Pop-up and revolving retail: here to stay

GUEST OBSERVER

Pop-up shops may have started as a way to derive temporary rent from opportunistic tenants. But today the concept is a permanent fixture in many retail management strategies.

Demand for pop-up spaces from retailers is strong, given the lower risk and minimal capital required compared with a standard lease. 

For new or incubator retailers, the appeal is obvious: minimising costs is important for any business starting out.

Established retailers are increasingly using pop-up stores to test new concepts and experiment with new approaches.

But what about the benefits to landlords?

Pop-ups have always been around as temporary income generators for vacant tenancies. The rationale was that income, albeit short term, and activation is better than a hoarding that screams unwanted space.

This strategy was predicated by the ultimate objective of securing a long term tenant.

However, given demand for these spaces, select centres can actually dedicate a high value space to a pop-up or revolving retail concept instead of looking for a permanent tenant.

It’s a valid strategy if all the pieces fit. When executed well, pop-ups can drive a sense of urgency in purchasing behaviour and inject life into the centre. 

Pop-up retailers that build brand buzz take care of the marketing leg work and can amplify the centre’s reach. Short term sales can be more productive and monthly rentals above market, even with some downtime.

Of course there are challenges, including high labour intensity to curate, downtime risk and the valuation impact of not having a permanent lease in place.

The key to success is in the execution. First, the tenancy must be appealing. A pop-up is no solution for a plagued tenancy.

It should use flexible, movable fixtures that can be stored, with clever signage solutions that can be changed cost effectively. A flexible lighting solution is essential.

Landlords could consider partnering with someone who can curate the space in line with guiding principles. Urban market operators often have ties to incubator retailers.

A branding concept could be considered for the space, with engaging marketing helping to fill the space during downtime, giving people a reason to use it.

It’s also important to see the commitment through. If a landlord commits to a pop-up or revolving retail concept for a tenancy, they must frequently swap the offer. If a particular retailer is performing well, convert them to a permanent deal elsewhere in the centre, as was the case with Doughnut Time at Central Park Mall in Sydney.

Doughnut Time launched to the Sydney market via a 15sqm pop up at Central Park and, having successfully tested the market and delivered very strong sales, has now been converted to a high value 400 sqm permanent tenancy.

The new Doughnut Time tenancy will also showcase Alfredo’s, another new brand to the Sydney market. Alfredo’s is a hip pizza concept out of Brisbane by Doughnut Time founder Damien Griffiths. 

The new tenancy, incorporating the two strong concepts, will be open by October 2016. It’s a prime example of the flow-on benefits of a well-executed pop-up retail strategy.

Pop-ups can add real value to a retail centre and provide for a better customer experience. If you can accept or mitigate the challenges, then the concept of a permanent revolving retail tenancy can be an exciting and profitable one. 

Felicity Armstrong is retail asset manager, Frasers Property Australia and can be contacted here.