Are Pop-up Stores Here to Stay?

If old-time department stores were comprehensive, mom-and-pop stores friendly and big-box always low price, what kind of message does pop-up retail whisper into the ear of today’s customer?

“New, fun, something different,” says Wharton marketing professor Barbara E. Kahn. “Innovation and intrigue,” says pop-up leasing agent Christina Norsig, CEO/founder of PopUpInsider. Adds Wharton marketing professor Stephen J. Hoch: It’s about trying to “get people there all at the same time to create additional excitement, because it’s a pop-up, and it’s not going to be there much longer.”

As a concept, many industry experts say pop-up is here to stay, because it strikes both business owners and customers as a cure for the sense of retail ennui that has permeated the industry since the start of the recession.

Pop-up has several distinct manifestations, but the basic format is that a retailer looking to sell something with a short shelf life, launch a brand or build awareness opens a storefront for a few days or weeks. Displays are put up, product is stocked, business is conducted and buzz created — and then it’s gone.

A classic example of the genre showed up this month on Philadelphia’s Walnut Street, the city’s high-end retail spine. Vancouver-based online custom menswear retailer Indochino brought in sample swaths of seersucker and charcoal wool plaids, set up curtained booths and let loose a small army of genial sales associates and tailors. In a space left vacant years ago by Sharper Image but directly across the street from a bustling Brooks Brothers, young men and “fit specialists” together chose fabrics, lapel width and button placement while conferring about style preferences. The whole staging — which Indochino has also taken to New York, Boston and Washington, D.C. — is designed to last just a few days. Four weeks after the fitting, sartorial splendor arrives in a box from Shanghai.

“People know we’re just going to be here a short time, so there’s a sense of urgency,” says senior fit specialist Beth Watson. Walk-ins were welcome, but dozens booked appointments online for each day of the two and a half-week visit. At between $379 and $699 per suit — generally cheaper than custom-made suits at a bricks-and-mortar store — it all added up to some serious business. Meanwhile, those who miss the pop-up store can take a web tutorial and measure themselves. Says Watson: “Guys don’t always like to go shopping, but they are increasingly comfortable [doing it] online, so once we have your measurements, you’re all set.”

Scaring Up Sales Beyond Halloween

Superhero costumes and rubber witch masks are what many shoppers associate with pop-up because of the rash of temporary stores that arrive from late summer to just after Halloween. But pop-up began earlier, in London and Tokyo, before spreading to the U.S. mostly as a seasonal phenomenon. The sector is still green — so much so that it’s not yet tracked as a distinct sub-genre of retail.

The online/print publication Specialty Retail Report estimates the temporary retail sector as an $8 billion a year industry, although that figure includes not only pop-ups but also kiosks and shopping-mall carts. Researcher IBISWorld found 2,380 pop-up shops in the U.S. in 2012, (68.1% of which were Halloween-themed), up from 2,043 three years earlier.

But many say those numbers aren’t capturing all of the activity, which now includes stores within stores such as the ones established by eyewear sensation Warby Parker. “Any brand you can think of is in a pop-up or temporary store,” says Erik Eliason, co-founder of Storefront, a San Francisco-based startup that matches pop-up retail projects with landlords willing to rent out a space for a short period.

Halloween stores were followed by other, more diverse, pop-ups that filled the vacuum left after large chain bankruptcies and closings. “There’s just a lot of inventory still out there,” says Hoch, referring to excess retail space. “All construction has stopped; there hasn’t been a major mall built in 10 years. We’re malled out, but there is still plenty of real estate out there. Either it can sit empty or you can try to do something with it. A landlord would rather make two months’ rent on a space than no rent.”

One of the first big forays into pop-ups came not from one of the smaller, more nimble retailers, but from a behemoth. Well before the recession, in 2002, Target opened a Christmas store at the Chelsea Piers on the Hudson in New York. The temporary store received huge publicity and fired the imagination of other retailers who began to imagine pop ups in other sites never before exploited for their marketplace potential. As Norsig wrote in her book, Pop-Up Retail: How You Can Master this Global Marketing Phenomenon: “If a pier by the river could work, how about a penthouse? A subway station? A parking space?”

Target has since done 20 pop-ups, mostly in the U.S. “As pop-ups have become increasingly popular, Target continually looks for ways to reinvent this concept with unique twists to ensure each experience feels unique and special for our guests,” says a Target spokeswoman. After that, pop-ups began popping up all over — shoe and computer companies, airlines, makeup manufacturers. American chef Thomas Keller brought a French Laundry pop-up to Harrods in London for 10 days in 2011, offering nine courses for £250 ($400).

Kahn likens the phenomenon to the psychology of luxury brands, in which an element beyond the product itself becomes a form of currency. “If too many people wear it, it’s not a luxury anymore,” she says. “There’s a paradox if you sell too much of something. Perhaps that is some of what’s going on. It’s a way to make it exclusive and special because of the time period.”

Pop-ups have divergent business goals. They can be a good way to test a product, dip a toe in a particular location without a long-term lease, make a splash with a brand introduction in a new region, lighten overstocked product through a focused seasonal offering, or establish brand awareness during a special event such as a street festival.

Opera Companies and Orchestras

Non-profits have grabbed hold of the concept, with horticultural societies turning plots of rubble into gardens for a growing season, and opera companies and orchestras engineering pop-up performances in train stations and public markets. These flash performances are typically edited into video pieces used to expand the organization’s footprint beyond the regular constituency via social media.

