November Opening for New FAO Schwarz Rockefeller Center Store; Profit Center or Loss Leader?

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The average rent in the immediate area is $3200 per square foot.

FAO Shwarz is set for a comeback. The retailer's owners, ThreeSixty Group Inc., are getting ready for a November opening. There are, however, some interesting questions being asked, primarily: What is ThreeSixty trying to do?

The new store will be located in Rockefeller Center, right next to where the crowds gather for the Today Show. It is an outstanding but costly location. Unlike the brassy Times Square area and its crowds of tourists, once occupied by Toys R Us, Rockefeller Center is stylish and sophisticated. With its annual Christmas tree lighting, its ice rink and NBC studios, it is probably the best possible location for the once elegant toy store to make its return.

There is just one problem, real estate in the area is incredibly expensive. How expensive is it?

According to Wall Street Journal writer, Charles Passy, in his article "FAO Schwarz Is Set to Return, And It Needs People to Dance on the ‘Big’ Piano", the average rent in the immediate area is $3200 per square foot. That is about 6.5 times higher than space in the city's popular Meatpacking District, which runs for $501 per square foot. 

Here is how the math works out:  $3200 per square foot x 20,000 square feet = $64,000,000

Is that even possible?

Mr. Passy says that ThreeSixty is not saying what they are paying for the space but we can assume it is probably close to the $3200 figure.  FAO Shwarz is going to have to sell a lot of toys to just break even. If it is questionable as to whether they can make a profit, why are they doing it? 

 

Some think they are using the store, not to make a profit, but as a way to promote the FAO Schwarz brand. 

But what is the purpose of promoting the brand if there is no other FAO store to visit except for a small planned for LaGuardia Airport and a proposed site in China, set to open in 2019? 

Here is what I think: ThreeSixty is planning more stores in major cities around the world and a strong e-commerce presence. They, however, first need to relaunch FAO Schwarz by bringing it back to life in the upscale center of New York City: Rockefeller Center. I wish them a great deal of luck as what is good for FAO Schwarz should be good for the entire toy industry. Keep your fingers crossed.

 

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