The Future of Pop-Up Stores

With the large amount of excess store space available for lease in 2010, more retailers used pop-up stores this past holiday season than ever before. This concept is now transforming into a viable strategy that has a life beyond the holiday season rush. In 2011 innovative retailers will employ it as a year-round approach that complements their core business strategy.

Pop-up stores are commonly seen during such holiday periods as Halloween and Christmas, but they offer numerous benefits to retailers throughout the rest of the year as well. Pop-ups provide a flexible, attention-grabbing way to showcase a retailer’s goods or build buzz for an established brand (for example, Pop Tarts’ recent pop-up store in New York City’s Times Square, which recently ended a five-month lease). It also allows them to test new concepts or store locations in a low-risk and low-cost way. Leases are short, typically only a few months, and if the stores aren’t successful, companies can simply pack up and walk away at the end of the term. There is no worry about how they might extract themselves from a long lease commitment that could damage their finances or ultimately even bankrupt them.

Using pop-ups beyond the holidays also allows retailers to promote demand for their goods in different markets in order to help generate profitable business at their permanent locations. These types of stores also give retailers the ability to target a niche audience, potentially at special events— for example, sporting events and college campuses are strong testing grounds. Finally, retailers can use pop-ups to take advantage of the void created by the bankruptcy of a competitor, as Toys“R”Us did by placing pop-ups in malls after the liquidation of KB Toys.

There are benefits for landlords as well. The retail center vacancy rate in the third and fourth quarters of 2010 held steady at 10.9%, an all-time high since 1991, and while the vacancy rate for regional malls has improved to 8.7% in the 4th quarter, this rate is still relatively high. Due to this excess space, landlords are willing to negotiate short-term leases with the opportunity to convert the tenants to longer term, more traditional lease deals. For example, about 10 current stores in the Mall of America started out as pop-ups, including See’s Candies and Goldy’s Locker Room. Pop-ups also allow landlords to collect some additional rent and create change or excitement in their shopping centers. In addition, shoppers generally prefer centers where a large majority of the stores are open rather than malls with many empty stores.

If a retailer is looking to open up numerous pop-ups it may be advantageous, when possible, to work with one of their existing landlords. Like retailers, landlords have needs and by working together to help fill some vacant space, the retailer is likely to get a better lease deal.

Pop-up retailers or service businesses typically do not spend large amounts of money to tailor the spaces they lease. These locations are generally scaled-down versions of a retailer’s permanent stores, carrying a smaller selection of goods and focusing on more popular or faster-moving items. Or for example, 2010 saw a number of retailers employing the pop-up stores strategy, and toy stores were a prime example. Toys“R”Us opened 600 Toys“R”Us Express pop-ups and FAO Schwarz opened 10 similar stores. Spirit Halloween opened 870 pop-ups in October, but many locations remained opened past Halloween and transformed themselves into ToyZam! Stores to sell toys for holiday season.

New York saw its fair share of innovative pop-ups, with Forever 21 (6-month lease testing out 5th Avenue), The Limited (3,400 sq. ft. store in Soho), and Procter & Gamble (4,000 sq. ft “free” store to build brand loyalty for its products on 57th Street) all launching pop-ups in Manhattan. Other notable pop-ups include Disney’s Tron–Legacy store in Culver City, Calif., created to take advantage of the movie’s opening, and American Red Cross stores in Phoenix and Las Vegas, where gift buyers could make donations for disaster relief.

Pop-ups will never replace permanent stores, but they can and should become an important complement to a retailer’s or brand’s strategy. The coming year will likely show a broader range of businesses and a growing number of well-known brands employing this strategy. Retailers will continue to use pop-ups as a marketing tool, but also as a way to safely and quickly test new locations and store concepts. Savvy brands will also use pop-ups to capture a larger piece of seasonal sales. Retailers that tend to see sales spikes leading up to other holidays, such as jewelry stores before Valentine’s Day, may launch pop-ups to take advantage of this short-term increase in demand. Mother’s Day and the back-to-school period offer similar potential.

By allotting some space for temporary stores, landlords can attract non-traditional retailers to their shopping centers who might not otherwise want a permanent retail presence, such as an online store. For example, an online business that has clearance items or inventory that it does not want could open a physical pop-up store to sell these goods. If landlords adopt and execute such a strategy, it should help them bring a new level of excitement to their properties.