Toys “R” Us shoppers outside the Times Square store, Thanksgiving evening, 2014. (Photo: Toys “R” Us)
Was Toys ‘R’ Us Times Square doomed by high rents?
While delivering experiences is often praised as the way physical stores can differentiate themselves from the online experience, two of New York City’s most experiential stores — FAO Schwartz and Toys “R” Us’ flagship in Times Square — closed over the last year.
In both cases, the reason for the closures were the city’s escalating rents.
FAO Schwartz, also owned by Toys “R” Us and located in the heart of Fifth Avenue across from the Plaza Hotel, closed in July to great fanfare after three decades at that spot. Known for its six-foot stuffed giraffes and danceable piano, the 45,000-square-foot, three-level store grew in popularity after being featured in the 1988 hit film “Big.”
The Toys “R” Us location, which closed last Wednesday, had only been open for 14 years but also drew tourists and locals to experience its 60-foot-tall indoor Ferris wheel with themed cars, the 20-foot-tall robotic T.rex that swiveled and roared at shoppers, the 4,000-square-foot Barbie dollhouse and other marvels.
In 2001, the 110,000-square-foot space across four levels was rented for around $400 per square-foot only a few years after a massive redevelopment had transformed Times Square from a sleazy to family-friendly destination.
The 21,000-square-foot ground floor is now being marketed for $2,500 a square foot. Bradley Mendelson, an agent for the building’s owner, told USA Today, “Nobody can afford that amount of ground floor space in Times Square.”
The Gap and Old Navy will take over about 60 percent of the space while Toys “R” Us has vowed to seek out another flagship in Manhattan in addition to F.A.O. Schwartz.
Numerous articles detailed long lines in Times Square in the final days by fans looking to recapture past memories while lamenting the loss for the city. Wrote Elizabeth Harris for The New York Times, “New York City is now left without the kind of manifold destination toy store intended to leave every child’s jaw on the floor.”
- About Toys”R”Us Times Square – Toys “R” Us
- Toys R Us closes flagship Times Square store – USA Today
- Several Days After Christmas, Toys ‘R’ Us Closes in Times Square – The New York Times (tiered sub.)
- Toys ‘R’ Us Leaving Flagship Times Square Location – Commercial Observer
- Gap taking over Toys ‘R’ Us’ Times Square flagship store – Fortune
- Toys “R” Us Announces 2015 Thanksgiving Weekend Hours – Toys “R” Us/PRNewswire
Discussion Questions
Does the closing of Toys “R” Us’ flagship in Times Square and FAO Schwartz offer more lessons around the limits of experiential stores or urban rent risks? In hindsight, was there anything Toys “R” Us could have done to prevent or better prepare for the closures?
Poll
BrainTrust
J. Kent Smith
VP, Business Development, Vaco Supply Chain Solutions
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
It was a dark, forboding store looking more like a trip backward than fun. I don’t know whether it was all the traffic or what but when I visited it many times it was unclean.
How someone couldn’t make the legendary FAO Schwartz brand work is beyond me. It’s like saying someone can’t make a go of Bergdorf. Neither is/was for everyone but for those who could afford it, there’s no other.
How Gap is going to afford those Times Square rents with their constant 40 percent off is a much bigger mystery …
Strategy needs to come first, especially in experiential stores. Stores such as the Times Square Toys “R” Us and FAO Schwartz are bound to become showrooms. Both stores were probably guilty of keeping a pre-Amazon strategy for far too long. Incorporating mobile shopping and encouraging an omnichannel experience could have gone a long way.
Seen from afar, FAO Schwarz and Toys “R” Us appear to be relatively close to one another, but they’re not: they’re entirely different spaces. That being said, FAO Schwarz and Toys “R” Us’s predicaments were different, too. FAO Schwarz has struggled for a long time, and this was in some sense their last gasp that has expired. The Toys “R” Us location decision, I think, confused people with shoppers. Yes, Times Square is a busy place. But is it filled with shoppers? And Toys “R” Us products are often relatively bulky. Are these the things that the zilllions of people going through Times Square every year are looking to buy, especially big things that are for the most part available elsewhere? Yes there was the experience … but NYC is an experience in itself.
