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What’s going on with Forever 21?

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Los Angeles-based Forever 21 is preparing to file for bankruptcy, potentially closing roughly 700 stores. Company advisers have been working on obtaining a bankruptcy loan package that would give the retailer about $75 million to continue operations during the case. As part of the restructuring plan, the two largest landlords may get a stake in the company. The negotiations are ongoing, and could end without a deal.

75,000 more stores need to close across the US, UBS estimates, as online sales and Amazon grow

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Clothing retailers, consumer electronics companies and home furnishing businesses will need to close more stores across the U.S. as e-commerce sales proliferate, according to UBS.

In a note to clients this week, the investment firm said “store rationalization needs to accelerate meaningfully as online penetration continues to rise.” Assuming online sales’ share of total retail sales in the U.S. grows to 25% by 2026, from 16% today, roughly 75,000 more retail doors, excluding restaurants, need to close, analysts Jay Sole and Michael Lasser said. That means for every 1% increase in online penetration, roughly 8,000 to 8,500 stores need to close. A lot of that growth is being fueled by Amazon, which is expected to account for about half of the U.S. e-commerce market.

Within that 75,000 number, about 21,000 clothing stores, 10,000 consumer electronics stores, 8,000 home furnishing stores and 1,000 home improvement stores should close, UBS estimated, based on the firm’s assumed growth rates of online penetration within each retail subsector. It added about 7,000 grocery stores could close if online grocery penetration rises to 10%, from 2%, by 2026.

UBS also analyzed the productivity of stores across the country, which it said accelerated through 2018, based on the amount of sales made per store.

However, the firm said: “We believe this pace of store productivity improvement is unlikely to be sustained in 2019 as the boost from fiscal stimulus fades. … This will likely lead to an acceleration in physical store closures in the upcoming year.”

Already this year, more than 5,000 store closures have been announced by retailers, according to a tracker by Coresight Research. They include GapVictoria’s Secret, Charlotte Russe and Gymboree — notably many clothing companies.

Lasser and Sole also said, however, that as more stores close “it should help the store productivity of surviving locations.”

Source: CNBC

A Recession May Be Coming, but Not for Commercial Real Estate Investors

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Financial headlines have been full of worries about a possible recession and a downturn in commercial real estate markets. Recessions often precipitate a decline in real estate markets, but long periods of increasing construction and rising property prices may pose risks of their own. Stock prices fell sharply in December in a bout of turmoil that both reflected these concerns and fed the fears.

Lately, though, we’ve seen increased evidence that this was a false alarm. Sure, there has been troubling economic news from abroad, interest rates have moved higher, and the economic expansion is one of the oldest on record. But the challenges today are typical of the types of risks that the economy faces regularly, without heading into a recession. Indeed, as former Fed Chairman Ben Bernanke said recently, ”I don’t think economic expansions just die of old age… they get murdered.”

What are the typical weapons found at the scene of such a macroeconomic crime? A detailed reading of the historical record indicates three types of excess that have preceded every recession and commercial real estate downturn: overbuilding, overheating, and over-indebtedness.

There still could be bumps in the road, of course. Key risks to keep an eye on include possible impacts of trade wars and Fed policy, especially if inflation should rise again. And while commercial property prices today do not look overheated, an acceleration in price growth above and beyond net operating income could signal trouble ahead. For now, however, 2019 appears set for a favorable performance for the economy, and for commercial real estate.

Calvin Schnure is Senior Vice President, Research & Economic Analysis at NAREIT. Read full article here.

If You Don’t Want Your Property To Become Obsolete, Here Are The 10 Things You Need To Know

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“As long as real estate has existed, obsolescence has been a challenge: Buildings have always deteriorated, and the way people use them has changed. But today the issue is acute.”

From working out how to make money from unloved retail, to the hidden dangers in logistics; from the need to bring hospitality into every sector, to working out how to put a value on how people feel about a building — these are the things real estate professionals will need to know to stop their property from becoming obsolete in the new world of winners and losers.

The Problem With Retail Conversion

The report had a major focus on the issues facing retail amid its seismic change. Conversion of failing retail to other uses like residential, office, leisure, logistics or public services like libraries will be a major trend over the next few years — but it will not be a short, simple or cheap process.

