Retailers Stare Down Inflation This Holiday Shopping Season

Last holiday season, New York retailers had their planned glorious return to in-person shopping scuttled by the omicron variant. Hopes are now high for this year — just as long as soaring prices and recession fears don’t get in the way.

“There's no question that restaurants and bars and things are really packed and everybody's out,” said Peter Schubert, managing director of commercial leasing at TerraCRG, which specializes in Brooklyn retail. “And you sense that there's a little bit of euphoria. We're all very, very bullish. I mean … even with the talk of, ‘Oh, we have a recession,’ [retailers] don't see it; it just hasn't materialized.”

An increase in travel may give retailers hope for a strong shopping season. This year, 56.4 million visitors are expected to come to New York, up from 32.9 million in 2020, per NYC & Co., the city’s convention and visitors bureau. The projections this year, which include 6.5 million between Thanksgiving and New Year's, mean tourism numbers are back to 85% of pre-pandemic levels. A full recovery is expected by 2024, NYC & Co. Executive Vice President Tiffany Townsend told Bisnow. That could be a boon for retailers.

“Shopping is actually the No. 1 activity for travelers overall, and historically, that's always been the top activity in terms of what they're spending money on,” she said. 

CBRE analysis of multiple industry projections pegs fourth-quarter retail spending at $1.48T, a 6.9% increase from last year. The jump, per the brokerage, is down to various adjustments companies have made to their in-person and e-commerce channels.

“In-store shopping has been missed,” said Robin Abrams, Compass vice chairman and retail leasing specialist. “People have kind of decided that this is our new reality, and they're ready to start living again ... and not stay at home and not be doing everything remote.”

It is far from a slam dunk this year for retailers. Last month, the consumer price index, an inflation gauge, was at 7.7% growth from a year ago, and would-be buyers are being bombarded with increasingly gloomy news about the economic outlook. But Townsend said price hikes don’t deter travelers from coming to the city — they simply temper their activities when they are here.

“They may buy two pairs of shoes instead of three,” she said. “They may even shift their travel and say, 'Maybe I'll consider coming January and February instead of coming during holidays, or come just after New Year's instead.'”

Retail brokers said there is little to suggest New York shoppers are pulling back just yet, though many were quick to point out it is difficult to predict what may be around the corner.

Retailers aren't yet adjusting their leasing activity, according to Mona Retail Holdings CEO Brandon Singer.

“We haven't seen it slow down the growth of retailers yet, so it'd be interesting to see how the numbers shake out,” he said. “We're still seeing lots of categories doing very well.”

His recent deals in NYC include a flagship for direct-to-consumer clothing line Cinq à Sept on Wooster Street.

“I think I feel a lot more confident in the future of our business now than I have any point in the past couple of years,” he said.

Abrams said there is no doubt that people are fretting about prices, but she said the economic climate isn't reshaping the way people shop.

“People are probably more cognizant about what they're spending overall ... [but] I don't know that they're going to change, you know, behavior with regard to, 'Do I go to a show or do I go to a restaurant?'” she said, adding inflation is having a larger impact on housing decisions than on shopping spends. “Because again, it seems like there's lots of catching up with people wanting to do that because they didn't for so long.”

It may depend on income, however. JLL’s 2022 retail holiday survey found nearly 50% of consumers earning under $50K said they plan to “significantly” cut their budgets this shopping season because of inflation, while only 24% of those earning incomes of $150K will make adaptations.

From a leasing perspective, the numbers are strong. The Real Estate Board of New York’s summer Brooklyn retail report for 2022, released this week, showed an increase in rent and a drop in concession packages for tenants in the borough, which it attributed to a jump in tourism and economic activity.

“There was a flurry of store openings,” said Keith DeCoster, director of market data and policy at REBNY. “Some of the brokers noted that post-Labor Day, there was a pickup in activity.”

In Manhattan, ground-floor availabilities went down in the third quarter, according to CBRE. In the 16 premier shopping corridors, availabilities went from 241 to 229, an 18% drop from a year earlier and the fifth quarter in a row with an availability improvement.

“The market in New York City's come back with incredible pace and velocity — we’ve actually had one of our best years,” Newmark Vice Chairman Ariel Schuster said.

He and his team arranged a more than 6K SF lease for luxury watch retailer Grand Seiko at 540 Madison Ave. The asking rents were $475 per SF, but he declined to share the exact terms of the deal. He said, however, it was fair on both sides — and certainly not a bargain for the tenant, as has been the case in recent years.

“We're expecting a very good holiday season,” he said.

Holiday pop-ups and themed markets are back in force this year across major shopping districts, as well as seasonal bars running with holiday cocktails and tree lightings.

Jay Norris, the co-founder of Guesst, said there are many retailers that have never had a physical store before now testing out brick-and-mortar retail and added that even as the market has improved, property owners are still using pop-ups to bring spaces to life. He, too, predicted a robust holiday season — but a possible pullback at the start of next year.

“All the analysts have said that people have saved up a little bit and they are spending their savings,” he said. “Everybody's going to spend for the holidays, but I've got a feeling Q1 is going to be a little tight; everybody's going to be holding a bag a little closer to the vest.”