The Pros and Cons of Pop-Up Stores

Carrie Rossenfeld Retail

Pop-up stores can be a great solution for shopping-center landlords facing vacancies in this time of retail reinvention. But there are caveats to this solution.

A representative of Los Angeles–based commercial real estate and investment company Koss Real Estate (owner of Malibu Country Mart) recently reported that, according to the firm’s president Michael Koss, pop-up stores can actually be detrimental to shopping centers in the long run.

“Typically pop-up tenants only stay open a few months, often paying only a percentage of sales to the owner,” Koss says in a release from the representative. “This usually translates into very little rent for owners and no security in maintaining long-term tenants. Too, from a consumer perspective, it appears as if stores are opening and closing all of the time, and that’s not the message shopping centers should be sending.”

Michael Koss | Courtesy a representative of Koss Real Estate

Koss tells SoCal Real Estate that pop-up stores can have a positive impact on the retail environment in which they exist. “Pop-up stores help retailers to fill vacant space. It isn’t good for a shopping center’s image to have too many vacancies as this gives the impression to shoppers that the center is not successful. It also strengthens the negotiating position of the other tenants as they become aware of the landlord’s vacancy vulnerability.”

Koss also says these stores can work in synergy with other retailers instead of against them. “To insure synergy, landlords must be certain to only allow pop-ups that work well with the other tenants and do not directly compete with them.”

However, he adds, although it is desirable to have the highest occupancy possible in a center, there are some significant disadvantages of having pop-up tenants. “Pop-up tenants are generally very transparent as they do not spend money to customize the appearance of the store (i.e., brand it) and they often do not have large inventories. This can cheapen the ambience of the property.”

Koss says another disadvantage is that other tenants will likely be aware of the pop-up status of these tenants and will be harder to negotiate with as a result. “Prospective tenants will not want to sign lease commitments as they will want to have a first try with a pop-up,” Koss points out. “Center owners sometimes believe that the pop-up concept is a good way to bring tenants in, and when they succeed, they can get them to commit. The pop-ups, however, will not make the same capital investment in a store and often will leave if the initial experience is not satisfactory. Committed tenants have a much greater chance of success.”