Consumers are creating a seismic shift in the economy as they are choosing online shopping rather than visiting brick-and-mortar retail space, which is forcing retailers to adapt their behaviors and tactics to stay competitive in the market. In New York City, retailers are experiencing difficulty justifying exorbitant rents when greater traffic comes from the booming e-commerce industry.
The shift in the economy is specifically impacting New York’s Fifth Avenue, known for its string of high-end brands’ flagship stores. Ralph Lauren’s flagship on 55th Street and 5th Avenue announced in April that they were closing their store front (along with others) and restructuring their online operations, which is predicted to save about $140 million a year. High-end brands rent space on 5th Avenue as an advertisement scheme, but with drops in tourism and the increase in e-commerce it is difficult to justify the expense of sky-high rents.
So how is the retail market changing in the City? Businesses have found a way to escape high rents and lengthy lease agreements through licensing deals, which permit businesses to use a space, typically for a shorter period than a traditional lease. The outcome? Pop-up shops. These licensing deals provide greater flexibility for both the landlord and licensee. The Real Deal explains that “[s]table long-term retail tenants are hard to come by in Manhattan as the market continues to soften, and the real estate industry is adapting to short-term tenancies as much as much as long-term ones.”
Pop-ups have been great marketing tools for new businesses and for landlords, as multiple celebrities have garnered press opening pop-ups in the City. In March, Kanye Westopened The Life of Pablo, stocked with his new line of clothing. In April, Drake opened a pop-up for one day selling t-shirts to promote his new album Views From The 6. Even Gwenyth Paltrow’s online lifestyle brand, Goop, set up pop-ups in New York, Chicago, and San Francisco. These pop-ups are restructuring the retail industry.
The trend positively promotes brands and spaces, and gives both the licensee and landlord the flexibility to negotiate terms. It is also a saving grace for empty spaces as it minimizes overall loss until landlords find more permanent solutions. Licensing agreements are mostly beneficial for new store fronts that need to test the waters before making a long-term commitment. Pop-ups allow these businesses to get a sense of the market and whether sale growth can compensate rent and other expenses.
The popularity of licensing pop-up spaces has created a need for the new online platform Storefront that provides listings of available pop-up spaces around the globe. The platform, which is very similar to AirBnb’s interface, has helped over 100,000 brands find pop-up spaces and even provides liability insurance for landlords. Storefront has taken advantage of a niche market, which is mostly a result of the Recession’s aftermath of expensive commercial leases. As for whether pop-ups are a permanent solution, probably not since the licensing agreements by nature are short-term. Licensee’s that wish to elongate the agreement would typically do so under a traditional lease agreement. However for now, pop-ups have provided solutions for an economy seeing a drop in brick-and-mortar store fronts.