The retail world is in turmoil.  That is nothing you don’t already know.  I will not bore you with the 100 or so articles on retailers closing and all of the negative press in the retail and real estate worlds.  Instead, I will give you my (philosophical) thoughts as follows…..

I start with a question as to what, in a big picture sense, is “retail” anyway?

It is a place – a location – where someone with branded (or unbranded) goods sells their wares to the public.

  • Retail is therefore a classic “middleman”.

  • And what does the internet do to “middlemen?” 

  • It destroys them – or at least eviscerates their profit margins.

So what is happening to traditional retail?  It is being destroyed.  And the agent of destruction is a company that cannot seem to make that much money itself; namely, Amazon.  It is disintermediating retail and “taking over”; however, it is kind of, well, ironic, that even that company has had trouble making much money (especially when subtracting stock-based compensation).
Incredibly Wall Street – and investors – have decided that Amazon doesn’t need to make money to have a market cap in the hundreds of billions of dollars – but that is a side issue.  The point for retail is that the internet – largely through Amazon – is destroying the traditional retail industry.  Even the behemoth – Wal-Mart – is in the cross-hairs of this disintermediation. 
But the “death of retail” has been largely exaggerated.  Indeed, I think that instead of the destruction of retail there is going to just be a dramatic industry shift as follows:
I would start the analysis – like I often do – with Michael Porter – the Harvard Professor who is a worldwide authority on competitive advantages.
Porter says don’t try to get “better” than your competition.  Instead try to be “different” from your competition. 
From my analysis of Porter I have come up with the concept of the “Power Niche.”  This is a phrase I have coined that advocates developing pricing power in a small niche market – as opposed to having no such pricing power in a broader market. 
Yet it seems like many – doomed – retailers are doing the opposite of what Porter (and I) recommend. 
For example, there seems to be a rush to improve:

  • Efficiency

  • The “experience” of the customer

  • And a bunch of other things of similar import

I think overall these ideas will go nowhere because they are just making the retailer “better” and the laws of perfect competition – as exemplified through Amazon – will just grind on and on with this inexorable race to the bottom of profitability.
Instead, there is an easy way out for many – but not all – retailers and that is to just shift the dial from being a “retailer” to being a “purveyor of exclusive branded products.”
If you are a “retailer” who is selling something you can buy at Wal-Mart or Amazon or pretty much anywhere else you have zero competitive advantage.  If however you are selling Spiffy Jiffy Blue Jeans that can “only” be purchased in your store, and nowhere else, you hold all the cards for the customer who wants Spiffy Jiffy – there is nowhere else to go.

Does this mean you win?  No, of course not.  But now you have a fighting chance.  Instead of a race to the bottom of profitability you are now in the business of building a brand.  As one of the greatest investors of all time –Warren Buffet – has said, he buys brands because they permit the owner of the brand to sell the product at an above-market price for an extended period of time. 
The brand is therefore the thing.  It is the “Power” in the “Power Niche” (if you are thinking like me) or the “being different instead of being better” concept (if you are thinking like Porter).
So to sum up:
I think traditional retail is close to dead and dying.  There will be a few survivors which are the low-cost producers – like Amazon and Wal-Mart.  Most of the other traditional retailers will go the way of the dodo.
However, branded retail (with exclusivity) is just getting started and I think will do very well over time.
For real estate players, if you buy my thinking, the analysis is easy; namely, look at the retailers in the buildings you are buying, lending on, leasing up, etc.  Ask, do they have Power Niches?  Are they selling branded exclusive products?  Or are they racing Amazon to the bottom of profitability.

Distressed Retail Practice Group

No doubt you have seen the onslaught of retail store closings occurring nationwide. There are just too many to list, so I won’t try to do so.  Supposedly retail is currently the most distressed asset class now that interacts with the real estate world – beating out energy, which was last year’s winner. 

Some of our clients and friends are hurting due to the changes sweeping the sector. Others see dramatic opportunity.  Some see both depending on the deal or situation. However you look at it, one thing is for sure, and that is there will be a lot going on in the retail world over the next couple of years.
For that reason, we have launched our Distressed Retail Practice Group.  Our thesis is that D&S has a ton – many tons – of legal experience and expertise in the retail real estate industry. This includes acquisitions, dispositions and development of shopping centers, single-tenant NNN, power centers and other retail assets, as well as recapitalizations, financings, restructurings, leasing – pretty much everything – relating to retail properties.


