And the stores are beginning to close

imgres-1The marketplace is changing.  Gap, J. Crew, Abercrombie & Fitch and Coach have all announced that they are closing stores.   I am sure there will be more….and oh how they mighty have fallen.

These stores grew and grew.  They grew as publicly traded companies.  They grew on lots of products that rarely sold at full price.  One could say they grew without a well thought out road map.  One of the pieces of the road map is always marketing.  Store fronts are marketing and many of those are not profitable.  At one point the board, the market, the stock price told them close down those stores that are losing money every single month, take those losses off the books now and our earnings will change.

Many of the new brands such as Warby Parker, Bonobos and others have shifted from a pure ecommerce model to a mixture of both brick and mortar and online sales.  I refer to it as the 80/20 rule.  20% is in brick and mortar where the customer can see, feel and connect with the brand in a different way.  It is marketing dollars well spent if the store works aka is profitable.  I do not believe that you can just open the doors with merchandise but there needs to be a reason for the customer to want to come into the store often when they can visit the the latest and greatest on their mobile device in the privacy of their home.

I refer to all of this as the long tail of Etsy.  People want individuality.  There are multiple shops opening in Brooklyn, LA, Paris and even Bordeaux that are small, conceptual, a mixture of different products that work together and a vibe that makes you want to come in and see whats new while having a cup of coffee.

What does this do for the real estate world?  I would gather that many landlords of buildings have taken the last decade of growth and opportunity to take out another mortgage on their building so they can put more cash in their pocket and raise the rents.  Only large companies such as the Gap, Coach, Abercrombie and alike could afford these ridiculously high rents.

What happens when these stores go empty and the next generation of stores can’t afford the rent?  Nothing pretty.