Apple's Grand Central plans face scrutiny

The tech retailer may face hurdles gaining approval for a store in New York City's historic Grand Central Terminal.

By TheStreet Staff Mar 4, 2011 12:30PM

By Olivia Oran, TheStreet

 

Rumors are circulating that Apple (AAPL) may launch its biggest retail store in New York City's Grand Central Terminal. If true, the move into one of the city's most historical fixtures could draw the iPhone maker into a complicated and cumbersome approval process.

 

The Cupertino, Calif. consumer electronics maker is aiming to make the transportation hub home to its biggest retail location, according to reports. Apple's largest store today is its 16,300 square feet spot in London's Covent Garden.

 

Apple could not be reached for comment about its retail expansion plans.

 

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The store may be placed on the eastern balcony, currently home to Charlie Palmer's Metrazur restaurant, or in the vacant northeast balcony, according to the New York Post.

A massive store in Grand Central would help alleviate crowds at Apple's landmark Fifth Avenue glass cube store, located about a mile from the terminal. The new store would also serve as a high-profile hub in a place where more than 750,000 commuters -- many of them from affluent communities in nearby Westchester County and Connecticut -- pass through.

 

"It's a beautiful space which is appealing and retailers can be successful there because of the demographics of the commuters," said Matthew Seigel, director of retail services at Cushman & Wakefield. "There is a very qualified customer coming in and out of the terminal with a high household income."

 

Average rent per square foot in the terminal is $146, and the average revenue is about $1,247 per square foot, according to Metropolitan Transportation Authority spokesperson Aaron Donovan.

 

In comparison, high end malls in the New York area generate an average of $800 per square foot, said Brian Sozzi, an analyst at Wall Street Strategies.

 

Turnover among the stores in the terminal remains low, and the space is 100% leased.

 

Grand Central Terminal is home to more than 100 merchants over three levels and 130,000 square feet. Rite Aid (RAD) is the biggest retailer in the space with over 10,000 square feet, followed by Kenneth Cole (KCP), which has more than 8,500 square feet.

 

Apple would fit in well with the types of retailers already housed in Grand Central, said Peter Braus, executive vice president of Sierra Realty. The terminal contains a number of high-end shops like Tumi luggage and M.A.C Cosmetics, as well as gourmet food stores like Murray's Cheese Shop, Penzeys Spices and a seafood market with live lobsters and caviar.

"You want a tenant who is good at catering to a short attention span where consumers can make a quick decision and be in and out," he said. "Everyone these days is buying last minute accessories for their iPods, or accessories. You could stop into the Apple store, get on the train and go home."

 

However, to open a store in the terminal, retailers must undergo a stringent approval process. The MTA issues a request for proposals to lease in the space and interested companies submit a detailed account of their retail operations and the amount they're willing to pay per square foot, MTA's Donovan said.

 

The MTA staff reviews the proposals and suggests a tenant to its board.

 

If a tenant wants his space to undergo construction in any way -- Apple is allegedly discussing knocking down walls to build its Grand Central store, tech blog Cult of Mac says -- the plan must be approved by the New York City Landmarks Preservation Commission and the New York State Historic Preservation Office to ensure that the historic nature of the terminal is preserved.

 

The MTA also has strict control over tenants, checking details such as their architecture, minimum hours of operation and, if applicable, their menu. The agency prefers retailers to sign a 10-year lease.

 

Tenants whose sales top a certain amount must also fork over 8% of their gross sales.

 

Apple, however, will probably jump through these hoops, as its stores represent a huge part of its growth strategy. Apple's 300 stores worldwide are instrumental in helping the firm spread its unique culture, educate customers about its products and drive revenue growth.

 

Average sales at Apple stores rose to $12 million in the first quarter of 2011, up from $7.1 million during the same period last year. Total revenue from the stores was $3.85 billion in the first quarter, up 95% over the year-ago period. In comparison, overall revenue at the company increased 70%.

 

"Apple stores were built for moments like this," Apple CEO Steve Jobs said Wednesday during the iPad 2 launch event. "To take new technology and roll it out . . . and be there when they have questions and issues -- without these stores, we wouldn't have been this successful."

 

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