Hudson Yards—hailed as retail's future—has its skeptics. Proving them wrong will take a while

Key Points
  • The shops and restaurants open at Hudson Yards in New York on Friday.
  • There's still some skepticism that the development, anchored by department store chain Neiman Marcus, will be able to succeed.
  • Developers of the project cite the surrounding office community and Hudson Yards' unique tenant mix as what sets it apart from others, like Brookfield Place and Westfield World Trade Center.
  • Still, it will take years for the offices and residential high rises around Hudson Yards to fill up.
The Vessel is seen through the windows of the Shops at Hudson Yards on March 14, 2019 in New York City.
Gary Hershorn | Corbis News | Getty Images

Will it really work?

That's the question some people are asking as the Hudson Yards development comes to life in New York this week.

The retail and restaurant portion of the 18-million-square-foot project opens on Friday, including shops ranging from Louis Vuitton and Neiman Marcus to Lululemon and H&M. Online brands like men's activewear retailer Rhone and shoe maker M.Gemi will find a home there. And eateries include those from celebrity chefs Thomas Keller and David Chang, in addition to local favorites like Blue Bottle Coffee and Shake Shack, and a massive Spanish-themed food hall.

Still, it will take years for the offices and residential high rises around Hudson Yards to fill up, as some buildings in the neighborhood remain under construction, causing traffic jams and the occasional chaos among commuters. So this glitzy mega mall might need a little more time to prove itself. It likely won't be an overnight success.

As long as the blueprints have been coming together, Hudson Yards — at least the one-million-square-foot retail portion of it — has promised to be everything a so-called mall of the future should be. That's as some 1,200 traditional shopping malls across the country — many anchored by struggling department store chains like J.C. Penney and Sears — are undergoing renovations to maintain relevancy, or shutting altogether. Hudson Yards' developers, Related Companies and Oxford Properties Group, in 2010 said they were teaming up to "write New York's next chapter" and build the city's "next great neighborhood." They aspired to create a space for consumers to truly live, work and play — or in this case, shop.

It's the formula many real estate developers hope will save malls across the country. But that was nine years ago, and retail has changed a lot since then.

Other massive retail projects in the city like Westfield World Trade Center and Brookfield Place have watched tenants come and go. Saks Fifth Avenue just moved out of the latter. Neiman Marcus, the anchor department store chain at Hudson Yards, is, meanwhile, caught up in some of its own troubles, with almost $5 billion of debt. And that's as more and more shoppers are opting to browse the internet, for its ease of convenience, instead of department stores. Does New York really need more places to shop?

"If this was just a 750,000-square-foot mall dropped on Tenth Avenue — with just another collection of the retailers you see at a prototypical regional mall — I don't know if you would be able to attract people in a large-scale way," said Michael J. O'Neill, executive managing director of retail services at commercial real estate firm Cushman & Wakefield.

Watch CNBC's full interview with Wells Fargo CEO Tim Sloan at Hudson Yards

"But [Hudson Yards] hits on every element, from office to residential, that will fuel the retail project and drive traffic," he said. "Ultimately, what is going to make this successful is ensuring from a merchandising perspective that there are unique elements that keep people coming back there."

The leasing team at Related has worked, for years now, to make Hudson Yards everything a "mall of the future" should be: extra dining options in place of too much apparel retail, fitness (the biggest Equinox gym in the world will open there this summer) and e-commerce brands to lure millennial shoppers. Mount Sinai Health System will also be opening a "state-of-the-art" facility for clinical care there.

In picking tenants for Hudson Yards, "we've assorted ourselves broadly to get a good read on who the consumer is, then we can make adjustments along the way," Webber Hudson, an executive vice president with Related Urban, a division within Related, said.

The retail and restaurant spaces are about 90 percent leased at the property, leaving room to "watch sales reports very carefully ... and build into strengths," he added. Hudson said he suspects athletic apparel brands, like Lululemon, will do well at Hudson Yards from the start, meriting more of those types of retailers to be added to the property in time.

"You just won't find what we've done anywhere else," Hudson said.

Some say the retail at Hudson Yards will be a success because of what surrounds it: roughly 4,000 residences and more than 40,000 workers — at corporations like Tapestry, L'Oreal, CNN and Warner Bros. — will be flocking in and out of the neighborhood each day.

"They've basically created this 18-hour city, maybe even a 24-hour city," said Mark Kaplan, principal and chief operating officer at Ripco Real Estate, a New York-area brokerage firm. "You have significant office space and residential units within Hudson Yards. ... You'll never need to leave."

"From a retailer's perspective, that means you are going to have constant foot traffic, throughout all times of day," he added. "And I think they've created a retail mix that will be attractive no matter who you are."

Again, though, it will take time for that traffic to come. As more of the construction at Hudson Yards is completed, more people should file in.

A view of the Vessel, a 150-foot-tall spiraling staircase with more than 150 flights of stairs, overlooking the city's West Side, opening at Hudson Yards this spring.
Source: Related Cos.

The fact that Hudson Yards is anchored by Neiman Marcus — spanning three floors and more than 180,000 square feet — also remains a concern. There's no denying America's department store chains have been troubled as more of the brands traditionally found within those stores have been investing more back in their own shops and websites. Selling "direct to consumer," meaning bypassing any middlemen, is one of the biggest themes in retail today. Wholesalers are struggling.

Plus, competition is already heated in New York. Nordstrom just opened its first full-line men's department store in Manhattan last year and will open a massive space dedicated to women this fall. Saks Fifth Avenue is nearly complete with a $250 million renovation project at its flagship store in Midtown. And Macy's continues to pour money into sprucing up its Herald Square location. Unable to keep up, Lord & Taylor recently moved out of its iconic Fifth Avenue spot.

Related's Hudson said that when he first brought Neiman Marcus' former CEO, Karen Katz, to see Hudson Yards, suggesting the retailer make its New York debut there on the fifth, sixth and seventh floors: "I remember her turning around and looking at me, saying, 'You want me to do what?'"

"But once we got the story across — that she was being offered the 'penthouse' — they bought into it," Hudson said. "This was the first piece in the puzzle."

The new Neiman Marcus store, opening Friday with the other shops and restaurants at Hudson Yards, certainly aspires to be more than just a destination for designer handbags and dresses. It includes three different dining spaces to grab a cup of coffee or a bite to eat, include the company's famous eatery "The Zodiac." There are two spas offering hair blowouts, brow services and manicures. And there's a lounge for shoppers — by invitation only — to meet with personal stylists and design outfits.

"Being this is the first and only Neiman Marcus in New York, that should be something that will drive people there," O'Neill said, even with rivals just a subway ride away.

"You only get one grand opening," he added about the importance of this Friday, when Hudson Yards' doors finally open to the public. "The feedback that comes out of it .... that makes its way into the market and becomes important in how people are perceiving it."

For Brookfield and Unibail-Rodamco-Westfield, the feedback by locals for has largely been: Brookfield Place and Westfield World Trade Center are places to pass through on a commute home, and maybe pop inside a few shops, but not so much places to spend money. Related and Oxford hope Hudson Yards will prove it's a place to shop, not just site see.