K of P Downtown

Improving economy lures deep-pocketed, mall-ready designer tenants, but pushes out local boutiques.

Posted: July 29, 2013

Joan Shepp talks shop standing near the display window of her iconic Walnut Street boutique, her voice shifting from uncharacteristic, unsure whisper to typical fashion-savvy confidence.

She's in a pickle.

Her self-named specialty store, with its curated selection of high-end designers from Rick Owens to Ann Demeulemeester, has played a major part in shaping Walnut Street - west of Broad through 19th - into Philadelphia's poshest place to shop.

But it's her success, and that of other chic independents along five Rittenhouse Square blocks, that has helped spike the value of commercial real estate in the last two years and, ironically, has led to her exit - at least off the best blocks in the strip.

Shepp's rent would more than triple if she renewed her lease, so after 13 years, she and her daughter, Ellen, are packing up and leaving the coveted 1616 address. When? The end of August. Where? She's still not sure.

"Change is good for the city," Shepp said, her tone hopeful but disappointed. "It's exciting, but it's scary."

The shift is the result of an improving economy - and with it, more young people moving into nearby luxury apartments - and a push by city officials to get major designer brands like Michael Kors, Diane von Furstenberg, and Tory Burch to open stand-alone stores here, the final component in a plan to solidify the city's fashion cred.

It's a change Walnut Street has lived through before: In the mid-2000s, an influx of young people - and their distaste for more formal dining - abandoned the city's Restaurant Row (Striped Bass, Le Bec-Fin, Susanna Foo), and gave rise to more diverse menus in emerging neighborhoods from Fishtown to South Philly.

When it comes to retail, Walnut Street is already morphing from unique boutique headquarters to a King of Prussia Mall roundup, as big brands like Apple, Ulta, and Juicy Couture remain the only retailers that can pay the roughly $130- to $160-square-foot rents landlords now demand. For the average 2,000- to 2,500-square-foot store, that means about $22,000 to $34,000 per month.

"Independent, local boutique owners just can't afford to be on Walnut Street anymore," said Don Davidow, co-owner of Knit Wit, which moved late last summer to Chestnut Street - where rents were starting to rise, too.

When Davidow and business partners Robert Brandt and Ann Gitter were searching for space in the late '90s, rent on Walnut was about $65 per square foot.

These days, Knit Wit has been replaced by the SoHo-style chain Intermix, which carries similar brands (Diane von Furstenberg, J Brand) but caters to an edgier clientele by offering designers' exclusive collections.

"Rents were flat for years after [King of Prussia Mall] sucked the life out of us," Gitter said. "All of the stores wanted to move to KOP. ... Now, with the rebirth of Center City, Walnut Street gets to play with the big boys."

Madewell, J. Crew's folksy sister store, will take over 4,000 square feet at 1716 Walnut. The red-carpet-worthy shoe brand Stuart Weitzman will open Wednesday at 1717.

Theory, known for its great-fitting pants, is scheduled to open a combination men's and women's store this year at 1616 Walnut into the roughly 2,000 square feet adjacent to Joan Shepp.

J. Crew menswear is looking for 2,500 square feet along Walnut, as is the mall chain C. Wonder, said Page Barrow Jaffe, a broker at the real estate company Fameco.

By 2014, Barneys New York will replace Barneys Co-op on Rittenhouse Square. (Barneys is retiring the Co-op label but wants to stay in this Center City spot because it's "an incredible location," said Daniella Vitale, chief operating officer at Barneys New York.)

Those are just the confirmed new tenants.

The rumors are deafening: The futuristic Japanese brand Uniqlo has been searching the Walnut Street corridor - specifically the corner of 15th Street - as well as its girlier California-based competitor Forever 21.

The Anthropologie building at 18th and Walnut is up for sale. Will the Philly-based brand retain its lease?

There's talk that Nordstrom Rack is looking to occupy the former Daffy's building at 17th and Chestnut. And there has been buzz all year that Bloomingdale's wants to be in Center City, too.

"I envision Philadelphia having the same kind of retail as San Francisco, with a department store and solid national brands," said Allen Domb, owner of Allen Domb Real Estate and a Rittenhouse Square landlord. Domb owns the Drexel Building at 15th and Walnut, a good place for a department store, he says.

All the changes are in line with the vision of Philadelphia Retail Marketing Alliance (Its tagline: Be in on it), created in 2009 to jump-start the local creative economy and lure national retailers.

The alliance launched a campaign that year to highlight the city's trendy business owners, including Shepp. Ads went up in New York's Penn Station touting Philadelphia as a shopping destination, and Big Apple glossies from Vogue to Essence were invited to take in the local fashion scene.

"Retailers are followers," said Michelle Shannon, Center City District's vice president of marketing and communications, especially aspirational brands.

"The first thing retailers ask about is co-tenancy. A stand-alone boutique like a Tory Burch wants to be next door to a Louis Vuitton. They want the glow from them."

Some doubt a Walnut kind of KOP is sustainable.

"You don't have a critical mass of ultra-affluence to support those brands like you do in New York, L.A., or Chicago," said Douglas Green, principal at Michael Salove Co.

Philadelphia, Green said, is a young market that wants more affordable, specialty-store-quality high fashion. So, yes to Kate Spade, but no way to Hermes.

For many shoppers, the relocation of the independent boutiques is a loss. Joan Shepp didn't just offer exclusive brands like Yoji Yamamoto; it gave high fashion a personal touch, as well.

"Walnut Street is becoming so mainstream, I can drive in blindfolded, and if I got out, I'd think I was at King of Prussia," said Geri Covington, who lives a few blocks from Walnut Street. "I understand it was a business move. But Walnut Street is going to be 'the street that was' when it comes to one-of-a-kind retail."

Others are excited to have a more Fifth Avenue feel.

"It's important that, as a major metropolitan city, we have these impressive national stores in our shopping district," said Alyson Schwartz, another Rittenhouse Square dweller. "It makes me want to shop downtown rather than get in my car and go to the mall."

Jesse Tron, spokesman for the International Council of Shopping Centers, likened the shift on Walnut Street to the evolution of New York's Greenwich Village. Once brands like J. Crew moved in, "a whole new shopping district was created, not just a few streets.

"Basically, what's happening [on Walnut Street] is [independent retailers] are sacrificing prime locations for increased awareness in foot traffic. Increased foot traffic means more sales. It's a give-and-take."

Chestnut Street stores, including long-timer Boyds and newer Kembrel and Blo/Out Blow Dry Bar, are reporting increased sales. Already, Old City's Third Street is looking like Philadelphia's version of SoHo.

"We are going to get new and successful pockets," Shannon said. "And we will still have our fabulous independent retail scene."

Still, for Adresse owners Michael and Stefanie Lutzo, who moved at the end of May from 16th and Pine to a semipermanent location on Second Street, finding the same success elsewhere is not a sure thing.

They're leaving a clientele they know wants ritzy runway brands like the Row and Proenza Schouler. Will their customers come find them off Rittenhouse Square?

One thing is for sure.

"Walnut Street is no longer an option for us," Lutzo said. "They want companies they don't have to worry will make the rents. At the end of the day, they don't want to rent to Stefanie Lutzo."

Contact Elizabeth Wellington at 215-854-2704 or ewellington@phillynews.com, or follow on Twitter @ewellingtonphl.

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