Investments in Pop-up Stores: Alternative Rental Models and Vacancy Risk Reduction 3658428333, 9783658428334

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Alessia Breda Michael Trübestein Matthias Daniel Aepli

Investments in Pop-up Stores Alternative Rental Models and Vacancy Risk Reduction

Investments in Pop-up Stores

Alessia Breda • Michael Trübestein Matthias Daniel Aepli

Investments in Pop-up Stores Alternative Rental Models and Vacancy Risk Reduction

Alessia Breda Hotel Valuation & Advisory CBRE Switzerland Basel, Schweiz

Michael Trübestein Hochschule Luzern Luzern, Schweiz

Matthias Daniel Aepli Hochschule Luzern Luzern, Schweiz

ISBN 978-3-658-42834-1 (eBook) ISBN 978-3-658-42833-4 https://doi.org/10.1007/978-3-658-42834-1 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Gestaltung und Satz: Manuel Gächter, Oberegg Lektorat/Planung: Guido Notthoff This Springer Gabler imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH, part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany Paper in this product is recyclable.

Management Summary

The retail real estate market is estimated to account for approximately 13.0% of the total commercial areas in Switzerland. With the increasing importance of e-commerce sales, the brick-and-mortar retail market is however going through a structural change, whereby the novel Coronavirus has acted as a catalyst of this already ongoing trend. The implications for real estate owners include increasing vacancy rates, shorter rental terms as well as lower rental levels. Despite this market evolution, the disadvantages of e-commerce are likely to prevent online distribution channels from fully replacing brick-andmortar stores, although a shift on how retailers view brick-and mortar stores and what the goals are behind a physical presence in a specific location is observable. In this context, the demand for classic revenue-oriented outlets has decreased while retailers’ need for flexible and innovative retail spaces such as pop-up stores has increased. According to existing studies, while Swiss owners have a positive attitude towards pop-up retailing, it is currently regarded mostly as a marketing tool to attract new tenants or as mean to bridge periods of vacancy. In addition, the pop-up store format has not succeeded in establishing as a business model beyond an alternative to vacancy among real estate owners in Switzerland due to the negative impact of such pop-up stores on the market value of the property. In view of the changing fundamentals of conventional retail contracts and the need for new approaches to develop and manage retail surfaces, this book focuses on two of the four elements currently perceived as the most important sources of risk of pop-up shops, preventing them to become an alternative business model for real estate investors: the negative impact on the market value of the property through lower rental income and higher vacancy risk. Hereby, the research study focuses exclusively on the analysis of temporary retail units situated within a fixed construction in a fixed location, to allow for a direct comparison to classic retail stores. V

Investments in Pop-Up Stores 

Research question one “which alternative rental models can positively influence the rental income of pop-up retail stores?” is answered through the ­application of literature review as a qualitative research strategy. Various metrics for the measurement of pop-up store productivity, derived from the fields of retail real estate productivity measurement as well as marketing sciences, have been selected following an analysis of the primary goals and key success factors of pop-up stores. This study proposes a potential framework for alternative pop-up store rental models based on footfall and customer conversion rates (online and offline). Research question two “which attributes can minimize a pop-up retail store vacancy risk?” is answered through the analysis of expert interviews. A total of four expert interviews was c­ arried out, whereby the poor response rate represents the main limitation to this study. Nevertheless, recurring themes and opinions could be identified confirming the validity of the findings and recommendations. Based on the analysis of the interviews following a two-cycle coding process, a strategic framework for the development and management of pop-up stores from the point of view of real estate investors could be presented. Critically reflecting on the findings and proposed frameworks, key considerations on the availability of data and the need for information transparency, the required shift of market fundamentals in order for the pop-up store concept to establish as a fixed component of a portfolio strategy as well as the potential of the operator model for the management of pop-up retail spaces are elaborated on.

VI

Acknowledgments

We would like to thank everyone that made the publication of this book possible, whether through practical or moral support. In particular, we would like to express our gratitude to our interview p ­ artners and experts in the field of pop-up stores:

• • • •

Tim Budig, brands’n mind Chalid El Ashker, Spacewise (Pop Up Shops) Dr. Stefan Nertinger, OST – Ostschweizer Fachhochschule Bora Özbek, Bikini Berlin

Thank you for your time and valuable contribution.

VII

Table of Contents

Management Summary   . . . . . . . . . . . . . . . . . . . . . . . . . . V Acknowledgments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII List of Abbreviations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XII 1 Introduction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Market Context  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Issue to be Explored  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Objectives of the Analysis – Research Question  . . . . . . . . . . . . . 1.4 Delimitations of the Study  . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 2.2 2.3 2 .4 2.5

1 1 5 8 9

Literature Review  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition and History of Pop-Up Stores  . . . . . . . . . . . . . . . . . Types of Pop-Up Stores  . . . . . . . . . . . . . . . . . . . . . . . . . . . Goals & Challenges of Pop-Up Stores – Retailers’ View  . . . . . . . . Goals & Challenges of Pop-Up Stores – Real Estate Owners’ View . . . Key Success Factors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 11 14 17 21 24

3 Methodology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Research Strategy & Research Design  . . . . . . . . . . . . . . . . . . 3.2 Research Question One: Alternative Rental Models  . . . . . . . . . . 3.3 Research Question Two: Minimization of Vacancy Risk  . . . . . . . .

31 31 32 33

4 Results Alternative Rental Models  . . . . . . . . . . . . . . . . . . . . . . 4.1 Key Performance Indicators  . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Potential Framework for Alternative Pop-Up Store Rental Models  . . 4.3 Challenges  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37 40 46 48

5 Results Minimization of Vacancy Risk  . . . . . . . . . . . . . . . . . 51 5.1 Product Category  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 5.2 Location  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 IX

Investments in Pop-Up Stores 

5.3 Goals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Attributes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 Companies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 Letting Process  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 Pricing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Physical Attributes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 Challenges  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55 56 59 60 61 63 65

6 6.1 6.2 6.3 6.4 6.5 6.6

69 72 72 73 74 75 76

Conclusion & Discussion  . . . . . . . . . . . . . . . . . . . . . . . . . . Data and Transparency are Key  . . . . . . . . . . . . . . . . . . . . . . Shift of Retail Market Fundamentals  . . . . . . . . . . . . . . . . . . . The Potential of the Operator Model  . . . . . . . . . . . . . . . . . . . Limitations of the Study  . . . . . . . . . . . . . . . . . . . . . . . . . . Need for Future Research  . . . . . . . . . . . . . . . . . . . . . . . . . . Final Remarks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bibliography  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Appendices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Appendix 1: Research Question One: Overview of Retained Literature  84 Appendix 2: Overview of Marketing Metrics  . . . . . . . . . . . . . . . 97 Appendix 3: Interview Guides  . . . . . . . . . . . . . . . . . . . . . . . 101 Appendix 4: Interview Transcripts  . . . . . . . . . . . . . . . . . . . . . 106 Authors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

X

List of Tables Table 1: Disadvantages of Online Distribution Channels  . . . . . . . . . . . . . . . . . . . . .

3

Table 2: Advantages and Disadvantages of Vacancy vs Temporary Use  . . . . . . . . . . .

6

Table 3: Advantages and Disadvantages of Conventional Contracts vs Pop-up Model   . .

7

Table 4: Definitions of Pop-Up Stores in a Selection of Academic Literature  . . . . . . . . . 12 Table 5: Typologies of Pop-Up Stores by Construction and Location  . . . . . . . . . . . . . . 15 Table 6: Typologies of Pop-Up Stores by Function   . . . . . . . . . . . . . . . . . . . . . . . . 16 Table 7: Goals of Pop-Up Stores   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Table 8: Interview Partners  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Table 9: Assessment of Retail and Marketing KPIs  . . . . . . . . . . . . . . . . . . . . . . . . 41 Table 10: KPIs of Pop-Up Stores by Goals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Table 11: Strategic Framework for the Management of Pop-Up Stores  . . . . . . . . . . . . 71

List of Illustrations Figure 1: Evolution of Retail Trade Sales Volumes (B2C) in Switzerland (in CHF Bn)  . . . . .

1

Figure 2: KPIs for Surface Productivity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

Figure 3: Classification of Pop-up Stores based on Type of Construction and Location  . . .

9

Figure 4: Pop-Up Retail Activity Types and Objectives  . . . . . . . . . . . . . . . . . . . . . . 18 Figure 5: Pyramid of Pop-up Stores’ Success Factors  . . . . . . . . . . . . . . . . . . . . . . . 25 Figure 6: Pop-Up Stores’ Success Factors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 7: Point of Purchase of Single-Channel Retailers  . . . . . . . . . . . . . . . . . . . . . 38 Figure 8: Point of Purchase of Omnichannel Retailers  . . . . . . . . . . . . . . . . . . . . . . 39 Figure 9: Conceptual Map – Main Themes and Sub-Themes  . . . . . . . . . . . . . . . . . . 52 Figure 10: Conceptual Map – Product Category  . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Figure 11: Conceptual Map – Location  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Figure 12: Conceptual Map – Goals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Figure 13: Conceptual Map – Attributes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Figure 14: Conceptual Map – Companies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Figure 15: Conceptual Map – Letting Process  . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Figure 16: Conceptual Map – Pricing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Figure 17: Conceptual Map – Physical Attributes  . . . . . . . . . . . . . . . . . . . . . . . . . 63 Figure 18: Conceptual Map – Challenges  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

XI

List of Abbreviations B2C DCF GFA IT KPI POS SEO SQM

XII

Business to Consumer Discounted Cash Flow Gross Floor Area Information Technology Key Performance Indicators Point of Sale Search Engine Optimization Square Meters

1 Introduction 1

1.1 Market Context According to an estimate by Wüest Partner, the retail market accounts for approximately 35 Mn sqm GFA , corresponding to ca. 13.0% of the total commercial areas in Switzerland (Schläpfer et al., 2020). With the increasing importance of e-commerce sales, the brick-and-mortar retail market is however going through a structural change, whereby the novel Coronavirus has acted as a catalyst of this already ongoing trend. According to the Gf K Market Monitor Switzerland, while total retail trade sales volume (B2C) in Switzer­ land somewhat stagnated between 2010 and 2019, the online retail trade sales volume (including both domestic purchases and imported goods from foreign companies) increased from CHF 5.1 Bn in 2010 to CHF 14.0 Bn in 2022, at the expense of traditional brick-and-mortar stores. Hereby the share of

Online Retail Trade Volume from Foreign Companies Online Retail Trade Volume Switzerland Retail Trade Volume Switzerland

98.6

101.2

104.4

104.6

12%

11%

95.2

95.9

96.4

96.9

96.2

95.5

96.5

97.4

5%

5%

6%

6%

6%

7%

7%

8%

8%

95%

94%

94%

93%

93%

93%

92%

91%

90%

90%

87%

86%

87%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

96.7 5%

11%

Figure 1: Evolution of Retail Trade Sales Volumes (B2C) in Switzerland (in CHF Bn) Own illustration based on BFS and GfK Data (GfK et al., 2023)

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1_1

1

Investments in Pop-Up Stores  

e-commerce sales increased from 6% to 13% of total retail trade ­volume in Switzerland. COVID -19 and the government-imposed lockdown between mid-March and mid-May 2020 accelerated this trend. In fact, e-commerce sales increased by CHF 2.8 Bn between 2019 and 2020 (corresponding to an exceptional growth rate of 27.2%) and by CHF 1.3 Bn between 2020 and 2021 (+9.9%), in both years mainly driven by sales growth from Swiss domains (Gf K et al., 2022). This trend is line with the findings of the survey of Fuhrer und Hotz1 and the expected market development of the survey respondents for 2022, whereby 80% of the respondents also plan to adjust their available retail areas in 2023 (vs 53% in 2020) (Hunziker et al., 2023). 1.1.1 Implications for Real Estate Owners There are various consequences of the ongoing market evolution for real estate owners and developers. In addition to a reduction of the overall development volume of retail areas, a continuous reduction in the number and size of existing retail stores (particularly in touristic municipalities, centres, and high-income municipalities) is noticeable (Fuhrer et al., 2020) (C. A. El Ashker & Nertinger, 2019). The latter is also driven by the increased conversion of existing ground floor areas to alternative uses (such as hair salons and cosmetic studios, restaurants, office, etc.). In fact, Credit Suisse estimates that in 2017 only 20% of the vacant retail areas have been relet to retailers (Fuhrer et al., 2020). The probably most feared implication is the increase of the vacancy rate, a­ lthough the location of the asset plays a central role. On one hand large Swiss cities and A-locations such as high-streets seem to feature a higher degree of stability with very low vacancy levels (with regards to high-streets as at Q1 2023 these range from a low of 0.8% in Zurich to 3.2% in Lausanne resulting in an average vacancy rate of 1.7% 2)(CBRE, 2023). On the other hand, with the consolidation of spaces and streamlining of store networks 1

2

2

The 15th edition of the survey was carried out between September and November 2022. Over 130 decision-makers working for leading Swiss retail companies and important ­manufacturing partners were asked on the course of business in 2022 as well as their ­expectations and planned measures for 2023. The figure does not include areas which are under construction or under refurbishment.

  Introduction

as well as the f­ocus on flagship stores in locations characterized by a high footfall, demand from retailers for B- and C-locations is substantially reduced (CBRE, 2020). The danger of this spiral is that, in the long term, lower frequencies, fewer stores and vacant spaces will lead to a reduction in the quality of stay in city centres (Fuhrer et al., 2020). In line with Alfred Marshall’s law of supply and demand, this development has put increasing pressure on rents, which have been on a decreasing trend since 2012 nearly reaching the levels of 1996 (Schläpfer et al., 2020). Prime locations such as Bahnhofstrasse in Zurich and Rue du Rhône in Geneva are the exception to this phenomenon, although also in these locations only the central sections of the streets could maintain the historically high rental levels (CBRE, 2020). 1.1.2 The New Purpose of Brick-and-Mortar Stores As illustrated in the following table, while e-commerce poses a threat to the retail real estate market, its disadvantages are likely to prevent online distribution channels from fully replacing brick-and-mortar stores (CBRE, 2019). In addition, studies show that the physical presence raises local brand awareness, which in turn leads to an increase of online revenues, further supporting the importance of brick-and-mortar stores (Dennis, 2018).

Table 1: Disadvantages of Online Distribution Channels (Heinemann, 2019) Consumers’ point of view

Retailers’ point of view

• Missing direct physical contact with the products

• High technical efforts, also leading to slow achievement of an ROI

• Missing social dimension during the shopping experience

• Increased competition due to the spatial and temporal freedom as well as the high price transparency

• Possible difficulties in case of complaints • Security / trustworthiness of the payment process • Minimum purchase amount and additional costs

• Increased competition driven by big players from unrelated industries (ex: Amazon) • “Free-rider” risk 3 & regulatory risks • Dependency on Google

3

Consumers taking advantage of the customer service in a physical store and ordering the product online from the cheapest supplier.

3

1

Investments in Pop-Up Stores  

Nevertheless, there is a gradual shift on how retailers view brick-and-mortar stores and what the goals are behind a physical presence in a specific location. While sales density4 is still an important aspect, physical stores have increasingly become a marketing tool, a communication channel and a physical touchpoint between brand and consumer, whereby brands can differentiate from each other through the in-store experience (CBRE, 2019). Market developments such as a differentiation of store formats (ex: popup Ikea store at Zürich Bahnhofstrasse in 2017 and at Zürich main station in 2021), an increasing demand from brands and non-retailers for physical outlets (ex: “Gatezero” concept store at Zurich Airport operated by fashion blogger Highsnobiety) as well as demand from pure on-line retailers for physical outlets as a touchpoint (ex: Amazon “Loft for Xmas” pop-up stores around Europe) can be observed (C. A. El Ashker & Nertinger, 2019). This phenomenon also affects the previously mentioned high streets, which are increasingly being used as a brand-building tool (Wüst, 2018).

Footfall

62%

Customer Retention

51%

Customer Satisfaction

46%

Conversion Rate

44%

Length of Stay

44%

Revenue Development

43%

Revenue per sqm Revenue per Employee Experience per sqm

37% 25% 22%

Figure 2: KPIs for Surface Productivity (Fuhrer et al., 2020)

Consequently, there is also a shift in how the productivity of a store is measured. Since the actual sale of products is increasingly becoming of secondary importance in physical stores, typical marketing KPIs such as footfall, customer retention and satisfaction are currently considered more important indicators compared to the traditional KPI revenue per sqm (Fuhrer et al., 2020). 4

4

Annual turnover per sqm.

  Introduction

1.1.3 Changing Retailers’ Requirements The demand for classic revenue-oriented outlets has therefore decreased while retailers’ need for flexible and innovative retail spaces has increased (Fuhrer et al., 2020), which has a direct impact on how real estate owners approach the management of retail spaces. According to a study published by the ZHAW School of Management and Law, while half of the surveyed omnichannel retailers believe that the increasing competition from e-commerce will lead to a further reduction of brick-and-mortar shops, one third of the respondents believe in new shop formats such as showrooms, click and collect, pick-up, experiential and advisory shops, self-service shops, and pop-up shops (Zumstein et al., 2021). In particular, pop-up stores have gained popularity as a flexible contractual form and as a tool for retailers, amongst others, to increase brand awareness, maintain face-to-face contact with customers or test new product lines (Gursch & Gursch, 2014). This concept is also expected by experts to become a permanent element of the retail economy (Yu et al., 2018). The phenomenon has also been recognized by real estate owners, whereby the availability of flexible retail areas5 in Switzerland has more than doubled between 2016 and 2019 (3.8% of the total online available retail areas as at Q2 2019) (Fuhrer et al., 2020).

1.2 Issue to be Explored According to existing studies, while Swiss owners have a positive attitude towards pop-up retailing, it is currently regarded mostly as a marketing tool to attract new tenants or as mean to bridge periods of vacancy (von MeissLeuthold, 2020). This has led to the launch of the research project “Pop Up City” by the FHS St. Gallen in cooperation with the cities of Zurich and St. Gallen. The scope of the project, which is funded by Innosuisse, is to “identify the potential of pop-up stores to increase the attractiveness of Zurich’s city centre and neighbourhood centres. (…) The core of the research project will be the development of an algorithm for matching supply and demand of pop-up 5

Flexible retail areas include areas with a flexible, short-term, or limited rental term as well as Pop-up stores, Concept-stores, event spaces or similar.

