BOSTON — Get ready for a game of retail musical chairs in the Boston region, where the Federated-May merger, corporate takeovers, Nordstrom and other newcomers are set to propel fast-paced changes.
The city has been on a losing streak with megamerger deals: Procter & Gamble swallowed hometown Gillette Co., Bank of America gobbled up FleetBoston Financial Corp. and Federated-May is likely to eliminate the downtown headquarters of May’s Filene’s/Kaufmann’s division as well as shutter stores in metro-area malls with overlapping anchors.
Still, the picture is brightening despite the tumult.
Nordstrom and Neiman Marcus plan stores in the region, both taking space in the expanded Natick Mall in Natick, Mass., about 20 miles west of Boston. There is speculation that Barneys New York may move into Copley Place, the downtown luxury mall that houses Dior, Louis Vuitton and others, retailers and real estate experts said. A spokesman for Chicago-based General Growth Properties, Copley Place’s owner, declined to comment.
“It’s been hard for retailers to get into Boston, and once they are there, [it’s tough] to expand,’’ said John Bucksbaum, chief executive officer of General Growth. “It’s a very desirable market. People have looked at department store closings as detrimental to malls, but we don’t feel that way. There is a demand for mall space.’’
Target, J.C. Penney, Dick’s Sporting Goods, The Cheesecake Factory and Barnes & Noble are among the companies looking for space in greater Boston, said a spokesman for Simon Property Group, the number one U.S. mall owner. Those concepts may get a crack at some of the area’s best mall-based real estate after top brass at Federated Department Stores finish crunching numbers on a portfolio that will include significant redundancy in Northeastern mall real estate.
The Boston region, with 50 colleges and universities and 250,000 students, a booming biotech sector and affluent suburbs, is one of the most attractive U.S. retail markets. One in 10 Boston residents is a college student and the presence of these young consumers hasn’t escaped the notice of Ralph Lauren and Marc Jacobs, who both opened stores on Newbury Street in the last seven months. Lauren introduced his Rugby retail concept, aimed at the college set, and Marc Jacobs opened Collection and Marc by Marc Jacobs units.
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Typically, retail demand exceeds supply. “We are constrained here by a lack of available land and by very stringent planning and zoning as it relates to new development,”said Chris Angelone, a partner with real estate broker CB Richard Ellis/Whittier Partners in Boston.
In eastern Massachusetts alone, seven malls have overlapping Federated-May anchors, most along the Route 128/I-95 corridor ringing Boston. Overlaps also occur in three malls on the New Hampshire border, an area increasingly considered part of metro Boston’s economic sphere because of the cross-pollination of job seekers and shoppers looking for a tax break. (New Hampshire has no sales tax.)
Smith Barney analyst Deborah Weinswig estimated in a recent research note that 16 properties nationwide have three or more Federated-May locations. Three of those malls are in greater Boston.
The most glaring redundancy is in Downtown Crossing, the city’s historic shopping juncture, where Macy’s and an equally imposing Filene’s face each other. Filene’s, founded in Boston in 1849, operates 22 stores in Massachusetts and employs more than 700 people at its headquarters.
All those jobs might be eliminated or relocated if Federated chief executive Terry Lundgren follows his stated plan to centralize operations in the company’s headquarters in Cincinnati and in New York, and to consolidate stores primarily under the Macy’s and Bloomingdale’s nameplates.
A Federated spokeswoman would not comment on the future of Filene’s headquarters, or the flagship. “In all likelihood regional nameplates would go away,” she said, “but we have not made the final decision.”
Still, most real estate experts believe that when the merger dust settles, metro Boston malls won’t be left with gaping holes. Rather, new players will come in and others, which took less-than-ideal locations to simply have a presence in this congested marketplace, will leap to better spots.
Nordstrom will open its first full-priced store when a 550,000-square-foot expansion of Natick Mall is complete in fall 2006.
“Nordstrom has been dying to get into the Boston market,’’ said Bob Sheehan, vice president of research for Burlington, Mass., real estate service firm Finard & Co. “They had to opt for Providence [Place Mall in Rhode Island] because no one would let them into the Boston malls. Assuming that Natick is a success for them, I’m sure they would love to have a couple other locations to fill out the Boston market.”
Neiman Marcus will launch its second Boston-area location in Natick Mall’s new wing.
Target, although not considered a traditional anchor, is growing fast in metro Boston. It operates 20 stores in Massachusetts, with a market share of 7.5 to 9.9 percent, according to Target’s 2003 annual report. It ranked fourth in overall growth in eastern Massachusetts in fourth-quarter 2004, according to a Finard study.
Target’s primary competitor, Wal-Mart, operates 10 stores within 50 miles of Boston, according to its Web site. It came in sixth in expansion, the Finard survey said.
Tom DeSimone, executive vice president of Brookline, Mass., developer S.R. Weiner & Associates, said Federated will have tough decisions to make about which locations to keep.
“You go right down [Route] 128 and you get all the best-performing Filene’s,” he said. “So the question to ask is if you have a Macy’s there also doing extremely well, do you think you’ll transfer all the sales if you close one? It’s my personal belief no. How do you walk away from those sales?”
Mall anchors generally own their buildings, giving them a valuable asset if they chose to sell and leverage to handpick tenants if they choose to sublet.
In that situation, Target would have an edge over Wal-Mart, Angelone said.
“It would probably be difficult for Wal-Mart to get into some of these spaces, should they become available,” he said. “There are instances where anchors have gone dark and Wal-Mart was turned away. A lot of tenants feel threatened by them. People try to box them out.”
Target, in contrast, is viewed as “an excellent co-tenant,” Angelone said. “You see them here with any of the TJX concepts, with Kohl’s, Home Depot, Lowe’s or [grocery chain] Shaw’s.”
The retail future of downtown Boston is an open question. Both Macy’s and Filene’s have the same selling space, about 380,000 square feet, and carry home furnishings as well as apparel, cosmetics, shoes and accessories. Macy’s leases its space, while Filene’s owns its building.
The Federated spokeswoman said re-formatting one of the Downtown Crossing stores to become a second Macy’s concept — a dedicated men’s or home store, for example — is “within the range of possibility.”
It’s less clear what strategy Federated would use to exit some of its Downtown Crossing real estate, should it choose not to use both buildings. The Filene’s building could sell for as much as $300 million, given that buildings nearby have recently sold for $700 a square foot. The building might be most valuable kept as retail space, since Boston has an oversupply of available office space and numerous residential loft conversions already under way in the neighborhood. Rents go for $60 to $100 a square foot for retail space, Angelone said.
“I don’t think you’re going to see a Target or a Kohl’s in either building,” he said. “They don’t want to put their competitor that close. You see the traditional department stores struggling and those competitors are why.”