Shopping Mall Owners Warm Up to ‘Pop-Up Stores’ in the US

Pop-up Stores, the Answer to Attracting and Boosting Revenue

Flexible, short term leases are becoming more common both in the office sector of commercial real estate and now, mall landlords are jumping on the bandwagon in America and turning to short-term retailers known as “pop-up stores” to attract shoppers and boost revenue as department stores and other tenants struggle to combat the growth of online commerce.

Big shopping centre owners such as Westfield and Simon Property Group are dedicating more staff and mall space to the short-term stores, which once were seen only as seasonal business opportunities to drive foot traffic during holidays or transitory fillers to address temporary vacancies.

Now landlords increasingly view such retailers as necessary fixtures as they seek to minimise vacancy rates and keep cash flow stable, in some cases offering a rotating cast of pop-up stores virtually year around.

In Woodbury Common Premium Outlets in suburban New York, online designer dress rental firm Rent the Runway teamed up with Simon Property, the outlet owner, to launch a pop-up store across eight days in May and June. It took them just six weeks from the start to the pop-up launch.

“They sold some of their existing inventory and they had unbelievable success,” said David Simon, chief executive of Simon Property during a recent earnings briefing. “There’s so much creative stuff going on with new ideas and new concepts.”

The moves come amid tough times for big retailers. Macy’s Inc. said last week it intends to close 100 stores, or 15% of its store base. In the past year, Office Depot, J.C. Penney Co. and Gap Inc. all have announced they are closing stores.

The closures, in turn, jeopardize landlords’ revenues, forcing them to scramble to fill empty space.

By giving more leasing flexibility and offering to help design a concept for the physical space to upstarts that might not be able to commit to five- or 10-year deals, mall owners are hoping to refresh and enliven their properties. Pop-up stores that introduce local brands, perform demos and offer shoppers an elite selection of products or allow them to interact directly with designers can help drive traffic to other tenants.

One big potential category: online retailers that don’t yet have a substantial bricks-and-mortar presence.

“All of these retailers that have internet presence understand that a bricks-and- mortar presence is an essential part of their strategy,” said Simon Property President Rick Sokolov during the earnings briefing with analysts. Inside a store, browsers convert to buyers more easily and customer acquisition is cheaper, Mr. Sokolov said.

Some mall owners are allocating about 5% of their leasable space to house such transient tenants, by building a “white box” pop-up store with a plain interior that can be used by the next tenant.

These boxes are typically smaller than regular stores, at around 1,000 to 1,500 square feet.

“They are using those to attract specialty retailers or local players who are intimidated by the whole rent structure,” said Nick Hernandez, managing director of retail at Transwestern, a privately held commercial real-estate firm. Overheads from multiyear leases and conversations with architects and contractors can be onerous for small-business owners.

“You want to give them an easy, low-risk way to test the waters,” Mr. Hernandez said.