5

1

Investments in Pop-Up Stores  

Table 2: Advantages and Disadvantages of Vacancy vs Temporary Use (C. A. El Ashker & Nertinger, 2019)

Vacancy

Temporary Use (such as pop-up)

Advantages

• Immediate availability for ­long-term tenant

• Rental income (conservative market rent) • Avoidance of vacancy and the negative effect on location attractiveness

Disadvantages

• No rental income • Ancillary costs • Damage risks and potentially security costs

• Residual risk due to subordination to tenancy law

Impact on Property Value

• Negative impact due to vacancy and ancillary costs • Risk of impairment due to Trading Down • Risk of impairment due to image / reputation damage

• Positive impact due to the availability of rental income • Opportunity to increase the property value through upgrading of the location

stores through testing and evaluation in Swiss city centres using a comprehensive process model” (Pop Up City Zürich, n.d.). For real estate owners, pop-up stores are in fact a viable and attractive temporary alternative to vacancy, in particular due to the positive effect on the property value. Despite its increasing popularity, the pop-up store format has however not established as business model beyond an alternative to vacancy among real estate owners in Switzerland. The reason for this lies primarily in the negative impact of such pop-up stores on the market value of the property through lower rental income, higher management costs as well as the increased uncertainty with shorter rental terms and higher tenant fluctuation compared to conventional retail contracts (von Meiss-Leuthold, 2020). In addition, the higher fit-out requirements lead to additional costs for the owner. While the pop-up concept is widely applied in shopping centres, whereby it enables to provide variety to customers and increase footfall, the minimization of risk and the focus on rental levels prevail over sector mix for stand-alone shops outside shopping centres (Mathis, 2021). 6

  Introduction

Table 3: Advantages and Disadvantages of Conventional Contracts vs Pop-up Model

Conventional Contracts

Pop-up Model

Advantages

• Long-term contracts • Rent at market level

• Flexible contractual form in line with current market requirements (Fuhrer et al., 2020) • Changing offer provides variety to consumers (Mathis, 2021) • Potential solution to meet the needs of flexibility, adaptation and resilience of a city (Bertino et al., 2019)

Disadvantages

• Risk of vacancy at the end of the term / potential time lag in the reletting process • Changing market environment: uncertainty around the attractivity of the surface at the end of the leasing term, leading to an adjustment of market rent level

• Lower rental levels (Mathis, 2021) • Higher administration and management efforts (von Meiss-Leuthold, 2020) • Higher vacancy risk due to shorter rental term and higher tenant fluctuation (von Meiss-Leuthold, 2020) • Higher fit-out costs (Mathis, 2021)

Impact on Property Value

• Rent at market level • Provision for structural risk and vacancy period at the end of the term

• Negative impact due to lower rental level, higher management costs, vacancy risk and fit-out costs

1

Nevertheless, when assessing the advantages and preconceptions of conventional retail contracts, current market developments need to be taken into consideration. In fact, not only have market rents been on a decreasing trend (as discussed in chapter 1.1.1), but also the average term of conventional contracts has decreased. Between 2013 and 2018 the number of contracts with a duration of less than five years has nearly doubled, whereby the tendency is towards a higher general tenant fluctuation (von der Ohe & Frey, 2020). The ongoing pandemic has in addition further reduced the likelihood of s­ ecuring long-term contracts and has further increased the need for flexible retail spaces (Mathis, 2021). In view of the changing market environment, the question thus arises whether the disadvantages of pop-up stores feature such a substantial risk premium compared to conventional retail contracts, leading to a material negative 7

Investments in Pop-Up Stores  

impact on the property value, and whether alternative frameworks for the management of these risks would increase the overall attractivity of pop-up stores as an alternative business model.

1.3 Objectives of the Analysis – Research Question In view of the changing fundamentals of conventional retail contracts and the need for new approaches to develop and manage retail surfaces, this bookfocuses on two of the four elements currently perceived as the most important sources of risk of pop-up shops, preventing them to become an alternative business model for real estate investors: the negative impact on the market value of the property through lower rental income and higher vacancy risk. In an attempt to answer the following research questions: Research question one:  hich alternative rental models can positively influence the rental W ­income of pop-up retail stores? Research question two: Which attributes can minimize a pop-up retail store vacancy risk?

The following aspects will be researched: • Definition of criteria for the development of alternative rental models for pop-up stores, based on an analysis of the underlying drivers of such pop-up stores (such as increasing brand awareness) along with their key performance indicators (such as footfall). • Identification of key attributes (such as required store fit-out) to increase the flexibility, attractiveness and efficiency of a retail surface and therefore to minimize the vacancy risk premium of short-term rentals vis-à-vis traditional retail stores. The goal of this research is to determine a framework for the development and management of pop-up stores for real estate investors, which maximizes rental income and minimizes risk. Such framework could potentially allow investors to consider pop-up stores in their retail real estate portfolio beyond a temporary strategy to counteract periods of vacancy. 8

  Introduction

1.4 Delimitations of the Study The pop-up concept is applied across different industries. Pop-up restaurants and bars, pop-up hotels, pop-up art galleries are just a few examples. The research will however only focus on the retail sector, including all its sub-sectors. As thematized in previous studies, pop-up stores are characterized by a socalled “spatial flexibility” due to their wide range of contexts and physical manifestations. The existing literature distinguishes between nomadic popups and those establishing in a vacant space (Warnaby & Shi, 2018). A more detailed distinction subdivides these into different categories based on their design / type of construction as well as their mobility / location as illustrated in the following figure (Yu et al., 2018).

Fixed Construction

Fixed Stand alone store

Pop-in Store Collaborative pop-up

Mobile Location

Fixed Location

Kiosk / Cart Nomad Store

Mobile Stand alone store

Invisible pop-up

Guerrilla Store

Virtual wall

Mobile Construction

Figure 3: Classification of Pop-up Stores based on Type of Construction and Location Own illustration based on the classification of Yu et al. (2018)

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This book focuses exclusively on the analysis of temporary retail units situated within a fixed construction in a fixed location, to allow for a direct comparison to classic retail stores. While pop-up stores within shopping centres and transportation hubs would also fall into this category, these are assessed differently by real estate owners (as discussed in chapter 1.2) and will therefore not be included in the research study. Finally, while this study will draw upon existing international literature, the scope is to develop a framework specific for the Swiss market.

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2 Literature Review 2

2.1 Definition and History of Pop-Up Stores Despite the popularity of the concept and the increasing amount of academic research on the topic, there still is no single definition for the term “pop-up store” to be found in the literature. The following table summarizes a selection of the academic definitions attributed to the term. It can be stated that in the literature the term pop-up stores is linked to the disciplines of experience and event marketing as well as three-dimensional brand staging (Kastner, 2015). In line with the findings of Warnaby & Shi (2018), four key dimensions associated with the term pop-up stores can therefore be identified:

• Experiential: the definition of pop-up stores as an interactive marketing tool (rather than a sales channel) is often found in the literature. Through a brand-specific design and in-store experience, the main goal is to engage customers and create an emotional connection with the brand. • Temporal: among the different definitions there is a consensus on the temporary nature of pop-up stores (from a few days to one year), to create a sense of product scarcity and thus urgency for customers. • Promotional: by leveraging on the experiential and temporal dimension through extensive communication campaigns and ideally customers’ word of mouth, pop-up stores have the potential (and the purpose) to increase brand awareness. • Spatial: pop-up stores can adopt a variety of forms, whereby a main distinction is made between nomadic stores and those establishing in a ­vacant space as described in chapter 1.4. A more detailed description of these different forms will follow in the next chapter.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1_2

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Table 4: Definitions of Pop-Up Stores in a Selection of Academic Literature Definition

Key Elements

“Pop up shops, also known as guerrilla stores and retail installa­ tions, are evidence of creative and enterprising methods of marketing communications, which has gone beyond traditional print and broadcasting mediums wherein their primary aim is to build brand awareness, making sales is a secondary function.” (Marciniak & Budnarowska, 2009)

• Marketing & ­communication tool • Build brand awareness

“A pop-up store is a temporary three-dimensional presentation of a brand, including sales (retail concept), usually limited to a single location. In this context (1) a brand-authentic store design, (2) product-related scarcity tools, (3) an experience-oriented, interactive entertainment program, and (4) the use of viral marketing techniques should contribute to the achievement of long-term, strategic communication and brand objectives and the realization of short-term, operational sales targets.” (Baumgarth & Kastner, 2012)

• Temporary • Experience-oriented • Interactive • Achieve communication and brand objectives • Achieve sales targets

“A pop-up store is the temporary presentation of a brand at a specific location using interactive and experiential marketing tools.” (Gursch & Gursch, 2014)

• Temporary • Interactive • Experience-oriented

“(…) some general characteristics that define popup retailing can be identified. These include: (1) a highly experiential in-store environment, which is discovery-driven and designed to facilitate consumer engagement with the brand, (2) a focus on promoting a brand or product line to create a “buzz”, (3) availability for only a limited period, to create a sense of urgency and stimulate purchase or other action, where pop-up retailing may be better conceived of in terms of an event.” (Warnaby et al., 2015)

• Experience-oriented • Facilitate consumer engagement • Brand promotion • Temporary • Event

“A temporary location designed to engage customers directly for the purposes of generating brand awareness, selling seasonal goods, testing new products and markets or responding to local needs.” (Yu et al., 2018)

• Temporary • Engage customers • Generate brand awareness • Test new products

“Temporary use of commercial / retail areas with rental contracts of less than 1 year.” (C. A. El Ashker & Nertinger, 2019)

• Temporary

“(…) From this definition, it emerges immediately that the term describes a temporary activity that can refer to different events and situations, generally including a series of contexts concerning architectural, artistic, economic, and social aspects.” (Bertino et al., 2019)

• Temporary • Event

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The lack of clarity on the definition of the term pop-up stores can not only be observed in the academic literature but also among real estate market players in Switzerland, as identified in a recent research study. There is nevertheless some consistency with regards to the temporal as well as the experiential and promotional dimensions. The main understanding of the concept in the ­market in fact refers to “the lease of a retail space as a temporary use for a period of less than one year”. A less frequent but also prevalent association is made to the “conceptual understanding as a marketing instrument for retailers and manufacturers” (von Meiss-Leuthold, 2020). The original concept of pop-up retailing dates back as far as the Middle Ages. Travelling merchants visiting markets in various geographies on a seasonal or periodic basis are the first example of flexible and temporary retail concepts, whereby the focus was to introduce new products to customers in ­order to sell as much stock as possible. Since then, pop-up retailing has evolved into a more sophisticated and comprehensive concept with a much greater focus on the experiential and emotional dimensions as identified in the analysis of the different definitions associated with the term (Yu et al., 2018). When and where exactly the contemporary pop-up concept was introduced remains unclear. There are however a few examples of companies and individuals around the globe that are believed to have pioneered the development of this concept, whereby interestingly enough such individuals had an event management rather than a retail background. The origins of pop-up stores as known today are thus believed to have first been introduced by (“Die Geschichte des Pop-Up-Stores,” n.d.):

• event manager Patrick Courrielche, who in 1997 opened a fashion one-day store (later known as the one-day “ultimate hipster mall”) in Los Angeles • event manager Russel Miller, who in 1999 realized by chance the potential of instating a sense of urgency among customers with his store V ­ acant in Tokyo and who subsequently opened an official pop-up store in New York in 2000 and created pop-up boxes placed at airports and other traffic hubs • Japanese fashion label Comme des Garçons, which in 2003 opened various guerrilla stores in the UK and across Europe. Comme des Garçon played a key role in shaping and increasing the awareness of the pop-up concept in the following years by opening 37 pop-up stores across the globe ­between 2004 and 2009 13

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Overall, it can be determined that the concept emerged and significantly gained popularity in the early 2000s primarily in the US and the UK (which are considered the pioneers in this industry) as it met the demands of highspeed shopping, customer’s shorter attention spans and the increasing need for variety and flexibility in the retail industry (Warnaby & Shi, 2018). In addition to changing consumer trends, the growth of the pop-up segment was also fuelled by the increase of vacancy rates as a consequence of the Great Financial Crisis in 2008 / 2009 (Davis & Evans, 2014). In Switzerland, the first online platform (popupstore.ch) for the short-term rental of retail space was founded in 2007 (Knopf, 2017). With the changing consumer behaviour, trends such as data-driven retail, increased in-store technology as well as the so-called experiential retail have emerged. The latter in particular is fuelling the growth of the pop-up segment, which is estimated to have become an industry worth USD 10 billion per year (Springwise, n.d.).

2.2 Types of Pop-Up Stores As proposed by the existing literature, there are various ways in which different types of pop-up stores can be classified. A simple distinction is made based on locational aspects between nomadic pop-up stores, constantly changing their location, and stores moving into an existing vacant space for a certain period of time (Beekmans & Boer, 2014). What in the literature is defined as locational fluidity is in fact characteristic of pop-up stores as this level of flexibility manifests in both the spatial and temporal dimensions. With the continuous technological advancements, locational fluidity is also complemented by an additional technological dimension representative of the hybrid retail concept, combining the brick-and-mortar with the online experience (Surchi, 2011). As summarized in chapter 1.4, Yu et al. (2018) propose a more detailed classification, differentiating between concepts based on their design / type of construction and their level of mobility / type of location. This classification scheme focuses on the physical attributes of pop-up stores. An alternative method classifies different concepts based on their function and strategic goals, whereby Pomodoro (2013) identified four conceptual

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Classification by mobility / location

Classification by design / construction

Table 5: Typologies of Pop-Up Stores by Construction and Location (Yu et al., 2018) Typology

Characteristics

Short-Term Standalone Store

Can be mobile or fixed and be located indoors or outdoors

Short-Term Kiosk

Usually in the form of a cart, placed in a high traffic area

Pop-In Store

Store-within-a-store

Invisible Pop-Up

With the aid of virtual reality and geo-location technologies, customers can use their own mobile devices to interact with the brand

Virtual Wall

Wall used as a virtual 3D catalogue to incentivize QR-based shopping; usually located in a high traffic area

Collaborative Pop-Up

A third-party company rents a space, which is in turn sublet to various independent businesses as a cooperative

Guerrilla Store

Inspired by guerrilla marketing techniques; tend to employ non-conventional marketing tools in non-conventional urban settings to surprise customers with a unique shopping experience

Nomad Store

Usually in the form of a van, shipping container or store-on-wheels format with the idea of frequently changing location in order to increase customer reach

Pop-Up in Shopping Malls

Can be both a short-term standalone store or a short-term kiosk within a shopping mall

and theoretical categories. In contrast to the previous classification, this method disregards the physical manifestation of pop-up stores. Built on the above academic classification methods, Warnaby and Shi (2018) suggest a further classification scheme based on function (either transactional with a focus on achieving sales targets or promotional with a focus in increasing brand awareness) and brand organisation (either established or emergent brands). Like the previous classification method, this scheme also disregards the physical manifestation of pop-up stores.

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Table 6: Typologies of Pop-Up Stores by Function (Pomodoro, 2013) Typology

Characteristics

Concept Brand Store

Temporary flagship store with a higher degree of interaction with consumers to create a personalized experience. The focus of a concept brand store is to increase brand awareness, develop brand image and creating a connection between the consumer and the brand values.

Community Store

The main goal is to create and strengthen the emotional connection between the consumer and the brand as well as to increase the sense of belonging to the brand community. The community store rather becomes a social event with events and happenings aiming at creating opportunities for exchange between brand and consumer.

Test-Store

The store is used as a market research tool to test a new brand concept, a new product line or test a new market. Interactive tools are applied to collect data on customers’ feedback and behaviour.

Sustainable Temporary Store

Stores focused on eco-sustainability, which evolved from more traditional mobile marketing formats (such as stands or kiosks) and which are enhanced by additional marketing elements to create a more articulated communication action.

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2.3 Goals & Challenges of Pop-Up Stores – Retailers’ View 2.3.1 Goals In addition to spatial flexibility the concept is also characterized by its strate­ gic flexibility (Warnaby & Shi, 2018). The motives behind the opening of a pop-up store from the point of view of retailers has been extensively researched. While a more ideological view is that pop-up stores denote a revo­ lutionary movement within the industry to challenge the status quo (Picot-­ Coupey, 2012), there seems to be a general consensus on the drivers of this concept, which are mostly of a long-term strategic nature. In fact, economic goals are considered of secondary importance compared to communication and marketing elements such as brand awareness, brand image and consumer inspiration (Marciniak & Budnarowska, 2009) (Baumgarth & Kastner, 2012). Gursch and Gursch (2014) summarize the various goals found in the existing literature into four categories.

Table 7: Goals of Pop-Up Stores (Gursch & Gursch, 2014) (Warnaby et al., 2015) Long-Term Strategic Goals Brand Goals

Long-Term Strategic Goals Communication Goals

Pop-up as a strategic branding and customer loyalty / retention tool • inspire visitors: making the brand an authentic experience for consumers • create brand loyalty • achieve brand differentiation • build a positive brand image • increase brand awareness

• establish direct contact with customers through interactive elements • interaction / engagement between brand and consumer • build brand communities • experiential marketing tactics combined with atmospherics of the physical space to influence consumer perception of brand values

Short-Term Economic Goals Sales Goals

Other Goals Market Testing

• sell-off of previous collections / products • maximize sales through direct sales during specific periods (e.g. Halloween, Christmas, etc.) • maximize sales through the generation of future purchase intention

• gain market intelligence on new products / markets in response to changing shopping habits • test sales opportunities of new products • test new store formats and locations • market entry

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Warnaby et. al (2015) classification of pop-up stores’ objectives is aligned to the summary provided by Gursch & Gursch (2014) as well as the pop-up ­typologies proposed by Pomodoro (2013) discussed in chapter 2.2, considering communicational (brand goals), experiential (communication goals), transactional (sales goals) and testing objectives (other goals). The authors also proceed in proposing four pop-up store stereotypes, characterizing their orientation and activities, whereby the described objectives are what they are measured against. In this context communicational, experiential and testing objectives are primarily evaluated in terms of attitudinal, involvement and affect responses of consumers while transactional objectives are measured through purchasing levels and patterns. In reality the proposed objectives and stereotypes are not mutually exclusive and retailers can (and usually do) simultaneously pursue more than one strategy (Warnaby et al., 2015).

TESTING

TRANSACTIONAL

Market Tester

Brand Pantheon Tribal Gathering

EXPERIENTIAL

Product Showcase / Anthology

COMMUNICATIONAL

Figure 4: Pop-Up Retail Activity Types and Objectives (Warnaby et al., 2015)

• Product Showcase /Anthology: the focus is on the product itself, whereby the main goal is to provide customers with details on its attributes and benefits. The store environment is therefore designed to highlight the product • Brand Pantheon: the focus is on celebrating and promoting the brand. The store interior design is used to communicate the brand values through visual merchandising and multisensory marketing techniques 18

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• Tribal Gathering: the focus is on strengthening the sense of belonging to a community around the brand through a high level of entertainment within the store • Market Tester: the focus is on enabling the testing of new products / brands or testing the market potential of new geographies. The interaction with consumers to collect customer feedback is hereby crucial Yu et al. (2018) also introduce an additional category referring to institutionally organized pop-up stores. In addition to brand’s specific goals as outlined above, their purpose is primarily to revitalize local communities and promote the economic redevelopment of a neighbourhood, in an attempt to reduce vacancy rate and increase footfall. However, studies have found that the quality of the location is a very important aspect for the success of pop-up stores and that their use as a tool to upgrade and requalify neighbourhoods is not appropriate due to the limited ability to induce foot traffic (Fuhrer et al., 2020). The findings on retailers’ motives to open a pop-up store in Switzerland are somewhat in line with the academic literature, with a predominance of testing-driven objectives. The testing of new concepts and products, the market entry for start-ups and online retailers as well as the use of a pop-up store as a marketing tool for established businesses to create unexpected experiences have in fact been named as the main reasons / objectives (Fuhrer et al., 2020). Additional, more economic-driven objectives such as the temporary meaningful use of vacant space, the generation of additional frequency (Fuhrer et al., 2020) and saving money (as pop-up stores are estimated to be 80% cheaper compared to traditional real estate stores) (Storefront, n.d.) have also been mentioned. 2.3.2 Challenges According to a recently published research study6, while the large majority of the survey respondents (mostly based in the US) considered the opening of a pop-store a success, 19% of the survey respondents provided a negative 6

The survey was carried out in 2020 and collected information from 545 respondents. Of these, 290 respondents (on which the analysis is based on) confirmed that they had ­previously made use of a temporary storefront or a pop-up store.

