Department stores and malls have lots of underutilized space - and could use more customers. Therein lies a potential win-win for both the workforce, employers and retailers. Whether it will scale is the looming question. JL
Konrad Putzier reports in the Wall Street Journal:
The owner of Saks Fifth Avenue is converting parts of department stores into co-working spaces with WeWork, a strategy that marries the popularity of remote work with the struggles of bricks-and-mortar retail. SaksWorks is betting it can meet remote work needs with co-working space, especially in the suburbs where many workers tire of being cooped up at home all day but still want to avoid a commute into the city. Beyond New York, the company is considering spaces in Los Angeles, Seattle, Philadelphia and Boston.The owner of Saks Fifth Avenue is converting parts of department stores into co-working spaces with WeWork, a strategy that marries the popularity of remote work with the struggles of bricks-and-mortar retail.
Hudson’s Bay Co. plans to open its first five co-working offices next month in the New York City area, company executives said. The new venture, dubbed SaksWorks, calls for WeWork to run and staff co-working spaces in buildings that are owned by Hudson’s Bay.
The Canadian retail business group is transforming current and former Saks stores, and some of the spaces previously occupied by Lord & Taylor, into these WeWork-managed co-working offices. The nearly 200-year-old department chain declared bankruptcy in 2020 and said it would close all its remaining stores to operate exclusively as an e-commerce retailer. Hudson’s Bay Co. owns the buildings that were once occupied by Lord & Taylor stores.
Hudson’s Bay is hoping to profit from the rise of remote work, which most polls show many Americans want to continue doing at least part time. A survey of 9,000 workers by consulting giant Accenture PLC earlier this year found that 83% of respondents described a hybrid-work arrangement, with a mix of in-office and at-home work, as ideal.
SaksWorks is betting that it can meet these needs with co-working space, especially in the suburbs where many workers tire of being cooped up at home all day but still want to avoid a tedious commute into the city.
“We think about, ‘What can we bring to the suburbs that we used to serve with retail concepts where our customers still live?’ ” said SaksWorks President Amy Nelson.
Beyond New York, the company is considering spaces in the Los Angeles, Seattle, Philadelphia and Boston metropolitan areas, said Ms. Nelson, formerly the chief executive of women-focused co-working company The Riveter.
Hudson’s Bay is one of a number of operators looking to turn failed or struggling retail spaces into offices. It is also part of the broader real-estate trend of repurposing unsuccessful or dated property sites to meet contemporary needs.
Since the pandemic, the majority of U.S. office buildings have been operating well below capacity. Co-working firms have suffered, too, with some going out of business. While the shared workspace industry is still shaking out the weaker firms, the shift among some companies toward focusing on the growing army of remote workers offers a new opportunity.
Daybase, a New York startup, said it is looking to open co-working spaces in former suburban shops. Co-working company Industrious has opened a number of locations in malls.
Like other retailers, Hudson’s Bay has been closing or shrinking stores as e-commerce and Covid-19 disrupt bricks-and-mortar sales. But unlike some of its retail peers, Hudson’s Bay owns many of the buildings that its brands occupy, burdening it with empty space to fill.
In lower Manhattan, a SaksWorks office is set to replace a closed Saks Fifth Avenue men’s store. In Midtown Manhattan, the company is putting a co-working space into the former children’s store on the 10th floor of the Saks Fifth Avenue flagship store. Offices are also scheduled to open in suburban Manhasset and Scarsdale, N.Y., and Greenwich, Conn.
SaksWorks offices will have less private space than other co-working firms offer. Instead, most desks will be in spacious open rooms. They will have wheels so that layouts can easily be changed. Locations will also include gyms and cafes. The cost of $299 a month is the same as WeWork’s All Access membership, which allows customers to work out of any location but doesn’t come with an assigned office.
Turning stores into offices can be challenging because spaces often lack daylight and aren’t laid out for rows of desks. Ms. Nelson said she is working with architects to bring more light into the spaces, and is also adding plants and artwork to make them inviting.
Hudson’s Bay Co. also operates the Hudson’s Bay retail chain in Canada.
WeWork, meanwhile, hopes that SaksWorks can become a blueprint for similar deals with landlords as it looks to grow without adding to its massive lease liabilities.
The company typically leases space and effectively subleases it to office users. The approach can be very profitable, but also means WeWork is on the hook for expensive long-term leases and, in many cases, the cost of building out spaces. These costs became more of an issue during the pandemic because revenue from office users fell but the rent expenses usually remained fixed.
Under its deal with Hudson’s Bay, WeWork will manage and staff the co-working spaces in return for a cut of revenue but won’t have to pay any rent.
A WeWork spokeswoman said the company expects to open around 70% of its new spaces in the future under revenue-sharing deals or other arrangements that avoid leases.
Separately, WeWork and commercial real-estate firm Cushman & Wakefield PLC are negotiating to form a $150 million partnership to navigate the new world of remote working and flexible workplaces.
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