The Retail Pop-Up Evolves Rapidly as Landlords Seek Fresh Allure
"You are magic!"
That's what a bright neon sign declares as a room fills with a rainbow of lights activated by a couple, Jaime Martinez and Cristina Cave, clasping hands while touching sensors. They wriggle their bodies and twist their arms up, activating more lights, all while a camera behind them discreetly snaps photos of their colorful dance. Within minutes, the camera creates an Instagram-ready graphic that is emailed to their inbox for social media sharing.
Cave and Martinez are two of hundreds of people who visited Color Factory, an interactive pop-up art exhibit in a former 20,000-square-foot furniture store in Houston, on a recent winter afternoon. Families, couples and children crowded the sold-out exhibit that day, jumping into the NASA-themed plastic ball pit, drawing on walls with three-foot long blue pens, munching on macarons and mochi ice cream, and sniffing art infused with scents of freshly cut grass and butter popcorn.
Color Factory represents an increasingly important new breed of retail tenant that could provide one answer to the struggle retail property owners have in finding ways to lure customers as online shopping grows. So-called pop-up shops, defined because they have temporary leases, have been around for years mostly as seasonal retail strategies around Halloween or Christmas. But the new wave of pop-up stores are a radical departure from the traditional seasonal model and are breaking into hybrids, according to real estate brokerage Cushman & Wakefield's 2019 "Pop-Up-A-Palooza" report. In fact, many of the concepts like Color Factory don't even bank on selling visitors goods and instead rely on admission costs and social media attention for their bottom line.
Pop-up retail is estimated to be a $50 billion industry and growing, according to industry services provider Pop-Up Republic. In New York City, the number of pop-ups doubled in 2019, hitting about 200, according to Cushman & Wakefield's report.
The pace of the pop-up boom is expected to continue in 2020. Experts expect pop-up leases to further entrench themselves in major metropolitan cities and expand out across the country into more medium-sized cities. Though temporary in nature, the pop-up lease could become a permanent piece of commercial real estate, though the form is changing.
"I think structurally it’s here to stay," Garrick Brown, vice president, retail intelligence for the Americas at Cushman & Wakefield, said in an interview. "In the long run, the smart landlords are going to realize that even when we get to the point where vacancies drop and landlords have the upper hand, that it will be a smart play to have space set aside for this."
The rise in pop-ups is a response to the retail apocalypse as a record-number of storefronts close amid changing consumer habits and the rise of online shopping, leaving millions of square feet of retail space vacant across the country. While pop-ups aren't expected to be the solution to the rising tide of retail vacancies, they do represent an increasingly innovative way for landlords to generate income and create foot traffic at a property.
For tenants, pop-ups can act as a billboard for their brands without the risks and costs of permanent retail space. The average cost of opening a pop-up was about $2,000 in 2018, compared to the average of about $98,000 for opening a permanent store, according to Storefront, an online listing service for short-term retail space.

Marketing Component
Once a trend for small businesses and startups, major retail brands and non-retail tenants are aggressively building a pop-up retail strategy as a critical piece of their marketing campaigns.
Athletic retailer Lululemon is emerging as one of the leaders in the corporate pop-up world since announcing in 2019 its plan to grow its real estate footprint in part through so-called seasonal stores with short-term leases lasting three to six months. The company expected to operate 50 seasonal stores in the fourth quarter.
"These locations afford us the opportunity to engage with guests and communities where we don't have a year-round physical presence, while also testing these markets for potential permanent stores in a very low cost and effective manner," said Calvin McDonald, Lululemon CEO, in a September earnings call with investors.
McDonald said about 30% of these sales from seasonal stores are from new customers previously not known to the company.
Lululemon certainly isn’t the only one. Dozens of other traditional retail brands such as Foot Locker, Lego, Target, Victoria’s Secret, Nike, Gucci and Louis Vuitton have poured millions into opening elaborate pop-ups in the past year to promote product launches and generate social media buzz.
"Pop-ups almost are acting like the flagship stores did at one time, in the sense that flagship operations used to give brands immediate exposure in a marketplace. With the decline in malls and physical store retailing, I think pop-ups are serving this niche," said Mark Rosenbaum, dean of the Graham School of Management at Saint Xavier University in Chicago, who has extensively studied pop-up retail.
"What’s unique about today’s pop-up store is companies are devoting an extensive amount of money to building the physical environment, which is going to be dismantled," Rosenbaum added.
Spending on building out the physical space for pop-ups varies but has been ballooning over the past two years, according to Storefront. Color Factory, for example, estimated it would spend $300,000 initially for its Houston pop-up that it expected to only run for four weeks, according to state documents. Admission to the Color Factory in Houston cost $35 for adults. The company declined to share the number of visitors it had.
Some budgets for pop-ups are even higher for big corporate brands in the entertainment industry. In 2018, Warner Bros. Entertainment reportedly paid $1.2 million to take over a space for three days to promote its "Ready Player One" movie that was directed by Steven Spielberg at the SXSW Film Festival in Austin, Texas.
"Consumer brands absolutely are building budgets for this and they’re building out teams for it," said Ed Victori, head of North American operations for Storefront.

