image and merchandise. Its ads began using photography instead of the too-subtle, stylized illustrations it started with.
The store added an espresso bar, expanded career and contemporary goods and adjusted the assortment of certain designer labels.
After about a year, speculation began to grow that the store might need some serious help. Graf took over as president and ceo in May 1993 after Eugenia M. Ulasewicz resigned to take a post with Saks Fifth Avenue.
Later that year, with the store still failing to meet expectations, Meyer admitted competition was severe and that one of the company's star private labels and its best-selling brand in Paris, Jodhpur, flopped in New York. Meyer also raised the possibility that the store would be closed if it didn't turn around.
A brighter sales picture never materialized. Meyer started seeking companies to sublet some space as one solution to its high-rent problems, but in the end, closing was deemed the best alternative.
Retail consultant Isaac Lagnado of Tactical Retail Solutions said the store's fundamental error was in trying to be something it wasn't.
"In Paris, Galeries is like Macy's," he said, adding it was too upscale in the U.S. "It should have been more broad-based, with a blend of food, moderate and upper-moderate merchandise and one-of-a-kind items that would attract the tourists in the area."
Other problems Lagnado cited were that sizing was never quite right, departments changed around too fast, and there was little or no intrinsic value to the merchandise, "especially compared with the powerhouses in that neighborhood."
"Warner Bros. has proven it has the right concept," he said, noting its sales are reportedly around $700 per square foot. "In some ways, Nike is an even better fit, with extraordinary store presentation and a product that cuts across many demographic segments. The athletic business is a little tired and saturated and needs a shot in the arm."
Few in Paris were surprised by the decision to close, since it was no secret the store lost money from the outset.
Moreover, many in the industry here have commented that Galeries' strategy was not clear from the outset. Some said it was not merchandised properly, nor did it consider competition from neighborhood department and specialty stores.
"It's really a shame, but I am not surprised," said Bernard Aidan, the president of the French brand Et Vous' joint-venture company in New York. "It would have been nice to have a French department store in New York."
Aidan said the store failed for various reasons, including high rent and confused merchandising.
Et Vous has had an in-store shop in Galeries since the store's opening, but the business is a very small part of Et Vous's $20 million wholesale volume. The brand also sells to Bloomingdale's and Barneys New York.
"Galeries was a small account for us," Aidan said, "It will be like losing a retail boutique." He added, however, that Et Vous sold very well there. "When their buyer called me this morning to tell me the news, she said it was too bad, given the kinds of numbers Et Vous achieved there."
"We knew it was coming--it was more a question of when," said Guglielmo Melegari, assistant to the chairman of Max Mara USA. "If anything, we expected that it would come by the end of the take advantage of the Christmas season."
Like Et Vous, Max Mara had its own corner shop in Galeries where it sold its Max Mara, Sportmax and Weekend apparel. Melegari described his company's business there as "very satisfactory," one of the few areas in the store that was profitable.
Isabel Marant, a Paris accessories and ready-to-wear designer, began selling her fashion jewelry to Galeries last winter, and the store picked up her rtw this summer. Galeries, however, did not reorder Marant's goods for this fall, unlike her other area clients, which include Barneys uptown and If in SoHo.
"When Galeries didn't reorder, I wondered if something wasn't wrong," Marant noted. "They have not been very organized, and I have had no comment on their part about how my rtw sold."
Marant said total sales in the U.S. are about $52,000 out of an overall volume of $1.3 million, adding that Galeries' closing was "far from catastrophic" for her.
Capucine Puerari has been selling its swimsuit collection to Galeries for about two years, but said it was a tiny account. President Laurent de Blegiers said, "We sold there to make the Paris store happy."
De Blegiers said a big problem was the disorganization implicit in having fashion decisions made in New York as well as Galeries' Paris-based central buying office. "If you want to run a store in the U.S., it has to be managed completely in the U.S."
The Galeries Lafayette group's non-American business has been going through intense restructuring and reorganization since its Nouvelles Galeries purchase. Consolidated sales for the first six months of this year were flat at $2.6 billion (13.7 billion francs) compared with the 1993 half.
Growth was hampered by the closing of a number of Monoprix stores, the group's chain of variety/supermarket stores. Profit figures were not disclosed and, under French law, are not required to be.
Volume at the flagship on Paris's Boulevard Haussmann rose 5 percent for the half to $301.9 million (1.6 billion francs).
The company will be unveiling four new Galeries Lafayette stores around France this fall, and six others will start renovations, the company said. These stores were those formerly operated under the Nouvelles Galeries banner.
As reported, Galeries broke even in 1993 on consolidated sales of $5.5 billion (29.4 billion francs).

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