The New World Of Delivery

The report painted a picture where the worlds of retail and logistics become even more blurred than they are today. In Asia, consumers can walk through a store like Decathlon, pay for items via their phones without taking them to a checkout, and have them delivered to their home within three hours.

Hospitality Leads The Charge

“Five years ago, if you had asked people, they would have said that hotels were one of the asset classes that were most susceptible to obsolescence, but today good hotels are seen as a safe haven because they’ve survived the onslaught of Airbnb,” one global investor said in the report.

Everything Becomes Hospitality

Courtesy of The Crown Estate The reception at One Heddon St. Hospitality is changing, but its influence is also spreading throughout real estate.

Food Glorious Food

Technology will enable the conversion of some obsolete real estate to other uses that previously did not exist. Food delivery platforms like Deliveroo and CloudKitchens, the new company of former Uber Chief Executive Travis Kalanick, are taking obsolete real estate — offices, shops and industrial land — and using it to create kitchen space for delivery-only restaurants.

The Hidden Danger In Real Estate’s Favourite Sector

A major part of the conversation about obsolescence surrounds retail and office assets, beset as they are from disruptors like Amazon and WeWork. But logistics might be storing up problems for the future too.

The Move To Mixed-Use

Bisnow/Mike Phillips AXA’s Twentytwo skyscraper Today, mixed-use doesn’t just mean having a large campus development with multiple uses, or an office building with shops and cafés at the bottom. Truly mixed-use buildings are becoming increasingly common.

Increased Operational Intensity

All of these factors can be defined by a wider trend, the report said — real estate is becoming a business which is increasingly operationally intense, and owners will be required to manage and run assets as well as just collect the rent. This is a difficult and expensive process, and is likely to mean, over the long term, returns from real estate are not quite as high. But if owners don’t adapt to this new world, they risk being left with empty properties people simply don’t want to use.

New Forms Of Value

Another major conclusion of the report is that real estate will need to come up with new measures of value. As mixed-use buildings become more prevalent, how are these buildings valued? What value is attributed to communal amenities that might not have a direct link to an income stream? And how will valuers and appraisers see sectors like coworking or co-living, where leases are short and turnover high? “You have all of these business models that have never been seen before, and the capital market has not evolved yet to work out how to value these assets,” one investor said. A major part of real estate’s challenge to adapt to the new needs of customers will be finding how to value what has never really existed before.

Source: Mike Phillips, Bisnow London

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New Foot Locker concept is powered by local culture

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Foot Locker has long been a standby shoe store in shopping malls throughout the states. But the chain is ramping up efforts to send U.S. sneaker fans flocking to a standalone experiential store concept, a strategy that it’s already piloted abroad.

Foot Locker announced the opening of its new Power Store concept in the metro Detroit area (its first in the U.S.) last weekThe retailer envisions the store as a hub for local sneaker culture, art, music and sports. The store, decorated with art from a local artist, will host community-oriented events like panel discussions and Q&As with DJs and rappers about various cultural and artistic topics. It will also feature exclusive products created by local designers geared toward an urban audience. The Power Store in Detroit is the first of 12 slated to open globally throughout 2019, with U.S. locations announced for Los Angeles, New York and Philadelphia.  Currently there are Power Stores in London, Liverpool and Hong Kong.

Photo: Footlocker

Many of the big shoe brands have been working to attract the “sneakerhead” subculture of athletic shoe enthusiast and collectors. Nike, Adidas, Puma and others have all been debuting exclusive and customizable products and finding new high-tech ways to turn product releases into experiential events. Foot Locker is one retailer that has joined sneaker brands in courting sneakerheads. For instance, the chain hosted an Augmented Reality (AR) scavenger hunt last year in Los Angeles for the newly-released Nike LeBron James shoe.

Even inside the mall, Foot Locker has been taking steps to differentiate itself as a retailer with the interests of serious sneakerheads at heart. The chain has begun partnering with some of the biggest sneaker and sportswear brands to open single-brand store locations. For instance, under its Footaction banner, Foot Locker operates a concept called Flight 23 which sells only Jordan-branded products.

But it’s apparent that the chain is pivoting away from the shopping mall. Last year, it announced the closure of more than 100 locations, mostly in malls that it characterized as deteriorating, according to Forbes.