Landlord Interest
Since starting in 2014, Storefront has about 10,000 listings in over 30 cities for temporary retail space and recently expanded into Dallas and Austin; the online marketplace is eyeing Seattle and Atlanta next. Storefront says it has worked with 100,000 brands, including individual shops and multinational corporations such as Google, Hermes, L’Oreal, Netflix and PlayStation.
Now, landlords who once dismissed short-term leases with pop-up retailers are asking how to get into the business, Victori said. In early 2017, many landlords in New York City would let vacant space sit empty rather than do a short-term pop-up lease, Victori said. New York City's Upper Fifth Avenue in Manhattan, from 49th Street to 60th Street, has the second-highest rental rate in the world for traditional retail space, according to Cushman & Wakefield's "Main Streets Across the World" report.
Landlords thought, "'It's not worth my time.' … A lot were optimistic that the heyday would come back and everything would go back to longer term leases," Victori said. "It seems like something has changed … They realize this revenue stream is not going away," he said.
Some retail corporations pummeled by the retail apocalypse are turning to pop-ups as a method of brand revival. Toys R Us is launching a comeback in partnership with Candytopia, the experiential pop-up brand that creates colorful social media-centric temporary art exhibits featuring candy. Toys R Us ran pop-ups — installations featuring interactive playrooms — during the holiday season in Atlanta and Chicago, and it expects to open more in 2020. In addition, women’s fashion retailer Charming Charlie, which filed for bankruptcy protection and closed all its stores last year, plans to use pop-ups along with select permanent stores to relaunch its physical real estate presence.
Pop-up shops also are becoming a gateway for an exclusively online retailer to launch a brick-and-mortar operation, test a market, promote their brands, generate social media attention and see how shoppers respond to their product.
"It's tough to distinguish yourself online, it's much easier to set up a shop in a global gateway city in a major shopping district with all this foot traffic in a way that is much more memorable than some Facebook ad would be," James Cook, Americas director of retail research for JLL, said in an interview.
Four years ago, eyeglasses maker Warby Parker built a traveling pop-up shop in a school bus touring the country to promote its eyeglasses that were only sold online. Then in 2018, it announced plans to open more than 100 retail stores in the United States and Canada. Other examples where pop-ups led to brick-and-mortar locations include home goods retailer Wayfair; mattress maker Casper; Bonobos, a men’s clothing subsidiary of Walmart; and millennial makeup maker Glossier.
Another way online retailers can test the waters for permanent space is showcased in the rise of the pop-in store, which is where a concept sets up a temporary shop within an existing retailer's permanent space.
Nearly every major department store chain in North America is currently experimenting with rotating "pop-ins" to boost foot traffic, according to the Cushman & Wakefield report. Macy's partnered with Facebook in 2019 to open pop-ins within nine Macy’s department stores across the United States, including in Las Vegas, Seattle and Pittsburgh. The Facebook pop-ins feature digital native brands and small businesses.
Permanent Pop-Up
Another emerging concept is the retail marketplace, or permanent pop-up, where brands can pay a flat fee to operate in a space, giving them a chance to experiment with brick-and-mortar with less risk and cost than starting a new permanent store from the ground up. The concept started with the restaurant industry in the form of food halls and has evolved into retail.

In New York City, Showfields, which bills itself as "the most interesting store in the world," leases a nearly 15,000-square-foot showroom where it has rotating brands offering an "immersive retail experience." Another retail marketplace is Neighborhood Goods, a Plano, Texas-based retailer that has worked with more than 100 e-brands since launching in 2018, including women’s shoemaker Rothy’s, underwear maker MeUndies, men’s grooming company Dollar Shave Club and candle maker Homesick.
Neighborhood Goods opened its second marketplace in Chelsea Market in New York City in December and is planning to open a third marketplace in Austin’s South Congress neighborhood later this year, the company told CoStar News in an email.
Cook, the retail analyst with JLL, said he expects more of these "department stores of pop-ups" to crop up across the country.
New entertainment and experiential-related pop-ups tied to an event have exploded in recent years and experts expect that to continue. Some entertainment pop-ups promote specific shows such as the sold-out "Friends" exhibit in Manhattan promoting the 25th anniversary of the NBC sitcom, Netflix’s "Black Mirror" pop-up in London and "El Camino Café" in Hollywood promoting the movie sequel to "Breaking Bad."
These make money off ticketed sales and offering a unique Instagrammable experience, such as the Museum of Ice Cream, which attracted more than 500,000 visitors at its locations in New York City, San Francisco, Miami and Los Angeles in 2016 to 2017, according to Cushman & Wakefield. The Museum of Ice Cream also recently signed a 10-year lease for a 25,000-square-foot space in New York City for its first U.S. flagship location.
These experiential pop-ups not only represent a new revenue stream, they can help drive foot traffic to shopping districts and malls by creating an experience that can’t be bought online. While a pop-up can’t magically fix a failing mall — experts say pop-ups work the best in areas with already high foot traffic — they can generate attention and consumer excitement about certain properties.
Tenants in trophy malls or busy shopping districts can expect to pay a premium for a short-term lease compared to long-term lease rates, notes Shannon Dyess, who runs a specialty leasing program for JLL that handles pop-up retail for about 20 major malls across the country. Dyess said she has seen landlord sentiment toward pop-ups change over time.
"Historically, when the [pop-up] program first started, it was more about generating income and while that is still definitely a priority, the landlords are more about creating experiences or getting the customers something they can’t get somewhere else," Dyess said. "I think the pop-up concept will be around for the long term and it would be advantageous for landlords not to go back to the way it was."