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Stores take flight from Fifth Avenue in Manhattan

Bergdorf Goodman. Tiffany & Company. Louis Vuitton. Fifth Avenue in Manhattan is to shopping what Broadway is to theater, defined by the marquee names that for decades have occupied some of New York City's most prized real estate.

But lately, the avenue's glittery window displays have been changing more quickly, as retailers have streamed in and out. Tourism has slowed while online shopping has sped up, making it harder for companies to justify the cavernous spaces and sky-high rents along the shopping strip.

On Tuesday, Ralph Lauren became the latest retailer to pull up stakes, announcing that it would close its flagship Polo store at Fifth Avenue and 55th Street as part of a previously announced effort to reorganize the company.

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The move highlights how higher-end brands are not immune to the broader troubles facing brick-and-mortar retailers from online shopping and other competitors. Companies must often choose whether to invest in their online or physical stores — including showcase locations like those on Fifth Avenue.

"The Fifth Avenue model seemed to work for a while, and then it got to a point where it just doesn't work at this price anymore," said Barbara Denham, a senior economist at Reis, a real estate data and analytics firm. "It got to the point where I think landlords were jacking up each new lease with higher and higher rent, and at some point, something had to give."

Stores still line the avenue. But in recent years, a record number of brands along the upper part of the shopping strip have shuttered or relocated, including Kenneth Cole, Juicy Couture and H&M, according to an analysis from the brokerage firm Cushman & Wakefield. From 49th to 60th Streets, the availability rate of leases — one gauge of turnover — reached 15.9 percent at the end of last year, up from 6.1 percent five years earlier.

"I think brands are becoming more focused on driving sales and being realistic with what they need as far as the store size," said Robert Burke, a luxury consultant who worked as an executive at Ralph Lauren in the 1990s. "I think you can still set a brand image without having a huge store."

Across the country, once-mighty chains like Macy's and Sears have had to re-evaluate their physical locations. While the majority of shopping is still done in person, e-commerce has grown faster than brick-and-mortar sales. Department and big-box stores across the country have closed locations. Others have filed for bankruptcy, including American Apparel, Radio Shack and, on Tuesday, Payless.

Since the middle of 2015, major brands have shut down at least 470 locations at an accelerating pace, according to Ms. Denham. Those locations, represented in large part by Sports Authority, Macy's, J. C. Penney and Kmart, add up to about 28.9 million square feet of retail space, she said.

A pedestrian passes an empty retail space at 675 Fifth Ave. in New York, April 4, 2017. In recent years, a number of brands along the upper part of the shopping strip have shuttered or relocated.
John Taggart | The New York Times
A pedestrian passes an empty retail space at 675 Fifth Ave. in New York, April 4, 2017. In recent years, a number of brands along the upper part of the shopping strip have shuttered or relocated.

What's happening on Fifth Avenue reflects "the rebalancing of brick-and-mortar and e-commerce that we're experiencing," said Gene Spiegelman, a vice chairman at Cushman & Wakefield.

"Retail sales are still growing," he said. "The question is, where do those sales originate?"

Ralph Lauren, a brand that helped define American fashion for much of the past half-century, has struggled to reinvent itself for the modern era. It has long subsisted on core products like Gatsby gowns and polo shirts.

It opened its Polo location on Fifth Avenue toward the end of 2014. The next year, it appointed a chief executive, Stefan Larsson, for the first time, an acknowledgment that the brand's eponymous founder needed help to compete with fast fashion and other challenges. Last year, Mr. Larsson announced a plan to trim Ralph Lauren's many labels and focus more on creative designs and a quicker production timetable.

His path toward reinventing Ralph Lauren, however, was short-lived. Citing creative differences with Mr. Lauren, Mr. Larsson said in February that he would depart the company on May 1, an abrupt shake-up that sent the stock price tumbling.

In its most recent quarter, which ended on Dec. 31, revenue fell more than 12 percent to $1.7 billion, and the company said that it was on track to close 50 stores by the end of this fiscal year. On Tuesday, Jane Nielsen, the chief financial officer, said in a statement that the Polo closing helped "ensure we have the right distribution and customer experience in place."

The company declined to comment further about the decision. Shares of Ralph Lauren fell 4.5 percent to close at $77.74 on Tuesday.

Landlords along Fifth Avenue have not had much sympathy for the troubles of the retail industry. At the end of last year, the average asking price for a square foot of retail space from 49th to 60th Streets was more than $2,900, up from $2,283 at the end of 2012, according to data from Cushman & Wakefield.

Those figures make the area one of the most expensive in a city known for the stratospheric cost of its real estate. But other factors have affected retailers' prospects in the area, too. Foreign tourists, who typically spend more than domestic visitors, have been pinched by the declining value of the euro and the pound.

And for the first time since the recession, New York City is expecting a drop in international tourism, citing President Trump's recent travel ban and protectionist rhetoric.

NYC & Company, the city's tourism and marketing agency, projects that 300,000 fewer international travelers will visit the five boroughs this year. While domestic travel is expected to remain strong, the group has cautioned that it takes four domestic travelers to equal the spending power of one international visitor.

Fifth Avenue was particularly hard-hit between the presidential election in November and the inauguration in January, when Mr. Trump, then the president-elect, continued to work out of Trump Tower, on the avenue between 56th and 57th Streets. Swarms of security personnel made a leisurely stroll around Trump Tower into a nightmarish maze, slowing foot traffic to nearby retailers.

"Yes, there are still some gates and cement barriers," said Tom Cusick, the president of the Fifth Avenue Business Improvement District. "But the kinds of problems that we had between election and inauguration have mostly evaporated."

Mr. Cusick acknowledged that the turnover in the past two years or so has been higher than what he has seen in the past decade. But, he said, those spaces are not staying empty.

"There are stores moving in," he said. "In six months to nine months, if you walk up and down the corridor the same way you might today, you won't see as many closed stores."