The Retail Storm

With shoppers going to the web and store rents on the rise, shops in the city are closing

The industry struggles to find new strategies, as jobs in the sector shrink

The industry struggles to find new strategies, as jobs in the sector shrink

It’s been a bad week for retail. On Tuesday, Ralph Lauren announced it would close its flagship store on Fifth Avenue and CNBC reported that rents along the legendary shopping street were creeping upward, leaving many stores empty. Then, on Friday, the government released a disappointing employment report for March 2017, announcing that only 98,000 jobs were added and worse, retail lost 30,000 jobs nationwide.

High store rentals, the migration of more shoppers to online stores, changing consumer patterns and increasing competition is making it tough for big stores in the city. Or so concluded a panel of experts on retail at the DebtWire investor summit on Thursday.

“This is a perfect storm for retail,” said Spencer Ware of Alix Partners during the Retail Reinvention panel discussion.The other members on the panel included Gregg Galardi of Ropes & Gray, Bob Grosskopf of Gordon Brothers and Vince Pisano of Xtract Research.

Retail is big business in New York. According to the Retail Council for New York state, retailers in the state employ more than 941,000 workers, account for 20 percent of the taxable sales and purchases in the state’s tax base, and generate more than $251 billion in annual sales.

For sometime now, however, the retail industry has been grappling with problems.

Until recently Arvinder Singh, a customer relations officer, worked at a Verizon store in Queens.  As business became more competitive with T-Mobile and AT&T garnering larger market shares, the managerial perspective changed. “The mantra was to retain customers and increase productivity,” said Singh. “There is no new job creation and sometimes two people do the work of four.”

In New York City alone, retail jobs fell from 349,000 jobs in January to 342,000 in February. The losses came from negative growth in sporting goods, hobby, book and music stores. As losses have grown, shops across the city have shut their doors.

When Kuljot Singh, owner of Amreen’s Halllmark on Second Avenue, opened his store in 1985, there were 250 Hallmark stores in Manhattan. Today, only three of the iconic Hallmark stores that sold school supplies, birthday cards and other gift ideas survive in the city. Today drugstores like Duane Reade and CVS carry greeting cards, and according to Singh, people are buying fewer cards. “ Now there are many online options that consumers exercise,” said Singh. “ Our services became redundant.”

Increases in prices of greeting cards and sales of other gifts have kept the revenues for Singh’s store constant. But rents in Manhattan have increased—and shopowners like Sing worry that they may not be able to cover costs when they do. “ When our lease comes up for renewal, we will be forced to shut down,” he said. “ We can’t pay those crazy prices.”

Another problem for retailers: the United States has five times more retail space per person than any other country in the world, according to an Alix Partners report co-authored by Ware. That is proving costly as more people shift to online purchases. “Malls are no longer social hangout places,” said Gregg Galardi, who advises clients on restructuring at the law firm Ropes & Gray. “Spending patterns are changing, and big retail is racing to become small.”

Macy’s announced last year that they would close 100 stores, and use the money they saved to focus on their best stores by increasing staffing in those locations and bringing in new technology. The store closures would still enable them to maintain a physical footprint in 49 of the top 50 U.S. markets by population. J.C. Penney is also closing about 130 to 140 stores starting this month and Sears will axe 108 Kmart and 42 Sears locations nationwide this year.

Once a happy shopper at malls, Nivedita Bajaj, a mother of two now browses the internet for deals and purchases instead. A full-time job, weekend chores at home and activities with her two teenage children leave her with little time to go to a mall. “ I may go to Ann Taylor to try out a dress for size,” said Bajaj. “But online always has more options.” Her daughters buy their clothes, shoes and cosmetics online as well. “ It is way cheaper with discounts,” said Bajaj. “And there are free returns too.”

It’s hard to beat the convenience of shopping in your pajamas—and that makes the shopping environment even tougher for brick and mortar retailers.

“Retail has to explore how soon their products can migrate to the internet and develop their strategies accordingly,” said Galardi. “ You can’t compete with Amazon.”

Indeed, some businesses that focus on customer care and are nimble enough to make changes to their business are increasing their customer base. That might be a way forward, the panelists concluded.

Ram Nalagorla, who opened his 1,000-sq. ft pharmacy, Care Pharmacy & Surgicals in Harlem a year ago, has learned that lesson. He makes a point to make it as easy as he can for his elderly customers who live near by in housing projects by offfering free medicine deliveries and staying open for long hours. To keep things running smoothly, last month, Nalagorla hired four extra people for his pharmacy. “We go the extra mile for our customers,”  he said. “It is the little things that people want.”

A message the big retailers might want to adapt.

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