THE QUESTION IS: Will Foot Locker succeed with standalone experiential concepts in the U.S. rather than with a mall focus? What will Foot Locker have to do to keep the experience interesting for customers and are there regions where these stores might perform better or worse?

Source: Matthew Stern,

4 Things Retailers And Landlords Want You To Know About Consumer Shifts

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Malls are reeling with record levels of vacancies, and now Sears’ Sunday night bankruptcy. Retailers are scrambling to reshape and redesign the way they market and sell everything from food to cosmetics, all because of the profound changes in the way we choose to buy things.

Speakers at Bisnow’s National Retail: East Coast Series event this month said retail moving with the times and bracing for the changes ahead is now urgent. Here are four things they think you should know:

#1. Make Stores Instagrammable And Customers Become Spokespeople

If shoppers can ’Gram it, they will come.

While the retail experience is driving foot traffic to stores, the key to sustained success goes beyond luring people to brick-and-mortar locations. Making something worth posting means customers do the marketing themselves, and stores become locations worth visiting.

“When people photograph things, they become influences for a brand and that can really push digital sales, and really push people back into a shop,” Sugar Hill Real Estate Chief Creative Officer Jay Solomon said. “Old types of retail didn’t offer in-store experiences that were ‘Instagrammable.’ There’s nothing interesting about walking into a Home Depot and taking pictures of aisles with hammers.”

Starbucks Director of Store Development Dan Shallit said customers posting videos improves company and store standards. Starbucks closed thousands of stores across the country in May to run anti-bias training with employees after a video of two African-American men being arrested in a Philadelphia store location was seen by millions of people online.

“It holds us to a higher standard,” he said. “If something were to happen in one of our businesses, everyone would know about it in a couple of hours … it forces us to hold ourselves accountable.”

#2. Data Is Helpful, But Doesn’t Always Tell The Full Story

Across commercial real estate, companies are working out to use data to make their business more efficient.

In the world of retail, malls are starting to track their customers’ movements and habits to figure out where to place stores. At iPic, a high-end cinema chain with in-theater dining service, data is used to tailor guest experiences.

“We like to house the data we collect to create these guest touch points,” iPic Vice President of Real Estate Patrick Quinn said. “We know who you are from when you buy a ticket.”

Orangetheory Fitness Head of Global Brand Strategy Kevin Keith said the company tracks users digital behaviors, “as long as it is used for the good and people trust you, and it makes the customer experience better, people love that.”

Guesst CEO Jay Norris said his company — a digital platform that works like Airbnb for retailers and brands seeking short-term arrangements — provides data back to the brands that take part in its pop-up shares.

“We give it back to the brand, and that’s something a traditional wholesaler doesn’t do,” Norris said. But when it comes to selecting store locations, data shouldn’t always be the defining factor, some panelists said.

“When [we] first looked at [our location in Brookfield Place], we had incredible data that said ‘don’t do it’ … the traffic patterns in the space were not what we were looking for … but the landlord had a vision,” Starbucks’ Shallit said. “If you live by the data, we make a lot of bad mistakes … The data doesn’t necessarily work all the time.”

#3. Pops-Ups May Not Be The Answer

Landlords with vacant space on their hands have turned to pop-up stores and short-term leases to draw attention to store locations. Boutique gyms, experiential stores and less established brands have found their opening in stores previously reserved for long-term, nationally known brands.

Not everyone is convinced that experiences and pop-ups are the silver bullet.

“I think it’s a great marketing tool, [but] from a full-service retail perspective, I’m not a big fan of pop-ups if you are going into a new city and new brand,” Bialow Real Estate founder and CEO Corey Bialow said. “I think it only works with established brands.”

The prevailing belief is that buyers want a curated experience, something that feels authentic. Brookfield, for example, is running an initiative called Love, Bleecker that works to create experiences at its storefronts in that street.

“Curation sounds really sexy and nice … [but] all it means to me is these guys are taking less rent,” RKF Chairman and CEO Robert Futterman said. “Experiential, the jury is still out,” he added. “Experiential in New York is really having a reckoning,” pointing to the closure of the NFL Experience last month.

#4. Stores That Lose Touch With Their Consumers Are In Trouble

In the first half of 2018, more than 2,500 store locations closed in the United States, according to JLL’s retail outlook report from the second quarter, and nearly 600 more locations will close by the end of the year.