What’s in it for landlords? “It’s actually very simple,” says Peter Eizen, one of the owners of 1518 Walnut St., the Philadelphia building used this month by Indochino. “Most of these companies have a budget, and they come to you and say, ‘This is what we can pay,’ and you either say OK or no thank you. In this case, they are not paying market rate, but as a landlord, it’s a good way to get something out of nothing.”

“We’ve seen all kinds of arrangements,” adds Eliason. “Some [landlords] take a flat fee; others take a percentage of the rent. Less common is a percentage of sales, since we’re still in the early days of temporary retail, and typically stores don’t have the systems built for tracking sales.”

The idea has evolved from stopgap to being a bona fide genre that many say is now helping to bridge the treacherous chasm between the worlds of online and bricks-and-mortar retail. Wharton marketing professor David Bell points to the promise of models like Bonobos, in which clothing customers do a certain amount of perusing and research online, but then come into a shop for the other part of the experience, like touching various materials and getting fitted.

“I think the idea of having a big, enormous four-story building where people come in and take something away is changing,” says Bell. “It’s a fundamentally inefficient system in some sense. It’s very difficult from an inventory standpoint to make sure you have everything everyone needs all the time. People are just not searching for products the way they were 20 years ago. There is an awareness that everyone needs to be both offline and online.”

Many are sufficiently convinced of the symbiotic relationship between e-commerce and bricks and mortar to begin seeking new modes of interplay. Allison Berliner, who graduated with a Wharton MBA this month, has watched customers walk into a store, handle a piece of merchandise — and then go home and order it online from someone else. The practice, called “showrooming,” is an obviously troubling development for bricks and mortar retailers who don’t also have an online presence. But Berliner and fellow student Shannon Pierce developed a business plan for the Pop Shop, a system that matches retailers and customers by featuring merchandise online and placing it in stores within stores. The Pop Shop, Berliner says, is essentially an online answer to the consignment shop with considerably more sophisticated bells and whistles.

“The balance of power is shifting,” notes Berliner. “It seems to us that bricks and mortar is not going away, but its role is changing. If a store can’t address those needs, or if online can’t address them, neither is going to thrive.”

Berliner sees the Pop Shop as a matchmaker. Online brands register with the Pop Shop platform with information on their products and target customer. The Pop Shop recommends pre-existing stores in its network. The brand sets up a display, with product, in the store, along with promotional material that can be used to track sales. The display stays up for a short time, perhaps a month.

The proposal won a grant from the Wharton Fund for Innovation, and the Pop Shop will be testing its concepts as it pitches the idea to investors. Revenues are collected from participating brands and commissions from sales. Berliner envisions an opportunity to scale the concept across a broad spectrum, from smaller retailers who may not have the money to invest in online, to “Nordstrom, which is rethinking the in-store experience. If we can get really good at what we do, become really good at matching [brands with stores], there’s no reason it wouldn’t work for them.”

“I really like what she’s doing,” says Wharton’s Bell of the Pop Shop. “Entrepreneurs who are primarily e-commerce who get retailers into a physical space as a way to interact — I think that’s an idea that has some legs. Both parties have something to gain from this. You have a space that’s not being used in the best possible manner, and you have people who don’t have a physical space, and you bring them together.”

Pop-Up: Signaling Potential — or Decline?

The other potential benefit of pop-up retail is demonstrating that a vacant space can become viable again. Norsig says she has had pop-up clients whose businesses in effect helped to market a property, resulting in a sale and reuse of the building.

But strength is not always the message that comes across. “I see two classes of what’s going on,” notes Phil Magnuson, principal with Manhattan-based SBLM Architects, which designs for pop-up retailers. “There’s the thoughtful approach to getting the e-customer more informed about what the retailer is all about, and then there’s the other one, taking advantage of a weak market.”

When stores are designed right, in an already-vibrant urban context, pop-up can add a frisson to the streetscape. “If it’s a thoughtful gesture and it’s got some engagement behind it, I think it’s great,” Magnuson says. “I think in a secondary location, if you were looking for a place to put a store and, say, there are two pop-ups on the street and some other empty stores, you would not be encouraged to open a business there. I think the neighborhood would be discouraged, and it only adds insult to injury.”

Several experts in the field say that with media as diffuse as it is today, pop-up, in its highest form, might just be viewed as an enormous, three-dimensional piece of advertising. “I do think, for several reasons, that the face of retailing is changing,” says Wharton’s Kahn, “because the face of advertising has changed so radically. There’s no “Ed Sullivan Show” on Sunday night that everyone watches, so everybody is looking for new ways to get the message out.”

In fact, some people, including Hoch, say pop-up stores are mostly useful for their marketing and promotional awareness rather than for making money. While Halloween stores are the big money makers in the category, “the other ones are not about making money, but brand-building,” he suggests. Others say that what businesses get back from pop-ups hinges on how much thought is put into the location, what rent is negotiated, the design of the store — and how one defines success.

For a French fragrance company, Norsig found a reasonable rent on New York’s tony Madison Avenue for 30 days around holiday time. The company left after building brand awareness and turning a tidy profit. Other deals have different aims. “It depends on what the goals are,” she says. “I sat down with a big fashion company that was exclusively online and wanted to open a store on 57th Street. We came up with a plan, did a P&L and figured out that the store would absolutely operate at a loss, and they decided not to do it.” But determining how that street presence might have translated into long-term sales would have been difficult. “If the goal was brand awareness, it’s hard to quantify that.”

One thing working against pop-ups, Norsig notes, is a time-element that leaves little room for error. “As a temporary tenant, you don’t have the same rights. And what if there’s a taxi strike or inclement weather? If you only have 12 days in a space, every day counts.”

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