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Manhattan: Where High-tech Meets Low-end

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Many economists believe that a dominant force of the 21st century will be how low-end globalization brings goods and technologies to the world's poor.

As he leaned against a display case filled with gold-plated and sterling-silver jewelry, Shappy Mehta listed his prices (necklaces, $3 and up; watches start at $1 if you don't need a battery), and then he detailed the miseries of his business.

The store, M.K. Sterling & Watches, takes up half a storefront on 29th Street, just east of Broadway, in the center of Manhattan's wholesale district. Within a few blocks, there are dozens of other stores that import low-cost products from Asia, like watches, hair extensions and perfumes, and sell them to store owners visiting from all over the northeastern United States, as well as much of the developing world.

Business has been awful lately, but Mr. Mehta does not blame the lousy global economy. Instead, he blames a hotel across the street.

"Because of the hotel, things got bad," he said. "They want everything high end."

In 2009, the Ace Hotel took over a derelict single-room- occupancy hotel on the southeast corner of 29th and Broadway. Rooms at the Ace cost $500, and the hotel sells a kind of lifestyle that is at odds with its neighbors.

I saw it up close when I sat in the lobby with Chris Sacca, a venture capitalist and Twitter investor, who explained that places like the Ace have become central nodes in what he referred to as the global-ideas economy. They cater to a new generation of workers, he told me, "who decamp from home to establish themselves in coffee shops, lobbies and foyers."

The battle over 29th Street may seem familiar -- new wealth pushes aside older, poorer neighbors -- but what is going on here is not just the latest Manhattan gentrification story.

The neighborhood is the front line in a conflict between two enormous economic networks: high-end globalization -- intellectual property, yuppies, laptops -- versus its low-end counterpart -- low- cost mass production and a complex supply chain. Amazingly, this is a battle in which the small businesses catering to the world's poor have a real shot.

Kemi Alao, whom I met in a discount emporium on Broadway, exemplifies the old 29th Street's hope. Ms. Alao, who owns Lasting Impressions, a boutique in Jos, Nigeria, is a successful entrepreneur in a poor country. She sells all kinds of off-brand items, including fragrances and clothes, but she does not trust her local Nigerian wholesalers.

"There are lots of fake things," she said of Nigeria's discount market. So every three months or so, she or her husband flies to the United States with a wad of cash and empty suitcases. She said she had no choice. Ms. Alao recently flew to China, where most of these goods are made, to eliminate her middleman cost. As in Nigeria, however, she did not trust the salespeople there.

At any moment, the wholesale district is teeming with shopkeepers like Ms. Alao from Africa and South America, as well as from poor neighborhoods in Baltimore, New York and Philadelphia.

These entrepreneurs come because it is one of the few places in the world focused on their needs. They want to buy mixed lots of decent-quality items at extremely low prices. They also want to pay cash.

According to Mr. Mehta, the district thrived in the 1980s and 1990s when foreign shopkeepers placed huge orders for sterling- silver jewelry and cheap watches.

"They filled trailers," he said. Now "they don't even buy the gold," he explained, waving his hand in frustration at a display of $3 gold-plated earrings.

The decline started after the terrorist attacks of Sept. 11, 2001, Mr. Mehta said, when it became more difficult for entrepreneurs from poor countries to get through U.S. customs with cash-filled pockets and some empty luggage. The trickle of business today is just enough to pay Mr. Mehta's rent, and when his lease ends next year, he assumes he will just close up shop. I asked him why he did not just move his store somewhere cheaper -- an outer borough or maybe New Jersey. To compete in the global low-end wholesale business, he said, you need to be where the other wholesalers are.

Not everyone, however, is so pessimistic. For years, David Hong sold hair extensions to salons in African-American communities around Wayne, New Jersey.

When he realized how much more money he could make selling to buyers from Africa, he rented a storefront next to Mr. Mehta. After less than a week in his new location, he was giddy about a Zambian customer who had just bought a couple of dozen weaves.

Mr. Hong's shop, like Mr. Mehta's, is typical of the wholesaler's aesthetic, where bright fluorescent lights and zero frills signal a place for quick, bargain-priced business. In contrast, the lobby of the Ace is dim, ornate and packed with people sitting in groups on large leather couches while others hunch over their laptops at communal tables.

On a recent visit, I noted that while a few had purchased coffee from the lobby waiters, most did not seem to be paying customers. When I pointed out these freeloaders to Alex Calderwood, the Ace Hotel's co-founder and co-owner, he said that he had rejected advice to charge customers for the Wi-Fi or kick them out after an hour.

Mr. Calderwood thinks that having a lobby filled with energetic young people meeting and bumping into one another is good business. It allows him to charge higher rates for the rooms upstairs, and it is also part of a broader business strategy.

Traditional business hotels are usually near existing business hubs, like airports or convention centers. The Ace, however, aims to be that hub. Its typical customers -- "new media, technology, artists," Mr. Calderwood said -- conduct business anywhere there is reliable Wi-Fi, comfortable seating and other people doing interesting things. Ace employs a full-time music curator to create playlists that reinforce the overall aesthetic. Mr. Calderwood and his managers are also constantly monitoring the lobby's "energy." When a space becomes a dead zone, as one distant communal table had, they try to correct it through redesign.

Despite obvious differences, the Ace and the wholesale district surrounding it are, in many ways, in the same business.

Neither makes a product; instead, each profits from providing an in-person gathering place. It is a remarkable fact of an increasingly diffuse, networked economy that the ancient basics of getting together, looking a business partner in the eye and sharing a cup of coffee are still essential and potentially profitable.

When I first walked down 29th Street, I assumed that the neighborhood would soon end up like the Meatpacking District or Greenwich Village. And this may yet happen, but I doubt it will be any time soon.

So long as shopkeepers around the world think of 29th Street as the place to go for low-cost, decent-quality goods, business will remain. For every Shappy Mehta unable to adjust to a change in the market, there will be a David Hong who does.

We hear so much about the high-end global economy and the knowledge workers who create billion-dollar companies, but many economists believe that a dominant force of the 21st century will be how low-end globalization brings goods and technologies to the world's poor.

Because there are far more poor people in the world, there might even be more money in selling to them than in serving the needs of the rich. And that is why the wholesale district has a chance.

Years ago it no longer made economic sense to concentrate the meatpacking business in Lower Manhattan. But globalization makes a wholesale district in a crowded urban center more economically viable than ever.

There is a good chance its customers will stick around longer than any hotel guests.

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