Retail stalwarts like Sears, Toys R Us, JC Penney and Macy’s are all shuttering stores. But some believe store closures say more about those brands and companies than retail overall.

“Brands that don’t listen to consumers get disrupted, and disruption is what is causing those brands to disappear,” The Howard Hughes Corp. Chief Marketing Officer Steven Cornwell said. “They get more focused on their shareholders and the financial markets and they stop thinking about what the consumer needs … Consumers tell you pretty quickly if you are doing the right thing or not.”

The Prusik Group co-founder and principal Rohan Mehra said there are examples of established brands that are adapting to retail’s new order.

“I think you are seeing [innovation] across all different types of brands, whether it is small and new, or more established brands,” Mehra said. “Look at what Target is doing … [It could] have followed the path of a lot of big-box retailers, but they have developed an urban concept and have opened a lot of stores. The customers are responding and the stores are doing incredibly well.”

Author: October 15, 2018. Miriam Hall, Bisnow New York

Read more here.

McNellis: Amazon’s Clicking into Bricks

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In May 2017, The Real Deal ran a cover story entitled, “Retail is F*cked.” While snarkier than its mainstream competitors, it encapsulated the prevailing sentiment of the day, that all that remained for traditional bricks & mortar retail was for the doctor to call its time of death, no doubt by text.

Apparently unaware of the demise of old school retail, Amazon has just announced several new forays into bricks & mortar. Last week, it said it would open a general store in New York City that will sell toys, household goods and other top-selling items on its website. Two weeks ago, Amazon announced plans to open 3,000 Amazon Go stores by 2021. The hook is that these convenience food stores will have no cashiers. Rather, to record your every touch (if not your secret yearning for Cheetos), each store will have more sensors, cameras, computer vision and AI than a Navy drone over Aleppo. About the size of a typical 7-11, the few Go stores already in operation sell pre-packaged, prepared food and limited grocery items.

Upon seeing this announcement, the business press genuflected at the altar of Amazon, delighting in the idea of a clerk-free world, of shopping in the canteen of the starship Enterprise. They reported that Amazon’s eyes in the sky system—let’s call it “Total Shopper Surveillance”—will cost upwards of a million dollars a store to install, but failed to question whether this additional outlay would place Amazon at a competitive disadvantage in the saturated world of convenience stores. Is the typical wait for a cashier so long that you would pay that much more for milk and eggs (enough to amortize $1 million) to avoid it. Put another way, admit you occasionally run into a 7-11 and ask yourself if you’ve ever been in a line of more than a couple minutes.

If 7-11 and its myriad competitors already have the most convenient locations (they do) and Amazon rushes in but can only find locations a block or two off Main & Main, will you spend more time walking those two blocks than you would awaiting the cashier?

Or, assume that the free world will delight in undergoing a daily MRI for the sake of saving sixty seconds. How long would Amazon keep that competitive advantage? How soon would it be before 7-11, Circle K and every other major C-store player turned on the cameras and punted their clerks? To this point, a San Francisco based start-up, Zippin, announced last week that it is developing its own version of TSS for sale to supermarkets far and wide.

Given the company’s undoubted genius, Amazon must be aware of the challenges of building a 3,000 store chain from scratch, and its press release could be a sly way of announcing that it’s in the market to acquire and aggregate convenience store chains totaling a few thousand units.

But, whether built ground-up or acquired by merger, having 3,000 wickedly-expensive convenience stores for the sake of running convenience stores makes little sense for the company. On the other hand, having 3,000 convenient locations to which its e-commerce shoppers must drive to fetch their Prime packages makes a world of economic sense. In a stroke, requiring the Amazon faithful to pick up their own damn packages would solve the costliest problem bedeviling e-commerce, that of the last-mile of delivery. If Amazon could announce that it would continue delivering to your home, but at that delivery’s real cost (say, $12) or that you could save that money by hitting its Go store a couple miles away, the well-off or foolish might continue with home delivery, but everyone else would find a way to Go, and Amazon could at last make money in e-commerce.

Rather than concluding that clerk-less shopping will be the greatest thing to hit retail since the Sears & Roebuck catalogue, the media might have realized the announcement’s broader significance: Short of a full page announcement in the Wall Street Journal, Amazon just did everything it could to confirm that not only is traditional retailing alive and well today, but that, combined with on-line shopping, it is the future of retail tomorrow.