Perhaps this is more about the need to renew “experiences” to maintain their appeal rather than rents. While NYC rents are indeed ridiculous, one must presume that the revenues from the stores “paid the rent” for fourteen and thirty years, respectively. Something else changed — or didn’t.
Space in Times Square isn’t about retail, it’s about touting the brand. The M&Ms store at the other side of Times Square is a great example. There’s just no way that candy covers the rent on that space. I’d argue that the money these spaces cost is worth it.
Wrote Elizabeth Harris for The New York Times, “New York City is now left without the kind of manifold destination toy store intended to leave every child’s jaw on the floor.”
Elizabeth, this is a big city. There is nothing that dictates that a store has to be on Fifth Avenue or in Times Square to make “every child’s jaw on the floor.”
One wonders if in both cases that these stores were expected to make money. If so, it was initially a foolish assumption. These stores were all about advertising and promotion and not really about selling. It seemed there were always more people lined up to get in than were ever lined up at a register. And in many cases, those people on the lines were adults, not children.
In both cases these locations were about corporate hubris and not corporate rationality.
The real problem is the margin on the product. Apple doesn’t seem to have an issue with high rent. Most toys now are commodities that are sold by everyone from Walmart to Target to, gulp, Amazon — so a mass toy retailer’s well being is based on product popularity and price; or worse, just price.
If Toys “R” Us would spend more time on proprietary product and innovation in general, they’d have less trouble paying rent in ANY of their locations. It’s just another sign of the death of the warehouse concept. Or, better put, the migration of the warehouse concept to clicks vs. bricks.
Retail stores in Times Square are as much about branding as about sales, if not even more so. The sales per square foot are much higher than average (MUCH HIGHER). Is the goal to make money, create better positioning or both?
I don’t think this is about experiential concepts. It’s all about dollars.
A stronger economy always shakes out businesses that under-perform. In these two examples the Toys “R” Us brand has been declining and slower sales coupled with rising rents has created the situation that led to the closings. I don’t believe that there was much that could have been done. Finding more affordable space is about the only solution.
The only lesson learned is some real estate owners are greedy. More likely the vacated space will stay empty for a few years then the price will drop. I have seen this many times. Some major cities like New York are getting too expensive for anything. How can a dry cleaner pay $2,500 a square foot? Excessive rents are the primary reason for food desserts.
Experiential stores will not go away and I expect to see them increase, providing a true competitive advantage over online shopping. Just look at Bass Pro shops.
I think it’s a lesson in the problems of operating a location (that shows a pro-forma loss) for advertising value, without any real clear way to measure that (alleged) value; hence a vulnerability to closure when the company’s bottom line becomes an issue.
But I’m not sure the location really had any ad value to begin with. TRUs are everywhere, and it’s hard to believe someone (who had avoided one in their hometown) would become a convert after visiting NYC. FAO is a different story; a great brand ruined by over expansion.
But the Big Apple will go on, and the locations are being filled with authentic, only-in-New-York stores … right.
Retail rental rates on Manhattan are crazy. Times Square is absurd. 34th street isn’t far behind. Unless the assortment can guarantee significant conversion, turnover and throughput, then the objective of the store needs to shift to more altruistic intents. Agree with Ms. Hotka on that.
Also agree with Mr. Phibbs; the store was a dump. So were the end days of FAO. Like any Sears store, leadership gave up on those stores and experience only hastened their demise.
The toy biz. How much did Amazon capture this year? How much was bought online this year? Those Sears Wish Books proved that parents, regardless of era, are not eager to wade into a chaotic shopping experience.
The nieces and nephews I interviewed this Holiday season proved that digital natives propelled the channel shift. Toys too.
As the recycling garbage man said this week, “retail ain’t for sissies!”
I think it speaks loudly to urban rent risks. The customer is looking for WOW!, particularly in this highly competitive neighborhood. TRU could have taken a smaller space, but why underwhelm the target audience? Does NYC really need another Gap and Old Navy?