Wonder what the future of retail will look like? The changing tenant list in New York City's Times Square may offer the perfect case study.
Just take a look at Hershey. The brand said last week said that it will trade in its current digs in the bustling district for a 6,000-square-foot-shop that's three times the size, to "create a destination where people of all ages can interact with our iconic brands."
Though it has been mum on what exactly that will include, its "Chocolate World" attraction in Hershey, Pennsylvania, could serve as a template. That location fuses shopping with chocolate tastings and a 4-D mystery show.
The new Manhattan store, slated to open late next year, is just the latest on a growing list of sensory-inducing sites coming to Times Square. Other concepts headed to the area include a 40,000-square-foot, four-story NFL exhibit arriving next fall, and a 36,000-square-foot Foot Locker flagship under its House of Hoops basketball brand. When that nameplate opened a New York City pop-up store ahead of NBA All-Star week in January, it served as both a store and exhibit.
Gulliver's Gate, an interactive miniature world, and National Geographic are also heading to the area. That all of these brands are signing leases at roughly the same time underscores a broader shift happening in retail, as consumers shell out more of their income on experiences than traditional goods.
"Everyone's trying to find a way to maintain market share and also extend themselves in a different way that's maybe not traditional to retail," said David LaPierre, a vice chairman with the Global Retail Services Team at CBRE.
And there's arguably no better place for a company to try something unique than Times Square, LaPierre said. Even as a stronger U.S. dollar has deterred some international tourists from visiting New York City — contributing to a 1.6 percent year-over-year decline in daily visitors in June, according to the Times Square Alliance — the area has distinct characteristics that give it a buffer against broader travel trends, LaPierre said.
"Times Square has an attraction that goes beyond just one traditional genre like shopping," he said. "It has theater, it has an entertainment component... it has an absolute uniqueness."
It doesn't hurt that many of the places there operate into the wee hours of the morning, LaPierre said. Even as pedestrian traffic has dropped over the past three months, those late hours and a healthy mix of activities brought more than 355,000 people to the square each day in June.
But while the market has, for the most part, sustained itself, the average asking rents for retail space there haven't escaped broader declines seen across the borough.
Among the 11 Manhattan submarkets tracked by Cushman & Wakefield, it was one of seven where ground floor asking rents declined on a per-square-foot basis in the second quarter compared with last year. Its steep 15.9 percent drop was second only to the 16.3 percent slide along Third Avenue.
Gene Spiegelman, Cushman & Wakefield's vice chairman and head of Retail Services in North America, said Times Square's softness has less to do with a slowdown in tourism and more to do with the available space.
"When you have a very consolidated marketplace like this, each space impacts the market," he said. For example, the closing Aéropostale store near 45th and Broadway includes a large chunk of second-level space, which is less desirable.
No matter how you dice it, the issue is that supply is running ahead of demand, Spiegelman said. Therefore, rents will need to come down in response. Even with their recent pullback, average asking retail rents in Times Square are second only to Upper Fifth Avenue, at $2,109 a square foot. Such sky-high rents make four-wall profitability in the area a "real challenge," LaPierre said.
Yet for most companies headed to New York City's tourism mecca, these stores also have a component of branding to them. Even during Toys R Us' prolonged period of financial struggles, its famous Times Square flagship — complete with a Ferris wheel — lured in tourists from around the world, and helped keep its brand relevant in the age of Amazon.
The store ended its 14-year run last year, with Gap and its Old Navy brand set to take over part of the space next year. A spokeswoman for the apparel retailer said it has not yet released details on what the store will entail.
"It'd be nice to see them add a little bit of non-traditional life inside the space," LaPierre said, mentioning live music as one option.
"This is such a great place to... do something that really stands out," he said. "People that don't take advantage of that in a Times Square market are really missing a great, great opportunity."