The Observer - 11.08.2019

• The Observer
  Retail 11.08.19 53

Manhattan fashion store Barneys has applied for bankruptcy protection.

Above and left,

clothing displays

and bargain bins

full of underwear

at the Camberley

House of

Fraser store.

Mike Ashley

leaving Sports

Direct’s HQ in

London last

month after the

fi rm revealed

it faced a tax bill

of £605m. PA

its. It’s a formula that worked well

for Sports Direct, helping it wipe out

many competitors, including JJB.

It’s no surprise, then, that Sports

Direct last week bought out of admin-

istration upmarket Jack Wills – a busi-

ness which already has concessions

in House of Fraser. Owning such

brands is protection against sudden

changes, such as the planned closure

of dozens of Karen Millen and Coast

concessions after those brands also

went bust. (They were bought out

of administration by online fashion

group Boohoo.com last week.)

Brand owners say they are happy

that House of Fraser now pays on

time and more quickly, and are pre-

pared to give the company time to

turn things around.

But Sofi e Willmott at retail consul-

tancy GlobalData says House of Fraser

stores are now generally quieter, as

shoppers have lost trust in the brand

following widespread reports about

its fi nancial diffi culties. “There is no

reason to get branded products from

House of Fraser. You can get them

elsewhere and feel more comfortable

that you can return them or get your

money back if you need them.”

Floors of cheap sportswear also

sit at odds with the more upmarket

brands House of Fraser has retained

so far, such as Ralph Lauren, Tommy

Hilfi ger, Ted Baker, Whistles, Phase

Eight and Mint Velvet.

Richard Hyman, the veteran retail

analyst, says: “However devalued the

House of Fraser brand had become, it

has been devalued signifi cantly fur-

ther. It’s diffi cult to carry aspirational

brands next to functional un-aspira-

tional brands.

“I fi nd it hard to believe there will

be even 20 House of Frasers. It may

happen in stages but in three years,

my bet is there will be under 10.”

‘I fi nd it

hard to

believe

there will

be even

20 stores.

In three

years,

my bet is

there

will be

under 10’

Retail

analyst

... and the shutters are even

coming down in New York

T

here is a lot to do in

Manhattan – but shop-

ping? Maybe not so

much these days. Once

one of the hottest mar-

kets on the planet, New

York’s retail sector is suffering.

Surveying the empty storefronts

on Fifth Avenue , holidaymaker Gill

Stewart, from Stokesley in Yorkshire,

said she was surprised by the num-

ber of vacancies. “We’ve come across

a few places that are empty or under

refurbishment, certainly many more

than we expected,” she said. As the

family wondered which direction to

go in, Stewart noted that her teenage

children, Nathan and Eleanor, weren’t

even clamouring to visit the shops.

Her daughter confi rmed that the

focus of their New York experience

was shifting. “In the past, we’ve bought

things without the intention of shop-

ping,” Eleanor said. “On this trip we

haven’t unexpectedly got anything .”

Attitudes like that should give

New York’s retailers and legislators

pause for thought. The city is by far

the largest tourist destination in the

US, and whether that is for sightsee-

ing or shopping, the decline of the

Manhattan consumer experience

could limit the city’s appeal.

On Fifth Avenue, Vince Wang and

his family, visiting from Shanghai,

said China had also been hit by a

retail downturn, but it was a surprise

to fi nd the same trend in Manhattan.

“Chinese who shop for luxury goods

often do so in the US or Europe, but

compared to 10 years ago a lot of

shops have disappeared,” he said.

The striking deterioration of some

of Manhattan’s most popular shop-

ping districts was underscored by the

decision on Monday by Barneys , the

city’s famous fashion emporium, to

seek bankruptcy protection.

The dire financial position at

Barneys has emerged as other retail

landmarks in the city have already

closed their doors. Lord & Taylor –

one of the city’s largest department

stores, with an entire building on

Fifth Avenue – recently closed down;

its space was sold off to WeWork, the

offi ce rental company, and Amazon.

