Coming to an Empty Space Near You…For A Limited Time
Pop-up shops are becoming increasingly popular for retailers of all kinds. Pop-ups can be a win-win for landlords and tenants, offering the perfect mix of economics and short-term lease flexibility.
Designer Arlinda McIntosh of Sofistafunk, The Skirt Co. has spent 40 years designing, sewing, and selling her fashions in northern New Jersey. And even though she sells her wares online and has a studio in Montclair, N.J., where she sees clients by appointment, she always jumps at the chance to be part of a pop-up shop. She likes the novelty, the chance to collaborate with other entrepreneurs, and the lack of commitment to a long-term lease.
This method of merchandising is part of a growing trend in retail, especially among entrepreneurs. Rather than commit to a long-term lease that may or may not pan out, they are instead turning to temporary locations to see how things go, generate excitement for their offering, and reach new customers.
Similar to installments one might find in an art gallery, pop ups revolve in and out of vacant and shared spaces. They bring a buzz-worthy element wherever they go because inventory and location are often for a limited time only. Whether it’s a maker of crafts, a luxury brand hunting for a space to hold a fashion event, or an icon resurrecting itself for a season, the pop up can be a win-win, offering landlords and tenants the perfect mix of economics and short-term lease flexibility.
“Landlords benefit from pop-ups because [whether] you have a big building or a small space and no one is in it for months, I would think you’re losing, but you’re certainly not gaining,” says McIntosh. “If [landlords] allow pop-ups to come in, they make money while they are renting that space.” And for merchants, doing a pop up can help alleviate some of the stress associated with the unpredictability of retail, as well as give them access to prime locations they might not be able to afford otherwise, particularly if they join forces with others. “One week you may have good foot traffic and sales but the next you might not,” says McIntosh. “The good thing is you’re not paying that one big rent by yourself.”
McIntosh, who was recently part of a large collaboration involving several other entrepreneurs for the holiday season, thoroughly enjoyed being able to browse other merchants’ offerings. She even ended up styling clients using items she found in other collections at the collaboration. “If you come to me for skirts, there’s another woman that does hats, someone else does scarves, so maybe you want to put together a complete outfit.” she says. “Having a pop up with different types of vendors is fantastic. It’s like a different type of mall.”
Bringing landlords and pop-up tenants together has become a career for Mohamed Haouache after spending more than a decade in the finance and investment industries. He was so taken by the pop-up craze that in 2014 he quit his job to start Storefront, where he currently serves as CEO. Haouache says Storefront acts as a middleman, a la Uber or Airbnb, matching vacant retail real estate with those looking to create a pop-up shop. Prospective tenants browse available spaces according to their desired requirements and price point, while landlords are able to advertise their vacancies.
Part of the reason the simple yet effective idea of popping up works for both landlords and tenants, according to Haouache, is because retail is at long last catching up to overall changes in the economy. “We are moving from an economy of ownership to an economy of usage,” he says. “I don’t believe that the idea of committing for a long-term lease is going to be a viable option in the future.”
Figuring out where to set up shop has never been easier given the number and variety of available options. According to Ken Wasik, managing director of consumer products investment banking at Stephens, supply is exceeding demand, putting tenants in a more favored position than in the past. Says Wasik, “The power is in the retailers’ hands, not the building owners’.”
For its part, Storefront boasts an inventory of up to 10,000 spaces across the U.S. on any given day. In October 2018, Retail Dive, a news service that tracks and reports on retail trends, reported that mall vacancy for the quarter was 9.1%, on the heels of such former stalwarts and anchor tenants as Sears and its sister store Kmart jumping ship. Average mall rents fell 0.3% to $43.25 per square foot year-over-year. The picture isn’t much better away from the mall. Vacancies at neighborhood and community shopping centers were flat at 10.2%, compared to 8.7% in 2012, according to real estate research firm Reis. Rent growth in the third-quarter for neighborhood and community shopping centers was a paltry 0.4% over 2017, according to Retail Dive.
Small businesses like McIntosh’s aren’t the only ones popping up in a vacant space near you. Luxury brands such as Hermes have participated in this trend, and fun-time store extraordinaire Party City has been a pioneer in the pop-up world with its focus on seasonal shops. The destination for all things celebration has temporarily revived vacant spaces with its Halloween City concepts during the fall, and with Toy City for the winter holidays.
With its themed pop-up concepts and focused merchandising, Party City has been able to capitalize on seasonality rather than suffer because of it, Wasik points out. Instead of keeping locations open that might struggle in the off season, the brand pulls up stakes once the season is over. This approach makes its departure more of a “see you soon” than a swan song while being a sound economic choice. Party City operates these pop-up concept stores in addition to its year-round stores, which supply consumers with a trove of ideas and novelties for almost any kind of party one could throw.
Pop ups can also breathe new life into old concepts. Iconic toy store Toys “R” Us floundered as online retailers took increasing market share. In 2005, the company underwent a $7.5 billion leveraged buyout by private investors Bain Capital Partners, Kohlberg Kravis Roberts, and Vornado Realty Trust, but it wasn’t enough to save the chain. In summer of 2018, it bade every kid and kid at heart who’d ever loved it goodbye. But the sadness among fans was short lived after grocery giant Kroger announced it would install mini Toys “R” Us holiday pop-ups at several of its locations.
Although Wasik understands the enthusiasm around seeing the Toys ”R” Us moniker return for the holiday season, he is quick to point out that a physical, year-round location may not be a viable and sustainable option for stores that are more seasonal in nature. Wasik says excitement could build knowing that another retailer might “use” Toys “R” Us for their toy section for the holiday season, and then it would go away,” he says by way of example.
But popping up isn’t just beneficial to merchants and landlords, believes McIntosh. On the aesthetic side, pop ups allow a space to tell a story to the outside world it wouldn’t be able to tell if it sat vacant. “The place is not left empty and it looks better to the town because that’s activity,” she says. “It’s not just a black window with nothing in it.”