Chances are that if you stumble upon a new store in SoHo, it won’t be there in a few months.
SoHo — a portmanteau that stands for South of Houston Street, the neighborhood nestled across 26 blocks in lower Manhattan — has long been known as a hip destination for shopping and art. Since the 1950s, when artists began flocking to its cobblestone-paved streets in search of lofts and workspaces, SoHo has been shrouded in an aura of trendiness. For several decades, boutiques and major retailers alike set up shop in SoHo, hoping to entice upscale customers and tourists looking to splurge.
However, as rents continue to soar, the artists that once dominated SoHo have increasingly fled for cheaper spaces in New York’s outer boroughs, while luxury brands have begun shuttering storefronts to cut down on overhead. These shifts, perpetuated by retail challenges occurring on a national level, have made way for the rise of pop-ups, ephemeral experiential stores often used by emerging retailers to test out products and strategies.
A new perspective on SoHo retail
For several years, Melissa Gonzalez, founder and CEO of pop-up consultancy Lionesque Group, had to haggle with real estate brokers and landlords to get them to see the value of offering short-term leases to retailers in Soho. It wasn’t an easy sell. Luxury retailers with long-term leases had long thrived in the neighborhood, so a flash-in-the-pan store open for as little as a few days was difficult to grasp.
However, as the luxury market finally began to shed its luddite tendencies and embrace e-commerce, brands started funneling resources to digital and re-evaluating their brick-and-mortar strategy. At the same time, rent grew prohibitively high for some retail tenants in SoHo, who were beginning to find more efficient ways to make sales online. For many, this meant downsizing storefronts and turning toward digital sales. Across the U.S., upward of 10,000 retail locations are expected to close in 2017 alone.
Despite its status as a tourist area and home to high-income residents with money to spend — the average household income is more than $140,000, and the median home price is more than $2 million — SoHo has not been impervious to commercial rent spikes. Areas including Bleecker Street have been among the hardest hit. In its heyday, the street boasted not one, but six Marc Jacobs stores, three Ralph Lauren locations and two Coach stores — all within a four-block area — which have all closed, The New York Times noted last week.
For newer companies, as well as established brands seeking to test products and marketing tactics, pop-ups provide an ability to experiment with less commitment. “Pop-up stores have the ability to keep inventory low, which keeps costs down, while also being able to stay nimble and cycle through different styles of merchandise to keep consumers coming back,” said Cooper Smith, digital of Amazon IQ research at L2.
Smith said another threat to traditional retailers in Soho is the continued reign of fast fashion. The explosive popularity of brands like H&M, Zara and Uniqlo, which all hold retail space in SoHo, has made it difficult to lure shoppers into high-end stores.
This transpires to a unique entry point for pop-ups, now driven by changing consumer sentiments and interest in experiential shopping. As a result, Gonzalez said the tables have turned: The same brokers and landlords she used to call relentlessly now have her phone ringing off the hook, keeping her apprised of openings.
“The mindset on the real estate side has shifted, but it’s important to note the shift is happening on both sides,” Gonzalez said. “Brands are looking to test products, and we’re seeing a move to wanting longer durations for pop-ups. Years ago, they were more event-based and usually around for a couple weeks to month. Now, [brands] want six months to a year. Brands and the real estate industry are finding ways to meet more in the middle.”
An incubator for the ‘the next Bonobos or Warby Parker’
SoHo’s real estate market is also realizing that traditional retailers are in trouble. Just last week, Michael Kors announced it is closing more than 125 brick and mortar locations. As a result, landlords have come around to giving lesser known names a shot — they’re not being buoyed by the certainty that a more established brand would stay afloat.
“There are going to be closures, and [realtors are] realizing they need to get ahead and build relationships with the new breed coming through,” Gonzalez said. “That’s shifted the real estate market, too, as brands consider how to find the next Bonobos or Warby Parker of the world. They’re figuring out how to adapt.”
Despite the uptick of empty storefronts or shuttering stores, Karen Bellantoni — vice chairwoman at RKF, a retail real estate firm that represents both retailers and landlords in SoHo — said these spaces are being swept up so quickly by pop-ups that soon competition for pop-up stores will start driving emerging brands elsewhere.
Bellantoni said the success of ventures like SoHo’s Nike store — which opened in 2016, touting several experiential features beyond straight retail — have also helped perpetuate pop-up culture. From a marketing perspective, it has become an important destination for establishing visibility. “SoHo is probably one of the strongest markets and most important markets in the world. It’s that significant, and it has been for quite some time.”
Brennan Wilke, svp of customer experience strategy at InMoment, a customer experience management firm, said retail trends like this often spur a domino effect, particularly when they occur in a neighborhood that has long been an arbiter of style.“SoHo is becoming one of those neighborhoods that seems to attract pop-up culture. By their uniqueness and time-sensitive nature, pop-ups often attract other pop-ups, perhaps because of the style of a neighborhood or proximity. This creates word of mouth, an excitement that becomes infectious.”
Though luxury brands are navigating a new way to connect with consumers by straddling the divide between online and physical stores, Wilke said brick-and-mortar experiences will always be important to consumers and the rise of pop-ups demonstrates demand for innovative ways of approaching retail.
“Brands are recognizing that humans are inherently tactile, as long as the digital world allows us to connect in new ways. Humans value the physical connection and human connection to those that empowered them to access the product,” he said.