Under Armour Takes Former FAO Schwarz Store on Fifth Avenue
July 26 2016 - 09:20PM
Dow Jones News
By Keiko Morris
Under Armour Inc. hopes to up its game with a sprawling retail
store in one of Manhattan's most expensive shopping districts.
The Baltimore sportswear maker's chief executive told analysts
Tuesday the company would put "the world on notice" by taking most
of the space once occupied by the FAO Schwarz toy store on Fifth
Avenue between East 58th and East 59th streets.
The 53,000-square-foot space in the General Motors Building will
give the company a showroom in a section of Midtown Manhattan
brimming with high-end retail and year-round throngs of
tourists.
"Effectively, the goal that we have is to build the greatest
single retail store in the world," CEO Kevin Plank said in a
conference call with analysts. "And we know that's a big statement
with a big company, but I think that that's the opportunity we
have."
The stretch of Fifth Avenue is also known for its high rent.
Toys "R" Us Inc., owner of FAO Schwarz, cited the rising costs of
operating on Fifth Avenue when it closed its store in July
2015.
Under Armour and Boston Properties Inc., the real-estate
investment trust that owns the General Motors Building, declined to
disclose the terms of the deal.
Earlier this year, Owen Thomas, chief executive of Boston
Properties, said FAO Schwarz was paying about $20 million a year
and suggested that a deal with a potential tenant would generate a
significantly higher rent.
Although asking rents on upper Fifth Avenue have dropped along
with those in other Manhattan retail corridors, average asking
rents there were still high, at $2,980 a square foot in the second
quarter of 2016, according to real estate services firm Cushman
& Wakefield.
By comparison, landlords were asking for $2,109 a square foot in
Times Square and $361 a square foot on the Upper West Side.
"I think this speaks to the fact that retailers are willing to
pay for locations that are important for their company," said Isaac
Chera, principal at Crown Acquisitions, which owns a number of
highly valued retail properties in Manhattan, Brooklyn and Queens.
"In the secondary and tertiary markets, that's where you might see
rents drop."
However, some brokers say the high asking rents don't tell the
full story. Landlords are able to attract big retailers because
they are willing to offer generous tenant improvement packages to
pay for costs such as building the store interior, said Ross
Burack, a broker with Winick Realty Group LLC.
"These landlords pay tenants millions so they can get their
asking rents, " Mr. Burack said. "That's how certain areas, such as
Upper Fifth Avenue, are able to keep attracting these retailers at
above comparable rents."
Under Armour, known for sweat-wicking clothes and National
Basketball Association star Stephen Curry's signature sneakers,
didn't release details about the store's design. Mr. Plank noted
the company intended to create an "experiential" retail
presence.
Mr. Plank said he expected the company to move into the space by
the middle of 2019 at the latest.
Like its competitors, Nike Inc. and Adidas AG, Under Armour
sells most of its wares through sporting-goods retailers but also
operates some of its own brand stores, including one on Broadway in
Manhattan's Soho neighborhood.
The company also plans to open a shop at Westfield World Trade
Center, the largely underground retail complex at the World Trade
Center site.
The Under Armour location on Fifth Avenue "will really position
the brand again in the iconic place where we believe that we
belong," Mr. Plank said.
The change in tenants in the retail space in the General Motors
Building also underscores the maturation of at least one group of
consumers, said Adelaide Polsinelli, a principal at real estate
services firm Eastern Consolidated.
"The kids who shopped at FAO Schwarz or who were the recipients
of that buying are now buying fitness gear," she said. "Those are
the toys of the next generation."
Write to Keiko Morris at Keiko.Morris@wsj.com and Sara Germano
at sara.germano@wsj.com
(END) Dow Jones Newswires
July 26, 2016 21:05 ET (01:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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