Sunday, January 28, 2007

Apple and Home Depot Pull Out of Lower Manhattan

According to an article in the Slatin Report, it turns out that two big retailers are scratching plans to move stores into 34th Street in Lower Manhattan. The two stores planned to open were the Home Depot and Apple. The addition of these two retailers would have definitely made the area look a little different, but in a densely inhabited urban environment like New York, would a store which is so important to "do it yourself" handymen and suburban home owning people be a hit in an area which the Slatin report calls the "burgeoning SoHo and Tribeca neighborhoods"?

When one thinks of SoHo, one would probably think of high fashion and boutiques, not so much a hardware and lumber store. Was this a bad move? Yes, one of many that the now former CEO of the Home Depot, Robert Nardelli, has made throughout his career at the Home Depot. Much of the reason why the store did not open was because Nardelli was fired before the deal could be sealed. This was a deal which he had a hand in during its primitive stages.

Robert Nardelli was previously the Head of the Power Systems unit at General Electric. While serving at General Electric, Nardelli made Business Week’s “The Best & Worst Managers of 2004” as a Best Manager, although he had a very shaky start. In the end, before he was given his position at the Home Depot, he raised sales 13.1%.

Nardelli’s more current role as CEO at the Home Depot has not garnered him such praise. The International Herald Tribune likes to attribute his failures to his excessive pay. The Tribune is probably right about this one. If Nardelli has a hefty cushion of cash he is sitting on regardless of his company’s performance, the incentive to work as hard probably is not there. Nardelli made about $60 million a year, even though company stocks were on the decline. Nardelli was fired, however he provided himself a generous exit bonus of about $210 million.

Another reason why the Home Depot did not seal the deal at 34th Street is because the rent nearly doubled in the time since the deal was brought up and to the time the deal was almost signed and sealed. At first, the rent was $40 a square foot, where as now, the rent increased to something along the lines of $70 a square foot. The Home Depot was said to be worried if the building and rent provided enough density for the price they were about to pay. The Home Depot was meant to take over three stories in the building.

However, where the Home Depot decided was junk can easily turn into a treasure for someone else. Since deciding that the Home Depot was no longer interested in sticking around to seal the deal, many art galleries which cannot afford the rent in other areas of New York are looking at the ground level retail space that will be vacant to place their galleries there. Also, CBS seems very interested in the location, as is their parent company Viacom

As far as Apple goes, it will be a shame that they will not be sticking around. Apple stores evoke a sort of hip and futuristic approach to retail. Most locations which house an Apple store are places where the hip and trendy want to be. The addition of an Apple store anywhere would add instant charm and much more foot traffic to the area since now a days, it seems more common to own an iPod than to not own an iPod.

SoHo would be a fantastic location for such a store, however, while 34th Street in Lower Manhattan is a "burgeoning" area, there is also a lot of lower class retail and not so respectable, counterfeit retail still occurring in the area.

Apple is “image conscious” as the Slatin Report says and the Slatin Report is probably right. An Apple store is a sight for only the nicest of places. Just as one would never seen an Apple store in a strip mall, Apple would probably never put a store in a location which still has some improvement necessary. Perhaps Apple’s strategy for retail placement is more of a “follower’s” mentality, rather than a “pioneering” type of mentality.

Apple’s original plan was to have a multi-story, large scale retail outlet. Instead, Apple is now considering to sublease the parcel.

Did Lower Manhattan suffer a loss by not sealing a deal with Home Depot? Probably not. The Home Depot will instead move to an area in Harlem. Did Lower Manhattan suffer a loss by not sealing a deal with Apple? Yes. An Apple store in Lower Manhattan is like instant gentrification.

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