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perspective (Rosenbaum et al., 2021). As discussed in chapter 2.1, the temporal dimension is a key defining element of pop-up stores. At the same time, the temporary nature of this concept also poses some challenges that retailers need to overcome. Technological Infrastructure and Equipment: The typical technological requirements of a pop-up store include a fast and reliable internet connection with a private Wi-Fi network, a POS device, cameras for surveillance as well as other operating equipment such as a receipt printer. Substantial technological investments are usually considered in a traditional retail store, however, the procurement and installation time, the cost to acquire the IT infrastructure as well as the duration of service contracts (usually 12 months) pose a challenge for pop-up stores due to their short-term nature, whereby the investment cannot be amortized over a long period of time. Failing to secure the necessary technological equipment, as for example a fast internet connection (which in turs allows to accept card payments) can be detrimental for sales and could represent a security concern (Davis & Evans, 2014). Location and Lease Duration: Securing the right location for the brand is one of the most important factors for brick-and-mortar retail stores in general, whereby the focus is on locations with a high level of footfall and most importantly on areas with a representation of the relevant target market (Davis & Evans, 2014). A wrong location with limited foot traffic has in fact been found to be one of the main reasons why pop-up stores fails to succeed from a strategic perspective, as the pop-up store per se will not generate additional traffic without substantial communication and promotional efforts (Rosenbaum et al., 2021). The requirements in terms of location for a specific brand mainly depend on the goal of the pop-up store and the target demographic is (Yu et al., 2018). In Switzerland, approximately 75% of the advertised pop-up spaces are situated in urban centres, which is in line with retailers’ requirements. In fact, locations with a high level of footfall (such as train stations), high streets and trendy neighbourhoods are considered the areas with the highest potential for pop-up stores (Fuhrer et al., 2020). In addition to finding the right location, pop-up stores face the challenge of finding real estate owners willing to offer short-term leases (Davis & Evans, 2014). This aspect is also true for the Swiss market: according to the survey carried out by Fuhrer & Hotz, retailers require a higher level of flexibility with regards to rental conditions such as the duration of the contract (Fuhrer et al., 2020). 20

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Costs: The main costs incurred when opening a pop-up store include fixed costs (rent, security deposit, utilities, insurance, permits), staffing & operation (POS & credit card fees, staff, cleaning & maintenance), marketing (promotion, brand collateral) and the store fit-out (furniture & décor, w ­ indow displays, food and drinks). As mentioned in the previous chapter, one of the benefits of pop-up stores is the cost saving potential (Storefront, n.d.). Somewhat contradictory are the findings of the survey among Swiss retailers. More than half of the respondents in fact see a limited cost-benefit relation due to the high coordination effort required (Fuhrer et al., 2020). This view was also confirmed by a recent survey, whereby some respondents also mentioned the difficulty to measure and prove the ROI as well as the marketing budget required to secure the success of the pop-up store (Rosenbaum et al., 2021). Since the investment cannot be spread over a long period of time, it becomes evident that managing costs is key (Davis & ­Evans, 2014). A possible solution to this challenge, according to retailers, lies in the flexibilization of the basic store infrastructure made available by owners (Fuhrer et al., 2020). Planning: Strategic internal planning as well as securing the necessary operating permits can be a time-consuming process, which, if not done properly, can lead to additional costs during operation (Davis & Evans, 2014). In particular, the legal requirements in Switzerland are associated with a relatively high level of effort and costs for pop-up stores (von Meiss-Leuthold, 2020).

2.4

Goals & Challenges of Pop-Up Stores – Real Estate Owners’ View

As the mitigation of risks for real estate owners is the focus of this research, the goals and challenges from a landlord’s point of view have already been introduced in chapter 1.2. The following sub-chapters thus outline the previously mentioned points in greater detail, although the amount of academic research from the point of view of real estate owners is extremely limited. 2.4.1 Goals The main driver for owners to consider short-term rental agreements for pop-up stores is the vacancy rate. In fact, according to a recent study among 74 Swiss investors and property managers (of which 62% already have 21

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experience with pop-up stores), using pop-up stores as a mean to bridge periods of vacancy has resulted to be by far the prevalent reason (von MeissLeuthold, 2020). Likewise, using pop-up stores as an alternative to vacant areas and therefore as a temporary measure to limit revenue loss (Rosenbaum et al., 2021) is the most common reason found in the literature for different geographies. While limiting revenue loss is the primary and direct effect of bridging ­periods of vacancy with a pop-up store, further indirect positive effects can be observed. Empty stores can have negative effects on a short-term (negative impact on the image of the building as well as the neighbourhood and thus loss in attractiveness of the location) and long-term basis (reduction in the likelihood of attracting a long-term tenant, negative impact on property values). Therefore, maintaining the image of the building and the neighbourhood are indirect goals, which can support in maintaining stable property values, increasing the chances of finding a new long-term tenant as well as supporting urban revitalization and societal well-being (Rosenbaum et al., 2021) (Schulz, 2017) (Vögeli, 2021). Hereby, with regards to owner’s expectations from a pop-up store in Switzerland, image enhancement for the destination seems to be more important than preventing vacancy to limit revenue loss (von Meiss-Leuthold, 2020). Given the extensive marketing efforts associated with a pop-up store, the property and the neighbourhood indirectly benefit from the increased visi­ bility and ideally the increase in footfall (Shindleman, 2018), although as mentioned previously, the pop-up store concept is not a suitable tool to ­induce foot-traffic in weaker locations. In connection to this (combined with the goal of image building), Swiss investors also regard pop-up stores as a marketing tool to attract new, long-term tenants (von Meiss-Leuthold, 2020). This strategy is in fact often applied in the case of multi-tenant properties, which have for example recently undergone a full refurbishment or repositioning, to prove the attractiveness of the location, generate traffic in the building and therefore facilitate the letting process (M. Dressen, per­ sonal communication October 7, 2021). Further secondary goals include the increase of footfall through the creation of variety (Rosenbaum et al., 2021) (von Meiss-Leuthold, 2020) and the ­expansion of the tenant portfolio (Schulz, 2017). 22

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2.4.2 Challenges The main challenges for real estate owners are of a financial nature and ­include higher fit-out costs (Mathis, 2021), the uncertainty of permanent occupation due to the higher tenant fluctuation, higher management costs (in association with the shorter rental term and the more frequent change of tenants), the lower rental level compared to a conventional retail contracts and finally the valuation uncertainty due to the lack of long-term contracts (von Meiss-Leuthold, 2020). All the above-mentioned elements have an impact on the market value of the property. Investment properties are valued using the DCF-Method, which “involves projecting estimated cash flows over an assumed investment holding period, plus an exit value at the end of that period, usually arrived at an allrisks yield basis. The cash flow is then discounted back to the present day at a discount rate (also known as desired rate of return) that reflects the perceived level of risk.” (RICS, 2010). On one hand, revenue and cost components such as rental income, fit-out contributions and management costs have a direct impact on the cash flow. On the other hand, the higher level of uncertainty is considered in the determination of the discount rate, which should reflect the time value of money as well as a risk premium, representing compensation for market and property-specific risks (RICS, 2010). The discount rate is based on the capital asset pricing model (CAPM), including a market or systematic risk (which cannot be eliminated through diversification) and specific risk (unique to each asset and uncorrelated to the market) (RICS, 2010). Since CAPM is a statistical method not applicable to real estate due to the lack of data to draw statistically relevant conclusions, discount rates for real estate are determined using the built-up ­method (Scognamiglio, 2006). The built-up method considers the following risk drivers:

• Risk-free rate: usually 10-year government bond • Market risks: illiquidity upon sale, failure to meet market rental expectations, failure to meet market yield expectations, risk of locational, economic, physical, and functional depreciation through structural change, risks associated with legislative change 23

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• Specific risk: Tenant default on rental payment (covenant risk), risk of failure to re-let (vacancy risk), costs of ownership and management, differing lease structures Given the impact on the specific risk, the discount rate for pop-up stores results higher compared to conventional retail agreements, leading to a negative impact on market value. However, when comparing the cash-flow of pop-up stores compared to vacancy, the impact on the market value is ­positive, which is why pop-up stores are primarily used as a mean to bridge periods of vacancy as discussed in chapter 2.4.1.

2.5 Key Success Factors The performance of retail stores is driven by external factors such as the ­ arket environment in which the property is located (population and socio­ m economic characteristics) as well as internal factors such as the micro-­ marketing strategy adopted (level of service, store hours, etc.) (Kumar & Karande, 2000). These elements are also applicable to pop-up stores. Never­ theless, the strategic framework to plan, execute and measure the success of pop-up store requires a more holistic approach. There are various academic studies that describe the drivers of pop-up stores’ performance. The frameworks proposed by Gursch and Gursch (2014) and Kastner (2015) are probably the most comprehensive ones. Gursch and Gursch (2014) developed a success factors’ pyramid as shown in the following illustration, outlining ten essential factors for the success of pop-up stores. Essential Criteria

Not every product is suitable for a pop-up store format. By using the Foote, Cone & Belding grid (FCB grid model), which is a tool used to classify products based on the emotional attachment of customers as well as to classify customers themselves based on their involvement with a purchase decision (high vs low) and the drivers behind such as decision (informative vs affective) (Haley & Pittman, 2022), the suitable product category can be derived. Products within the affective category, characterized by a high emotional involvement and an emotions-driven decision-making process, are the most 24

  Literature

Review

Viral Communication

Framework

Product Scarcity

Product Category

Testimonials

Temporary Scarcity

Target Market

2

Location

Spatial Scarcity

Store Design

Figure 5: Pyramid of Pop-up Stores’ Success Factors (Gursch & Gursch, 2014)

suitable to the pop-up store concept (Gursch & Gursch, 2014). Products in this category include jewellery, cosmetics, fashion, antiques, sports / luxury cars, etc. There is a general consensus about this categorization in the literature with an emphasis on the suitability of the pop-up store concept for lifestyle products and luxury goods (Baumgarth & Kastner, 2012) (Yu et al., 2018). Nevertheless, as seen with recent real cases such as the IKEA pop-up at Bahnhofstrasse in Zurich, the concept can also be suitable for conven­ tional goods (Haas & Schmidt, 2016). The “Generation Y” (also called “Millennials”) is considered the generation most responsive to the pop-up store concept, due to its affinity to the use of technology and social media (which plays a major role in influencing the generation’s consumption behaviour), the high level of connectivity leading to a strong sense of belonging to peer groups, the high time and emotional involvement in goods associated with status and self-image as well as the hedonistic consumption behaviour (Bucuta, 2015). In the literature the typical target market of pop-up stores is often characterized as young, urban and trend-conscious (Baumgarth & Kastner, 2012) (Haas & Schmidt, 2016) (Yu et al., 2018). 25

Investments in Pop-Up Stores  

The requirements with regards to the right location as well as the associated challenges have already been discussed in chapter 2.3.2. As mentioned in chapter 2.1, the experiential component of pop-up stores plays an important role in shaping the store design, which should reflect the brand image, inspire customers to become part of the brand as well as provide customers with a unique and unexpected shopping experience (Gursch & Gursch, 2014) (Haas & Schmidt, 2016) (Yu et al., 2018). The ultimate goal is to attract attention and the focus should go beyond the visual appearance of the store by creating a multi-sensory shopping experience (Baumgarth & Kastner, 2012). Criteria for the creation of a special customer experience The element of scarcity is (as discussed in chapter 2.1) a key element of ­pop-up stores. This should however extend from a temporary level (­limited duration) to product scarcity (exclusive collection, limited stock, etc.) and spatial scarcity (availability of exclusive products only within the store, presence in only one location, etc.). These scarcity marketing tactics have the goal to incentivise customers to buy by instilling a sense of exclusivity and urgency (Gursch & Gursch, 2014) (Yu et al., 2018). This phenomenon is also known as FOMO (fear of missing out), whereby the feelings of fear of shortage are stimulated (Haas & Schmidt, 2016). Criteria for the differentiation of pop-up stores from other marketing instruments In connection with the multi-sensory store design, a key differentiation factor from traditional retail stores is the creation of an experience to intensify the shopping experience. This is usually achieved through entertainment programs (side events such as workshops, presentations, live music, etc.) (Baumgarth & Kastner, 2012), the presence of VIPs or other elements such as the live customization of products (Gursch & Gursch, 2014). This characteristic of pop-up stores is particularly fitting to the hedonistic consumption behaviour of Millennials. In this context it is also important to ensure that the event-driven pop-up store captures enough attention, which can be achieved with the support of testimonials promoting the brand / product.

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Criteria for the sustainable effect of pop-up stores

Given the focus on Millennials, which are characterized by a high level of utilization of social media not only to communicate but also to make consumption decisions, the creation of a viral marketing campaign on social media is a critical element for the success of a pop-up store (Gursch & Gursch, 2014). The framework proposed by Kastern (2015) reflects all the elements mentioned by Gursch & Gursch (2014) and extends the model to further success criteria, which are categorized either as macro (company-specific) or micro factors (referring to the conceptual planning and the operational implementation of a pop-up store).

Target Market

Employees

IMC Storytelling Corp. Culture

Brand Fit

Long-term (strategic) communication and brand goals

Local Know-How

Product Category

Macro Factors

Short-term (operating) sales goals

Micro Factors Ref. Group effects

Location

Store design

Viral Comm. Budget

Product Scarcity

Testimonials

Other (project specific) goals

Framework

Figure 6: Pop-Up Stores’ Success Factors (Kastner, 2015)

Macro Factors

In addition to the right product category, the author argues that there is also the need for the brand to fit with the pop-up store concept, whereby the impor­tance is on creating an authentic, credible, and consistent pop-up 27

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experience in line with the specific brand identity. In this context the author also stresses the importance of storytelling from a communication perspective, in order to create a connection between the brand and its customers as well as to increase media attention. To ensure a brand fit, three criteria must be considered: brand awareness and brand identity (a high brand awareness and a strong brand identity increase the likelihood of generating interest from consumers and media), the creative potential (ability and willingness to push creative boundaries in the store design) and the brand’s power of inno­vation (with regards to technology, design and the experiential elements of p ­ op-up stores). In addition to this, the corporate culture needs flexible organisational structures with the ability to take risk, to ensure the ability to manage the ­effort to plan and execute a pop-up store, as well as a focus on branding w ­ ithin the corporate strategy, given the fact that the main goals pursued with a pop-up store are of a strategic branding and communicational nature. A further point refers to the employees of the pop-up store, which play a critical role in collecting qualitative feedback from customers as well as acting as hosts and brand ambassadors, to ensure customers are left with a positive brand impression. In addition to employees, market experts agree on the need to involve external know-how for the implementation of the pop-up store concept, in particular in the fields of construction, logistical planning and execution, catering and in some cases the coordination. As a marketing instrument, the pop-up store itself needs to be considered and executed within an overarching integrated marketing communication (IMC) before, during and after the pop-up store to increase its effect. The ­author also mentions that given the temporary and usually extravagant ­nature with a high degree of media engagement, pop-up stores are also suitable means as kick-off events or as a catalyst for new advertising campaigns. Micro Factors Budgetary considerations are one of the additional key micro success factors mentioned by the author. As discussed in chapter 2.3.2 it is generally ­accepted that pop-up stores have financial advantages compared to permanent traditional stores. Nevertheless, retailers should still perform a ROI analysis against the specific targets to assess the success (or failure).

28

  Literature

Review

Finally, in connection with the creation of a viral marketing campaign on social media, the author adds the importance of achieving peer group effects (as previously mentioned characteristic for the Generation Y), whereby the social attractivity of a pop-store’s visitor within the peer group is increased by highlighting the social exclusivity of the pop-up store in the media. This element is however only relevant for specific brands and product categories such as luxury brands / goods and is dependent on the specific goals a brand wants to achieve with a pop-up store.

29

2

3 Methodology

This chapter provides a description of the methodology adopted in the ­design and development of the research as well as the methods selected for the collection and analysis of the data used to obtain an answer to the proposed research questions.

3.1 Research Strategy & Research Design Given the lack of transparency of the Swiss market and therefore the lack of available data points for pop-up stores to draw a statistically relevant conclusion, a qualitative research strategy is chosen over a quantitative, regression-­ based one. In addition, due to the early stage of the pop-up market in Switzerland and the resulting limited academic literature on the topic from the point of view of real estate owners, a qualitative research approach seems more appropriate. Hereby the goal of qualitative research is “less to test what is already known; rather it is to discover and explore the new and to develop empirically grounded theories” (Flick, 2014). Finally, this method does not focus on a large sample size as in quantitative research, but it focuses on gaining in depth and detailed information from a small selected group (­Ambert et al., 1995). The research design is a cross-sectional study, which according to Bell, ­Bryman and Harley (2019) is an observation made at a single point in time. The pop-up concept, from the point of view of retailers, has been researched extensively. On one hand, the analysis of key drivers, success factors and potential KPIs relevant for the design of alternative rental models is therefore based on an analysis of the existing academic literature. On the o ­ ther hand, with the aid of semi-standardized qualitative expert interviews in conjunction with literature review, the aim is to get insight from specialist consultants and letting agencies focused on pop-up stores on the attributes required by a pop-up retail space to minimize vacancy risk. © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1_3

31

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3.2 Research Question One: Alternative Rental Models 3.2.1 Data Collection Method A review of the existing academic literature was used as a data collection method to answer research question one, whereby when following a systematic, semi-systematic or an integrative approach, a literature review can provide the basis for building a new conceptual model or theory. For this ­empirical study, an integrative review approach was applied, which is considered an appropriate method to address emerging topics to “create initial or preliminary conceptualizations and theoretical models”. In addition, ­given the relatively limited availability of academic literature on the topic of ­pop-up as well as retail rental models, integrative review is deemed an appropriate method as it includes sampling from a wide range of sources such as research articles, books and other published texts (Snyder, 2019). 3.2.2 Sampling Strategy Criterion sampling involves selecting cases that meet some predetermined criteria of importance. It is thus important to select the criteria carefully to identify the relevant literature that will provide detailed and rich data ­relevant to the research problem (Cohen & Crabtree, 2006). The existing literature was used and selected accordingly to gain insight on the underlying drivers of retail and pop-up stores along with their key performance indicators. In addition, given the shift on how the success of retail stores is ­measured, with the increasing adoption of marketing KPIs, the field of research has been extended from real estate to marketing performance measurement. The criteria used to select the relevant literature therefore included:

• • • • • •

Retail and pop-up stores’ rental models Drivers of retail and pop-up stores’ performance Retail and pop-up stores’ metrics to assess store performance Retail performance in an omnichannel context Marketing performance measurement Marketing metrics

An overview of the retained literature along with the corresponding inclusion criteria is attached in Appendix 8.1. 32

  Methodology

3.2.3 Data Analysis Method Data analysis is the process whereby data is reduced in order to manage it, make sense of it through coding and interpret it by associating it to the ­existing literature and research question (Bell et al., 2019). As there is no strict standard as to the analysis method for an integrative review (Snyder, 2019), thematic analysis was applied as data analysis method. The goal of thematic analysis (TA) is defined as: “Through focusing on meaning across a data set, TA allows the researcher to see and make sense of collective or shared meanings and experiences. Identifying unique and idiosyncratic meanings and experiences found only within a single data item is not the focus of TA . This method, then, is a way of identifying what is common to the way a topic is talked or written about and of making sense of those commonalities.” (Cooper, 2012). Hereby an inductive coding framework was used in order to reflect elements and issues raised by the data (Kiger & Varpio, 2020).

