Madison Avenue Takes A Hard Hit From The Recession
Tuesday, May 19, 2009SUSIE GHARIB: Saks reported a big loss today, which is a sign that luxury retailers have not been immune to the recession. The economic fallout is even trickling down to Madison Avenue, one of the world's top luxury shopping destinations. Erika Miller reports on what may lie ahead for this chic street.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Take a walk down Madison Avenue and you'll see signs for the most glamorous fashion houses in the world. But nowadays you'll also find plenty of unstylish signs: advertising space available. About 13 percent of the stores on Madison are available for rent or sublet, up from 8 percent a year ago. Rents are already down 32 percent from last year. Joanne Podell of retail brokerage firm Cushman and Wakefield expects rents to drop a bit more, then stabilize.
JOANNE PODELL, EXEC. VP, RETAIL SERVICES, CUSHMAN & WAKEFIELD: Rents are coming down. Will they come down to being the same price as being on Third Avenue? No. And the reason is we still have a very strong international tourist business, a regional visitor. We have a wealthy consumer that lives here. And we have the office tenants.
MILLER: Other fashionable streets in America have also taken a hit, like Worth Avenue in Palm Beach and Rodeo Drive in Beverly Hills. But Madison is far greater in scale, stretching more than 20 blocks. So, is the fact that our shopping street or shopping district is larger a benefit or a drawback?
PODELL: I think it's a benefit. It's an opportunity for the consumer to see more goods and have more reason to come here.
MILLER: Some new luxury stores are also finding a reason to come to Madison and to a small stretch of Fifth Avenue, which charges even higher rents. Watch maker Omega opened a flagship store on Fifth a month ago. Chief Executive Officer Stephen Urquhart says the location was too good to pass up.
STEPHEN URQUHART, CEO, OMEGA: We obviously can't time an open like this around economic environment. We're looking now for maybe five years in New York, in Fifth Avenue in particular, for the proper location. When we found this location, we didn't even think twice.
MILLER: And though other retailers may be struggling, Omega says sales are strong.
URQUHART: I don't see any reduction in average price. Omega's market is between, I would say, $3,000 and $10,000, our main market. And that consumer we feel is pretty faithful at the moment, you know. He's there.
MILLER: But retail expert Howard Davidowitz says most high end merchants are in serious trouble.
HOWARD DAVIDOWITZ, RETAIL CONSULTANT, DAVIDOWITZ & ASSOCIATES: Luxury is completely under water. Madison Avenue is the epicenter of luxury. It's a train wreck.
MILLER: He says it's impossible for Madison Avenue to do well when Wall Street is hurting. Davidowitz predicts rents for prime retail spaces will drop another 25 percent from current levels. He says it's a reflection of the fact that consumers can no longer afford to splurge.
DAVIDOWITZ: This is the new reality. This is not a temporary situation. We have leveraged ourselves to the hilt. We had a free lunch and now we have to buy dinner. The change is permanent.
MILLER: Despite the current troubles on Madison Avenue, no one expects the street to lose its cache. For many luxury retailers, a Madison Avenue presence is essential to promoting the brand even if sales are not strong enough to justify the rent. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
