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New York City’s retail boom just got louder.

This story first appeared in the September 4, 2014 issue of WWD. Subscribe Today.

Neiman Marcus Group on Wednesday confirmed it’s opening its first store in New York City, in Hudson Yards on the West Side of Manhattan in 2018, a disclosure that comes amid massive retail and luxury development in progress around the city.

Neiman’s announcement has spawned industry debate over whether even a city as big as New York can support the wave of additional retail in the coming years.

But the wave won’t be stopped.

• Saks Fifth Avenue is close to reaching an agreement in lower Manhattan for a store at Brookfield Place, the 300,000-square-foot retail and dining destination at 250 Vesey Street just west of the World Trade Center, according to sources. Brookfield Place will open in March with Hermès, Burberry, Ferragamo, Michael Kors, Ermenegildo Zegna, Scoop and other high-end retailers, and an Eataly-type concept. Other department-store operators have been eyeing the financial district, where retail rents are rising faster than any other part of the city. In the past, Macy’s Inc. has scouted downtown, though there are no indications of any department store, other than Saks, signing a lease in the area.

• Australian shopping mall developer Westfield is guiding the World Trade Center’s 400,000 square feet of retail space, which is seen generating $700 million to $1 billion in annual retail sales and has yet to set an opening date. Giorgio Armani, Tom Ford and Tiffany & Co. are said to be in late-stage negotiations.

• The South Street Seaport is being redeveloped by the Howard Hughes Corp. The Pier 17 component will be transformed into a shopping, dining and entertainment venue and what’s described as “aspirational and accessible fashion.”

• Macy’s Herald Square is in advanced stages of its $400 million overhaul, while Saks will be spending about $200 million to beef up its Midtown flagship.

• Ralph Lauren is opening a dramatic, multifloor Polo flagship on Fifth Avenue this month.

• Barneys New York plans to return to its roots in Chelsea with a 57,000-square-foot store on Seventh Avenue and 16th Street in 2017, while keeping its Madison Avenue flagship.

• Nordstrom’s first full-line store in New York City, a 280,000-square-foot flagship, will open at the base of a future skyscraper on the north side of 57th Street between Broadway and Seventh Avenue. Nordstrom’s move is putting a new light on the 57th Street corridor for further retail development. Harry Macklowe has a luxury residential tower opening soon between 56th and 57th Streets at 432 Park Avenue, with a base that will accommodate significant luxury retail on 57th Street. Additional residential towers have sprung up on West 57th Street, to fuel retail sales and attract additional stores.

The intensity of retail investment is being spurred by soaring real estate values, widespread residential and office construction, foreign investment, rising tourism, the healthy stock market, and a sense that New York City has weathered the recession much better than other cities.

Lower Manhattan asking rents soared 37.8 percent in the second quarter this year, faster than any other section of the borough, according to a report by Cushman & Wakefield. Average asking rents for ground-floor space in lower Manhattan, defined by Cushman & Wakefield as extending from Chambers Street to the tip of the island, averaged $346 a square foot in the second quarter of 2014, compared with $251 in the same quarter a year ago.

Times Square had the second-highest rate of asking-rent increase — 13.8 percent to $2,470 per square foot. Third on the list was Madison Avenue, up 12.4 percent to $1,519 per square foot, followed by the 10.7 percent increase to $383 per square foot in the Flatiron District.

According to the New York City Economic Development Corp., for the 12 months ended in May, building projects (including new, additions and alterations) that started construction in the city rose by 14.6 percent. The Economic Development Corp. also indicated rises in other sectors, including Broadway shows, where attendance shot up 26.6 percent in June alone, and with hotel occupancy, which shot up 94.3 percent in May alone.

While the metrics demonstrate a robust New York City economy, the mushrooming retailing has some industry executives concerned.

“It worries me that there is just too damn much retail around the city, especially at the upscale,” said one former New York retail captain. “Saks and Neiman’s are both going to need brands to make their new stores valid, but to really be a luxury brand, do you want to be in multiple locations of wholesale and retail? It seems too much, even though it’s New York. It scares me a little bit. When the economic crisis of 2008 hit, everyone cut back distribution. Department stores closed stores. Brands cut distribution. Now, it’s like that never happened. What ends up happening are all these ‘friends and family’ events and discounting. If I were a brand, I would be struggling over what kind of commercial distribution I want to pursue.”

“I think it’s going to be a very long-term investment for Neiman’s on the West Side. It’s more clear downtown who will be shopping the financial district. What’s most important for Neiman’s is to get the most important top 10 or so luxury brands on board — Chanel, Vuitton, Dior, Prada, Gucci, Loro Piana — to create a compelling assortment,” said one luxury consultant. “The question is how much more distribution do these brands really want and how much has Neiman’s looped them into the Hudson Yards project. Look at Prada. They have seven or eight distribution points in Manhattan, with stores on Fifth Avenue, Madison Avenue, 57th Street, in SoHo and shops inside Bergdorf, Barneys and Bloomingdale’s. Do they really want a ninth or 10th location?”

“Most definitely, I can assure you that in the completion and execution of this lease, Neiman’s already knows at least 35 to 40 percent of who is going onto level five [Neiman’s main floor],” Kenneth Himmel, president of Related Urban, the mixed-use division of Related Cos., developer of Hudson Yards, told WWD. “If you look at the top 40 or 50 luxury, bridge and contemporary brands, everyone is in dialogue with us. We believe luxury wants to be and deserves to be complemented by retailing that is both contemporary and aspirational — Zara, Victoria’s Secret, Sephora, J. Crew — but I’m not telling you those are done deals.” Neiman’s, Himmel added, “wants to have a store that makes a new statement in their business. With Bergdorf Goodman, they own the carriage trade. With Neiman’s, they want to complement Bergdorf’s and now reach out to professional and younger customers.”