3.3 Research Question Two: Minimization of Vacancy Risk 3.3.1 Data Collection Method The data collection method selected to answer research question two is semi-standardized expert interviews, which are useful for gaining expert knowledge regarding specific challenges. In this case experts represent a group of professionals and are not integrated in the study as a single case (Flick, 2014). The review of existing literature was used to develop the semi-standardized expert interview guide, consisting of six main sections:

• Warm-up • Context understanding and market assessment: this section aims at determining how the interview partners define the term pop-up store, in consideration of the fact that the concept is not associated to one single definition. In addition, interview partners are asked on their assessment of the market environment including the type of retailers active in this segment, the primary reasons for opening a pop-up store, the attitude of real estate owners towards the concept as well as the typical rental structures. 33

3

Investments in Pop-Up Stores  

• Temporal requirements: given that the limited duration is one of the ­defining dimensions of pop-up stores, this section aims at identifying poten­tial duration and seasonality patterns (and how these are managed) as well as potential factors influencing such demand patterns. This section aims at identifying best practices on how to manage retailer’s demand for pop-up store spaces in order to minimize vacancy risk. • Spatial requirements: this section aims at identifying key location and spatial requirements such as size and layout. • Fit-out requirements: this section aims at identifying key fit-out requirements, including technological installations and furniture. In connection with the identified spatial requirements, these sections aim at identifying the minimum physical attributes required for the implementation of ­pop-up stores that would increase the attractivity of the unit on the ­market and therefore minimize vacancy risk. • Closing questions: in addition to giving the opportunity to interview partners to mention any additional point that they deem important, this section aims at understanding the view of the interview partner on the potential of the concept and on the essential criteria for the successful operation and management of pop-up stores. Two interview guide templates (both following the structure outlined above) were developed: one specific for specialist consultants and letting agents and one for pop-up operators, whereby the questions for existing pop-up operators are less focused on general market practices and developments but rather on specific management approaches, strategies, and challenges. The interview guides are attached in Appendix 8.3. 3.3.2 Sampling Strategy Expert interviews have been carried out with letting agencies, field experts focused on pop-up stores as well as pop-up store operators. The criteria used to select the interview partners were the following:

• Have knowledge of retailer’s layout, design, and fit-out requirements for a pop-up store • Have experience with the development and/or letting of pop-up stores in Europe • Have experience with the management of pop-up stores in Europe 34

  Methodology

Based on the above criteria 14 potential interview partners were contacted across Europe. With a response rate of 28.6%, a total of four expert interviews have been carried out (a summarized version of the interview transcripts is attached in Appendix 8.4). The following table provides an overview of the companies approached and the actual interview partners.

3

Table 8: Interview Partners Company

Segment / Field of Expertise

Response

Appear Here

Letting Agent

Bikini Berlin (shopping mall)

Pop-up store operator

Boxpark Shoreditch London

Pop-up store operator

Brands’n mind Berlin

Pop-up store operator

Brickspaces

Letting Agent

FHS St. Gallen

Pop-up City Project management team

Go-Popup

Letting Agent

×

Pop-In

Letting Agent

×

Pop-up-Shops

Letting Agent

Splacer

Letting Agent

×

Sudioworks Design

Pop-up store designer

×

The Store Front

Letting Agent

×

Umdasch The Store Makers

Pop-up store designer

×

We are Pop Up

Letting Agent

×

×

×

×

3.3.3 Data Analysis Method In consideration of the research strategy and the data collection method, thematic analysis was also applied for research question two. A two-cycle coding process was adopted. Interviews were analysed individually using a first cycle descriptive coding method and were subsequently sorted and compared during the second cycle coding stage. In the creation of codes, both deductive coding, with an initial list of codes referring to the themes incorporated in the interview guide, and inductive coding, with the addition of new codes that emerged from the interviews have been applied (Miles et al., 2014). 35

4 Results Alternative Rental Models

In this chapter the analysis and the results of the data obtained from the ­literature review is presented. From this data, suggestions on the suitable KPIs to measure the performance of pop-up stores are provided along with the derivation of a framework for alternative rental models suitable for ­pop-up stores. Currently, the prevalent retail lease models in the market feature either a fixed or a variable / turnover rent. The latter is also referred to as a performance-based rent as the rent payable is dependent on the sales volume achieved by the tenant within the store. With regards to the turnover rent, there are three different models, with which total rent can be determined (Harper, 2018):

• The higher-of turnover lease: most popular model among performance-­ based rental structures; the rent payable to the owner corresponds to the higher of a minimum rent and a variable rent in percentage of total sales volume achieved within the store • The top-up turnover lease: the total rent payable to the owner consists of a minimum fixed rent and an additional variable component based on a percentage of total sales volume achieved within the store. Compared to the higher-of turnover lease, the fixed component is usually higher and therefore the upside potential and the downside risk are more limited compared to the other models • The straight turnover lease: fully variable lease structure; given the substantially higher downside risk compared to the other two models, straight turnover leases are not widespread in the market. The total rent payable to the owner corresponds to a percentage of total sales volume achieved within the store

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1_4

37

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Landlord

Sales Influenced By Store Presence

Agreed percentage of sales as the turnover rent

  Sales      Revenue

Total in-store sales less turnover rent

Transaction ­Happening In-store

Retailer

Item Is Handed Over In-store

Figure 7: Point of Purchase of Single-Channel Retailers (Harper, 2018)

With performance-based structures owners benefit from the participation to the upside potential of the retail unit (i.e. higher sales volume translates into a higher payable rent) as well as from access to the tenant’s data on the store performance. At the same time tenants benefit from a higher ­degree of cooperation with landlords due to the alignment of interests as well as a from a lower solvency risk due to the lower fixed rent (Miller, 2000) (­Harper, 2018). While established in the operational real estate segment with hotels and healthcare facilities, there is still some reluctancy in the retail market towards performance-based leases due to the dependency on the operational performance of the tenant and the lack of transparency in the market limiting the ability to benchmark and estimate the total payable rent in advance (“Retail-Immobilien Im Wandel: Einkaufen mit Wow-Effekt!,” 2018) (Clarence-Smith, 2020). In addition, when going back to when performance-based models were first being introduced in Europe in the 90’s, the caution to adopt this model was also driven by the so-called “down-valuing” problem of the real estate property, due to the higher perceived risk of the variable income as well as the lack of data available (McAllister, 1996). Retail rents are thus a function of productivity. A key underlying assumptions of the traditional rental models as described above is that the productivity of a store is measured through sales volume (Miller, 2000). However, with the increased adoption of omnichannel retailing strategies, defined as “an integrated sales experience that melds the advantages of physical stores with the information-rich experience of online shopping” and which “infers the desire 38

  Results

Alternative Rental Models

Landlord

Sales Influenced By Store Presence

Agreed percentage of sales as the turnover rent

  Sales      Revenue

Total in-store sales less turnover rent

Transaction ­Happening In-store

Retailer

Item Is Handed Over In-store

4 Sales Influenced By Online Presence

Transaction Happening Online

  Sales      Revenue

Item Delivered

Total online sales

Retailer

Figure 8: Point of Purchase of Omnichannel Retailers (Harper, 2018)

to serve the customer however, whenever and wherever they wish to purchase merchandise (and return it too)” (Frazer & Stiehler, 2014), as well as the trend of experiential retailing, in summary defined as “a store that does more (than sell products or services)” (Servais et al., 2019), the underlying assumption no longer holds true. As shown in the following diagrams, transactions no longer take place exclusively within a store but are spread across different distribution channels. As shown in the diagram, brick-and-mortar stores still play an important role in driving demand and influencing online customer behaviour. In fact, according to a research study carried out in the UK quantifying the halo effect of brick-and-mortar stores on online sales, 90% of all consumer spend (across channels) is inspired by a physical store, whereby online sales are estimated to increase by 106% with a local physical store presence (CACI: Online Halo – How Bricks Are Driving Clicks, 2019). Nevertheless, the classic sales performance metric is no longer an appropriate measure of 39

Investments in Pop-Up Stores  

productivity. The productivity of a retail store should therefore be “a function of how the site enables the retailer to be more successful in serving customers independent of where and how they are served” (Miller, 2000). This way of viewing the value creation potential of a store is particularly r­ elevant for pop-up stores since, as discussed in chapter 2.3.1, the primary goals of pop-up stores are not of a transactional nature. A list of criteria for the development of alternative rental models more a­ ppropriate to pop-up stores as opposed to typical transactional metrics such as sales volume is derived from an analysis of existing key performance indicators for classic retail and pop-up stores as well as typical marketing performance measurement metrics, as outlined in the following chapters.

4.1 Key Performance Indicators An overview of the metrics for the measurement of retail and pop-up stores (assuming an omnichannel retail strategy) is summarized in the following table. The metrics have been organized according to the categories proposed by Zuberi & Rajaratnam (2020): strategic metrics, brand equity metrics, customer metrics, (digital) marketing metrics and development / efficiency metrics. In addition, to assess their suitability for their application as alternative metrics for the measurement of retail productivity, these key performance indicators have been evaluated based on the criteria proposed by Miller (2000): measurable, verifiable, and correlate with sales. In consideration of the goals of pop-up stores, an additional criterion (correlation with an increased brand awareness) has been added. An assessment of the correlation potential (positive or negative) is based on existing literature’s findings. Based on the KPIs assessment shown in Table 9, the metrics with the highest potential have been selected, which are measurable and verifiable, can be collected on an automated basis and which either positively correlate with sales or with an increased brand awareness. Such metrics provide an alternative view of how retail productivity is measured based on the underlying goals that are being pursued, which might not be of a transactional nature as it is often the case with pop-up stores.

40

  Results

Alternative Rental Models

Correlates with increased brand awareness

Correlates with Sales

Automated

(Ambler, 2000) (Miller, 2000) (Bendle et al., 2016) (Warnaby & Shi, 2018) (Yu et al., 2018) (Fuhrer et al., 2020) (Zuberi & Rajaratnam, 2020) (McGee, n.d.) (Storefront, n.d.)

Measurable and Verifiable

Table 9: Assessment of Retail and Marketing KPIs

Strategic Metrics Sales metrics (volume, per sqm, per employee, average transaction value, gross / net profit)

•

•

•

Financial profitability metrics (Net profit, Return on Sales, EBITDA, Net Present Value, etc.)

•

•

•

Footfall

•

•

Market Share

•

Return on Marketing Investment (ROMI)

•

Conversion rate (number of sales by number of visitors)

•

Media and PR coverage

•

Redemption Rate (promotion codes, coupons) QR Code Scans

4

•

•

•

•

• •

•

•

•

•

•

•

• •

Brand Equity Metrics Brand Recall (top of mind, knowledge)

•

Brand Recognition (awareness)

•

Brand Depth / Penetration (familiarity)

• •

Brand Breadth (range of purchase scenarios) Brand / Category Development Index

•

• •

•

Commitment (index of “switchability”) Relative perceived quality

•

Availability (distribution of retail outlets carrying the brand)

•

• •

Surprise and Delight / Serendipity

Partially

Partially

•

•

Customer Metrics Customer Lifetime Value (CLV)

•

Customer Retention Rate

•

Customer Satisfaction Scores

•

• • •

•

Customer’s qualitative feedback Consumer Beliefs Willingness to recommend New visitors vs returning visitors

•

Length of Stay

•

•

•

Percentage of customers that purchase online and collect in store

•

•

•

•

41

Percentage of customers that purchase in store and have the product delivered

•

•

Number of customers that purchase when delivery is free

•

•

In-store vs online customer profitability

•

Online sales relative to brick-and-mortar locations

•

•

Average Acquisition & Retention Cost

•

•

Churn Rate (rate at which customers stop doing business with an entity)

•

Correlates with increased brand awareness

Correlates with Sales

continued from p. 41

Automated

Table 9: Assessment of Retail and Marketing KPIs

Measurable and Verifiable

Investments in Pop-Up Stores  

•

(Digital) Marketing Metrics Website traffic

•

•

Partially

•

Website traffic from within the store

•

•

Partially

•

Average session duration

•

•

Bounce rate (percentage of visitors leaving without viewing a second page)

•

•

Page views per visit

•

•

Traffic source

•

•

Impressions (how many times an advertisement / marketing campaign is viewed)

•

•

Effective reach (measure the portion of an audience that is exposed to an advertisement enough times to be influenced)

•

Mobile device traffic

•

Share of voice (relative strength of an advertising program within its market)

•

Number of searches that ultimately result in sales (store or online)

•

•

E-mail subscribers

•

•

E-mail open rate

•

•

Click through rate

•

•

Social media followers / friends / supporters

•

•

•

Social media engagement (likes, comments)

•

Partially

•

•

•

Inventory turnover

•

•

Sell through (number of units sold divided by beginning inventory)

•

•

Shrinkage (referring to any type of loss such as money or inventory stock)

•

•

•

•

•

• •

•

Development / Efficiency Metrics

42

Partially

•

Value of a like Pay-per-click traffic volume

•

Partially

•

  Results

Alternative Rental Models

The retained metrics are summarized in the following table by being allocated to the appropriate pop-up store goal (or multiple goals if applicable) as discussed in chapter 2.3.1 on page 17.

Table 10: KPIs of Pop-Up Stores by Goals Metrics Brand Goals

• Footfall • Customer satisfaction scores • Length of Stay

• Website traffic • Impressions • Conversion rate (offline & online)

Communication Goals

• Footfall • Conversion rate (offline & online) • Redemption rate (offline & online) • QR Code scans • Length of stay

• Website traffic • Impressions • E-mail subscribers • Social media followers / friends / supporters

Sales Goals

• Sales metrics • Financial profitability metrics • Footfall

• Conversion rate (online & offline) • Redemption rate (online & offline)

Market Testing Goals

• Footfall • Conversion rate (offline & online) • Redemption rate (offline & online) • QR Code scans

• Customer satisfaction scores • Length of stay • Website traffic • Impressions

4.1.1 Measurement of productivity for pop-up stores pursuing brand goals Brand goals include increasing brand awareness, inspiring visitors, creating brand loyalty as well as building a positive brand image together with achieving brand differentiation. All these elements are integral components of Brand Equity, which “can be thought of as the added value endowed to a product in the thoughts, words, and actions of consumers” (Keller & Brexendorf, 2019) and which relies on brand knowledge to influence consumer purchasing behaviour. In this context, knowledge does not refer to actual facts but rather to thoughts, feelings, perceptions and experiences, whereby it is usually subdivided into brand awareness and brand image (Keller, 1993). Pop-up stores have been found by an existing empirical research study to be an effective tool to increase brand experience, which in turn has been found to be an important intermediary between the consumers’ 43

4

Investments in Pop-Up Stores  

perception of the store and their intentions to spread word of mouth (Klein et al., 2016). Never­theless, the measurement of brand equity mostly requires non-financial, non-objective measures (Ambler, 2000). Thus, brand goals such as increased brand awareness or positive brand image, may not be directly measurable (Warnaby & Shi, 2018) making them not suitable to be used as a measurement basis for the success of a pop-up store and therefore for alternative rental models. Alternative metrics to assess whether brand goals are being achieved include measuring the number of customers visiting the store (impressions, which in a real estate context correspond to footfall), the increase in website traffic since launch of the pop-up store, and the length of stay within the store, all potentially indicating an increase in brand awareness. Customer satisfaction scores on the other hand could provide an indicator for positive brand image. Lastly, the conversion rate (measured by the increase offline, i.e. within the store, and online sales) could represent the ultimate effect of Brand Equity. 4.1.2 Measurement of productivity for pop-up stores pursuing communication goals Similarly to brand goals, communication goals such as establishing direct contact with customers, creating an interaction opportunity between brand and consumer as well as building brand communities, are less objective and therefore more difficult to quantify. However, drawing from marketing tactics and performance metrics, some KPIs to measure whether such goals are being achieved can be identified. The use of QR codes that customers are required to scan as well as coupons that customers can redeem for discounts / gifts / special services provide a useful tracking tool to measure the effect and response rate of a specific marketing campaign. Further in-store measurement tools include footfall (equivalent to impressions, which is the marketing term to measure the communicational reach of a marketing campaign) as well as length of stay. Given the key role that social media play in the communicational aspect of pop-up stores, as discussed in chapter 2.5, tracking the number (and the increase thereof since the launch of the popup store) of social media followers / friends / supporters as well as e-mail subscribers provide good indicators of the extent to which customers are engaging with the brand. While social media engagement is also a metric of crucial importance, the more qualitative nature of this kind of data as well as the still limited possibilities to gather such information on an automated 44

  Results

Alternative Rental Models

basis, make it more difficult to apply social media engagement as a productivity measurement metric. Finally, the increase in website traffic in conjunction with the conversion rate (offline & online) could represent also for brand goals the ultimate success indicator. 4.1.3 Measurement of productivity for pop-up stores pursuing sales goals Pop-up stores pursuing sales goals are the type most fitting to the current productivity measurement model for retail stores, whereby a strong focus is set on sales and profitability metrics. Nevertheless, as mentioned previously, the understanding of sales volume and in-store profitability as the sole indicators of productivity is no longer appropriate in today’s omnichannel retail context (Field, 2021). Additional performance metrics include assessing footfall and most importantly how such customers visiting the store convert into customers buying goods / services either offline or online, as the brickand-mortar store has in this case been instrumental in generating sales. In this regard recognizing and quantifying the halo effect discussed previously becomes crucial. 4.1.4 Measurement of productivity for pop-up stores pursuing market testing goals Collecting data and gaining market intelligence is at the core of pop-up stores with market testing goals, whereby performance metrics are more clearly defined. The identified KPIs all measure how customers react to new products / brands as well as locations. Reinstating the importance of taking into account the omnichannel nature of today’s retailing practices, both the impact on-site as (footfall, length of stay) as well as online (website traffic) need to be assessed. With this kind of pop-up stores, collecting customers’ feedback is probably the most important information retailers are looking for. While qualitative customer feedback through a high level of engagement from employees is central, quantitative customer satisfaction scores are more appropriate as a productivity metric.

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Investments in Pop-Up Stores  

4.2 Potential Framework for Alternative Pop-Up Store Rental Models The proposed framework for alternative rental models for retail stores within shopping centres by Miller (2000) considers: Total Rent = α + β + χ where: α = base / fixed rent β = rent based on expected productivity of the store as generated through direct consumer contact and interaction with the retailer (i.e. per contact factor) χ = rent charge for contacts channelled from centralized shopping centre resources

This performance-based model corresponds to the top-up turnover lease model, however considering alternative productivity metrics (β & χ) for the variable component. The analysis of KPIs discussed in chapter 4.1 provides a basis for determining potential metrics for the β factor. Given the specificity of the χ factor to shopping centres, the proposed framework for stand-alone pop-up stores disregards this element. Nevertheless, it is important to note that such an indicator might become relevant also for stand-alone stores in the future. In fact, the introduction of City Managers (derived from the management structure of shopping centres) is increasingly being considered also in Switzerland (von Meiss-Leuthold, 2020). Hereby, the task of such City Managers would include acting as an advisor to the different stakeholders, managing properties and launching marketing initiatives to prevent vacancies as well as promoting the location and the local retailers (Helbling, 2019) thus representing a potential source of additional traffic. For the determination of alternative β metrics, several KPIs associated with each of the four primary goals of pop-up stores have been identified. Such KPIs are specific to the pursued goals and therefore providing the ability to derive individual frameworks for each type of pop-up store. However, the short duration of the lease contracts calls for an optimization of the letting process as well as a higher degree of standardization of contracts (von MeissLeuthold, 2020). Therefore, only the metrics applicable to all pop-up store types and goals are hereby retained: footfall and conversion rate (offline and online). 46

  Results

Alternative Rental Models

Footfall seems to be an appropriate indicator due to its ability to address the potential achievement of different types of goals as well as to represent the strength and ability of a brand to attract customers. In addition, this indicator is representative of the intrinsic quality of a location, whereby a location with a higher base footfall would lead to a higher rental level. The application of conversion rate (offline and online) could be considered from two angles. On one hand conversion rate is key to determining the value of each single customer visiting the store (and not only the value of a buying customer). In an omnichannel context it is therefore crucial to consider the conversion rate in connection with the halo effect of brick-and-mortar stores on online sales. On the other hand, the conversion rate could be seen as a determinant of the share of customers visiting the store actually proceeding to purchase a good / service both within the store and online through other distribution channels. Therefore, an alternative performance-based rental model could be expressed as: Total Rent = α + β * footfall * conversion rate (online & offline) where β represents the value of a customer.