Our D&S Distressed Retail Practice Group combines our real estate, bankruptcy, litigation, retail leasing and real estate capital markets expertise into an integrated team that can offer creative and comprehensive assistance to our clients in any and all aspects of a troubled retail situation.  Whether it is as simple as a shopping center with an ailing anchor tenant or as complicated as a major retail-related restructuring, our group can help.

All of this adds up to a powerhouse Distressed Retail Practice Group.

Feel free to call us if you need us.

The Bronx is Building!

To borrow a phrase from The New York Times, the Bronx is Building!  And the D&S Bronx Practice Group is here to give you some insights about what to expect, who to know and what opportunities might be available throughout the borough in 2017.

Bronx real estate has been in the news quite a lot during the first quarter:

  • The New York Times named the South Bronx #51 of the top 52 places to visit in the world, citing Somerset Partner’s riverfront hotel and a wave of new restaurants from chef Douglas Rodriguez as reasons for the hype. The D&S Bronx Practice Group also recommends some hotspots in Mott Haven and Port Morris, including the Bronx Brewery, the Port Morris Distillery and the new café at the Bronx Museum of the Arts.

  • While residential rents are at an all-time high in the borough (and rising at a faster pace than anywhere else in NYC), commercial rents, though increasing, are still relatively low for NYC. D&S’s Michael Kupin notes that there still seems to be a “wide delta between what landlords are asking and what tenants want to pay, so there is plenty of room for some creative deal-making.” 

  • And, with cheap, vacant land still available in some parts of the Bronx, developers have been clamoring to rezone parts of Longwood and along the 3rd Avenue corridor, in preparation for new residential developments taking shape, and the City is studying possible rezonings around Southern Boulevard in connection with the state’s planned elimination of the Sheridan Expressway.  As D&S’s Robin Kramer points out, “the City is eager to see increased residential development, particularly for affordable housing, although market rate as well, in areas that are no longer viable for manufacturing, and to strengthen retail and local businesses, increase pedestrian safety and walkability, and improve community resources.  Projects that are aimed at multiple goals are always particularly favored in the Bronx.”


In other Bronx news, Allana Beddoe, a member of our D&S Bronx Practice Group, is being honored with a “Future Leaders” award at the NCNW North Bronx Chapter’s 50th Anniversary reception for her work with youth in her North Bronx community.

The D&S Bronx Practice Group is here to make sure our clients don’t get left behind.  Over the last several months, we have been working hard behind the scenes to build relationships with Bronx-focused developers, brokers and local politicians who can help our clients find (and create) opportunities in and around the Bronx.  Bronx Borough President Ruben Diaz Jr. is eager to bring investment to the Bronx and  we recently arranged for him to visit one of our clients, the Brush Experience (a fast-growing artists co-working platform with 3 sites already in Brooklyn), to discuss expanding its operations into the Bronx. We’ve also met with Majora Carter about some projects she’s working on in Hunts Point and are in frequent contact with Marlene Cintron, President of the Bronx Overall Economic Development Corp. and uber-broker Kathy Zamechansky of KZA Realty Group to see what’s ahead.
Some of the biggest projects going on include mixed-use, affordable, market rate and commercial space and many involve city-owned land, complex zoning strategies, and non-profit development partners and consultants like WHEDCo., Phipps Houses, Settlement Housing Fund, CPC and South Bronx Overall Economic Development Corp (SoBRO). The D&S Bronx Practice Group has connections with all these groups and is ready to think creatively to help our clients find the right opportunities.  With our premier joint venture practice led by Terri Adler and stellar not-for-profit practice headed by David Samuels, our firm is uniquely situated to provide the connections, strategies and breadth of experience our clients need to develop the projects that work in the Bronx right now.
If you’ve got Bronx on the brain, give us a call. And look out for updates about this year’s annual D&S Bronx Real Estate Networking Event to be held in the fall!
Michael Kupin

Robin Kramer

Danielle Ash