Unemployment rate deals blow to retailers

Real Estate Weekly, April 21, 1993 by Edward A. Friedman

New York City's staggering unemployment rate of 13.4 percent packs a big wallop for metropolitan area retailers who spent the first quarter of 1993 basking in the glow of the best Christmas season since the recession began.

After reeling from the impact of 100,000 lost jobs due to layoffs and cutbacks, the World Trade Center bombing leveled another blow for retailers in the downtown market. Not only were the World Trade Center's retailers put, literally, out of business for almost six weeks, other retailers in the area suffered as a result of the building's closing.

Natural and unnatural disasters, and the continuing troubles of the financial services industry have created massive problems for the Downtown market's retailers. The insurance industry, already in the midst of major layoffs, suffered over $13 billion in losses as a result of the Florida disaster caused by hurricane Andrew and the four-day December storm that struck the northeast. Stock brokerage firms, which have enjoyed major earnings growth over the past few years, have not hired any mew employees, and consolidations and mergers, such as the merger between Chemical Bank and Manufacturers Hanover Trust, have had a major impact on the banking industry. Even profitable companies are downsizing.

As a result, retail sales in downtown Manhattan have declined -- in some cases as much as 40 pereent -- and vacancies have appeared in areas that were once retail mainstays. Broadway below Fulton Street and the Nassau Street Mall, once considered a must for retailers because they attracted a huge density of downtown shoppers, are now littered with empty stores and for rent signs.

Unfortunately, Wall Street and the insurance district will probably take years to recover, though there are some notable exceptions. Century 21 on Cortlandt Street has thrived, as well as several stores in the World Trade Center before the bombing. Unfortunately, the psychological impact of thousands of layoffs continues to linger among those who are employed downtown, but seem afraid to spend money.

The Uptown market is faring far better. Many retailers entered 1993 in the black, and companies such as The Gap, Cosmetics Plus, Toys R Us, Lechters, and Strawberry, which recently expanded through its acquisition of most of Plymouth's stores, entered the second quarter with higher sales and tremendous optimism.

Well established retailers are continuing their plans for expansion. These include Coconuts, which recently leased a new store in Rockefeller Center; Herman Sporting goods, which signed a lease on Sixth Avenue and 57th Street; Labels for Less, which opened a store at 345 Madison Avenue; and The Gap, where recent openings include 42nd Street and Third Avenue, 42nd Street and Broadway, and Madison Avenue and 55th Street. In addition, Warner Bros. will open its first Studio Store on the northeast corner of Fifth Avenue and 57th Street, and plans to open other stores around the country.

Even Uptown department stores are managing to do better this year. Earnings at A&S, Saks Fifth Avenue and Macys increased as much as 6 percent during the Christmas season. Though the feeling among most department store executives is one of cautious optimism with all indicators pointing to a profitable 1993, most stores are not hiring additional permanent employees and purchasing less merchandise than in the past.

With some exceptions, I expect 1993 to be a fair but not great year for most retailers. New York City will benefit if President Clinton's policies improve the nation's economy as a whole by expanding jobs and lowering the deficit.

Over the next few years, we will continue to see the expansion of foreign retailers and banks in the U.S. market. New growth will occur in the service industries, particularly in public relations, advertising, labor relations. engineering, marketing, with more opportunities for lawyers, health care professionals and computer analysts.

New York City's high unemployment rate has created a difficult environment for retailers who are dependent on consumers with disposable income. In order for retailers to thrive and profit here, much depends on the city's ability to stem the growing tide of unemployment. On the bright side, New York remains the retail capital of the United States, and many retailers can look forward to a profitable year in 1994.