Of all the urban markets, Manhattan has posed the greatest challenge to big-box retailers. From Wal-Marts in Los Angeles to Lowe's in Chicago, the discounters that have changed the face of suburban retailing have penetrated major cities. But not Manhattan — until now.
After 10 years of scouting and failed lease negotiations, Home Depot in April secured a 110,000 sq. ft. site on 23rd Street between Sixth Avenue and Broadway, according to Manhattan real estate sources. The building is managed by GVA Williams.
Manhattan real estate execs say the Atlanta-based home improvement giant also was angling for a second location at Pier 40 on Houston Street, where developer C&K Properties had proposed putting space for several big-box stores. However, its latest proposal does not include plans for a home improvement store or any big box retailers.
Will the arrival of Home Depot mean that other big boxers such as Target will come to Manhattan, too? The barriers to entry still exist, including a shortage of appropriate spaces, logistics problems and high costs, not to mention the intense NIMBYism of Manhattan residents.
The company declined to talk, saying the details would be revealed when it issues a formal release. But real estate and retail executives point to its successful store in Brooklyn — a 24-hour mecca for professional builders and do-it-yourself apartment owners from Manhattan.
Also, Home Depot (as Wal-Mart has done in Los Angeles and elsewhere) has created a new format for urban markets. Home Depot's prototype is exemplified by an 80,000 sq. ft. store in Chicago's Lincoln Park that opened last month. The two-story layout offers a higher concentration of home décor merchandise, says Jim Warrington, Home Depot's director of urban projects. “The ownership to rental rates is much lower in urban areas,” he says. “These customers are more likely to move and want smaller items for their smaller apartments and condos.”
Warrington won't say how many of the 200 stores Home Depot plans to open in the coming year will be in urban locations. “We'll be monitoring the Lincoln Park store over the next year to determine the success of the two-level format. He won't comment on the Manhattan plan, saying “it's not official until we announce something.”
Urban markets represent an untapped market for the no-frills shopping and discount merchandise that suburbanites now take for granted at big-box stores. Cities have large concentrations of ethnic minorities, whose buying power is growing faster than that of the overall population.
“One of the benefits to being in the city is not only access to a larger, more densely populated area, but also a larger ethnic population,” says Ulysses Vannas, a retail analyst with Buckman, Buckman & Reid. But the costs are high. “Every expense doubles in the city: from the rent to the deliveries. You can't just drive an 18-wheeler through the streets and pull up right next to the store,” says Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide.
Robert Futterman, president of New York brokerage firm Robert K. Futterman Associates, says rents on the block where Home Depot plans to locate would probably be about $25 per sq. ft. for the basement, $50 for the ground floor and $35 for the second floor. But, he adds, the landlord must also do a lot of work, such as reinforcing floors to accommodate forklifts. In the burbs, big boxers typically build and own their stores.
The biggest obstacle remains community opposition. Small business owners fear the impact of the category killers, and some residents object to the traffic and noise that the high-volume stores would generate. In addition to nixing a downtown Costco and holding up the Pier 40 project, New Yorkers have also opposed plans by the city to create big-box districts in derelict manufacturing buildings. But it's a love-hate relationship, says Consolo. “There's tremendous demand here in Manhattan because the consumer wants to have the same access to these goods as suburban shoppers.”
Andy Frankl, president of IBEX Construction, says Home Depot will be welcomed by Manhattanites because it is adjusting its prototype effectively. “I went to see it and I asked, ‘Where am I going to park when I come to pick up my 2 X 4s?’ and they said ‘You come in, you order it and we'll deliver it the same day. No matter the size of the order.’”
Meanwhile, Target is circling Manhattan, looking for a site — literally. Last fall, the trendy discounter hired a barge off Manhattan's Chelsea Piers for a special Christmas shop. Target also is building outlets in the Bronx and Brooklyn. That's also where department store/discounter phenom Kohl's has opened its first store in New York City — a one-time Bloomingdales in Fresh Meadows, Queens. “A lot of these guys will end up just coming to the edge of the city,” Vannas says. “Target has been negotiating for almost 10 years, and now I hear talk that the closest they will end up is at some place at the edge of the Bronx.”