The early 2019 opening of Hudson Yards, the years-in-the-making development on Manhattan’s far west side, was supposed to revitalize a rare forgotten area of the city. At the center of that effort was a shopping center filled with luxury retailers—and Neiman Marcus’ first New York City store was the heart of it.
Cut to not even two years later, and Neiman Marcus has filed for bankruptcy and announced its intention to close the Hudson Yards location permanently. (The store, along with the rest of Hudson Yards, has been closed since mid-March due to the ongoing coronavirus pandemic.)
It’s an undeniable blow for Neiman Marcus. Beyond the store’s short lifespan, particularly in comparison with its size and scale (and the investment it likely took to get there), a New York store had been on the company’s mind for over a decade before the 2019 opening, according to Steve Dennis, a former Neiman Marcus executive and the president and founder of SageBerry Consulting.
But more than that, it’s a gaping wound for the entire concept of Hudson Yards. An anchor store like Neiman Marcus does more than take up a mall’s most expensive piece of real estate—it acts as a marketing tool for the mall itself. Without Neiman Marcus to bring in foot traffic, the future is murkier for everyone else at Hudson Yards.
“This is a really bad signal for the rest of the tenants,” Dennis said. “It’s obviously a huge space and presumably supposed to draw a fair amount of traffic.”
Neiman Marcus’ Hudson Yards downfall could be seen as inextricably tied to the company’s bankruptcy filing, and while that undoubtedly played a role, it’s a more complicated story. And its consequences will reach far further than corporate headquarters, with a possible lasting impact on one of New York City’s largest real estate developments in recent history.
Did Neiman Marcus ever have a shot?
Dennis said that for Dallas-headquartered Neiman Marcus, opening a store in New York was long on the table for the company, but the prospect always had its drawbacks as well as its incentives.
“On one level, New York seemed pretty obvious if you’re going to be a global or national luxury department store,” he said. “But it was always fairly risky, just given the saturation of retail alternatives in New York.”
New York City is no stranger to department stores. There’s the Macy’s flagship on 34th street, the original Bloomingdale’s on 59th, and Saks and Bergdorf Goodman (owned by Neiman Marcus) on Fifth Avenue. Last fall, another outsider, Nordstrom, opened up a long-awaited flagship in Midtown, just a few blocks south of Central Park.
That environment meant that Neiman Marcus was entering a crowded, competitive space. But Neiman Marcus invested in its Hudson Yards location, offering amenities—a spa, a nail salon, a blowout bar, a floral boutique and three restaurants—to stand out, or at the very least measure up. And while the Hudson Yards location was something of a risk, simply because of its newness, it also offered an advantage: Its rivals weren’t nearby, so for visitors to that part of town, Neiman Marcus was the only option.
The problem? Hudson Yards has yet to truly weave itself into the fabric of New York City retail, said Dennis.
“Hudson Yards has become more tourist attraction and much more destination than you’d ideally like to make an anchor store like that work,” he added.
Perhaps an undeniable sign of Neiman Marcus’ fate came soon after the opening of Hudson Yards, when luxury retailer Barneys New York, a titan of the city’s department store scene, announced it would shutter all of its locations after filing for bankruptcy. People weren’t shopping at Barneys, a store with not only the cache and romanticism that comes with a long history in Manhattan but also the convenience of more easily accessible locations in Chelsea and the Upper East Side. It’s hard to find reasons why they’d head to Neiman Marcus instead.
Sure, the argument could be made that Neiman Marcus was entering an area of the city that was relatively untapped when it came to luxury shopping. But the fact is, Manhattan’s far west side wasn’t just devoid of luxury options, but retail entirely. (Car dealerships excluded.) Training consumers to venture to a new area as well as shop at a store they don’t typically associate with the city presented two formidable challenges. After the dust settled from the store’s splashy opening, people weren’t coming back in the same high numbers.
“The store was over a year old, and it wasn’t packed,” said Bob Phibbs, CEO of New York-based consultancy The Retail Doctor. “That’s the simple thing: You can’t have these big stores unless you see a lot of shopping bags.”
Covid-19 can’t take all the blame
Of course, Covid-19 played a role in the store’s demise: Neiman Marcus was among the first casualties of the pandemic, filing for Chapter 11 bankruptcy in May. It’s the bankruptcy filing that perhaps was the true catalyst for the timing of the store’s closure.
Dennis, however, doesn’t think the store would have succeeded even if Covid-19 hadn’t happened. The pandemic didn’t cause Neiman Marcus’ substantial debt load, about $4 billion, and though it surely accelerated Neiman’s problems, that debt would have reared its head at some point.
“Neiman’s was going to either go into bankruptcy or have really significant reworking, given their debt structure, at some point anyway,” he said. “If they were going to go through bankruptcy anytime in the next couple of years, they probably would have pulled down that location.”
The future of Hudson Yards
The Neiman Marcus closure will impact not just the retailer, but Hudson Yards at large. The development is losing its biggest retail draw, which would always be a blow, but the timing—coming on the heels of the mandated mall closures thanks to coronavirus, as well as less than two years into its operation—makes it even worse.
Perhaps the biggest issue for Hudson Yards is the gaping hole that now exists, one that’s unlikely to be filled by another retailer. Even before the pandemic, few of that size were in expansion mode, and current circumstances have only compounded that.
“No one’s going to take that space over,” Phibbs said. “You’re not going to suddenly see Macy’s or Saks move there. Lord & Taylor is not gonna do anything. You’re not gonna see Nordstrom. So who’s left, who’s willing to take that risk?”
The speculation has been that the space won’t be used for retail at all, but rather as office space—however, that’s perhaps a category seeing even less demand than physical retail given the ongoing pandemic. One rumor that’s been floated is that Facebook will be the space’s next tenant.
That fact leads Dennis to believe that Hudson Yards developer and owner Related Companies does have another tenant lined up, even if it isn’t as sexy as a luxury department store.
But while a corporate tenant may be willing to pay the rent, refitting the store as office space won’t do much to bring in foot traffic—or provide any level of glitz or glamour to a mall that’s sorely in need of it. For that reason alone, Dennis said he’s surprised that Related didn’t do “backflips” to try to keep them there.
“It certainly minimizes the wow factor of that property,” Phibbs added. “It doesn’t fulfill its mission, which was to really be this incredible luxury outpost. If I was one of those little boutique retailers out there, I’d be scared.”