Pop-up shops fill short-term niche

Article by: JACKIE CROSBY , Star Tribune
Updated: November 4, 2009 - 8:09 AM

A glut of mall space creates opportunities for stores that don't want to make long-term commitments.

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Leah McClanahan set up a display in the front at the entrance of Toys R Us at the Mall of America.

Photo: Glen Stubbe, Star Tribune

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With malls and shopping centers staring at record vacancies, the lowly pop-up store is making a comeback. And it's no longer limited to the fly-by-night store, as major chains try to wisely spend the cash they do have.

Toys 'R' Us just opened 80 temporary stores across the country in an aggressive play for the holiday toy shopper. Splashy fashion brands like Gucci and Gap are using temporary stores to market new product lines. And for the first time in years, mom-and-pops are getting a crack at prime real estate at affordable prices.

"At one time there was no way a small start-up could gain space in a regional center and get that exposure," said Paula Mueller, general manager of Northtown Mall in Blaine. "Now there's more space, and there's better space."

The retail vacancy rate in the Twin Cities is 7.1 percent, according to Colliers Turley Martin Tucker, and the short-term outlook isn't encouraging. In the past year, national chains such as Circuit City, Linens 'N' Things and KB Toys have gone bankrupt. Many others, including Zales jewelry, Talbots, Starbucks and Regis-owned hair salons, have shuttered hundreds of stores.

The glut has given merchants more choices, better locations and an edge at the negotiating table with landlords who are highly motivated to keep as many lights on as possible.

"In the past, landlords were not interested in dealing with temporary locations in general," said Dick Cohn, who has operated pop-up Halloween stores around the Twin Cities for 17 years. "They'd say the short-term lease was a liability because people see an empty store, see some activity and then see it empty again. They'd think the store can't support retail."

Cohn opened six Spirit Halloween Superstores in metro-area suburbs this year, and said relations with landlords have improved as he's proven "to be a reliable company."

"But in this economy," Cohen said, "rent is rent."

In boom times, landlords had the upper hand, commanding lease terms of 10, 20 or 30 years. But in recent years, malls have put more emphasis on attracting retailers who want to sign leases for a few months to a year.

"When you come to Burnsville Center, it looks like we're 100 percent occupied because when a space goes dark, myself and my associates work hard to find temporary stores," said Robbin Hahn, the mall's general manager. Burnsville Center is about 95 percent full, she said.

Maureen Bausch, the Mall of America's executive vice president of business development, said she uses temporary stores as a way to "lure stores into the market," usually focusing on hot designer brands such as Joe's Jeans, Joan Rivers or Young, Rich & Fabulous.

The Bloomington mall scored a major coup when a Barbie Shop pop-up opened there in October. The store, set to close in March, is the only free-standing, temporary Barbie store in the United States.

The mall has about 20 temporary stores plus 80 to 100 kiosks and carts, Bausch said, about the same as in the past.

"We've always done short-term leasing, but it's traditionally been the mom-and-pop stores," said Bausch. "We've still got the candy store from northern Minnesota, but we're seeing more designers using it to test new markets. They're dabbling in hopes of getting permanent stores."

Target's bodegas

Target and other retailers have used pop-ups to create buzz and "limited-time-only" urgency for shoppers who relish the treasure hunt. Target likes popping up in New York City, especially during Fashion Week, where it gets in and out quickly without having to pay Manhattan rental rates.

Gap is currently promoting a new premium denim line and Gucci is out with a traveling sneaker store.

Temporary stores are less expensive for retailers because they usually just need some paint and minor adjustments instead of expensive build-outs needed at a more permanent location. Rent is often more affordable, too, with fewer fees and a simpler cost structure.

"It gives a local entrepreneur a way to test a business with much lower rent," said Burnsville Center's Hahn. "Plus, they're not signing a 5- or 10-year lease. It makes them a little less nervous."

Becker Furniture, too

Toys 'R' Us is making one of the boldest pop-up plays in recent years. The Wayne, N.J.-based company, which also owns FAO Schwarz, is banking that an investment in temporary stores will help it siphon market share from now-defunct KB Toys chain and to push its closest competitors, Sears and Target, into the background. Wal-Mart is the country's largest toy seller.

"We've viewed the downturn in the economy as an opportunity to strengthen our position as the toy authority," CEO Jerry Storch said.

The retailer opened 80 Toys 'R' Us Holiday Express stores in major malls around the country in October -- including Southdale Center in Edina and the Mall of America. It also added smaller Express stores within 260 Babies 'R' Us stores.

Toys 'R' Us will hire about 1,000 workers for the temporary stores, which will close by mid-January.

Storch sought empty space at "major malls that were destination locations," he said, and high vacancy rates meant Toys 'R' Us got "the best locations we wanted."

Twin Cities-based Becker Furniture World also hopes to find an upside in the downturn. The company has opened two liquidation centers in empty Steve & Barry locations. A Becker Furniture Liquidation Superstore opened in Burnsville Center in July and on Wednesday in Blaine's Northtown Mall.

Ken Nichols, Becker's marketing coordinator, said the company is buying up one-of-a-kind furniture because manufacturers and retailers are struggling through the recession. But, real estate is plentiful, too.

"One of the catalysts for this concept is we were finding deals on actual physical space, in addition to the furniture at incredible values," Nichols said.

Details of the deal were sketchy, but Burnsville Center's Hahn said it was a "very creative negotiation" with elements not found in most lease deals.

Returns can be tricky

Other retailers have taken advantage of real estate opportunities. Trend D. Home, a short-term leaseholder at Northtown recently moved from a 2,500-square-foot space into a former Gap store that's four times as big. Wilson's Leather, which went bankrupt and got bought by G-III, continues to crop up as temporary stores around the holidays. It has taken up in an old Pier One spot in a Blaine strip center.

Landlords say they like temporary stores because they bring in new customers, draw energy to the mall and bring in some income where otherwise there would be none. For consumers, returns policies often are more strict and later problems could be impossible to resolve if a one-of-a-kind store has disappeared. Established chains, including Toys 'R' Us, handle returns in existing stores.

Whether the wooing of the temporary store will remain strong when the economy improves remains to be seen.

"Landlords are saying, 'OK. We'll have you for a year or two, or until the economy shifts and traditional retailers bounce back,'" said Northtown's Mueller. "We benefit from the occupancy and a nice new tenant, they benefit because they can really show their wares in a good location."

Jackie Crosby • 612-673-7335

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