Despite this, it will be a cold day in Riyadh before The Real Deal and the rest of the media that gloried in retail’s death will admit, “We were f*cking wrong.”

Author: John E. McNellis is a Principal at McNellis Partners in Palo Alto, Calif.

Source: The Registry

Adapt Or Die: The Ways Landlords Are Bending Over Backward To Deal With A Shifting Retail World

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Retailers and landlords, grappling with a new retail paradigm, are being forced to find creative uses for spaces and experiment more and more with different concepts to fill stores and lure shoppers.

In the first half of 2018, more than 2,500 store locations closed in the United States, according to JLL’s retail outlook report from the second quarter, and nearly 600 more locations will close by the end of the year. Across the country, the closures of retailers like Sears and Toys R Us have dumped empty space on the market. Retail absorption declined nearly 60% in Q2 2018 from a year earlier as vacancy ticked up.

Much has been made of the e-commerce-driven destruction of brick-and-mortar retail. Many large-scale, big-name operators have closed or are shrinking in size. But savvy landlords should see this as a chance to make lemonade from lemons.

“In the past everyone was looking for a silver bullet,” said EY Executive Director Marcie Merriman, a cultural anthropologist and retail strategist who will deliver a keynote address at Bisnow’s National Retail: East Coast Series event in New York Oct. 4. “There are tons of tests that are going on that don’t work … [but] if you are afraid to fail, those are the brands and business that are really in the most trouble.”

In New York, landlords are increasingly willing to slice up large spaces for smaller tenants, many of whom don’t have established track records. Some are turning to boutique fitness concepts or innovative fast-casual restaurants — previously not considered to be highly desirable tenants — to fill space.

Brookfield Property Partners, which this year bought mall owner GGP for $15B, is experimenting with seven storefronts it recently bought on Bleecker Street, where it is running incubators for e-commerce operators to test out a brick-and-mortar space.

Shoe retailer Margaux has opened a store there and some art and cultural “activations” have launched, according to a Brookfield spokesperson.

“For a landlord that owns a mall in a global gateway market like New York, and they lose a department store, it’s an opportunity to get creative and to find new users. It’s a creative project that’s also got really good upside to it,” JLL Director of Retail Research James Cook said. “For those malls in the secondary and tertiary [markets], it’s a lot more work and it’s a lot more uncertain.”

He said space left open by department store closures is being filled by operators that offer either value or an experience. Former Macy’s stores, for example, are being filled by Whole Foods or Life Time Fitness, according to JLL’s report, while AMC Theatres and H&M have gone into space once occupied by Sears and JC Penney.

It’s all part of the trend toward service-driven, experiential real estate. Consumers are looking for experiences; something that cannot be recreated online, or that can be posted on Instagram. Or both.

Retailers and landlords need to be preparing now for the next wave of consumers, Merriman said: people born after 1997 who are typically referred to as Gen Z.

The oldest members of that generation are now 22 years old, and are distinctly different from their millennial predecessors. They are more skeptical and frugal than previous generations, with more interest in how and where their products are made.

“[Gen Z] have a more transparent understanding of implications of consumption,” she said, adding that Gen Z shoppers are seeking out innovative retailers that use less packaging and waste. “It’s the same generation that has been raised with boxes at their door. Now they are going to question [those] implications.”

TerraCRG Managing Director of Commercial Leasing Peter Schubert, who has represented tenants like Blue Apron and Juice Generation in Brooklyn, believes young people are not consuming less, but differently.

Landlords in Brooklyn are having success filling space with creative or entertainment tenants, he said, where there has always a vibrant nightlife and café culture.

He arranged the lease of Ample Hills Creamery’s factory and museum, a 15K SF space at 421 Van Brunt St. in Red Hook that opened this summer. It is the type of offering, Schubert said, where people can see their food being made, that suits today’s consumers.

“This is exactly what people want, they want to be able to see the manufacturing, right on-site [where there] is no shipping, and you get the whole understanding of the origin of the company,” he said.

Experiential, entertainment and food service offerings can drive the overall health of a retail area, sources said, because people tend to shop while they are there.

“There is a big value to our tenancy,” iPic Theaters Vice President of Real Estate Patrick Quinn said. “We are not drawing the same amount of attendants as, say, a supermarket, but we do draw about 1,000 people a day.”