It is worse outside Manhattan. Over

the next fi ve years, one in every four

malls in the US is projected to close,

Credit Suisse says. Already, the square

footage of dead malls in the US cov-

ers more land than the city of Boston.

But given Manhattan’s envia-

ble exposure to tourist dollars, the

retail collapse in New York shows

that the malaise isn’t limited to out-

of-town centres. High-end luxury

goods purveyors along the retail cor-

ridors of leading cities, including

New York’s Madison Avenue, Rodeo

Drive in Beverly Hills, and Chicago’s

“M agnifi cent Mile”, are all suffering.

According to recent estimates, cer-

tain swaths of Manhattan now have

vacancy rates of 25%, when 5% is con-

sidered normal. And the carnage is

getting worse, with the US forecast

to lose 12,000 stores this year – far

above 2018’s record losses of more

than 5,800 sites.

While Barneys’ management has

promised to keep its twin Manhattan

stores operating, the company’s

fi nancial diffi culties – blamed on ris-

ing rents and too few visitors – comes

as city legislators consider measures

to staunch store losses.

While the city can do little about

competition from online retail, New

York’s mayor, Bill de Blasio, recently

described empty storefronts as a

“growing problem in our neighbour-

hoods” and said he was “very inter-

ested in fi ghting for a vacancy fee or

vacancy tax” to penalise landlords

who prefer to keep stores empty while

they search for top-dollar rents.

The proposal could trigger confl ict

between city offi cials and landlords.

Many landlords are now hedge funds

and institutional investors who may

enjoy tax advantages from leaving

their properties vacant and who , in

any case, prefer to rent to store chains

prepared to sign multi-year leases.

By imposing a tax on store own-

ers who keep properties vacant, De

Blasio said, the city would “encour-

age landlords to turn their proper-

ties over more quickly and ensure that

small businesses have an opportunity

to rent them at a reasonable level”.

But the question of when, or if, the

losses will begin to affect New York

as a tourist destination is harder to

answer. The city drew a record-high

65.2 million visitors in 2018, the ninth

straight annual increase. While most

of the rise came from domestic vis-

itors, tourists accounted for $44bn

(£36bn) in spending.

On Madison Avenue last week,

many tourists said they had noticed

the loss of stores, and while it had yet

to affect their enthusiasm to visit the

city, it may yet. “New York is shop-

ping : it’s a very important part of

it,” said Dhani Singh, visiting from

Norway. If it wasn’t good, she added,

“I would think again about it.”

Visitors to Manhattan

are fi nding that some

retail landmarks have

gone, writes Ed Helmore

View from the US

After 27 years without a recession,

the Australian economy is fi nally

faltering. Growth is weak, wages

are stagnant and the once-buoyant

housing market has slumped more

than 10% in the past 18 months.

Not surprisingly, the retail

industry has not escaped the

pain. Th e country’s venerable

department store chain David

Jones – the antipodean equivalent

of John Lewis – has declared the

retail sector in recession and the

48- branch group is now worth less

than half the A$2.2bn (£1.2bn) the

South African company Woolworths

paid for it in 2014.

Th e current reporting season

could well throw up more nasty

surprises. Analysts expect such

stalwarts of the country’s myriad

shopping malls as Harvey Norman

and JB Hi-Fi to deliver poor fi gures in

the coming days.

Part of the reason for the

downturn is basic economics.

“Australian consumers are

mortgaged to the hilt,” says Eleanor

Creagh at Saxo Capital Markets

in Sydney. “Household debt is

incredibly high, the savings rate

is low and it’s only so long that

consumers can whittle away at their

savings as they watch their biggest

asset, their house, decline in value.”

But it is not just slowing growth

that is behind the downturn: the

twin spectres of international

competition and online shopping

are beginning to haunt Australia

too. Discount stores such as Target,

K mart and Big W , for decades the

destinations for cheap household

goods, toys and clothes, are

all feeling the heat, which has

increased since Amazon started

trading down under at the start of

the year. Martin Farrer

A dip down under, too?

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