FORTUNES & FLAGSHIPS: RETAIL TEMPLES RISE DESPITE RECESSION

Byline: David Moin

NEW YORK — Austerity measures?
When it comes to building designer flagships, there’s not much cutting back, not even in this down luxury cycle. Store costs are running high and designers and the corporations behind them are willing to foot the bill to be here. Prada’s 30,000-square-foot SoHo store, opening Dec. 15, tops the charts. Estimated cost: $25 million to $30 million. More than a mere flagship, it’s a work of high tech wizardry, created by architect Rem Koolhaas in the former Guggenheim space on the corner of Broadway and Prince. It’s rigged with fashion displays computerized to glide on tracks, dressing rooms with hidden TV cameras and high-resolution monitors to see yourself from all angles, and glass walls that become opaque when the sliding door shuts.
Other big destination stores with high estimated costs:
Burberry, seen coming in at $15 million to $20 million, for its six-level world flagship at 7-9 East 57th Street, opening next year. Burberry bought the property and is expanding into the former Escada space, giving it 36,000 square feet, including 21,000 for selling. Donna Karan, $16.5 million, for her 10,600-square-foot store at 819 Madison Avenue, between 68th and 69th Streets, opened last summer and built by her own company, Urban Zen. It took three years and plenty of working and reworking to create a dynamic environment with double-height windows, Balinese teak tables, gold ceramics, two massive stone chairs and an indoor-outdoor pool filled with black granite stones.
Escada, $12 million, for its 17,400-square-foot store opened last October on Fifth Avenue between 55th and 56th Streets.
Hugo Boss, between $6.6 million and $7.7 million, for its 23,000-square-foot store on the southeast corner of 56th Street and Fifth Avenue, opened last spring.
Chanel, expected to come in at $1,000 a square foot for its 3,000-square-foot accessories store, or under $3 million, depending on how much of the space is selling versus backroom. The Chanel shop, on the corner of Madison Avenue and 64th Street, is being created by architect Peter Marino.
Ferragamo spent $2.5 million for its 5,000-square-foot, two-level store, on the southeast corner of Spring and Greene Streets.
Ferragamo has a much bigger project percolating, the expansion at 663 Fifth Avenue into 655 Fifth, on the northeast corner of 52nd Street, to create a 30,000-square-foot flagship, with about 20,000 for selling. It’s expected to open in spring 2003. Ferragamo is considering leasing out some of the space.
Another store guaranteed to be costly is Louis Vuitton on Fifth Avenue and 57th Street. Just getting the space put LVMH in rarefied air, as the company spent an estimated $100 million to buy the building. Real estate sources said the parent LVMH won’t hesitate to sink as much as Burberry or Prada did for their stores, and won’t get away with under $1,000 a foot. Warner Bros. previously occupied the site, which was cramped with escalators and other structures that will probably be taken down.
Dolce & Gabbana is renovating its unit at 825 Madison Avenue. “It will be major. They are adding floors,” said one source.
“These are companies that are building a brand. It’s not about real estate deals, and not necessarily about sales per square foot or profitability at the store level,” observed Steve Greenberg, president of The Greenberg Group, retail real estate advisers.
“Companies believe that to build a brand, you need a showcase location and that in New York, where you have international tourism and international fashion, the absence of a flagship is a major detriment. Some of these stores will be marginally profitable, but the designers are spending a great deal, usually in the neighborhood of $400 to $500 a foot to build these mausoleums.”
Other industry sources say retail projects in SoHo rarely come in under $450 a foot, while on Madison Avenue and Fifth Avenue in midtown, they can easily surpass $1,000 a foot. Designer stores currently under construction were commitments made pre-Sept. 11, though since then, the level of design and detailing hasn’t changed much in the down economy. “Remember, you are dealing with image,” said one executive familiar with projects in the works. “You can’t mess with that. You still have to maintain the aesthetic, or else you are not going to create the environment to move the merchandise. You can only hold back costs to a degree. Designers spend their lives dealing with the details of the clothing, so they get very much involved with the details of the architecture.”
In the past three years, building costs for store interiors have risen 25 to 30 percent, according to store architects and real estate experts. “There was a time when I couldn’t buy sheetrock,” said one architect source. “It’s still tight, but not as tight as it was. The bids on sheetrock change month to month, and projects are bid out as if everything is done on overtime.”
