Why pop-ups may be the retail environment of the future

As digital retail has become commonplace, revenue at traditional retailers has naturally begun to decline, even in landmark and legacy shopping districts like New York's 5th Avenue. It's no wonder, given the added convenience and often substantial cost-savings that online shopping can provide customers. Recently, however, a new approach to face-to-face retail has been gaining traction, which offers an alternative means for capturing some of the customers that digital retailers might otherwise snap up – pop-up shops.

Pop-up shops are a form of short-term, specialized retail that has begun to appear in more and more places around the country and the world. In the classic pop-up scenario, a retailer offers a select range of goods or services available for a short period of time – just a few days, in some instances – and usually at attractively low prices. It's a method of selling that stands in contrast to traditional retailers with their large stocks of goods, comparatively high overhead and fixed location.

The advantages for sellers are obvious: pop-up shops provide the opportunity to bring a refined service into several different markets without the risks of unsold inventory or the cost outlay of permanent store space. Furthermore, pop-ups are innovative and can be highly effective in the sense that their specialization offers a degree of uniqueness that is largely missing from full-line stores. An experience that feels exclusive – especially one with a fixed time limit on availability – tends to drive sales in a way that a permanent brick-and-mortar shop simply can't. Pop-up retail makes an established brand feel more modern, exposes it to different market segments and makes generating short-term excitement for things like product launches easier as well. This can make them an inviting option for larger, established brands and can even provide needed real-world interface, and another sales channel, for retailers that deal mainly online.

For any seller, this form of retail can be an especially fruitful approach when utilized where traditional retailers would have done business. The built-in infrastructure and benefits — parking, zoning and foot traffic, just to name a few – improve the retailer's chances of success immensely. However, for the owners of retail property accustomed to issuing long-term leases, pop-ups might seem to have a lot of downsides. Pop-up leases are short-term by nature, so the rate of turnover is generally increased. Broadly speaking, a reduced cost per-square-foot, often necessary to make the retailer's budget work, is also a fact of life. There's even the potential, though rare, for the value of the property to decrease over time. Much of the risk, and some of the cost, that once fell to tenants would solely be the owner's responsibility when leasing to a pop-up venture.

These worries are valid, but there are significant upsides for owners to consider pop ups as a viable and crucial market strategy for their properties. The most basic of these revolve around cost-benefit. Compared with traditional retailers, pop-up shops offer the chance to test a product in an uncertain market, rather than committing to the higher risk proposition of traditional retail models. Likewise, there's less of the risk that a pop-up will go under, as its longevity isn't factored into its success metrics. Pop ups are driven primarily by brand extensions to consumer marketing, product launches and trial locations. Since popups create their own spaces and return those spaces to their original form when vacating, there's very little maintenance required, reducing the carrying costs for vacant real estate and keeping the facilities from falling victim to vandalism.

Less quantifiable, but just as important to consider, are some of the soft benefits that come with pop-ups. For example, the fact that the presence of pop-up retailers creates excitement and buzz, which in turn draws new potential clients to the retail centers, is a form of cost-free promotion for the property owner. Pop-ups can also function as a way of testing markets for potential long-term clients — so a successful pop-up can mean a successful retail center.

Additionally, pop-ups can offer the opportunity to lease space that might not have seemed ideal to sellers previously. In addition to occupying vacant retail spaces in malls, for instance, pop-up retailers might wish to operate on historical sites or use pop-up vans at experiential locations, such as concerts or sporting events, which take business into areas that may not have been desirable or possible before – opening the landlord's options as much as the tenants.

Gradually, property owners are coming to recognize that the increased opportunities of pop-ups outweigh the risk of letting large retail spaces go dark. When handled properly and with cooperation between owner and retailer, there's great potential for property to have high turnover, but low vacancy with pop-up ventures.

Ultimately, this is why both smart retailers and smart landlords are pushing for more pop-ups — in all likelihood, they're the future of physical retail.

First published by Retail Customer Experience, written by Melissa Kaan, CS Hudson client development manager.

Taylor Martin