In the European real estate market, there is a general acceptance of the fact that classic rental structures are no longer correctly reflecting the current market environment by disregarding the revenue displacement to online channels that brick-and-mortar stores are experiencing. This is a valid point for both traditional retail as well as pop-up stores. Given this, Colliers and CACI Limited have also been working on the development of alternative rental models. The model being developed by Colliers is inspired by Google’s “cost-per-click” approach, where the rent is calculated based on footfall (Matthews & Gamble, 2021). The Collier’s model assumes that a store visit could lead to a sale offline and / or offline and that therefore each brickand-mortar visitor is a potential value driver for the retailer across different channels (Farrell, 2022). The lease model being developed by CACI Limited is fairly similar but in addition to footfall it considers online sales within a store’s catchment area by modelling the halo effect (The Impact of Locations on Online Sales, n.d.) (Farrell, 2022). Both companies (as for the proposed model of this empirical study), are based (like never before) on a data-driven approach, whereby data such as 47

4

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customer spend, footfall, behavioural and demographic measures are taken into consideration. The collection and sharing of such data between tenant and owner will ultimately result in a substantially higher degree of transparency in the market, also providing retailers as well as investors the ability to compare and benchmark different locations and properties.

4.3 Challenges 4.3.1 Determining the value of a customer visiting the store One of the key elements of the proposed model is the availability of a metric for customer value, which is not a simple metric to determine (Harper, 2018). A simple application of the average customer spend would not be appropriate as firstly not every visitor will proceed in buying something (whether offline or online) and secondly a retailer will not be willing to share 100% of its customers’ revenue potential. In the latter scenario, in line with the turnover lease model, a percentage of the customer average spend could be applied instead of the full amount. In this case however, there are no available benchmarks yet for how high this percentage could be. Drawing from other industries, an alternative method could be to link customer value to its acquisition cost, thus reproducing the Software-as-a-Service or pay-perclick advertising model (Harris, 2018). From this consideration however, a further point arises on whether the value / cost of a first-time customer equates the value / cost of an existing customer. Given the potential challenges in determining (on an automated basis) whether a customer visiting the store is an existing or a new one, an average / blended customer value or cost might be less challenging to implement. 4.3.2 Data Transparency As a data-driven approach, the model assumes that the availability of the necessary information is ensured. However, the market is currently characterized by the lack of market data and benchmarks, paired with information asymmetry between retailers and owners. On one hand retailers might not grant visibility to real estate owners on the company’s share of online sales driven by brick-and-mortar stores, conversion rates, customers’ average spend or customers’ acquisition costs (Farrell, 2022). On the other hand 48

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real estate owners might not be willing to share foot traffic data from their property due to the fear of losing the negotiation power against retailers (poten­tially due to lower footfall levels than expected) (C. El Ashker, personal communication, February 26, 2022). 4.3.3 Data Collection Beyond data transparency, issues might arise with regards to the actual collection and therefore availability of data. In addition to challenges relating to the determination of some of the variables (such as the share of online sales driven by a specific brick-and-mortar store) (“Retail-Immobilien Im ­Wandel: Einkaufen mit Wow-Effekt!,” 2018), the technological infrastructure to collect such data might not be in place. Such a transition is therefore also associated with a required infrastructural investment as well as adjustments in the company structure (such as no separate online and store divisions) (Farrell, 2022). 4.3.4 Legal and Ethical Challenges In connection with the collection data on footfall (be it through sensors within the store or through mobile devices) and other consumers’ data, legal risks must be taken into consideration. Owner and retailers are required to comply with the regulations of the European Union’s General Data Protection Regulation (GDPR), whereby the consent from consumers is of utmost importance for the collection and use of such data (metarouter, n.d.). Failure to comply with data collection and processing laws can have important financial implications (Wood, 2018). In addition to the legal requirements, owners and retailers are faced with a conflict of interest between data collection and processing and infringement of privacy. Hereby, consumers might be concerned about the infringement of their privacy with regards to the extent they are being monitored. According to a research study performed in the US, consumers’ attitude towards privacy issues tend to fall into one of three groups: privacy fundamentalists (favour restricting commercial use of private data), privacy unconcerned (tend to share personal information willingly, with little or no financial incentive), privacy pragmatists (willing to share personal information to organizations they trust in return for valuable products or services) (metarouter, n.d.).

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4.3.5 Increasing Complexity and Uncertainty Along with the challenges of determining the parameters to be considered, together with the visibility on and availability of data, such a model is associated with a higher level of complexity as well as forecast uncertainty. While alternative rental models have the potential to optimize the cash-flow of real estate owners (“Retail-Immobilien Im Wandel: Einkaufen mit Wow-­ Effekt!,” 2018), the current situation is somewhat comparable to the general perception of uncertainty the market faced when turnover leases were first introduced, with reference to the availability of market benchmarks and market know-how (McAllister, 1996). The complexity and uncertainty (lack of benchmarks and case studies) dimensions also extend to the allocation of revenue in today’s omnichannel context, whereby new contractual clauses, and point-of-sale definitions for the purposes of the lease agreement need to be developed (“Retail-Immobilien Im Wandel: Einkaufen mit Wow-­Effekt!,” 2018). 4.3.6 Acceptance from Market Players A performance-based lease model built on footfall is not widespread but at the same time not new in the market, whereby there are a few cases in the US where such a structure is applied (C. El Ashker, personal communication, February 26, 2022). A footfall-based rent would however be new to the European retail real estate market. Given the fact that investors in Europe are still reluctant towards variable turnover-based rents, such model will still require some time to gain the acceptance form the market. Despite the efforts of market specialists such as Colliers and CACI Limited as discussed previously, such alternative models are in fact currently struggling to gain traction from the market despite the fact that all main stakeholders recognize the need for change. The outbreak of the pandemic is considered on one hand to have acted as a catalyst for ongoing trends and on the other hand to have slowed down long-term developments (such as alternative rental ­models) due to a shift of short-term priorities (Farrell, 2022).

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5 Results Minimization of Vacancy Risk

In this chapter the analysis and the results of the data obtained in the interviews as well as the most relevant findings are presented and compared to the findings from the literature review. The most important topics that emerged from the interviews have been clustered in nine main categories: product category suitable to the pop-up store concept, location requirements, goals of pop-up stores, attributes of pop up-stores, type of companies implementing pop-up stores, letting process, pricing of pop-up store spaces, physical attributes of pop-up stores and ­challenges. These are summarized in the following conceptual map. Among the nine main themes, four interdependencies and interactions could be identified.

• As expected and confirmed by existing empirical research studies (Zhang et al., 2020), the type of location (and therefore the specific location characteristics) has a direct impact on the achievable rental level. The location therefore determines a baseline rental level (­Treloar, 2018). • The goals that are being pursued have an impact on the average duration of the pop-up store (i.e. length of the contract). In other words, the occu­ pancy period of the unit and the frequency at which tenants change is dependent on the purpose of the pop-up store. • Heterogeneous company clusters, in addition to specific descriptive criteria, vary in terms of willingness to pay (i.e. achievable rental level) as well as in terms of the goals pursued.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1_5

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Painting

Lighting

Digital

Hybrid

Flooring

Furniture

Fixed

Light

Green

Variable

Fit-Out

Flexibility

Structure

Size

Sources of Risk

Contract Terms

Fundamentals Personnel

Financing

Luxury Goods

Challenges

Proactive

Physical Attributes

Maturity

Stability

Negotiation

Pricing

Image

Tradeoff

Data

Covenant

Storage

All-inclusive

Alternative Model Revenue Management

Automation

Food Industry

Beauty Brands

Age

Synergies

Origin

Awareness

Companies

Pop-Up Stores

Product Category

Fashion Industry

Alternative Products

Letting Process

Team

Efficiency

Experience

Industry

Goals

Footfall

Flexibility

Visibility

A-Location

Target Market

Selection

Location

Attributes

Staging

Accessibility

High Street

Market Testing

Sales Goals

Discovery

Temporary

Brand Goals

Marketing

Communication Goals

Loyalty

Brand Presentation

Corporate Identity

Brand Pantheon

Brand Awareness

Showroom

Emotional Link

Dynamic

Seasonality

Contracts

Experience

Planning

52

Standardisation

Transparency

Figure 9: Conceptual Map – Main Themes and Sub-Themes

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5.1 Product Category As discussed in chapter 2.5, products characterized by a high emotional involve­ment, such as jewellery, cosmetics, fashion, antiques, sports/luxury cars, as well as luxury and lifestyle products are considered the most suitable for pop-up stores. The interview partners generally share this view associating the concept with luxury goods, beauty brands and the fashion industry. Beauty brands in particular, are considered the leaders in this area (brands’n mind, 26). Furthermore, in addition to the emotional involvement, luxury brands are considered to feature a high potential for this concept due to the higher likelihood of dedicating the necessary budget to such a marketing operation without suffering from financial pressure (brands’n mind, 4–6). Fitting within the lifestyle concept, alternative products (such as sustainable products) as well as food concepts (food brands) have also been mentioned as segments generating demand for pop-up store spaces. A theme that emerged during the interviews refers to the achievement of potential synergies between different brands, whereby the availability of complementary brands/ concepts allows for a multi-tenant/multi-brand strategy to be pursued.

Beauty Brands

Luxury Goods

Food Industry

Fashion Industry

Alternative Products

Synergies

Product Category

Figure 10: Conceptual Map – Product Category

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Footfall Target Market Accessibility Visibility Selection

Location

A-Location

High Street

Figure 11: Conceptual Map – Location

5.2 Location The identified location requirements are in line with the findings of the literature review. Aspects such as a good level of visibility, good accessibility by private and public transportation as well as a high footfall are all considered elements of substantial importance. Overall, the focus of retailers looking for suitable locations for a pop-up store remains on A-locations in close proximity to high street brands with a strong beam power that the pop-up store can take advantage of (brands’n mind, 81–83). Hereby, foot traffic is considered by far one of the most important factors for the selection of a location (Pop-up City, 75). Nevertheless, the importance of the selection of locations not necessarily focuses on the level of footfall but rather and most importantly on the availability of footfall with a representation of the relevant target market (Pop up Shops, 96–97). These aspects are in line with the findings from the literature review, also confirming that pop-up stores are not a suitable tool to requalify and revive neighbourhoods. Notwithstanding the above, it seems that selection process of the location by pop-up retailers is not mostly driven by strategic considerations but rather by the availability of suitable opportunities (“Pop-up City”, 80–81). 54

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5.3 Goals Among interview respondents there was a consensus on the association of pop-up stores with marketing tactics. All four main goals (brand goals, communication goals, sales goals, and market testing) have been mentioned during the interviews. However, the achievement of brand and communication goals seems to be the prevalent reasons for opening a pop-up store. In fact, one interview partner estimates that only 20% of pop-up stores pursue sales goals (Pop Up Shops, 23–25). A differentiation is made between existing and emerging brands, whereby existing brands are more likely to open a pop-up store to present new products (market testing). Emerging / unknown brands on the other hand are rather focused on wanting to present the brand (brand goals) (Bikini Berlin, 35–36). At the same time “larger companies”, which can be interpreted as established companies, are believed to be rather communication-oriented (Pop-Up City, 28).

Corporate Identity

Brand Pantheon Brand Presentation

Market Testing Brand Goals

Brand Awareness Loyalty

Marketing

Goals

Showroom Communication Goals Emotional Link Sales Goals

Contracts

Figure 12: Conceptual Map – Goals

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Market testing goals are primarily associated with the testing of new locations and products, and how these are perceived by customers, whereby the focus is on collecting customers’ feedback. Sales goals have only been mentioned by one interview partner in connection with the sale of old collections. In connection with brand goals, the most frequently mentioned pop-up store stereotype as discussed in chapter 2.3.1, is the brand pantheon, with a focus on presenting, promoting, and celebrating the brand and its corporate identity. Hereby, luxury brands were mentioned as a segment profiting from this format to present the brand to customers in a new way (brands’n mind, 46). In addition, the presentation of the brand was often associated with the idea of wanting to stage and tell the story behind the brand. Further brand goals mentioned during the interviews included building customer loyalty and increasing brand awareness. With regards to communication goals, these were mostly associated with wanting to strengthen the relationship with customers (either direct consumers or B2B contacts) to create an emotional link between the brand and the customer, as well as with the use of pop-up stores as showrooms to present promotions.

5.4 Attributes The main association to the term pop-up stores was made to its defining attribute of limited duration, whereby the concept was also referred to as a “­temporary physical touchpoint” (Pop Up Shops, 10). With regards to the average duration, answers ranged between days to a maximum of six months, with the most frequent duration of one to three months. However, one ­pop-up store operator mentioned a longer duration of at least three to a maximum of six months, in order to allow for customers to become aware of the space, engage with the space and finally organize events and allow guests to return (brands’n mind, 51–53). At the same time, a pattern between the goal of the pop-up store and its duration could also be identified. In general, brand- and communication-oriented pop-up stores have a shorter duration compared to sales- and testing-oriented pop-up stores. In particular, popup stores with the goal of product testing should take place over one year in 56

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order to identify seasonality and repurchasing patterns (Bikini Berlin, 50– 51). On the other hand, the duration of promotional / event pop-up stores is measured in days or maximum weeks. A further connection was made to the type of company launching the pop-up store. Established brands tend to have a shorter duration compared to start-ups or brands wanting to estab­ lishing a physical presence. In addition, large brands with the ability to generate a strong buzz (such as Netflix or Spotify) are less focused on seasonality and feature a much shorter duration measured in days. With regards to seasonality, it can be stated that Q2 (April–June) and Q4 (pre-Christmas and Christmas) are considered as high season periods. Nevertheless, interview partners often referred to specific product seasonality in particular for summer months, when products such as alcoholic beverages and food products might be in high season. Overall, promotional p ­ op-up stores are less affected by seasonality. With respect to the management of these seasonality patterns, the pop-up store operators presented two

Discovery

Attributes Experience

Temporary

Seasonality

Staging

Flexibility

Planning Dynamic

Figure 13: Conceptual Map – Attributes

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different approaches. On one hand, brands’n mind use low season periods to present their own brands using the space as a showroom, whereby the indemnification is not through a rent but through commissions (brands’n mind, 74–75). Bikini Berlin on the other hand, rent the space for a longer period of time, bundling high season with low season months, so that retailers are forced to rent the space for a longer period of time to ensure their presence during the correct product’s season (Bikini Berlin, 69–70). By adopting this strategy, the interview partner stated not having had any vacancy during low season months (prior the pandemic) (Bikini Berlin, 66). In connection with the limited duration, the planning and lead time to opening a pop-up store is also an important dimension to consider, although from the interviews varying answers where provided. In terms of preparation, smaller companies seem to be more opportunity driven compared to larger companies, who have a longer planning timeframe (“Pop-Up City”, 109–110), which can range from three months (in cases where the brand already has a strong identity and a clear idea of what they want to implement) to six months (brands’n mind, 108–109). Another view was provided by a letting agent, mentioning lead times of 1 day (for promotional pop-up stores, which are very dynamic) to two months, also mentioning that the larger the space the longer the lead time (Pop Up Shops, 134–136). In addition, the two operators mentioned a lag of one to four weeks between one tenant and the other.

Companies

Origin Age Industry Awareness

Figure 14: Conceptual Map – Companies

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Further attributes associated with pop-up stores include two additional dimen­sions of the pop-up store concept discussed in chapter 2.1: the discovery and experiential dimension, the promotional (staging of the brand) dimension as well as flexibility. The focus on the experiential dimension was set on providing something new for customers to discover, which would not be available in any other store, as well as on the store becoming a point of experience rather than a point of sale (brands’n mind, 24–25). The element of flexibility was referred to as both temporal flexibility, which has been found also in the literature to be one of the main areas driving the increase in retailers’ demand, as well as flexibility of form (stand-alone solution, box, shop-in-shop, etc.).

5.5 Companies With regards to the type of companies active in this area, no specific industry was mentioned, although the examples used during the interviews focused on the fashion and luxury industries. Nevertheless, in line with the findings from the literature review, non-retailers (such as financial service providers) have been named as a growing demand segment, in addition to large chain stores. Independently from any differentiating criteria, demand from retailers seems to be driven by the flexibility that the concept provides, which is in line with the findings of the survey carried out in Switzerland discussed in chapter 1.1.3. From the interviews two main categorization factors could be identified:

• both regional and international companies seem to drive demand for pop-up stores. Regional companies tend to be rather young, and owner operated (i.e. entrepreneurs), looking for a physical space to present their brand. As for these companies, a point regarding a higher degree of cautiousness towards the concept was raised, which is believed to be driven by the lack of understanding and / or confidence towards the benefits of pop-up stores (brands’n mind, 31–33). On the other hand, international companies, who predominantly use pop-up stores as a tool to test new markets, are believed to have a higher degree of awareness towards the beneficial effects of pop-up stores. 59

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• there seems to be a mix between small, young companies and large, estab­lished companies. It was however mentioned that small companies require more support in the implementation of a pop-up store, while larger companies tend to be more focused on promotions and therefore tend to have shorter pop-up stores as discussed in the previous chapter. Independently from their origin, large companies with a substantial budget seem to be more experienced and to benefit from the necessary internal resources to implement a pop-up store.

5.6 Letting Process The management of the letting process was identified as one of the crucial elements for the successful establishment of the pop-up store concept in the market. In comparison to the current process used for the rental of traditional retail stores, the approach for the rental of pop-up stores must be simplified and automated. The overall efficiency of the letting process must be increased also through the implementation of standardized contracts (to

Letting Process

Proactive

Automation

Standardisation

Transparency

Team

Efficiency

Experience

Figure 15: Conceptual Map – Letting Process

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avoid lengthy negotiations with each single tenant) in order not to have a mismatch between the letting effort and the level rental revenues per tenant (Pop Up Shops, 70–73). In addition to these elements, the need to move from a “network-based” letting process to an increased use of online channels and platforms was mentioned, also entailing the need of increasing transparency on the information shared with potential tenants (Pop Up Shops, 144–145). The analysis of the interviews with the two pop-up store operators also revealed the crucial role that the availability of a letting team plays. Such a team enables to pursue a proactive tenant search approach, which is deemed essential to avoid periods of vacancy. Both operators mentioned the benefit of having people with an event management background in order to be able to identify and attract brands with the highest potential. Other critical criteria include having a team passionate for the industry and the pop-up store concept, with the ability to successfully communicate the advantages of pop-up stores.

