Landlords are adapting to, and changing, their deal models to accommodate the throng of e-tailers heading to retail centers of all sizes, said panelists at an overflow session titled "How to Attract E-Commerce Brands to Your Vacant Storefront," moderated by Lauren Thomas, a retail reporter for CNBC.
More and more tenants and landlords are agreeing to simplified deals for pop-up tenants, said Robin Abrams, vice chairman of retail for Eastern Consolidated, a full-service real estate investment firm. "We are seeing licenses instead of leases," she said, "which gives landlords more flexibility if they need to get a tenant out and [also] gives the tenant an option to extend."
Landlords are losing their apprehensions about signing such short-term deals, because they are now seeing the merits of the added income stream and the re-energizing of vacant space, Abrams pointed out. Attractive rents in many centers have become a catalyst for attracting additional on-line retailers to physical space, she said. Home and beauty are two of the strongest emerging categories for pop-ups, with apparel still being a hit-or-miss, Abrams added. But most pop-ups and other temporary tenants require space that is in move-in condition, she cautioned, since they have minimal finish-out budgets.
One week into the 2011 launch of Untuckit as an online retailer of casual men's shirts designed to be worn untucked, the company had already discovered where it needed to go. "We knew we had to open stores," said CEO Aaron Sanandres. "We found that about 10 percent of people who were emailing us were asking where they could go to see and fit into our product." The chain now operates 28 stores and is planning for 20 more by year-end, Sanandres said.
Landlords' initial desire for the chain to sign 10-year leases was off-putting, Sanadres recalled. "We were just getting started, and a 10-year lease was unrealistic, because we didn't know how this thing was going to go," he said. "But landlords have come around from that."
Now many lease deals for online retailers extend for just 18 to 24 months and offer an optional kick-out clause to both parties, according to Brandon Hoffman, a senior associate at Ashkenazy Acquisitions. Moreover, numerous leases offer options to extend for five or 10 years. Some e-tailer tenants require more stockroom capacity, because they want to be able to fulfill online orders from the store, Hoffman said.
Among the challenges that many e-commerce retailers face, Sanandres said, is that they have no year-on-year historical store sales data to rely on. Thus, they must push hard to determine such things as the relative performance of potential co-tenants, and they need more sales, customer and demographic data than some centers are willing to supply.
“Your general manager needs to be your MVP”
Mohamed Haouache, CEO of Storefront, an online marketplace for short-term retail spaces, said his company's goal is to make renting space "as easy as booking a room in a hotel; you just connect with a landlord and pay online," he said. Storefront has been dubbed "the Airbnb of retail spaces" for its aptitude at finding short-term retail space. Storefront's deal lengths have ranged from as little as one day to as long as two years, according to Haouache. Malls can enjoy up to a 50 percent premium in rent with a temporary tenant versus a permanent one, in part because they need not provide tenant-improvement dollars or long-term rent discounts. "They are easy to reconcile in the short term with the needs of the long term," Haouache said. Even in countries where retail centers are exceptionally strong, such as China, pop-ups are viewed as an essential part of the mall mix, he noted.
There is some pop-up leasing activity in tertiary 'B' and 'C' centers, observed Hoffman, but in such cases, "your general manager needs to be your MVP," he said. The manager must know what is selling well in the center and where the consumers are gravitating, and then they must seek online retailers that are complementary, he pointed out. Sanandres said that it is unlikely his company and similar online retailers will expand to outlet centers, owing to potential confusion over the varying quality and prices of goods, which could hurt their brands.
Abrams said larger nonseasonal concepts are increasingly looking at box-sized spaces for temporary stores and pop-ups. "We just did a deal for 18,000 square feet," she said. "It all goes back to supply-and-demand and motivation — this is about both parties being flexible and creative."
By Steve McLinden
Contributor, Shopping Centers Today