A high-end movie chain, iPic offers in-theater dining service. Earlier this year it signed on to open a 348-seat theater, restaurant and bar at Heritage Village, a proposed mixed-use development in Hicksville, Long Island.

“I’ve seen a lot of landlords lately trying to attract tenants that are Amazon-proof,” he said. “[But] retail is probably evolving faster now than in the past couple decades … it’s hard to say, ‘You have to do leases with tenants that are XYZ.’”

Landlords are also trying to adapt and be flexible to change. The Rudin family, with its joint venture partner Eyal Ofer’s Global Holdings, is opening an immersive playground for dogs pop-up in an empty 3K SF retail space at their condominium project, the Greenwich Lane at 155 West 11th St.

“Experiential retail is not the silver bullet solution for the bad retail market … it’s another concept, some places it works and some places it doesn’t,” Michael Rudin said. “It’s more about adapting and going with the tides of our business, being flexible and not always doing things the ways they’ve been done in the past.”

Author: Miriam Hall, Bisnow New York

Read more here.

Slowing Development in CA May Point to Nationwide Issue

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California is something of a bellwether for the U.S. economy and for commercial real estate. Thus Golden State trends are important. According to the recently released Summer/Fall 2017 Allen Matkins/UCLA Anderson report, broad segments of the market will be slowing down in the coming years.

Though unemployment has dropped and income and spending are increasing, there’s an ebbing of market optimism about the future from developers, which should lead to a slowing of development, the report said.


For instance, developer sentiment for all northern California markets has been declining since at least June 2016, and the latest survey provides continued evidence of a downturn in the office market. The outlook in Los Angeles is decidedly more optimistic, although less so than two years ago. The difference between LA and the other California cities is Hollywood and Silicon Beach.

Sentiment about the next three years in California industrial markets has abated somewhat, but only because this has been the hottest market throughout the state in recent memory. E-commerce will continue to drive a hot market for warehouse space, just not quite as hot as before.

In virtually every retail market in California, panelists see 2020 as being a worse year for development than today, when we’ve already seen an increase in vacancies. The few retail development projects planned will most likely be redeveloping existing space or be a component of mixed-use projects, Allen Matkins/UCLA Anderson Forecast said.

In multifamily, it looked as though development at the mid- to high-end had reached a peak only six months ago, and that land and building prices had edged out lower-end projects. This still seems to be the case, at least for more modestly priced apartments. California continues to be a leader in job and income gains, and multifamily developers now see opportunities in new projects for the coming three years.

By: D.C. Stribling

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Sportswear-maker Puma has signed a deal for a flagship store along Manhattan’s Fifth Avenue shopping corridor

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German sportswear-maker Puma SE has signed a lease deal to open a flagship store on Manhattan’s Fifth Avenue shopping corridor, creating a marquee location that will be the first of its kind for the company in North America.

Puma is taking a three-level, 24,000 square-foot space at 609 Fifth Ave. at 49th Street, according to SL Green Realty Corp. , the real-estate investment trust that owns the building. The real-estate investment trust has launched a redevelopment that will include double-height storefronts that wrap around the building.

Puma Chief Executive Björn Gulden described the location as iconic, situated on one of the most prestigious streets in the world. While Puma has stores in the U.S. and Canada, none has the breadth of the company’s product categories this location will showcase, said Russ Kahn, senior vice president of retail for Puma North America.

“For the past several years PUMA has been focused on becoming the fastest sports brand in the world and we feel now is the perfect time to show the world who we are,” Mr. Gulden said in a statement.

Puma joins other sportswear companies such as Nike Inc., Under Armour Inc. and Adidas AG , which have leased space along the Fifth Avenue shopping corridor. The district hasn’t been immune to the effects of online retail growth, which has caused turmoil among traditional bricks-and-mortar retailers in the past few years.

In the first quarter of the year, the average asking rent on the lower stretch of Fifth Avenue from 42nd to 49th streets, which encompasses 609 Fifth Ave., declined 5.4%, to $1,060 a square foot, compared with the same quarter last year, according to real estate services firm CBRE Group Inc. Asking rent on the stretch of Fifth Avenue from 49th to 59th streets dipped 0.5%, to $3,700 a square foot.

Author: Keiko Morris

Source: The Wall Street Journal

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