5.7 Pricing In terms of rental structures, similarly to classic retail stores, both fixed as well as performance-based (variable rent in percentage of turnover) rental structures are currently visible on the market. Such structure is however dependent on the orientation of the pop-up store with marketing-­oriented pop-up stores usually featuring a fixed rental model and sales-oriented ­pop-up stores in some cases also featuring a variable or hybrid rental model (top-up or the higher of as discussed in chapter 4). Alternative rental models, such as a frequency-based rental structure, do not seem to be a priority yet. While retailers would welcome the opportunity to adopt such a rental model, owners are still reluctant to adopt this model on one hand due to the lack of the necessary data and on the other hand due to the reluctancy to share information, due to the perceived risk of creating a disadvantage for the location through, for example, low footfall data (Pop Up Shops, 46–54). A theme that emerged from the discussion around data and information transparency is the evolution towards more pricing agility or, as known from other industries such as the travel and leisure industries, the 61

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Pricing

All-inclusive

Structure

Fixed

Covenant

Alternative Model

Variable

Negotiation

Revenue Management

Figure 16: Conceptual Map – Pricing

shift from a fixed pricing model to a pricing structure based on revenue management tactics dependent on demand volume and seasonality (i.e. the same unit features a higher rent during high season compared to low season). As mentioned in the introduction to this chapter, the rental level is highly influenced by the micro location of the asset. In general, however, it seems that the achievable rental level of pop-up stores features a discount compared to the rental level of classic retail stores, as identified in the literature review. Nevertheless, some exceptions to this statement could be identified depending on the location and the type of company. High street locations seem to have the ability to command a price premium for short-term agreements in comparison to long-term / classic agreements, whereby the real estate owner is compensated for granting flexibility (“Pop-Up City”, 56). Furthermore large, international companies (which as mentioned previously in chapter 5.5, tend to have a larger budget) seem to have a higher willingness to pay, thus matching market rents. With regards to market rents however, the expectations of real estate owners and portfolio managers have been questioned, whereby in some locations there seems to be a substantial 62

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mismatch between owners’ expectations and the willingness to pay from tenants (Pop Up Shops, 61–62). In connection to this, the negotiation power of tenants is also considered to play an important role in achieving a discount or a premium. From the inter­views, it emerged that most owners use pop-up stores to bridge periods of vacancy as identified in the literature review, giving potential tenants a negotiation advantage. In such cases, potential pop-up store tenants have a lower willingness to pay if they are aware of the fact that the alternative for the investor is vacancy (Bikini Berlin, 132–134). Independently form the rental structure and the rental level, the availability of “all-inclusive” packages seems to be preferred by tenants, due to the ability to predict total costs. With this option, the rent would also include ancillary costs such as utilities and internet but also (using brands’n minds as an example) personnel and other services.

5.8 Physical Attributes

Painting

Digital

Size

Light

Flooring

Lighting

Fit-Out

Physical Attributes

Green Furniture

Hybrid Flexibility

Storage

Figure 17: Conceptual Map – Physical Attributes

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While specific requirements depend on the sector, four main elements emerged from the interviews with regards to the physical attributes re­ op-up quired by retail spaces to be as attractive as possible to a multitude of p operators. Pop-up stores tend to be small with sizes generally ranging from 10 sqm to 200 sqm, whereby promotional pop-up stores are usually smaller (4–50 sqm) compared to other types. Larger spaces are much more difficult to let (in addi­tion to difficulties in defining the correct pricing) and have a much longer sales cycle (Pop Up Shops, 105–106). The availability of storage space seems to be a criterion only for pop-up stores with a transactional orientation. In this case the requirement is estimated at 15%–20% of the store surface (Pop Up Shops, 109). In terms of fit-out, the basic level mentioned by all interview partners includes light installations, wall painting and flooring. Hereby, to accommodate a wide range of brands and concepts, the chosen colour scheme should be a lighter one with potentially natural (green) elements with a reference to sustainability (brands’n mind, 90–92). Regarding furniture, some contradictory findings emerged. On one hand the demand for already (partially) furnished spaces seems to be very limited, as brands want to implement their own design concept (“Pop-Up City”, 99–102). On the other hand, other interview partners mentioned the potential advantage with the availability of modular store fitting elements (such as counters or a shelving system). In both cases, there was a consensus on the importance for the space to be flexible and convertible, given the fact that each sector and brand have specific requirements in terms of design and layout. The technological infrastructure has been identified in the literature review as one of the challenges for retailers when implementing and executing ­pop-up stores. The interview partners agreed on the fact that, while digital elements (such as digital displays) present opportunities such as the ability to quickly adapt to interior design requirements of brands as well as the ability to implement hybrid pop-up store concepts (mixing traditional physical retailing with e-commerce elements), the store must not be overdesigned or over digitalized. 64

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Supported by the multitude of easy-to-implement options available on the market, the availability of a POS does not seem to be essential, as most retailers have their own systems. With regards to the internet connection how­ ever, some contradictory findings emerged. Overall, the majority of interview partners agree that the availability of Wi-Fi (in connection with an all-inclusive pricing package) would represent an advantage.

5.9 Challenges From the discussions with the interview partners several challenges emerged. Even though the pop-up store concept first emerged over 20 years ago, the market (and in particular the Swiss market) is still in its early stages and has not yet reached maturity. Pop-up stores as a complement to classic

Sources of Risk

Tradeoff

Contract Terms

Fundamentals

Data

Maturity

Image

Personnel

Financing

Stability

Challenges

Figure 18: Conceptual Map – Challenges

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retail stores is not yet a widely accepted instrument due to the negative impact on the property valuation. These circumstances result from the generally accepted market fundamentals with respect to the contract terms (long agreements with a duration of 10 years and high rental levels). Based on such fundamentals, property managers are limited by the current valuation model, although their attitude towards a more flexible rental structure such as the one of pop-up stores is positive. In this environment, securing financing based on deviating parameters is rather challenging, whereby the lack of security and economic stability (compared to current models) heavily weighs on the perceived financial ­capacity (Bikini Berlin, 149–157). In view of the structural changes, which are affecting the retail real estate indus­try, as well as the novel COVID -19, which acted as a catalyst of the already ongoing trends, the market is forced to adapt towards greater flexibilization. In this context, valuation models are expected to be adjusted to reflect the new reality of the market, whereby real estate owners will be faced with a choice between different sources of operational risks. On one hand, securing long-term leases will only be secured with substantial discounts on the rental level. On the other hand, flexible rental structures with a shorter term will be able to generate a premium on average rental levels. Owners will therefore be faced with a trade-off between security through shorter or longer agreements and revenue potential through a premium or discount on rental levels (Pop Up Shops, 34–42, 63–73). An additional challenge that is becoming of increasing importance is the availability and transparency on data for the micro location (such as footfall, customer segments, availability of spaces ready for occupancy), which is an aspect already known and practiced within shopping malls but that has not yet fully achieved its potential in street retail. The availability of and ability to source personnel has often been mentioned during the interviews as representing a challenge for retailers, impacting their required investment (and therefore their willingness to pay) as well as their ability to execute pop-up stores. While the availability of digital solutions could decrease the personnel requirements, concepts such as the one implemented by brands’n mind provide a true all-inclusive package 66

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including personnel, thus further reducing the implementation barriers of pop-up stores. Nevertheless, the personnel responsibility (if provided directly) represents an additional operating risk for the owner. Finally, in connection with the pursuit of a sole pop-up store strategy, the importance to managing the store mix (i.e. the type of goals pursued) has been raised, whereby becoming a platform just for product testing could lead to image issues for the property (Bikini Berlin, 168–169). Notwithstanding the above challenges, the interview partners agree on the strong potential of the pop-up store concept, even considering the model to represent the future of retail (brands’n mind, 134–135) as well as believing on no longer requiring differentiating between pop-up stores and classic retail in the future (“Pop-Up City”, 124–125).

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6 Conclusion & Discussion

The goal of this study is to determine a framework for the development and management of pop-up stores for real estate investors, which maximizes rental income and minimizes risk. The ultimate goal is therefore to develop a framework that could allow investors to consider pop-up stores in their ­retail real estate portfolio beyond a temporary strategy to counteract periods of vacancy. A critical reflection of the study findings as well as an analysis of its limitations and quality is provided in this chapter. The analysis of the existing literature revealed that retailers and real estate investors are driven by different motives with regards to the implementation of pop-up stores. The drivers of retailers are mostly of a long-term, strategic nature with a focus on communication goals, increasing brand awareness, curating brand image, and driving consumer inspiration. In this context, economic goals are of secondary importance. This is also true for the Swiss retail market, whereby testing and marketing goals have been identified as the primary objectives pursued with pop-up stores. These findings are in line with the themes identified from the expert interviews, whereby only a minority of retailer seem to be driven by transactional objectives. Real estate investors on the other hand are mostly driven by the financial implications of their decisions and by the impact on the property value. In this context, pop-up stores are seen as a useful tool to bridge periods of vacancy, build and enhance the image of the building (respectively to limit the loss of attractivity of the building and the neighbourhood in the case of vacancy through urban revitalization and societal wellbeing) as well as to attract long-term tenants. All these elements are finally components of a strategy aiming at maintaining the property value. Based on the above considerations, a successful management framework must provide the ability to reconcile the goals and strategies pursued by © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1_6

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both stakeholders, in order to build a mutually beneficial context for the use of retail space. The approach of this study was therefore on one hand to determine which alternative rental models can positively influence the rental income of popup retail stores, thus benefitting real estate investors, but at the same time taking into consideration how pop-up store operators measure productivity. The current rental model on which performance-based rents rely on, considers that a store’s productivity is a function of its revenue generating potential. In consideration of the omnichannel strategies pursued by retailers as well as the predominantly marketing-nature of the goals pursued with popup stores, sales performance is no longer an appropriate metric to measure productivity. In today’s market environment, the value creation potential of a store should rather be a function of how the site enables the company to achieve success, independently from the channel or form. Based on the analysis of performance measurement metrics derived from the real estate industry but also from the field of marketing science, two main metrics have been identified. Footfall seems to be an appropriate indicator due to its ability to address the potential achievement of different types of goals as well as to represent the strength and ability of a brand to attract customers. This indicator is also representative of the intrinsic quality of a location, whereby a location with a higher base traffic would lead to a higher rental level. In combination to footfall, the application of conversion rate (offline and online), which is a determinant of the share of customers visiting the store proceeding to purchase a good / service both within the store and online through other distribution channels, supports in determining the effect of footfall on rent. At the same time the analysis also revealed several challenges in respect to the implementation of alternative rental models such as the one proposed by this study. In addition to determining the value of a customer visiting the store in an environment where data availability and transparency is low, the infrastructural investment required to enable the collection of the required data, legal and ethical challenges in connection with the processing of such data and finally the acceptance barriers from market players are further challenges to be considered. The latter in particular is deemed a critical element, without which alternative rental models will not be able to be established, as seen from the current state of market research. 70

  Conclusion

& Discussion

On the other hand, this study aimed at determining which attributes of retail spaces can minimize the vacancy risk when pursuing a pop-up strategy, by increasing its appeal on the market. Therefore, market demand patterns and general surface attributes have been researched. The following table summarizes the key findings and recommendations to real estate investors in this respect.

Table 11: Strategic Framework for the Management of Pop-Up Stores Area

Recommendations

Product Category

The concept is suitable to a wide range of industries, whereby different sectors currently generate demand. However, luxury goods have a higher likelihood to have the necessary budget to implement the concept. Further considerations include the pursuit of a multi-tenant / multi-brand strategy with the availability of synergies between brands and products.

Location

Visibility, accessibility, the presence of foot traffic and the proximity to high street brands are key elements determining whether a location is appropriate to accommodate a pop-up store. With regards to foot traffic, the focus is not necessarily on the volume but rather on the presence of the relevant target market for the brand.

Tenant Mix Occupancy Optimization

Brand- and communication-oriented pop-up stores feature on average a shorter duration. In order to optimize the occupancy of the space and avoid a too high tenant fluctuation, considerations must be made as to what goals are pursued by potential tenants in order to ensure a sustainable mix including pop-up stores focusing on testing and sales goals. Furthermore, established brands tend to have a shorter duration given their already somewhat existing brand awareness. Despite the higher perceived risk, young brands should therefore not be excluded but rather considered in combination with the efforts to reduce tenant fluctuation. While seasonality trends could be identified, these can be managed on one hand through the management of the product / brand mix and on the other hand through strategic letting practices with for example the bundling of high season with low season months.

Revenue Optimization

Drawing from other industries, the pricing of retail spaces should incorporate revenue management practices to enable pricing agility depending on the seasonality. In connection with tenant mix, large international brands seem to have a higher willingness to pay, thus representing a high potential for revenue maximization. However, these brands usually feature a shorter duration, and such considerations must be made in connection with revenue optimization (considering both occupancy and rental income). In addition, an all-inclusive pricing package (including internet, utilities, basic fit-out and other ancillary costs) increases the attractivity for potential tenants and allows investors to demand a pricing premium.

6

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Area

Recommendations

Letting Process

In order to avoid a mismatch between efforts and revenue potential, the ­letting process of pop-up stores should be simplified and automated, including the use of standardized contracts. The analysis also identified the importance of the availability of an ex­ perienced team in order to pursue a proactive approach to avoid vacancy and ensure a good tenant mix.

Physical Attributes

The optimal store size derived from demand patterns and the corresponding sales cycle, seems to range between 50 to 200 sqm. The basic fit-out the spaces should feature include wall painting, flooring, and light installations. These elements should enable the space to be flexible and convertible in order to be as attractive as possible to any kind of brand. Modular store fitting elements as well as the presence of digital displays could represent an advantage.

Critically reflecting on the above findings, further considerations must be made.

6.1 Data and Transparency are Key The importance of data availability and data transparency emerged throughout the study. Both the proposed alternative rental model as well as the strategic framework for the management of pop-up stores is based on a data-driven approach. The collection and sharing of data between tenant and owner will ultimately result in a substantially higher degree of transparency in the market, also providing retailers as well as investors the ability to compare and benchmark different locations and properties. Nevertheless, barriers of information asymmetry must be broken in order for both parties to benefit from such information. At the same time, investors and tenants are faced with legal and ethical issues regarding data collection and processing, which will need to be managed.

6.2 Shift of Retail Market Fundamentals Despite the general agreement on the changing fundamentals of the retail real estate environment, with a compression of contract terms and rents, investors and portfolio managers are still limited by the current valuation 72

  Conclusion

& Discussion

model associating the pop-up store concept with a higher valuation uncertainty through the higher tenant fluctuation, the higher fit-out and management costs as well as the lower rental level. In the current market environment, retail spaces pursuing a pop-up store strategy are facing important valuation and financing challenges, whereby the lack of security and economic stability heavily weighs on the perceived financial capacity. This situation will continue to persist despite the findings and recommendations of this study. In order for the pop-up store concept to successfully establish in the market, how retail real estate is analysed and priced needs to change. The discount rate applied in the DCF valuation model should reflect the risk premium of an asset, compensating for market and property specific risk. When taking into consideration the changing market environment, the substantial risk premium compared to conventional retail contracts, leading to a material negative impact on the property value is therefore questioned. Hereby for pop-up stores and flexible rental models to be become a fixed component of a portfolio strategy, the market needs to recognize the sources of risk associated with conventional retail contracts and therefore adjust the valuation model accordingly. The evolution of the market dynamics in A-locations and high streets, which are still characterized by very low vacancy rates (on average below 2.0%) and relatively stable rental levels, will also play a key role. These areas have in fact been identified by the existing literature as well as the findings of this study to be the most suitable for the pop-up store concepts. However, investors are not yet subject to substantial pressure to adapt their strategy in these locations, as demand remains high. In connection to this, the inclusion of pop-up stores as a fixed component of a real estate portfolio strategy beyond a tool to avoid vacancy, will represent an important shift of the negotiation power and therefore the achievable level of rents.

6.3 The Potential of the Operator Model In view of the challenges for real estate investors (such as higher management efforts and higher exposure to the tenant’s operational risk) and pop-up store retailers (the sourcing of technological infrastructure and equipment, 73

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planning and most importantly the availability of personnel) the potential for concepts such as the one implemented by brands’n mind emerged, which could further reduce the implementation barriers of pop-up stores. Such operator models (as known from the hospitality industry, whereby the opera­tional risk is borne by the hotel operator), along with additional poten­ tial solutions such as space-as-a-service, could represent a solution for both inves­tors and retailers. In this context retailers could be provided with a true all-inclusive package including personnel, and owners would not be exposed to vacancy, tenant fluctuation and further operational risks.

6.4 Limitations of the Study The limitations encountered with respect to the selected research method is the nature of the method itself. Being qualitative research, opinions, ideas, and attitudes are more important than numbers. According to Bell, Bryman and Harley (2019) the main problems of qualitative research are subjectivity, difficulty to replicate, problems of generalization and lack of transparency. The problem of generalization is amplified by the limited number of interviews, as it is not possible to apply the outcome directly without reservations. In this context, one of the main limitations of this study is indeed the poor response rate and therefore the limited number of expert interviews that could be carried out. While on most areas recurring themes and opinions could be identified, the amount of data gathered has not allowed to reach theoretical saturation. Another limitation is to be found in the sampling strategy for the expert inter­views. The criterion to include experts from different European countries in order to increase the pool of potential expert interview partners resul­ted in less significant outcomes due to regional dependencies. Furthermore, the selected interview partners are active players in the field of pop-up stores and may therefore be subject to bias. As they are already familiar with the subject, they are likely to have a positive attitude as well as a less critical view towards the concept.

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& Discussion

6.5 Need for Future Research This study is to be considered as a basis for future, more detailed research studies specifically designed to investigate either alternative rental models or a detailed strategic framework for the implementation and management of pop-up stores from the point of view of real estate investors. In order to ­improve and reinforce the quality of the results, a larger number of interviews must be conducted. For future research it is recommended to increase the sample size until theoretical saturation is achieved. This study focused on a qualitative research strategy. A quantitative research strategy would be useful to test the results and recommendations presented in this study, in particular with reference to alternative rental models. Future research could focus on the practical application of such alternative rental models, quantifying the impact on rental levels compared to current market rents. In addition, a quantitative research study could aim at quantifying the impact of pop-up stores on the valuation of retail real estate and determine to which extent the different elements impact value. The study focused on an analysis of the potential of the pop-up store concept having regard for the interests of real estate investors and retailers. Future research could focus on the potential of the concept from an urban development point of view having regard for the interests of the city and in a broader context of society. There are several further questions, that emerged from the interviews and data analysis, aiming at expanding the understanding of the potential of the pop-up store concept:

• What are the regional differences (such as for example between the US and European countries) leading to the different degree of implementation and adaptation to the pop-up store concept? • From a practical and technical point of view, how could alternative rental models be implemented from the point of view of retailers as well as real estate owners? • From a legal perspective, how would retail rental contracts to change to reflect the specificities of the pop-up store concept?

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• How can the key parameters capture rate and customer value be determined and what are possible benchmarks for these metrics? • Who are the key market players for the implementation of the operator model and how can this be implemented from a practical point of view? • How would be the operator model be perceived by real estate investors and what would be the conditions for its implementations?

6.6 Final Remarks This empirical study, notwithstanding its limitations, was successful at determining criteria for the development of alternative rental models for pop-up stores as well as at developing a strategic framework for real estate investors to implement and manage a pop-up store strategy. While the practical applica­tion of the findings is given (subject to further research), a key element for the implementation of the recommendations will be driven by a shift of market fundamentals and how market players view the concept in comparison to conventional retail stores. Nevertheless, the outlook for this segment is promising and business research resources should be dedicated to this topic given its relevance and in view of its implications for the real estate market in the future.

