Who would have thought that people would be standing in line to have an employee at a kiosk write their name on a grain of rice? But that's exactly what's happening at retail merchandising units (RMUs) in malls across the country. In fact, the rice gimmick, like the Chop Chop, a small contraption that chops carrots or onions in seconds, are among the old standbys that keep revenue coming in.
The only problem is there's a lack of innovative ideas for RMUs, making it difficult to fill such slots during the holiday season when they're most profitable, says Arleen Dalton, vice president of business development at Chicago-based General Growth Properties. “We do a lot more canvassing and it takes more time,” Dalton says about efforts to seek out tenants.
Make no mistake, RMUs bring in big bucks. Specialty Retail Report, a quarterly trade magazine, estimates that industrywide carts generate more than $10 billion in sales annually, or about 10 percent to 15 percent of total annual mall sales.
“It's definitely a big business,” says Rob McCoy, a principal with STAK Design, a cart manufacturer in Texas. “It's a big frustration among developers to find the really good retailer because only a handful of great concepts come out each year.”
Some of the new concepts? Home-spa and pampering products, including Dead Sea mineral mud. And who hasn't seen, or tried, the massage chairs that clutter mall corridors. Perhaps the best new idea is poker-related items, such as mini poker machines, tables, chips and games. In the past year, gambling items have gained a unique status, helped by the marathon of celebrity poker competitions on TV these days. Ben Affleck is a champ; perhaps you can be too.
While General Growth's cart programs usually fill up at the 250 malls it owns or operates nationwide, Dalton says programs that previously filled up by late summer, now fill up by early November, or worse, just before Thanksgiving.
“Trends trickle down to us,” Dalton says. “We don't drive traffic, we operate from traffic brought in. Our goal is to fill up during the holiday season and generally we accomplish that but it doesn't happen as easily as it used to.”
For the past several years, industry experts have dissected the lack of innovation in retailing and how that's playing out with uninspired shoppers. They blame the “Wal-Mart effect,” which has had many retailers tempting shoppers with low prices. Yet, cutting costs to reach price goals has cut out innovation.
The good news is many shoppers still made significant purchases during the recent holiday season despite the lack of discounting. And kiosks like the Chop Chop and others attract shoppers. “The Chop Chop is one of those funny products that does well in its eight weeks,” Dalton says. “They go away and come back each year and it's fun.”
Other new products at kiosks include Snow Powder, a powdery substance that turns into snow when a small cup of water is added that sells for a mere $25 to $40 a canister. It's popular in Victoria Gardens in Rancho Cucamonga in California, where snow is rare.
“People don't go into a mall to purposely buy from a cart,” says Julie Williams, associate publisher of Norwell, Mass.-based Specialty Retail Report, which also produces an annual directory of cart and kiosk operators.
“The products that come from carts are impulse purchases,” she says.
Tug of War
Still, there's a tug of war going on with in-line retail tenants, who pay the lion's share of rents at mall properties. Mall developers are constantly looking to balance the needs of in-line retail tenants and RMU operators, with bottom line profits.
“Developers have these first-class malls, then littered them with these carts,” says Steven Greenberg, head of the New York-based consulting firm Greenberg Group. “I can see having them at Christmas with some unique product, but they detract from the real stores.”
Mall owners are guilty of leasing carts to perfume sellers, when Sephora and department stores sell similar items, Greenberg says.
Some retailers are requiring “no cart” clauses in leases, so they won't detract from stores that paid big bucks for prime in-line space.
While Michigan-based Taubman Cos. has a “no carts” rule at its malls, other developers can't turn a blind eye to these profit generators, experts say.
A veteran in the kiosk business, Sharon Leoff, says rents are skyrocketing, adding to the underlying problems of attracting new and innovative concepts. Leoff, director of sales and design at Scottsdale, Ariz.-based Creations at Dallas, estimates that rents can cost as much as $10,000 to $25,000 for two months during peak times, putting a dent in budgets of mom-and-pop cart concepts.
For many startups, a cart can garner a foothold in a prime property and lead to permanency. Generally, startup costs for small retailers launching a cart business can run around $15,000, according to Specialty Retail Report estimates.
“Let's put this in global context,” Leoff says. “The merchants are having a harder time leasing because they can't afford to do it.”
According to Dalton, General Growth shares in the risk anytime it leases a cart to any retailer.
“There's a cost of doing business, of course,” says Dalton. “But we'll do things for a very short term.” Short term could be anywhere from six weeks to two months during the holidays, she says.
Cart specialty retailing first became a phenomenon in the mid-'70s at The Rouse Co.'s Faneuil Hall Marketplace in Boston, says Leoff, one of the original retailers with a wagon-wheeled cart. From there, the business evolved. So did the carts, which Leoff says look more like “furniture” in malls today.
Many mall owners resisted at first, but by the '80s, they had discovered that carts were a way to test new retail concepts that could eventually join the lineup of in-line tenants at regional centers.
Growth Opportunities
Developers are finding new growth opportunities in lifestyle centers, where carts are only just beginning to take hold. Last April, Cleveland-based Forest City Enterprises added six more carts to its existing program of about a dozen.
Leoff says she was recently asked to design a cart with heaters and earthquake bracing in its structure for outdoor use at an Ontario, Calif., property.
Developers also continue to lure specialty retailers to “outpost,” or put a sampling of products on mall carts. In the past several years, LEGO, Le Creuset, Bose and Dell Computers have tested the waters, with some success.
Sara Blakely, founder of Atlanta-based Spanx, a hosiery manufacturer, says her company owns no storefronts, except in Canada, where “Footless” pantyhose and other products became a cart sensation, after a developer made the suggestion to a department store that sold her product.
Cart manufacturers are also rolling out smaller versions, which cost less and can be used to promote services, such as doctor's offices, real estate companies and restaurants.
Erin Knoettgen-Nap, design manager of Texas-based cart manufacturer T.L. Horton Design, says digital services are also taking off. “We are seeing an evolution from wireless phones and accessories to other digital services, such as cable, phone and Internet.”