Retailers are shutting down their NYC flagships

Discussion
Photo: Getty Images
Jan 07, 2019
Tom Ryan

Three retailers — Lord & Taylor, Ralph Lauren and Gap — recently closed or will soon close major flagships in Manhattan.

Lord & Taylor shuttered its store at 38th St. and 5th Ave. last Thursday. In October, owner Hudson’s Bay Company sold the 11-story building, which opened in 1914, to the WeWork space-leasing company for more than $850 million.

Hudson’s Bay Company, which also owns the Hudson’s Bay and Saks banners in North America, has struggled with anemic sales and is looking to maximize its real estate.

Writing for The New York Times at the time, Benjamin Norman said the sales of landmark properties still carry risks. He wrote, “Many old-line retailers have struggled to strike a balance between cashing out their valuable real estate holdings while retaining the historic buildings that define their brands. Despite the growth of e-commerce, the vast majority of shopping is still done in stores.”

In April 2018, Ralph Lauren closed its flagship store on 55th street and 5th Avenue less than three years after opening it. The closing came amid declining sales and profits. Polo has another flagship on Madison Avenue as well as seven other smaller stores.

On Dec. 26, Gap confirmed it will close its flagship at 54th and 5th Ave. in January. The three-story flagship opened in 1998.

On its third-quarter conference call in November, Art Peck, Gap’s CEO, said the company would look to close “hundreds” of Gap stores as it shifts focus from growth to profitability. Said Mr. Peck, “It includes some amazing flagship stores around the world that we’re evaluating with an objective eye on which ones provide sufficient value to keep. Collectively, the flags have meaningful negative contribution.”

The 5th Ave. location was formerly Gap’s only flagship in New York City until 2017 when it opened a second in Times Square.

Lease rates have come down slightly in Manhattan, and other brands, including Chanel, Nike, Levi’s and CoverGirl, opened flagships last year.

DISCUSSION QUESTIONS: Should the decision to open or close a flagship store differ, in your mind, from other chain locations? Do you think Lord & Taylor, Ralph Lauren or Gap will come to regret closing their flagships?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Regrettable? Yes. The romance of shopping Fifth Avenue reinventing itself? I hope."
"It’s throwing in the towel. If you can’t make it in New York, you can’t make it anywhere."
"Of the retailers mentioned only the closure of Lord & Taylor really feels like something significant."

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30 Comments on "Retailers are shutting down their NYC flagships"


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Neil Saunders
BrainTrust

I’d say that in all of these cases, the retailers concerned did not have a strong enough proposition to support the economics of a large flagship store. Gap’s, in particular, was simply a big version of any other Gap store.

A flagship is expensive, especially in a city such as New York. That means it has to generate significant volume, play a role in driving the brand and sales through other channels, or both. If it doesn’t do these things, there is little point in having it.

Mark Ryski
BrainTrust

Yes, I think closing flagship stores is a very different decision. Achieving profitability for every store is important, but flagship stores serve additional purposes, like providing brand exposure and enabling retailers to showcase new/different product lines.
Notwithstanding the additional value flagships provide, the underlying financial realities of these retailers also needs to be weighed – flagships, by definition, are high value assets and if the flagship store is significantly unprofitable, the motivation to sell these sites and close the stores will be strong. Ultimately, I believe that closing a flagship – and especially the stores noted in the article – should be a very last resort. The fact that these retailers have made the decision to do so, is very telling of what shape their businesses are actually in.

Zel Bianco
BrainTrust

Lord & Taylor was a great store and there is nothing else like it in Manhattan, at least in its price range. It was a store that was civilized and so easy to shop compared to Macy’s. The people on the floor were always so helpful. I really hated to see it go. There are other locations in and around the NY Metro area but this was THE store. I do think that closing a flagship store like L&T on Fifth Ave. should be considered as a last resort but how can you argue with the fact that the real estate was more valuable than the store itself, by far? Now it is just going to be another WeWork, big deal! I don’t think they will have the nice helpful ladies in the jewelery department to help me pick out a nice present for my wife or daughter. People will no longer line up at Christmas to see the beautifully decorated windows. It is very sad.