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Appendices

Appendix 1: Research Question One: Retained Literature Appendix 2: Overview of Marketing Metrics Appendix 3: Interview Guides Market Specialists  p. 101 Pop-Up Operators  p. 103

 p. 84

 p. 97

 p. 101

Appendix 4: Interview Transcripts  p. 106 Bikini Berlin    p. 106 brands’n mind  p. 112 Pop Up Shops  p. 117 Research Project “Pop-up City”  p. 122

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1

83

84

2000

2020

2 “Flexible Retail auf dem Vormarsch”

Date

1 Retail Leasing in a Web Enabled World

Title

Fuhrer et al.

Miller

Authors

KPIs for retail productivity (survey carried out in CH)

Alternative rental models with a focus on shopping centres

Research Field

Retail metrics to assess performance

Retail rental models

Inclusion Criteria

KPIs for productivity measurement: footfall, customer retention, customer satisfaction, conversion rate, length of stay, sales growth, sales per sqm, sales per employee, experience per sqm

• Rent is a function of productivity, and productivity has typically been measured through sales per sqm • In the future, productivity and value must be a function of how that site enables the retailer to be more successful in serving customers independent of where and how they are served • A percentage of sales rent allows the tenant to lower solvency risk but share with the landlord when sales exceed minimum expectations + additional rationale for the percentage rent is to provide the landlord incentives that align with the tenant’s interest • Factors that influence rental contract rates and percentage rents include the degree of ­customer attraction the tenant provides (i.e. anchors as important traffic generators pay less) • Key assumption behind the traditional rent model: individual store productivity can be measured through sales per occupied space per period of time • New rent model: retail sales generating ability = function of the sales served inhouse as well as externally through websites, etc. • New measures of productivity: ideally simple, automated, verifiable and correlate well with potential sales → TR = α + β + χ α = base / fixed rent β = rent based on expected productivity of the store as generated through direct consumer contact and interaction with the retailer (i.e. per contact factor) – ex: 2.50 per fist time customer, 0.10 * 50% frequency ex: new first time customers in the local store database, number of customers that pass through the store entrance χ = rent charge for contacts channelled from centralized shopping centre resources – ex: 0.02 web hit ex: web hits directed to tenant’s website, sales resulting from a shopping centre promotional card

Findings

Appendix 1: Research Question One: Overview of Retained Literature

Investments in Pop-Up Stores  

2016

2019

2000

4 Marketing Metrics – The Manager’s Guide to Measuring Marketing Performance

5 A quantitative performance management framework for ­assessing omnichannel retail supply chains

6 The effect of retail store environment on retail performance

Date

2000

Title

3 Marketing Metrics

Kumar and Karande

Adivar et al.

Bendle et al.

Ambler

Authors

Research Field

Predict store performance based on the type of environment. Analysis based on 646 grocery stores across the US

Performance management framework for retailers

Overview of marketing metrics

Marketing performance measurement (survey carried out in the UK)

Inclusion Criteria

Drivers of retail performance

Retail performance in an omnichannel context

Marketing performance measurement

Marketing performance measurement

Findings

• Performance measured in dollar sales, sales per sqm, market share, retail patronage, store choice, store traffic and store profits • Measure for market-based performance: weekly sales, market share • Measure for productivity-based performance: sales per sqm • Internal retail environmental variables: micro-marketing strategies (level of service, double couponing, extended store hours) • External retail environment: neighbourhood location and trade area demographics (population, socioeconomic characteristics, level of competition, retail atmospherics, sales area, credit card service, number of checkout counters, number of aisles, promotions)

• Research question: what are the KPIs to assess the retail performance in reference to customers’ shopping goals / criteria / expectations independent from the pointof-purchase • Understanding the performance and the role of each touchpoint in the consumers’ paths to purchase is critical for allocating retailers’ resources • Key dimensions of supply chain performance management: sustainability, efficiency and effectiveness, responsiveness, and flexibility

See Appendix 8.2

• Problem for measuring marketing performance: defining and identifying both the best metrics and best practice • External market metrics: short term financial measures (P&L) adjusted by the change in brand equity • → brand equity needs many non-financial measures, so the adjustment is conceptual and not in cash • Internal market metrics: assess innovation health and employee alignment and commitment • Brand equity = intangible asset in customers’ minds built by good marketing. Eight components: inclusion in the consideration set, awareness, preference, consultant attributes, personality traits, perceived capability, corporate image, satisfaction

  Appendix

1: Research Question One: Overview of Retained Literature

85

86

2016

8 What drives the success of pop-up stores

Date

1996

Title

7 Turnover rents: ­comparative valuation issues

Haas and Schmidt

McAllister

Authors

Research Field

Key success factors of popup stores

Examination of how turnover leases are valued in the market (US & UK based)

Inclusion Criteria

Drivers of pop-up stores’ performance

Retail rental models

Findings

Key success factors: • Type of product: lifestyle and luxury goods with high involvement products are predestined for a store’s success. Paper findings: also conventional goods can benefit from pop-up retailing • Demographics: Millennials • Experience: pop-up stores must create unexpected, extravagant experiences for customers • FOMO: include elements of scarcity to stimulate feelings of fear of shortage • Location: location that fits the target group • Brand awareness: due to the temporary nature, companies must either have advanced brand awareness and a strong brand identity or a distinct innovative power

• An average pop-up store in the USA enjoys an increase of 35% in sales from the opening to six months after the closing. Moreover, half of the stores experience a 30% increase in social media activities

• Important advantage of turnover rents: may promote more active management by the landlord, because the landlord has an incentive to maximize the income of the tenant • Important disadvantage: problem of “down valuing” due to the perceived higher risk of the turnover related income (lack of certainty). To what extend down valuing reflects the investment characteristics of the income rather than the conservatism or the lack of knowledge of the professional valuer? • Forces affecting turnover rents and standard rents (as the level of rent will depend primarily on the level of turnover): macroeconomic (inflation trends, economic growth, monetary and fiscal policy), local economic, social and demographic characteristics, quality of the shopping centre (tenant mix, access, aesthetic, attractiveness, management and marketing) • Distinctive feature of turnover rents: the performance of the tenant (range of goods, pricing policy, store design, corporate image and management of the company) will be an important determinant of income • The turnover related element would in practice be discounted at a higher yield than the base rent to reflect its higher risk

Investments in Pop-Up Stores  

Title

9 Measuring retail ­performance in an omnichannel world

2020

Date

Zuberi and Rajaratnam

Authors

Research Field

New metrics for evaluating retail performance

Inclusion Criteria

Retail performance in an omnichannel context

Findings

• Essential KPIs for retail businesses: sales per sqm, sales per employee, conversion rate (number of sales by number of visitors), gross/net profit, average order value, year over year growth, stock turn (COGS divided by average inventory), gross margin return on investment (gross profit divided by average inventory), sell through (number of units sold divided by beginning inventory), shrinkage (ending inventory value minus physically counted inventory value), foot traffic, customer retention , online sales relative to brick-and-mortar locations for omnichannel retailers • Essential KPIs for online retailers: web site traffic, new visitors vs returning visitors, time spent on web site, bounce rate (how many users exit the site after viewing only one web page), page views per visit, average session duration, traffic source, mobile device traffic, email/texting subscribers and growth rate, email open rate and click through rate, social followers and social media engagement, average position (SEO optimization and paid search performance), pay-per-click traffic volume • Essential KPIs for omnichannel retailers: number of consumers who search your business on their mobile device, number of mobile searches that ultimately result in sales (store or online), number of customers that search your website from within your store, percentage of customers that purchase online and collect in store, percentage of customers that purchase in store and have the product delivered, number of customers that purchase when the delivery is free, whether omni-channel customers are more or less profitable and by how much Proposed framework: • strategic metrics: monitoring sales, managing efficiency, customer rotation, market share, market growth, return on marketing investment (ROMI) • brand equity metrics: brand recall, brand recognition, depth (familiarity), breadth (range of purchase scenarios) • customer metrics: customer lifetime value (CLV), margin, discount rate, retention rate • digital marketing metrics: impressions, reach, conversion rate, click through rate, conversion funnel rates, lead to close ratio, visits, unique visitors, site time, bounce rate, direct traffic, referrals, open rate, churn rate, customer acquisition cost, customer retention rate • development metrics: low-cost, customization, quality, responsiveness and innovation metrics • impact of online retailing on their brick-and mortar stores and vice versa

  Appendix

1: Research Question One: Overview of Retained Literature

87

88

2018

11 The future of the turnover lease in a world of omni-­ channel retail

Date

2016

Title

10 Linking pop-up brand stores to brand experience and word of mouth: the case of luxury retail

Harper

Klein et al.

Authors

Research Field

Omni-channel retail’s effect on the effectiveness of the turnover lease

Assessment of the effect of pop-up stores on word of mouth for luxury brands (survey carried out in the UK and the US)

Inclusion Criteria

Retail rental models

Pop-up stores’ metrics to assess performance

Findings

• Many innovative retailers aren’t looking for sales from their stores but are using them to create demand for their products Suggestions for the industry: • trusted software that correctly, fairly and confidentially incorporates sales produced by the halo effect into the turnover lease: expensive and face legal challenges • lease based on footfall and not turnover: challenge in determining how much to charge per person walking into the store • more use of top-up turnover lease

Benefits of turnover lease for tenants • better cooperation with landlords as incentives are better aligned • reduced base rent relieves pressure on the store to perform

Benefits of turnover lease for landlords • access to tenant’s in-store turnover information • possibility of a higher rent

• Given the purpose of pop-up brands, marketers cannot directly measure their value or effectiveness by relying on traditional metrics such as within store sales. To meaningfully assess the attractiveness of this store format, marketers need to gauge the extent to which pop-up brand stores are able to leverage brand and non-purchase related behavioural outcomes for both existing and new customer target groups • The paper illustrates that pop-up stores are an effective experiential marketing tool to increase brand experience and to stimulate positive word of mouth through hedonic shopping value, store uniqueness and store atmosphere • Brand experience acts as an important mediating variable between consumers’ perception of store characteristics and their intentions to spread word of mouth • pop-up brand stores provide an effective experiential marketing tool to solve the positioning challenge as the induce positive word of mouth among both existing and new target groups

Investments in Pop-Up Stores  

2012

13 Pop-up-Stores im Modebereich – Erfolgsfaktoren einer vergänglichen Form der Kunden­ inspiration

Date

2014

Title

12 Die Erfolgsfaktoren von Pop-up-Stores

Baumgarth and Kastner

Gursch and Gursch

Authors

Research Field

Success factors of pop-up stores based on case studies from the fashion industry

Success factors of pop-up stores

Inclusion Criteria

Drivers of po-up stores’ performance

Drivers of pop-up stores’ performance

Findings

Key characteristics of pop-up stores: • Success level: make the brand a sensual-authentic experience for the shop visitor through the three-dimensional staging. The multi-sensory (shop) design as well as the experience-oriented entertainment programme (so-called “side events”) also play a central role + get the consumer to interact directly with the brand and attract the interest of the (local) media • Trade level: young, urban and trend-conscious target group + city centre locations + modern, often intentionally improvised shop design + temporary rental and operating expenses, and comparatively low storage and inventory costs due to a selective product range, meaning low investment costs • Operational level: temporary store concept + product-related scarcity instrument (such as limited editions) + sense of exclusivity and belonging + viral communication among consumers

• Essential criteria: Product category (high emotional attachment and involvement), target group (Generation Y, Liberal-intellectuals, Milieu der Performer, Expeditive Milieu, Adaptiv-Pragmatisches Milieu, partially hedonistisches Milieu), location (proximity to target group – central location in large city, urban location due to revenue potential, purchasing power and media concentration), store design (visual layout to attract attention) • Criteria for the creation of a special customer experience (exclusivity – provide an incentive to buy): Product scarcity, temporary scarcity (14-35 days: enough time to attract attention), physical scarcity (products only available in the pop-up store) • Criteria for the differentiation of pop-up stores from other marketing instruments (creative dimension): Framework (creation of special experiences such as the presence of VIPs), testimonials • Criteria for the sustainable effect of pop-up stores: Viral communication on social media

  Appendix

1: Research Question One: Overview of Retained Literature

89

90

2021

15 Why Retailers and Their Landlords Should Rethink Leasing Models

Date

n.a.

Title

14 9 Retail Metrics you should be tracking for Store Performance

Field

McGee

Authors

Research Field

Alternative rental models with a focus on shopping centres in the US

Retail metrics to assess store performance

Inclusion Criteria

Retail rental models

Retail metrics to assess ­performance

Findings

• There is a noticeable shift away from leasing in enclosed malls, a trend accelerated by the pandemic • Existing model: focused on fixed revenue and share of sales. This model worked when 100% of retail sales came from inside the physical store. However shopping is no longer linear • The new model: two KPIs that account for the reality we all live in are traffic per sqm and sales per shopper • This would essentially evaluate how effective landlords are at driving foot traffic and how successful retailers are at maximizing shopper demand

• Gross Margin Return on Investment (GMROI) – gross margin divided by average inventory cost (inventory profitability evaluation ratio) • Customer traffic / foot traffic – can be tracked with physical counts or through a survey • Customer retention rate – percentage of customers your company has retained over a tracked period • Churn rate – customer lost in a given period • Sales per employee • Customer conversion rate – number of visitors that your business converts into customers • Inventory turnover – how many times your company has sold and replaced your inventory during the tracked time period • Sales per sqm • Average transaction value • Year over year growth

Investments in Pop-Up Stores  

Title

16 A New Formula for Retail Rents

2018

Date

Harris

Authors

Research Field

Alternative rental models with a focus on the US

Inclusion Criteria

Retail rental models

Findings

• Next step: landlords will require to look at the customers of each tenant and the eyes in which those customers spend their time, not just their money. Some retail REITs are already starting to do this when chasing deals with clicks-to-bricks retailers where marketing data plays a prominent role from the outset (tapping location-enables mobile apps, shopper’ (anonymous) cell signals, AI-driven cameras and other data pools) • For properties in the best markets, that could mean an increase in smaller-footprint stores focused on experiential sales and marketing → these high-traffic properties could become important influencers in the eyes of tenant marketing teams • Under this scenario, functions such as inventory storage, transaction-processing and logistics will be lower-profile • Tenants occupy premier locations based on considerations related to traffic and customers rather than sales per sqm. Landlords are already exploring ways to handle percentage rent in an era in which pinning sales to specific locations can be tricky if not impossible. This new approach represents a potential solution • In the Software as a Service (SaaS) world, in which third-party providers host customer apps online, marketers almost always pay more for each new customer than the revenue they generate from a fist-time sale alone • Alternative metrics to base leases on: cost to acquire a customer (CAC), price-perlead – i.e. retail rent structures could resemble pay-per-click advertising • All businesses have online ad budgets, and extending this concept to non-retail industries could eventually lead to leases that broadly mimic traditional marketing agreements

Old vs new retail model: • sales and marketing showrooms with product displays and sales staff – satisfying customer experience enhanced by total brand immersion • transaction hubs with registers and point-of-purchase opportunities – increasingly handled online • mini-warehouses for inventory storage, shipping and receiving – becoming less and less essential at retail stores, as chains started moving inventory to warehouses located outside of expensive retail submarkets • logistics centres for product delivery and returns – fulfilled by fast and efficient delivery services (same-day parcel companies, ridesharing delivery, etc.)

  Appendix

1: Research Question One: Overview of Retained Literature

91

92

2020

18 Retail leasing model linked to footfall

Date

2018

Title

17 Retail-Immobilien im Wandel: Einkaufen mit Wow-Effekt!

Clarence-­ Smith

BNP Paribas Real Estate

Authors

Research Field

Rental model based on footfall

The evolution of the retail market in Germany

Inclusion Criteria

Retail rental models

Retail rental models

Findings

• New leasing models that would link rent to shop visits and online sales in a catchment area are being considered by some of Britain’s biggest landlords and retailers • Long leases with upward-only rent reviews have driven a passive asset management culture which is widely accepted to be no longer viable as retailers face severe competition from online rivals • Colliers is working on a “cost per click” model that would see rent linked to passing footfall, dwell time and customer spend • CACI has devised a model that would factor in footfall, uplift in online sales following the opening of a store, the value of items bought online and collected in-store, and store sales • The models rely heavily on data collection and are more likely to be adopted in shopping centres or across landed estates • The most successful model could be adopted as an industry standard to improve investor confidence in retail property valuations

• The market is currently characterized by uncertainty: footfall and sales volumes decreasing, shorter rental terms, lower rents and even contract terminations. Vacancy is A-locations is also a reality and finding new tenants at the same level is a challenge • With flexible rental terms, there is the potential to attract new and creative concepts such as pop-up stores • Fairly recent alternative rental model: Top-up model with fixed rent and additional revenue share. The operational responsibility is partially transferred to the owner. However this is not yet highly accepted by investors • Can online sales be allocated to a brick-and-mortar store? currently it is poorly measurable, but definitely a topic for the future • Rent structure decides: The increasing market dynamics are also relevant for the rent structure and thus for the valuation of retail properties. While turnover is easier to allocate in the case of traditional space utilisation, it becomes more complex in the case of the now ubiquitous multi-channel concepts. The point-of-sale can no longer be clearly defined and should be defined as broadly as possible in the lease agreement in order to sufficiently capture the online turnover attributable to a retail space for the calculation of the turnover rent. Alternative models, such as a flexible rental period, a frequency rent instead of the turnover rent or the combination of a low fixed rent with price shares in the online sales of a brand, optimise the cash flow of the landlord and are advantageous for financing and possible exit scenarios.

Investments in Pop-Up Stores  

19 Pop-up Analytics and Measurements

Title

2018

Date

Yu et al.

Authors

Definition of KPIs for pop-up stores based on their strategic goals

Research Field

Pop-up stores’ metrics to assess performance

Inclusion Criteria

Social media ROI: analyse how social media channels may contribute to the pop-up shop objectives (ex: driving foot traffic, redirecting customers to the retailer’s website, building a new online community hub, getting feedback about products and the store experience, making sales)

Non-objective performance indicators (related to relationship-building and customer experience management, based on subjective performance assessment by retailers and customers): • relational touch-points = opportunities to reach out to new customers, raise brand awareness and engage with existing customers • strategic alignment = alignment with brand, location and context • surprise and delight = strong link between positive emotions and customer engagement with the brand through delightful and multi-sensory shopping experiences • Serendipity = refers to chance, happenstance or happy accident (seasonality) • Other experience metrics: customer satisfaction scores (product quality, service quality, cost and timeliness), customer journey / touch-point analysis

Objective measures and KPIs • sales by day, by employee, by product, per sqm  • operating profit, net profit • ROI  • traffic count  • conversion rate (traffic conversion rate) • basket size (average transaction rate)

• Quantitative performance measures: store sales and profit, ROI → non-objective performance indicators • In the context of omni-channel retailing, pop-up analytics weigh heavily on the ROI of social media impacts • Metrics for performance measures of pop-up shops with different primary objectives will vary accordingly • The choice of performance metrics are often driven by data availability, which results from the more observable financial performance measures (such as sales, profits, ROI)

• Turnover leases for investors are a bit like being a shareholder in the tenant. It’s not a traditional real estate investment. There are different metrics to consider and if there was an industry standard for how turnover rents were calculated that would help with transparency for investors

Findings

  Appendix

1: Research Question One: Overview of Retained Literature

93

94

2022

2021

21 New leases promising landlords a share of online boom struggle to tempt retailers

22 Why retail needs a new leasing model

Date

2018

Title

20 Pop-up Analytics and Measurements

Matthews and Gamble

Farrell

Yu et al.