According to architect Michael Gabellini, “There can be a lot of miscellaneous things you don’t even see in the final design that could increase costs by $100 or $150 a foot,” such as structural changes.
Nevertheless, “There is actually a new urgency for new development,” said Gabellini. “Fashion companies do tend to have long-range plans, and they obviously have weathered recessions. But there is an increased urgency with stores under development to open them sooner rather than later, to increase sales and get it going in the fashion season. In some cases, that makes it more expensive,” considering increased overtime and what it takes to get help on the site when you need it.
Gabellini said just prior to the millennium, costs to build designer stores increased 25 to 30 percent. He believes they have since stabilized or decreased slightly.
“A Gap installation, soup to nuts, turnkey, meaning taking a raw space and renovating to a new store, probably cost between $250 to $350 per square foot in New York City,” said Jeffrey Paisner, senior managing director, The Lansco Corp., retail real estate brokerage firm. “Multi-level stores, adding on elevators or escalators, add significantly to the job. An escalator can add a quarter-million dollars to the store.
“With European or American designer stores, it’s a wide range from $500 to over $1,000 a foot. Those jobs are extremely architecturally complicated and fixture intensive, building very expensive showcases. A traditional wood floor will cost $7 to $12 a square foot, for materials and installation, terrazzo or stone floor, marble or granite, or tile, those floors can cost $40 a square foot and up.”
“The big difference is now the landlords, to get some of these tenants, are making a contribution,” said Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide retail brokers. “It could be on some of the buildout for the tenants, or some demolition work. Before, what you saw is what you got.”
On the less expensive side, Liz Claiborne is planning to renovate its big store on Fifth Avenue and 52nd Street, beginning in January. On a square foot basis, it should come in well under what designers are spending. It will be a six-month project, according to the company.
Other projects in the works: Tag Heuer is expected to build a highly detailed unit on West Broadway; Burberry is building a one-level, 4,800-square-foot unit at 133 Spring St., between Greene and Wooster Streets, which should open next spring, and Jil Sander is headed for the former Hermes site on 57th Street, possibly opening in summer 2002. Gucci is said to have a deal for a second Manhattan location, on Madison Avenue between 69th and 70th Streets. That’s where Compagnie Financiere Richemont operates Cartier and Chloe on the corners and Montblanc, Lancel and Sulka in between. Reportedly, Richemont would keep the Cartier and Chloe stores operating, and sublease the bulk of the 18,000-square-foot retail corridor to Gucci and possibly a Gucci division, such as Sergio Rossi. Richemont’s James Purdey store on the block already closed. Chelsfield PLC, a British real estate firm that owns the property declined to comment and Gucci didn’t return calls. The sole Gucci store in Manhattan is a 13,000-square-foot unit on Fifth Avenue and 54th Street.
Most of these projects pale in comparison with Prada’s urban investments. The SoHo store has been in development for several years and, given the financial squeeze on the company, speculation has been spreading about possible delays with other major retail projects — in San Francisco, Tokyo and Beverly Hills. But that speculation was denied by company officials Wednesday, just as the company delivered news that it will float a bond issue with Deutsche Bank valued at $624.1 million, as a means of restructuring its $1.16 billion debt load (see related story). “There have been no delays that have been unanticipated,” the spokeswoman said.
Aside from the SoHo project, Prada is creating a 114,480-square-foot New York headquarters, housed in a former piano factory. That’s being designed by architect Herzog & de Meuron, and reportedly costing double the downtown store.
Prada Group also has leased space at the Fuller Building at 41 East 57th St., on the eastern corner of Madison Avenue, with plans to combine four existing ground-level stores into a three-level, 18,000-square-foot space that would house a store for one or more of its brands — possibly Helmut Lang or Church & Co.
In San Francisco, Prada bought a six-story building only to find out it did not meet the city earthquake regulations. “They have to spend years redoing the building for a seismic upgrade. That should have been the responsibility of the previous landlord,” said one real estate source. Prada also paid dearly, according to sources, to get the tenants out early, and had to rent space elsewhere to open a store in town.
Some say those kinds of maneuvers are inevitable. “Designer brands now more than ever need the visibility,” Consolo contended. “Despite all the doom and gloom, there are customers still out there to buy the products.”

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