Right-Sizing Retail: “Micro” Goes Mainstream
Above image: Confidential project, California. “The loading zone.” Creative transformation of an underutilized loading dock into a new ride-share lounge.
We can’t deny we’ve been over-retailed, and now we’re entering a period of right-sizing. I recently addressed the question of what a retail property owner can do with surplus real estate in my first post. Breaking up that space into smaller parcels is a common solution, and it’s one that works well for both the retailer tenant — who now requires less space for their curated inventory — and for the shopper, who is looking for that more focused experience. Micro-retail is going mainstream.
I mentioned in my first post that Simon has been testing a shared retail concept called the Edit in its Roosevelt Field property on Long Island. It’s a single space with multiple tenants who share resources and costs, like co-working for retail brands. The Edit offers physical space for retailers without the commitment or the expense of long-term leases. Homegrown brands that might never have thought it possible to open a physical store can now afford it more easily. And in the process of sharing, a community of like-minded brands can form. Their customers soon follow, as shoppers gain the opportunity to discover something different each time they visit, as brands rotate through the space.
Macerich has launched a similar platform called Pop-Up EXP, that serves startup retailers, in multiple locations across the United States. Westfield offers Westfield POP, with three different options depending on the type of space desired. And Kimco Realty has launched Pop It Up Here! in six markets where they operate. In all cases the barriers to entry are lower than for traditional retail, and all parties benefit. The property owner — whether it’s Simon, Macerich, Westfield, Kimco, or someone else — fills vacant space, often with energetic and experiential retail that increases traffic throughout the property. The pop-up tenant benefits from the mall’s existing customer base, and enjoys lower costs, since much of the in-store infrastructure is provided and/or shared. And consumers gain a venue to satisfy their craving for new and exclusive shopping experiences.
Micro-retail works well with brands who have an established online presence and who are interested in testing new products or services face-to-face and/or making their brand more experiential. Micro-retail also helps brands with limited physical stores — maybe one or two flagships in large markets — who want to test new markets or even travel from town to town. This form of pop-up retail is not new. Time-sensitive and temporary retail has been used to generate excitement around product launches for decades. But what is new is its prevalence. Pop-up retail is no longer a PR stunt, or even just a stunt. It’s a lasting form of retail, just as Uber is to taxis and Airbnb is to hotels.
In fact, visit the websites of micro-retailing services like Storefront or Appear Here — marketplaces for renting short-term retail space — and you might feel like you’re searching for a place to stay on your next vacation. Enter the criteria that define your ideal brick-and-mortar shop, and a list of available spaces is generated with costs broken down by day. Storefront suggests that average startup costs in their model are $2,000, versus almost 50 times that for traditional retail space. Long-term leases become irrelevant in this model, and brick-and-mortar retail becomes more democratic — accessible to more than just big brands with deep pockets.
Even the big brands are breaking things down. Targeting their similar customer bases, Kohl’s and Aldi have recently announced a partnership in which the discount grocery store will lease space from Kohl’s in locations where the discount department store is downsizing. This follows Kohl’s existing partnership with Amazon — driving traffic to Kohl’s stores by accepting Amazon returns, and selling Amazon-branded products like the Echo. Nordstrom is another big box retailer that embraces partnerships to drive traffic. Their latest is with Anthropologie Home, which now has a presence inside 15 Nordstrom stores. Just as we see retail centers turning into mixed-use destinations with much more to do than just shop, we’re now seeing the retailers themselves embrace the same variety of experiences — making real estate more efficient and cost-effective.
Finally, it’s worth noting that the business of retail pop-ups and partnerships is not just for national developers or real estate brokers. Many downtown districts struggle with vacant space, especially as milennials move to new and improved suburbs that have reinvented themselves with mixed-use town centers and urban amenities. Minneapolis’ Downtown Council recently suggested that they’re exploring a pop-up retail model that will hopefully encourage startup brands to open downtown shops via short-term leases and shared costs, like the programs I’ve outlined above. Other municipalities should take note of this — it’s an opportunity to fill vacant space, drive traffic, and create a more vibrant community, leveraging the highly desirable urban infrastructure that already exists.
Retailers are closing. Big boxes are sitting empty. But this is not the retail apocalypse. This is an incredible opportunity to reinvent real estate at a more appropriate scale, and to reshape communities by making that real estate more approachable to tenants and shoppers. We witnessed the influence of the sharing economy on other industries many years ago. At long last, it’s retail’s turn to renew itself.