Zel Bianco
BrainTrust

I wanted to add a few comments that my wife had to say about L&T as well: I think the bigger problem (based on my experiences) is that L&T’s online services are terrible! They pull items out of the stores instead of having a central warehouse. Often I would get an order confirmation, but have it cancelled a week later because the store sold the item. So if they are trying to reinvent themselves, they better get busy refining the e-commerce experience.

Bob Amster
BrainTrust

In many if not all cases, if we are going to call it a “flagship” then it is the store that represents the brand. There is only one flagship per flotilla and, if there is no flagship, how do others know who you are? Flagship stores should be considered a form of marketing and advertising. You know a brand by its flagship.

Jeff Sward
BrainTrust

Flagships may be the brand on steroids, or even some kind of store-of-the-future prototype, but every store represents the brand. Every store is a form of advertising and marketing. Lots of customers will go their entire life and never set foot in a flagship. Their local store is the brand.

Cynthia Holcomb
BrainTrust

For Lord & Taylor, the end of an era. The closing Ralph Lauren and Gap flagships do not have the same historical Fifth Avenue cache. Regrettable? Yes. The romance of shopping Fifth Avenue reinventing itself? I hope.

Dave Bruno
BrainTrust

I agree 100 percent, Cynthia. I truly hope (and believe) that this is the beginning of a reinvention of flagship experiences and expectations, rather than the demise of flagships altogether!

Cynthia Holcomb
BrainTrust

Agreed! Thanks.

Tom Dougherty
BrainTrust

This is not a flagship issue. It is a profitability issue. Confusing the two means you believe the Lord & Taylor connection to the prospect and customer is in anyway tied to a specific location in Manhattan.

It is sad to hear of the closing. But retail has bigger issues than any single location in NYC.

W. Frank Dell II
BrainTrust

The retail landscape is continually changing otherwise retailers would not be opening and closing stores every year. All too often the flagship or first store is not evaluated. Many first stores have long outlived their usefulness but owners keep them open. It would be cheaper to make them a museum. Above a certain size closing the flagship store will have no effect other than some lost sales. When the flagship store accounts for less than 3 percent it is just another store. A retailer’s initial image comes from its flagship or first store. Over time it is more shopping environment, customer service, product selection and price and less flagship location. The larger the retailer the more the flagship stores should be evaluated just like every other store.

Joan Treistman
BrainTrust

The decision to close a flagship store requires an assessment that includes both hard and soft assets. On Fifth Avenue in NYC there’s an opportunity to reinforce brand equity on a worldwide basis because of the many tourists that visit. Further, any financial analysis must take a holistic approach, examining all brand properties. What sustains and propels the brand? In some sense it parallels inventory decisions that examine categories as well as individual items that a retailer offers. If the projected value doesn’t justify the cost, the decision is straight forward. Flagships are only valuable flagships when they maintain their importance in terms of reinforcing brand equity and conveying the brand’s reason for being on a large sustainable scale. That’s what begins to justify their cost and any possible negative entry on the balance sheet.

Art Suriano
BrainTrust

I think it’s just the change in times. The big stores aren’t as necessary as they once were and the bigger the store, the more it costs to run it. NYC is an expensive place, no doubt prestigious and if successful in generating traffic can be very profitable. However, trends have changed and as more people shop online, and competition increases, retailers see they can be more successful with fewer and smaller stores. As we continue to blend online and brick-and-mortar into one shopping experience, I predict most retailers will opt for smaller stores for customers to see and try merchandise yet not take it home with them. Instead, it will be waiting for them by the time they get home, delivered from a different source. There will always be a place for brick-and-mortar but because of technology we no longer have to have every item in the store and also in stock. This strategy will keep costs down and allow retailers more competitive advantages and opportunities to remain profitable.

Dick Seesel
BrainTrust

The state of retail occupancy in Manhattan reflects trends across the country, exacerbated by historically high rents. But it’s still hard to watch iconic brands like Ralph Lauren close unprofitable stores. Hopefully the ongoing strength of the NYC economy and tourism business will change the landscape — but not necessarily in the traditional shopping magnets.

