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Pop-Up Stores Fill Retail Space As Vacancies Hit Decade Highs

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Pop-up stores are sprouting like mushrooms as the holiday shopping season approaches.

And just as mushrooms feed off dead plants, pop-up stores arise from the vacant locations of dead retailers. Pop-up stores are temporary stores that remain open for several months or less, usually during peak shopping seasons.

Vacancies at regional malls nationwide are at their highest level in at least a decade. Real estate research firm Reis says 8.6% of available mall space was vacant in the third quarter. Local strip malls and big-box stores are doing worse, with a vacancy rate of 10.3%.

Consulting firm Grant Thornton expects 10,000 stores to close nationwide this year, with clothing the hardest-hit sector. Last year, the firm counted 5,004 store closings. Chains that have gone belly-up in the last year include Circuit City, Linens ‘n Things and Steve & Barry’s.

Vacancies Abound

Commercial real estate companies have embraced pop-up stores to fill empty spaces in strip malls, shopping centers and street-level shops.

“There’s never been so much vacant (retail) space. And the prices are reasonable,” said Faith Hope Consolo, chairman of the retail division of Prudential Douglas Elliman, the largest real estate services company in New York.

Retailers have the opportunity to test stores in neighborhoods they couldn’t get into before, such as SoHo and Madison Avenue in the Big Apple, Consolo says.

Pop-up stores have been around for years. But now major brands use them to move merchandise and try out new retail concepts.

Toys “R” Us is the poster child for pop-up stores this year, opening 80 of the units. Many are located in former KB Toys locations. The Toys “R” Us Holiday Express stores will be open from October through mid-January.

Product manufacturers use pop-up stores to experiment with person-to-person retailing.

For instance, iRobot (IRBT), the maker of Roomba robotic vacuum cleaners, on Nov. 1 opened two pop-up stores for the holiday season: one in Atlanta, one in Indianapolis.

The Bedford, Mass.-based maker of household cleaning robots is using the temporary stores to demonstrate and sell its devices directly to consumers. At the pop-up stores, it’s showing off Roomba robotic vacuums, Scooba floor-washing robots and Looj gutter-cleaning robots.

“This gives us an opportunity to get out in front of customers and answer questions,” said Nancy Dussault Smith, iRobot’s vice president of marketing communications. “The whole idea for us was to make it a brand environment for people to come in and experience the products.”

Many retailers who sell iRobot products don’t have the space or inclination to demonstrate them. The iRobot pop-up stores have mock-up kitchen and living room areas, complete with furniture, to show how the robots work. The stores will remain open until Jan. 15.

The trend toward limited-engagement stores is gaining steam and could have long-term implications for property owners.

Shorter Lease Terms

Pop-up stores could change the way lease terms are handled over the long term, says Jeff Green, president of Jeff Green Partners, a Mill Valley, Calif.-based consulting firm.

“This is a way for the retailer to begin to get (property owners) used to shorter leases,” Green said.

Instead of the typical 10- to 20-year leases that retailers sign with developers, they could push for five-year leases.

“Retailers are the ones holding the cards now,” Green said.

Mainstream retailers such as Gap ([STOCK[GPS]]), J.C. Penney (JCP), Limited Brands (LTD) and Target (TGT) have used the pop-up-store strategy for years to get a boost in sales and try out new ideas.

Gap opened a temporary store in Los Angeles in August to hawk its 1969 Premium Jeans.

American Eagle Outfitters (AEO) opened a holiday pop-up store on Oct. 21 in Pittsburgh to sell its 77kids clothes. It’s planning to open permanent 77kids stores next year.

Joining those mainstream brands now are luxury brands like Gucci and Hermes, which have opened temporary stores to market new product lines.

Clothing and furniture designers in New York City use the ready availability of retail space for pop-up stores to test out possible permanent locations, Consolo says. The list includes Rachel Roy, Julie Haus, Lisa Perry, Jenni Kayne and Kenyan Lewis.

Some pop-up stores are designed to generate publicity and goodwill. Online auctioneer eBay (EBAY) will open its first holiday store in New York on Nov. 20. It will sell designer fashions, accessories and cosmetics, with proceeds going to charity.

The eBay store, which runs through Nov. 29, also will feature Internet kiosks to access its entire marketplace.

Also rumored to be considering pop-up stores is e-commerce giant Amazon.com (AMZN), which sells the exclusive Kindle e-book reader.

Pop-up stores are here to stay, analysts say.

“It’s becoming part of the playbook for a lot of retailers,” said Anne Brouwer, senior partner with Chicago-based retail consulting firm McMillan Doolittle.

Retailers are using pop-up stores “as a way to get rapid exposure on a new concept or new brand or create more marketing buzz or actually generate some additional revenues that come at a fairly low cost with a good (return on equity),” she said.

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