Pop-up stores fill vacant space and create a win-win model in a down market.
At a time when retail landlords are struggling, a novel sales strategy employed by some tenants is helping fill the gaps and earn some additional rental income. Pop-up stores, which allow a retailer to sign a temporary lease lasting anywhere from two to six months, have traditionally been scoffed at by mall and shopping center owners who could take their pick of permanent tenants. But today, with retailers wary of new store openings, pop-ups are becoming a hot new trend and landlords are finding it suits them just fine.
“I am seeing more and more retailers testing out a temporary location, rather than locking into a long-term [lease],” says Jerry Welkis, partner with Welco Realty, Inc., a New Rochelle, N.Y.-based brokerage firm. “It's a win-win kind of thing, because if a landlord has vacant space, he can get good tenants in and then get them out when he needs them out, and get some income as well.”
This year, casual apparel seller Gap Inc. secured temporary locations in Los Angeles and New York to market its new product line, 1969 Premium Jeans. The stores will be open through September. Luxury seller Gucci is planning to launch a traveling sneaker store in October, which will debut in New York, move on to Miami and eventually appear in London, Berlin and Paris, among other cities.
This holiday shopping season, toy seller Toys ‘R’ Us may open up to 70 pop-up stores in markets once occupied by defunct rival KB Toys, says Welkis, whose firm worked with Toys ‘R’ Us on two such locations in New Jersey. Footwear retailer Nine West has also been looking to do more pop-ups under its Bannister Shoes name, using the locations to sell leftover merchandise. Target also used the strategy, opening several temporary bodegas in New York last year to establish its presence in Manhattan, where it operates stores.
Pop-up stores allow retailers to increase revenue during critical sales periods without taking on the risk of a permanent location, says Matthew Bordwin, national co-head of the real estate services team in the Melville, N.Y., office of KPMG Corporate Finance LLC. If temporary stores are successful, they might lay the groundwork for permanent stores. Meanwhile, some smaller, regional retailers see temporary stores as a way to gain access to high-profile retail centers whose landlords would not otherwise view them as viable tenants.
Pop-ups offer convenience as most don't require build-out work, and rents are affordable. There's usually a fixed rent that encompasses common area charges and taxes, usually about half of what is paid by permanent tenants at the same center, plus anywhere from 4 percent to 7 percent in a percentage of sales rental fee, says Welkis.
“The landlords are open to anything, they are open to any retailer that has a concept and some money because they have empty space and empty space doesn't pay the rent,” notes Bordwin. In fact, as some national retailers have begun to take larger chunks of space for their temporary quarters — pop-ups are even helping fill up some vacancies in big boxes, says Welkis.
While pop-up shops will likely become a common sight as the retail industry heads into the holiday shopping season, don't look for the trend to hold up once real estate fundamentals return to normal levels, says Jeff Green, president of Jeff Green Partners, a Mill Valley, Calif.-based consulting firm. For landlords, pop-ups represent a desperate measure and they will start saying no to them as soon as some permanent tenants appear on the horizon.
“This is a really unique time,” Green says. “The developers are not totally thrilled with this idea, but they realize they have to do something to increase their income. It's not something they will want to do long term.”
Blast from the Past
Taubman Centers, Inc. is getting groovy with its own version of a back-to-school marketing campaign at YearbookYourself.com. The Web site allows visitors to upload photos and then see themselves outfitted with clothes and hairdos going back five decades. Customers also get the chance to see the current fashions on sale at Taubman's malls. The program was launched during last year's back-to-school season, in partnership with the Minneapolis-based ad agency Colle+McVoy. More than 15 million people uploaded their photos during last year's campaign. This year, visitors will also be able to link their digitally remastered photos to their Facebook profiles.
The Winner Is…
Madison Marquette announced the winner of its Retail*Star challenge, a new business incubator program launched this spring. Oakland, Calif., local Ben Wanzo took first prize with his TeachBar concept, which will combine a café offering drinks and quick serve dishes with affordable educational seminars. The TeachBar will provide classes, lecture series and cultural events targeting high school students, teachers and adults. Wanzo will get $25,000 to launch his concept, a free, year-long lease at Bayfair Center in San Leandro, Calif., and $200,000 for a store build-out. Wanzo's TeachBar was chosen from more than 60 retail concepts.
Tanger Factory Outlet Centers is using Disney superstar Hannah Montana to drive sales during the back-to-school shopping season. The REIT partnered with Walt Disney Studios Home Entertainment to create a sweepstakes for Tanger's customers that ran from July 15 through Aug. 30. The first prize winner got a trip for two to Hollywood, Calif., including a three-night hotel accommodation and round-trip airfare. In addition, the winner will receive a “Hannah Montana the Movie” DVD and props used in the film. The total value of the first prize package is approximately $1,500. Ten additional winners received gift packs, which featured the DVD and the movie's official soundtrack. Customers filled out an entry form when visiting one of Tanger's 33 outlet centers or by registering at tangeroutlet.com.
Westfield launched an exclusive membership program for parents of young kids called WFamily. The free-of-charge membership program gives moms and dads access to special shopping discounts, family-friendly activities and amenities. A key ingredient of WFamily is Westfield Wednesdays, when all program members can get exclusive savings by showing their card to participating retailers at Westfield malls, including Build-A-Bear Workshop, the Children's Place, Finish Line and Gap, among others. The program launched on June 26. As part of the launch, the first 500 families registering for WFamily membership at each Westfield center received an age-appropriate Scholastic book for their child, a bookmark and a summer reading list from Scholastic Summer Challenge, a global summer literacy campaign motivating kids to read through the summer.