Brandon Rael
BrainTrust

The truest definition of a flagship store originated with Selfridges, whose motto was to provide an outstanding and transforming customer experience. This model then permeated NYC and big city life with Macy’s Herald Square, Lord & Taylor, Saks 5th Avenue and the other flagship stores that extended throughout midtown.

The original purpose of the flagship store was to provide an experience that a customer couldn’t find in their local branch, full of exclusive products, services and a place to make memories. As time went on, mass merchandising retailers opened their NYC flagship stores, but in all honesty, they were merely larger versions of their typical suburban stores.

While Lord & Taylor’s flagship closing is a sentimental end of an era, thankfully for all of us retail is constantly reinventing itself. One empire falls, and another will rise. The emergence of the DTC experiential flagships with Nike, Adidas, Glossier, Muji, and many others will keep the shopping scene very interesting

Mohamed Amer
BrainTrust

A flagship store is as the name implies emblematic of the brand. The decision to open or close a flagship store resonates far and wide and sends a loud message to customers, competitors, and suppliers. In essence, decisions across every operational aspect from merchandising to hiring and training for a flagship store are much more consequential for a brand or chain.

In business, you don’t have time to look back with regret, you move forward and execute your strategy. Only time will tell if their respective strategies are appropriate to today’s (and tomorrow’s) retailing environment.

Min-Jee Hwang
BrainTrust

Flagships do differ from other chain locations, specifically regarding branding, word-of-mouth and public relations. So they should be treated differently, but these retailers didn’t have that unique experience at their flagships compared to their other locations to warrant keeping them. A flagship can’t be just a big store, it must be something more.

Sky Rota
BrainTrust
2 months 14 days ago
No regrets! Thankfully these retailers were really good at purchasing fantastic and historic buildings back in the day or they would possibly have no worth today. Look at Macy’s real estate, with an estimated value of $16 billion, it’s worth more than the company’s market value of $6.4 billion. Their San Francisco’s Union Square city block store and offices alone are probably worth a few billion and they are selling them off in chunks. Sadly those huge magnificent stores aren’t full of shoppers anymore like years ago. Times have changed, there are other means of shopping options. I believe you have to downsize and stay open where your business is. You can’t keep a flagship store open for appearances. It’s still business. And honestly none of the newer generations will ever miss them not being there. No worries, we will go to the other smaller locations. I understand this change thing is really tough for older generations. Generation Z wakes up to change on a daily sometimes hourly basis. Our life is a constant update,… Read more »
Dave Bruno
BrainTrust

As other comments have indicated, I do not think these examples indicate the looming demise of Fifth Avenue retail as we know it. Rather, I think it indicates an evolution. I believe that flagship decisions do differ from other locations, as experiences are now important elements of the store, whether it be on Fifth Avenue or Main Street, and flagships can now be powerful brand-building tools that help establish the brand as an experience center. The trick, in my mind, is still to figure out how flagship experiences translate to the suburbs. Flagships are an still important but now they must include testing and determining how their experiences translate to suburban stores.

Steve Montgomery
BrainTrust

Closing a flagship store is a financial decision with tremendous emotional overtones for any retailer. The bottom line is the store must make money or at least not lose a lot. When it doesn’t and there does not appear to be a light at the end of the proverbial tunnel then it has to be closed.

The emotional impact starts when the retailer comes to grip with the fact that the brand does not resonate enough to make the store sustainable. It continues because the store is seen as the standard-bearer for the brand. This resonates through the organization. People begin to wonder if they are the next Sears.

Closing a flagship location is a very hard decision. You have to applaud management’s willingness to make the decision to do so.

Gene Detroyer
BrainTrust

To Mark Ryski’s comment, “The fact that these retailers have made the decision to do so, is very telling of what shape their businesses are actually in.”

I may be a little off topic here but, on the day after Christmas, I actually went shopping. That was my Christmas present to my wife. To spend the day.

We walked Madison Avenue from 57th Street to 79th Street. One of the top shopping areas in the world. Every block has at least one empty store. Some had two or three.