Neiman Marcus at Hudson Yards will occupy 250,000 square feet over three levels and anchor the 1 million-square-foot Shops at Hudson Yards, on 10th Avenue. Neiman’s will be on the fifth, sixth and seventh floors of the complex, posing the challenge of drawing shoppers up. Lower levels will have retail and restaurant offerings.

“I like the move by Neiman’s,” commented Michael Gould, the former chairman and chief executive officer of Bloomingdale’s. “If you look at Hudson Yards, over the next two or three years, it’s a tough nut. But if you have vision and look four or five years out, there’s tremendous potential as a multiuse area. Is it as good as 57th and Fifth? Not really, but if you look at the amount of foreign money coming into the city, from a residential and spending point of view, and Hudson Yards becoming a community, I like it, the same way you could look at the design district in Miami, which over the next four years is going to be exciting, too.”

Robert K. Futterman, founder, chairman and ceo of RKF, said Neiman’s locating to Hudson Yards “is a game-changer. It will really rachet up the co-tenancy they’ve wanted since they envisioned the project. It’s like a city within a city.” Futterman said Neiman Marcus will attract luxury tenants that already have multiple locations in Manhattan. “If you look at cities like Las Vegas or Paris or Los Angeles, some of these better tenants can have four or five doors in a city. This is telling what’s happening in the world in terms of the urban environment. The bricks-and-mortar business will survive and flourish in the urban cities.”

No other retail leases have been announced at Hudson Yards yet, creating curiosity about how Hudson Yards and its retail component unfolds.

“The store is not slated to open before 2018,” Karen Katz, president and ceo of the Neiman Marcus Group Ltd. LLC, told WWD. “Demographics show that the growth and population on the West Side and Southwest Side of the city is growing much faster than other parts of the city. Our expectation is that Hudson Yards becomes a tourist destination with a good mix of West Siders, people who also live downtown and international tourists.”

NMG also operates Bergdorf Goodman, but Katz said she believes New York remains underserved with upscale retail and no one is expecting residents of Manhattan’s East Side to venture so far west to shop the Manhattan Neiman Marcus.

Details of the lease agreement were not disclosed, though Neiman’s and Related officials noted that the extension of the number 7 subway line west, the extension of the High Line north to the foot of Hudson Yards, and the possibility of New York Fashion Week taking place at Hudson Yards, which is building a “culture shed” for special events, were strong inducements for Neiman’s to take the site. In addition, Related served up big floor plates — 80,000 square feet — and high ceilings, 18 to 20 feet tall, that Neiman’s couldn’t resist. In Manhattan, only Macy’s, Lord & Taylor, Saks and Bloomingdale’s have comparable floor plates. Nordstrom, which was in discussion with Related for Hudson Yards, and Macklowe for East 57th Street, will have smaller floor plates, around 35,000 square feet, and more levels than Neiman’s in Manhattan.

The 28-acre Hudson Yards, developed by Related along with Oxford Properties Group, will have more than 17 million square feet of commercial and residential space, more than 100 shops and restaurants, approximately 5,000 residences, the aforementioned “culture shed” for events, 14 acres of public open space, a public school and a 175-room luxury hotel. It’s all being built atop the rail yards near the Hudson River, between 30th and 33rd Streets and 10th Avenue and the West Side Highway.

“Steve Ross and his team at Related came to us with his vision at Hudson Yards and it is a very compelling opportunity,” Katz said. “We know New York and New Yorkers and we believe we are underserving the New York market.”

Further fueling the decision to take the site is last year’s deal by Ares Management and the Canada Pension Plan Investment Board to buy the $4.65 billion NMG from TPG Capital and Warburg Pincus for $6 billion. That’s putting pressure on the Neiman’s team to increase volume and profits and pay down the increased debt resulting from the deal. Some say Neiman’s, with 43 stores in the U.S., including Bergdorf’s, has most affluent markets already covered and therefore limited prospects for expansion. It’s also believed to be formulating a new international strategy, after cutting back from some investments in China to build a business there, which didn’t work out.

Nevertheless, Neiman’s is in a good position to meet the challenges. Its productivity leads the industry and was tracking at $567 in sales per square foot for Neiman’s second quarter and the luxury customer continues to spend.

There have been reports that Neiman’s could not open in Manhattan because of an agreement with the Goodman family, founders of Bergdorf Goodman, which years ago was sold to NMG. “If you ask the Goodman family,” Katz noted, “they would say they are enthusiastic about Neiman Marcus coming to Manhattan. There was no agreement I know of.”

Katz added that she was “very hopeful our key [vendor] partners will come with us when we start discussions. That will be in a couple of years before the opening.”

Katz and Himmel declined to comment on the volume potential for Neiman’s on the West Side, but sources said that by the third or fourth year in business, the location could hit $200 million in annual sales, becoming one of the best Neiman’s locations.

“The beauty of the location is it’s not so close to Madison and Fifth Avenues. It really does reach to a new market — the West and Lower West Sides,” said Himmel. He added that 400,000 to 425,000 live on the West Side south to the tip of Manhattan, and another 400,000 to 450,000 people reside from 57th Street north to about 90th Street on the West Side. “The density hasn’t been here until now,” Himmel said.

“There’s a whole new city being built on the West Side,” said Edward Hogan, national director of leasing at Brookfield Properties. “The density of what’s being built is significant. There’s a huge demand for retail. It’s a smart move for Neiman Marcus and smart move for Related to secure them this early. We’re on different scenarios in terms of a retail master plan.”