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Deck the halls with short-term retailers

Battered by the economy and willing to negotiate, property managers are eager to attract pop-ups

SACRAMENTO, Calif. – Pop-up stores are making their presence felt in time for the holidays.

These short-term outlets – known as specialty retailers in the industry – are not a new concept; holiday mainstay Hickory Farms is one of the oldest examples.

But stores large and small are using the approach to pounce on peak holiday traffic, test-drive new locations or audition for a permanent mall storefront without the costs of a long-term commitment.

And mall landlords battling high vacancy rates in a shaky economy are happy to oblige, offering short-term leases to fill open storefronts.

Even if the shops are temporary, pop-ups are taking vacant space off the market, said analyst Garrick Brown, research director for northern California at real estate firm Cassidy Turley BT Commercial.

“For gift-oriented stores, it makes perfect sense,” Brown said. “Why carry rent for a whole year?”

It made sense for Toys R Us. The chain has aggressively seized on the opportunity to open seasonal “outposts,” or test locations.

The New Jersey-based company opened 90 Toys R Us Express sites nationwide for the holidays in 2009, capitalizing on a market for smaller in-mall toy stores that opened when KB Toys closed shop. Toys R Us has traditionally placed its stores in stand-alone buildings.

This year, Toys R Us will expand the number of Express locations to 600.

Deborah S. Kravitz is a partner at Provenzano Resources Inc., a specialty leasing contractor for clients nationwide, including Sunrise Mall in Citrus Heights, Calif.

Kravitz said there are fewer national pop-ups now than 10 years ago, but eager property managers are looking to make deals with savvy retailers.

“There are not more pop-ups now than before, but since there is more second- and third-generation space available, landlords are allowing deals to be shorter in term,” Kravitz said.

Sunrise Mall has signed 25 retailers to specialty leases through the holidays, nearly a quarter of the mall’s tenants. At some malls, specialty leasing has become an important part of the holiday sales mix, boosting occupancy in a challenging retail climate.

Meanwhile, smaller retailers take advantage of the peak shopping season and lower rent costs to audition to become full-time tenants.

At Sacramento’s Arden Fair mall, tenants work out leases from three months to a year, said specialty leasing manager Rick Momet.

That flexibility gives fledgling tenants the chance to test their business and learn if their product will attract customers.

“It allows new merchants the chance to develop their business and allows them to get in with a lower cost and develop into something that can become a permanent tenant,” said Tod Strain, a senior property manager at Arden Fair, where officials say occupancy is at 100 percent for the holiday shopping season partly on the strength of the temporary retailers.

Amid a struggling retail landscape, analyst Brown sees the trend toward pop-up retail playing a larger role at shopping malls and neighborhood centers, especially in hard-hit regions where a moribund economy and high unemployment continue to squeeze consumers.

“I think you’ll see a permanent change in the retail model,” Brown said. “I think you’ll see more until we see equilibrium in retail vacancy. The largest malls are recovering first, but at neighborhood centers, it may be with us for a while.”