This is in the midst of the biggest shopping month of the year on one of the premier shopping streets in the world. There is a message there.

Ralph Jacobson
BrainTrust

We’re at a time when ROI demands are stronger than ever in our business. If the math doesn’t work, having a cool store in a flashy location won’t fly with investors.

Lauren Goldberg
BrainTrust

A flagship shouldn’t be just a larger store (ie., Gap) — it should provide a compelling brand experience that consumers can’t find anywhere else. With the ridiculously high rent in NYC, these stores need to drive traffic, brand awareness and sales. In order to keep the stores fresh and innovative, it requires capital. I don’t see the NYC flagship concept going away (see Nike and Restoration Hardware), But these brands are all in a place of cost cutting and closing these stores will help the bottom line in the short run.

Cate Trotter
BrainTrust

Of the retailers mentioned only the closure of Lord & Taylor really feels like something significant. Gap’s space certainly didn’t occupy that same level of flagship. At the end of the day if you’re going to maintain a store in New York as a flagship then it needs to be a flagship – it has to be a destination, not just a bigger version of what you have everywhere else. I think it is understandable though that some retailers are reexamining their physical commitments and making decisions about what is working for them and not. If you’re not doing it right then a large New York store is a burden rather than an asset. That said I think most retailers understand that and would prefer to retain flagship spaces as they’re often not about sales, but brand building and marketing on a scale that can’t be matched.

Bob Phibbs
BrainTrust

It’s throwing in the towel. If you can’t make it in New York, you can’t make it anywhere.

gordon arnold
Guest

Flagship stores are expensive and usually cost more than they make. The purpose was a marketing grandstand which is no more than advertising. The money diverted to web site enhancements and social media advertising is better spent on a far larger and rapidly growing audience. Simple 21st century marketing deployment.

Patricia Vekich Waldron
BrainTrust

Flagship decisions are different, especially for these legacy retailers who decided to close stores in prime — and expensive — retail real estate instead of remaking them to inspire shoppers.

William Passodelis
Guest
2 months 14 days ago
The younger generation will never miss the closed flagship stores and will also never know what they were or what they meant. And what they were and what they meant no longer applies either. The restaurants, service, extensive and extended offerings at the flagships have lost all meaning in today’s world, where anything can be found online and delivered to your door. The online portal — the search engine is the new flagship — not even a specific store, because it is all there. However the sights and smells and service and attention, the fancy boxes and bags, the feeling and the experience of the former flagship store … that is not available online and that is a sad thing to lose. Ralph Lauren has Madison and the Gap flagship really was not. However, with the demise of L&T and 5th Avenue, we see disappearing one of the last and final representatives of what was. (L&T was the last carriage trade store of American history!) In the glory days, 5th Avenue was lined with incredible… Read more »
Craig Sundstrom
Guest

I think we’re comparing apples (L&T) with pebbles (GAP, Lauren) here. The latter will still have several stores in NYC, the former will not (indeed I’ve always thought the concept of a specialty chain like the GAP having “flagship”s to be a gross misuse of the term).

I think the story here is really about 5th Avenue more than the specific stores: lower/mid 5th Ave. has ceased to be a destination for quality shopping, while upper 5th Ave. is increasingly upscale … if that even seemed possible.

Lee Peterson
BrainTrust

Two trains of thought on Flagships: RH and Bonobos. RH = best experience ever (of course, if you can’t afford it or don’t know what this is — e.g. GAP — forget it), period and Bonobos = create a show room store 1/3 the size of GAP but also as cool as RH — no need for all that space. Excellent customer service in both.

Now doesn’t seem to me that the aforementioned are thinking about both those options, but others obviously are. Gap, Lord & Taylor, etc, are unfortunately too slow footed to condone forward trains of thought anymore. All the best in the slow death spiral, folks.

wpDiscuz
Braintrust
"Regrettable? Yes. The romance of shopping Fifth Avenue reinventing itself? I hope."
"It’s throwing in the towel. If you can’t make it in New York, you can’t make it anywhere."
"Of the retailers mentioned only the closure of Lord & Taylor really feels like something significant."

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