For Manhattan Home Depot, the Numbers Loom Large
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Home Depot’s new store on West 23rd Street will bring the company’s trademark orange to Manhattan, but the more important color to watch will be green, as the 105,000-square-foot home-improvement superstore has the potential to do nearly $175 million in annual sales at that location alone, according to Wall Street retail analysts.
It is the chain’s first Manhattan store and its 15th in New York City.
“We feel this [store] could potentially do four times the business of comparably sized stores in suburban locales,” said Lehman Brothers retail analyst Alan Rifkin.
He estimated it will take about two years for Home Depot’s West 23rd Street location to reach between $150-$175 million in annual sales.
He added that the location should mature significantly faster than most so-called “big box” retail locations because of the national recognition of the franchise, the affluence of Manhattan consumers, and the population density of the area.
Moreover, once the location is established, the store’s profits should be higher than the chain’s 6.6% net margin, because Manhattanites should buy a lot less drywall and lumber – the chain’s low margin, high-volume staples – and a lot more higher margin custom mixed paints and lighting fixtures, he said.
The Home Depot’s Manhattan location, which opens today, is part of the Atlanta-based chain’s attempt to reach affluent consumers in dense urban cen ters, who have little experience shopping at so-called “category killer” superstores.
The concept is risky. For starters, costs in Manhattan are sharply higher than stores a few miles away in Brooklyn and Staten Island, said Mr. Rifkin. He estimated that the company – which provides health benefits for even its part-time employees, a rare practice in the retail industry – is paying up to $15 per hour in wages for its several hundred Manhattan workers, $4 higher than Home Depot’s national average.
The cost to lease 105,000 square feet in the Flatiron neighborhood was approximately $35 per square foot, or $3.67 million per year, said Downtown commercial real estate veteran Faith Consolo. Ms. Consolo, who is vice chairman of Garrick-Aug, a Manhattan based brokerage specializing in retail leasing, said the tax bill for the store would be impossible to estimate since it would be included in the square footage cost.
Then there is the hassle of opening the store itself: a $12 million complete refurbishment of 105,000 square feet in the heart of the Flatiron landmark district.
The lead architect on the project, Greenberg Farrow’s James Bry, who declined to provide the final cost of opening the store citing client confidentiality, said there were “many constituents to be satisfied in the process – including neighborhood residents and the City’s Landmark’s Commission. And I think we satisfied every one.
“We spent $1 million alone to completely renovate the front and entrance to one of the [two] buildings in the project, making it fit in completely with the neighborhood, before we got busy on the interior,” said Mr. Bry.
He contrasted the block-long West 23rd St. project – which involved a 10-month long construction process – with the company’s typical store development process in suburban areas: “Find a field, get the building department’s approval and put up the box.”
Manhattan’s next Home Depot, slated to open in November on 59th Street and Third Avenue, also required the company to make a sizable outlay of cash, said Mr. Bry, who put the budget at “just under $10 million.”
Despite the large investments required for Home Depot to operate in Manhattan, Lehman Brothers’ Mr. Rifkin estimated that the company would have the island to itself for the foreseeable future. Home Depot’s no. 1 rival, Lowe’s, which has almost 800 fewer stores than Home Depot, is focused on opening stores near Home Depot’s busier suburban locations.