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[6 comments]

A High-End Retail Opportunity Grows in Brooklyn

June 2, 2010

Following Barneys' announcement in March that it plans to open its first store in Brooklyn's hot Cobble Hill neighborhood, other national high-end retailers -- including Swarovski Crystal, Anthropologie and The North Face -- are said to be looking to open locations in that New York City borough.

Barneys plans to open one of its smaller concept Barneys' Co-Op stores. The format runs around 8,000 square feet and targets a younger, hipper crowd than Barneys New York. Prices are said to be somewhat more reasonable than Barneys New York but far from cheap. Dresses can still cost north of $500 and jeans over $300.

An article in The New York Times said that while retailers with locations in Manhattan, such as American Apparel, Urban Outfitters and Trader Joe's, have opened outposts in the borough, Barney's Co-Op is aimed squarely at upscale shoppers and particularly paving the way for other premium stores.

"Brooklyn has the demographics to support this kind of retail, but until now, no national store was willing to take the chance," Joanne Podell, the executive director of retail services at Cushman & Wakefield, told the Times.

The Times noted that in Cobble Hill, apartment prices regularly top $1 million and the average household income is more than $109,000, according to the Census Bureau's 2008 American Community Survey. In comparison, the average household incomes on the Upper West Side and SoHo -- where two other Barneys Co-ops are located - are $177,000 and $181,000.

More than 100,000 people live within a mile of the new Barneys Co-Op, and numerous subway lines converge nearby providing accesses to thousands of office workers from downtown Brooklyn.

Asking rents in Cobble Hill are roughly 20 to 25 percent of what is available in prime Manhattan spots like SoHo.

"We are opening the Brooklyn store for the same reason we opened our location on the Upper West Side: it's where our customers are living, and they appreciate us coming to their neighborhoods," said Ms. Brown.

In a story that appeared when the store's opening was first announced, the New York Daily News found one 57-year old musician who called the Co-Op's arrival "more of the Manhattanization" of downtown Brooklyn.

But April Maddox, a 37 year-old piano teacher, said, "I don't think you'll find a single woman around here to complain about Barneys coming to town. Pretty soon, I'll be able to get all my shopping done in Brooklyn. A few more nice restaurants and I might swear off the city altogether."

While real estate brokers indicate increased interest in Cobble Hill as a high-end destination, one hurdle is a lack of spaces big enough for national retailers. Williamsburg, which has more retail options, is said to be less appealing because of its lack of density and access to mass transportation.

Discussion Questions: Will we soon see a broadening of the luxury store market in other cities, similar to what is happening in Brooklyn? What factors best determine whether a locale is suitable for targeting wealthy shoppers?

Discussion Questions

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Comments:

Barney's holds a strong, New York-centric view of the greater metropolitan area. If they have done the right real estate sourcing (and, the neighborhood is right) on pricing and companion retailers, this store should do nicely.

That, however, doesn't translate to $300 jeans doing well in every better end community around the country. Shopping and travel patterns vary by market, and 'Urban Villages', with all their fabulous charm, do not work everywhere.

The real estate teams will have to conduct sound studies of consumer patterns for each of the local markets that they may be evaluating. The days of capturing a 'sharp leasehold', and opening the doors on a model that has worked elsewhere, is "on hold."

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Roger Saunders, Managing Director, PROSPER BUSINESS DEVELOPMENT / BIGinsight

I see this as a win/win for Barneys, the landlords, the neighborhood and other smaller high-end retailers. Look at real estate prices compared to New York City. That alone will cause retailers to follow suit now that a bigger box has started to lead the way. It will be interesting to follow this in a year or more to see how successful the project became.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

If the market they are selecting can support other high-end stores, then they can probably be successful. But given today's economy and high unemployment, I'd be very cautious. You can chose the high-end suburb of any city and think you're safe, but all it takes is one major business to move out, announce layoffs or go out of business and things can change quickly in a smaller metropolitan area.

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Janet Dorenkott, VP & Co-owner, Relational Solutions, Inc.

Brooklyn seems pretty unique to me in today's economic environment. Certainly here in the Bay Area the prospects of high-end stores in up-and-coming "spill-over" areas (e.g., fashionable parts of Oakland) looks bleak. Maybe there are areas around DC, or Dallas, or Minot, ND (just kidding) where the economy is holding up for this sort of stuff. In the meantime, growing sames store sales in existing locations is the better bet. And hopefully things will get better in the next year or two!

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Jonathan Marek, Senior Vice President, Applied Predictive Technologies

Let's not get too excited here: it's a Barneys CoOp, not a "real" Barneys, and whatever it is, it will be a small drop of $xy.z million in sales in what is probably a $ a.bc billion market.

As for extrapolating this around the country, I say "no": even if this is truly some kind of phenomenon, I think it's one of those New York specific ones...Jonathon's comments really hit home (literally): I've been waiting for Oakland's supposedly "inevitable" rebirth since I realized that retail wasn't something a dog could wag, and I think people in underloved sibling cities around the country would say the same thing.

'notcom'

Ah, to be young, fashionable, and luxurious (or luggzurious). And to care about all this. I really dislike New York-centric postulations. I'm a FoxTV fan, but was severely ticked off last year when they reported the size of our SoCal fires in increments of Central Park. "It's ten times the size of Central Park," they breathlessly reported. Of course, all we Californians carry around the dimensions of Central Park in our heads. Oh, my! Where to shop in NY! I'm so confused. Which of these stores is near Central Park?

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

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A High-End Retail Opportunity Grows in Brooklyn

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