Authors

Research Field

Collier’s new method to price retail space

Comment on the acceptance of alternative leasing models from the market

Strategic aspects crucial for the success for pop-up stores

Inclusion Criteria

Retail rental models

Retail rental models

Drivers of po-up stores’ performance

Findings

• The way in which retail space is priced needs to be changed to focus on data (spend data, footfall and brand exposure metrics) = data-driven approach • Data: data is at the heart of understanding a retailer’s success, but has never been taken into consideration in discussions around rent and lease structures (spend data, footfall, behavioural and demographic measures) • Technology: capture the value that shops play in driving online sales (i.e. in some cases up to half of a brand’s online sales take place within five miles of stores); a rent must also reflect value from a fulfilment and brand engagement perspective

• New lease arrangements have struggled to gain traction in the pandemic • CACI model: considers online sales within a store’s catchment area in arriving at a rent top-up appeared to be attracting considerable interest from landlords by late 2020. Difficult because retailers were reluctant to recognise a direct link between online transactions and the presence of a physical store (often they lacked their own measure of a link, due to complexities such as separate online and store divisions within the company) • The process is slower but has a longer-term focus • Colliers model: relies on linking rent to footfall, assuming a store visit could lead to a sale either in person or online, and therefore drives value for the retailer across both channels • Progress of new lease models had stalled a little bit in the pandemic because most retailers and landlords have probably been focused on other things • What you will probably see is a lot more landlords investing in more technology around footfall tracking and understanding at a much more granular level what is happening across their centres

Six strategic aspects – framework to plan and execute a pop-up retail shop and a direction for analysing its outcomes: • Lifestyle products and luxury goods • Millennials as the target market segment • Unexpected and extravagant shopping experience • Scarcity marketing tactics • Location that fits the target market and brand • Advanced brand awareness, distinctive or innovative brand power

Investments in Pop-Up Stores  

n.d.

n.d.

2015

24 CACI: Online Halo – How bricks are driving clicks

25 Erfolgsfaktoren von Pop-up Stores

Date

23 The impact of locations on online sales

Title

Kastner

CACI

CACI

Authors

Success factors of pop-up stores based on case studies from the fashion industry

CACI’s results on the estimate of the Halo effect

CACI’s new method to price retail space

Research Field

Drivers of pop-up stores’ performance

Retail metrics to assess performance

Retail rental models

Inclusion Criteria

• The phenomenon of the pop-up store is mostly assigned in the literature to the ­disciplines of experience and event marketing as well as concepts of three-­ dimensional brand staging

• Halo effect in the UK: 106% (physical store increases online sales locally) • Halo effect demonstrates how the role of the store has transformed from purely transactional, to a multi-dimensional showroom for a brand and its products • Today a vacant unit can be considered more valuable than a rent-paying one •

• Stores are far more than simply a place to transact and purchase goods. Maintaining a strong and engaging high-street presence can significantly increase digital sales • The online halo effect: difficult to isolate and quantify. Maintaining a s strong and engaging high street presence can significantly increase digital sales • According to CACI research: over half of online spend is inspired by a store, nearly 90% of all consumer spend is inspired by a store • CACI has developed an evidence-based approach to assessing the total value of a store by blending market, location and commercial data to see the true impact. Case study Zara: 43% uplift in online market share that’s attributable to the halo effect of the chain’s high street presence • new performance-based lease modelling using retail/leisure footprint catchment models and mobile app data

• Model draws on Google “cost-per-click” approach, for an owner to charge an occupier for passing footfall and conversions • Transparency: creation of transparency between landlords and tenants and a flexibility that doesn’t rely on the traditional zoning model

Findings

  Appendix

1: Research Question One: Overview of Retained Literature

95

96

n.d.

27 How to make your pop-up a success

Date

2018

Title

26 Pop-up Retailing – Managerial and Strategic Perspectives

Storefront

Warnaby and Shi

Authors

Research Field

Guide to develop and manage pop-up stores

Measuring and evaluating ­success of ­pop-up activities

Inclusion Criteria

Pop-up stores’ metrics to assess performance

Pop-up stores’ metrics to assess performance

Findings

• Increase sales, open new revenue streams: total sales, cost savings • Generate leads, increase brand awareness: e-mail sign-ups, social media engagement, increased site traffic • Engage customers, improve customer experience: online customer feedback, in-store giveaways or demonstrations

• In evaluation outcomes of pop-up activities, brands use different measures, which are very much tailored to the specific objectives the brand set out to achieve • For established brands, more formal measurement and evaluation mechanisms were evident, with data capture relating to sales (both in-store and vie e-commerce sites), customer footfall, media and PR coverage, customer in-store surveys • Additional metrics: website traffic using software’s such as Google Analytics, promotion code redemption, social media channels and QR code scans, conversion rate from visit to actual purchase, qualitative feedback from customers • A huge amount of the perceived value arising from the activity may not be directly measurable, such as the increased brand awareness and the enhanced relationship through the face-to-face interactions • Brands need to have specific measures linking marketing inputs and financial outcomes, achieved through the use of social media, but the lack of metrics make it difficult to assess the effectiveness of social media channels • In evaluating pop-up activity, the long-term impact on brand image and brand awareness, as well as the potential customers gained, should be also taken into consideration

Investments in Pop-Up Stores  

  Appendix

2: Overview of Marketing Metrics

Margins & Profits

Share of Hearts, Minds and Markets

Appendix 2: Overview of Marketing Metrics Potential application to pop-up stores 􀰑

x

Metric

Purpose

Revenue Market Share

Measure competitiveness

Unit Market Share

Measure of competitiveness

Relative Market Share

Assess comparative market strength

Brand Development Index

Regional or segment differences in brand purchases and consumption

x

Category Development Index

Regional or segment differences in category purchases and consumption

x

Decomposition of Market Share

Calculation of market share, competitive analysis, historical trends analysis, formulation of marketing objectives

Category Penetration

Measures category acceptance by a defined population, useful in tracking acceptance of new product categories

Brand Penetration

Measures brand acceptance by a defined population

x

Penetration Share

Comparative acceptance of the brand within its category

x

Share of Requirements

Level of commitment to a brand by its existing customers

Usage Index

Measures relative usage of a category by customers of a specific brand

Hierarchy of Effects

Set marketing and advertising objectives, understand progress in stages of customer decision process

Awareness

Consideration of who has heard of the brand

x

Top of Mind

Saliency of brand

x

Ad Awareness

One measure of advertising effects, may indicate „stopping power“ of ads

x

Knowledge

Extend of familiarity with product beyond name recognition

x

Consumer Beliefs

Perception of brand by attribute

x

Purchase Intentions

Measures pre-shopping disposition to purchase

Purchase Habits

Helps identify heavy users

Loyalty

Indication of base future revenue stream

Likeability

Shows overall preference prior to shopping

Willingness to recommend

Shows strength of loyalty, potential impact on others

x

Customer satisfaction

Indicates likelihood of repurchase, reports of dissatisfaction show aspects that require improvement to enhance loyalty

x

Net Promoter

Some claim it to be the single best metric for marketers

Willingness to search

Indicates importance of distribution coverage

Neuro-marketing measures

Cal help illuminate reactions that consumers find hard to verbalize

Unit Margin

Determine value of incremental sales, guide pricing and promotion

Margin (%)

Compare margins across different products / sizes / forms of product, determine value of incremental sales, guide pricing and promotion decisions

x

Channel margins

Evaluate channel value added in context of selling price, calculate effect of price changes at one level of channel on prices and margins at other levels in the same channel (supply chain)

x

Average price per unit

Understand how average prices are affected by shifts in pricing and product mix

Price per statistical unit

Isolate effect of price changes from mix changes by standardizing the SKU mix of a standard unit

Variable and fixed costs

Understand how costs are affected by changes in sales volume

Marketing spending

Understand how marketing spending changes with sales

Contribution per unit

Understand profit impact of changes in volume, calculate break-even level of sales

Contribution margin (%)

Same as contribution per unit

Break-even sales level

Rough indicator of project attractiveness and ability to earn profit

Target volume

Ensure that unit sales objectives will enable firm to achieve financial hurdle rates for profit, ROS, or ROI

Target revenues

Same as target volume applied to revenue objectives

x

97

Sales Force & Channel Management

Customer profitability

Product and Portfolio Management

Investments in Pop-Up Stores  

98

Potential application to pop-up stores 􀰑

x

Metric

Purpose

Trial

Over time, sales should rely less on trial and more on repeat purchasers

Repeat Volume

Measure of the stability of a brand franchise

Penetration Share

Measure of the population buying in the current period

Volume Projections

Plan production and inventories for both trade sales and consumer off-take

Year-on-year growth

Plan production and budgeting

CAGR

Useful for averaging growth rates over long periods

Cannibalization rate

Useful to account for the fact that new products often reduce the sales of existing products

Fair share draw

Useful to generate an estimate of sales and shares after entry of new competitor

Brand equity metrics

Monitor health of a brand, diagnose weaknesses

Conjoint utilities

Indicates the relative values that customers place on attributes of which product offerings are composed

Segment utilities

Uses customer valuations of product attributes to help define market segments

Conjoint utilities and volume projection

Forecast sales for alternative products, designs, prices and branding strategies

Customers

Measure how well the firm is attracting and retaining customers

Recency

Track changes in number of active customers

Retention Rate

Track changes in the ability of the firm to retain customers

Customer profit

Allows the firm to identify which customers are profitable and which are not as a precursor to differential treatment designed to improve firm profitability

x

Customer Lifetime Value

Customer relationship management decisions should be made with the objective of improving CLV, Acquisition budgeting should be based on CLV

x

Prospect Lifetime Value

To guide the firm‘s prospecting decisions, prospecting is beneficial only if the expected prospect lifetime value is positive

Average Acquisition Cost

To track the cost of acquiring new customers and to compare that cost to the value of the newly acquired customers

x x

Average Retention Cost

To monitor retention spending on a per-customer basis

Workload

To assess the number of salespeople required to service a territory, and to ensure balanced workloads

Sales potential forecast

To determine sales targets, can also help identify territories worthy of an allocation of limited sales resources

Sales goal

To set targets for individual salespeople and for territories

Sales force effectiveness

To assess the performance of a salesperson or team

Compensation

To motivate maximum sales effort, to enable salespeople and management to track progress toward goals

Break-even number of employees

To determine the appropriate personnel level for a projected sales volume

Sales funnel, sales pipeline

To monitor sales effort and project future sales

Numeric distribution

To assess the degree to which a brand or product has penetrated its potential channels

All commodity volume (ACV)

To assess the degree to which a brand or product has access to retail traffic

Product category volume (PCV)

To assess the degree to which a brand or product has access to established outlets for its category

Total distribution

To assess the extent to which a product line is available

Category Performance Ratio

To assess whether a brand‘s distribution or a particular retailer is performing above or below average for the category

Out-of-Stock

To monitor the ability of logistics systems to match supply with demand

Inventories

To calculate ability to meet demand and determine channel investments

Markdowns

To determine whether channel sales are being made at planned margins

Direct Product profitability (DPP)

To identify profitable SKUs and realistically calculate their earnings

Gross margin return on inventory investment (GMROII)

To quantify return on working capital invested in inventory

x

2: Overview of Marketing Metrics

Metric

Purpose

Price Premium

Measures how a brand‘s price compares to that of its competition

Reservation Price

One way to conceptualize a demand curve is as the aggregation of reservation prices of potential customers

Percent good value

A second way to conceptualize a demand curve is as the relationship between percent good value and price

Price Elasticity of demand

Measures the responsiveness of quantity to change sin price. If priced optimally, the margin is the negative inverse of elasticity

Optimal price

Quickly determines the price that maximizes contribution

Residual elasticity

Measures the responsiveness of quantity to changes in price, after accounting for competitor reactions

Baseline sales

To determine the extent to which current sales are independent of specific marketing efforts

Incremental sales, or Promotional Lift

To determine short-term effects of marketing effort

x

Redemption Rates

Rough measure of coupon „lift“ after adjusting for sales that would have been made without coupons

x

Costs for Coupons and Rebates

Allows for budgeting of coupon expense

x

Percentage Sales with Coupon

A measure of brand dependence on promotional efforts

x

Percent Sales on deal

A measure of brand dependence on promotional efforts

x

Pass-through

To measure the extent to which a manufacturer‘s promotions generate promotional activity further along the distribution channel

Price Waterfall

To indicate the price actually paid for a product, and the sequence of channel factors affecting that price

Impressions

To understand how many times and advertisement is viewed

x

Gross Rating Points (GRPs)

To measure impressions in relation to the number of people in the audience for an advertising campaign

x

Cost per Thousand Impressions (CPM)

To measure the cost-effectiveness of the generation of impressions

x

Net Reach

To measure the breadth of an advertisement‘s spread across a population

x

Average frequency

To measure how often an advertisement is exposed to a given population

x

Frequency response functions

To model the response of an audience to additional exposures of an advertisement

x

Effective reach

To measure the portion of an audience that is exposed to an advertisement enough times to be influenced

x

Effective frequency

To determine optimal exposure levels for an advertisement or campaign, trading the risk of overspending against the risk of failing to achieve the desired impact

x

Online, Email and Mobile Metrics

Advertising Metrics

Promotion

Pricing Strategy

  Appendix

Potential application to pop-up stores 􀰑

x

Share of voice

To evaluate the relative strength of advertising program within its market

x

Pageviews

To provide a top-level measure of the popularity of a Web site

x

Rich Media display time

To measure average viewing time of rich media

Rich media interaction rate

Measures relative attractiveness of rich media and ability to generate viewer engagement

Clickthrough rate

To measure the effectiveness of a Web advertisement by counting those customers who are sufficiently intrigued to click through it

Cost per Click

To measure or establish the cost effectiveness of advertising

x

Cost per order

To measure or establish the cost-effectiveness of advertising

x

Cost per impression

To measure or establish the cost-effectiveness of advertising

x

Visits

To measure audience traffic on a web site

x

Visitors

To measure the reach of a web site

x

Abandonment Rate

To measure one element of the close rate of an Internet business

Bounce rate (Website)

Often used as an indicator of site‘s relevance and ability to generate visitor interest

Friends / followers / supporters

To measure size of social network, but unlikely to measure engagement

x

Likes

Understand the relative popularity of social media elements

x

x

99

Marketing & Finance

O, E & M Metrics

Investments in Pop-Up Stores  

x

Purpose

Value of a like

To give a dollar value for like

x

Downloads

To determine effectiveness in getting applications out to users

x

Mobile metrics

Examines effectiveness of app at generating revenue from its user base

x

Email Clickthrough

To determine effectiveness of email campaigns

Net Profit

The basic profit equation

x

Return on Sales (ROS)

Gives the percentage of revenue that is being captured in profits

x

EBITDA

Rough measure of operating cash flow

x

ROI

A metric that describes how well assets are being used

x

Economic Profit (Economic Value Added)

Shows profit made in dollar terms. Gives a clearer distinction between the sizes of returns than does a percentage calculation

x

Payback

Simple return calculation

x

Net Present Value (NPV)

To summarize the value of cash flows over multiple periods

Internal Rate of Return (IRR)

An IRR will typically be compared to a firm‘s hurdle rate. If IRR is higher than hurdle rate, invest; if lower, pass

Marketing Return on Investments (MROI or ROMI)

Evaluates productivity of various marketing efforts. The percentage term helps comparison across plans of varying magnitude

Source: (Bendle et al., 2016)

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Potential application to pop-up stores 􀰑

Metric

x

  Appendix

3: Interview Guides

Appendix 3: Interview Guides Market Specialists

Part I Warm-Up • What does your company do? • What is your role within the company?

Part II Context Understanding and Market Assessment • How would you define the term pop-up store? • What is the difference between temporary use and a pop-up store? • What kind of companies are looking to open a pop-up store? (­International vs local, chain vs independent) • What are the main reasons for opening a pop-up store? • In which context do real estate owners look for a pop-up tenant? • Are you aware of real estate owners following a 100% pop-up strategy for their space? • What is the general attitude of real estate owners towards pop-up stores? – Follow up questions: if positive, what are the main perceived benefits? – Follow up question: if negative, what are the main perceived challenges? • Is there a difference between the rental structure of classic retail and pop-up stores? • Is there a difference between the rental level of classic retail and pop-up stores?

Part III Temporal Requirements • What is the usual duration of a pop-up agreement? • What is the link between the reason for opening a pop-up store and its duration? • What is the link between the type of company and the lease duration? 101

Investments in Pop-Up Stores  

• When is the demand for pop-up stores at its highest? • Are there periods when there is no demand? If yes, when? • What is the link between the reason for opening a pop-up store and the period in which demand is high? • What is the link between the type of company and the period in which demand is high? Part IV Spatial Requirements • What are the macro location criteria (within Switzerland) for pop-up stores? • What are the micro location criteria (within a city) for pop-up stores? • Is there a link between the reason for opening a pop-up store and ­location criteria? • Is there a link between the type of company and location criteria? • What are typical store formats? • What are the size requirements of pop-up stores? • What are the layout requirements of pop-up stores (footprint, ceiling height)? • What are the storage requirements of pop-up stores? Part V Fit-Out requirements • What are the most requested fit-out requirements of pop-up stores? • What are the technological / IT installation requirements of pop-up stores? • What are the security requirements of pop-up stores? • What are the amenities and/or services required by pop-up stores? • What fit-out contributions do owners usually grant? • How long does it take to fit-out/open a pop-up store from the time of signing of the lease? Part VI Closing Questions • What are the essential criteria for the success of pop-up stores? • What are the essential criteria for the successful leasing of pop-up stores? 102

  Appendix

3: Interview Guides

• Do you believe that pop-up stores can become a (partial) alternative to classic retail stores for real estate owners? – Follow up question: if yes, why? – Follow up question: if no, what do you think is preventing this? • Would you like to talk about anything else concerning pop-up stores I haven’t asked you about yet? • Do you have any questions for me?

Pop-Up Operators

Part I Warm-Up • What does your company do? • What is your role within the company?

Part II Context Understanding and Market Assessment • How would you define the term pop-up store? • What kind of companies are looking to open a pop-up store? (­International vs local, chain vs independent) • How do you attract tenants / how do you approach the letting process? • What are the main reasons for opening a pop-up store?

Part III Temporal Requirements • What is the usual duration of a pop-up agreement? • What is the link between the reason for opening a pop-up store and its duration? • What is the link between the type of company and the lease duration? • When is the demand for pop-up stores at its highest? • Are there periods when there is no demand? If yes, when? 103

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• How do you manage periods of low/no demand? • What is the link between the reason for opening a pop-up store and the period in which demand is high? • What is the link between the type of company and the period in which demand is high? Part IV Spatial Requirements • What are the advantages of your location making it attractive for ­pop-up stores? • Is there a link between the reason for opening a pop-up store and ­location criteria? • Is there a link between the type of company and location criteria? • What are your typical store formats? (size & layout) • Based on tenants’ requirements, what would you adjust to meet the demand? • What are the storage requirements of pop-up stores?

Part V Fit-Out requirements • What is the basic fit-out you provide your units to tenants? • What are the most requested fit-out requirements? • What are the technological / IT installation requirements? • What are the security requirements? • What are the amenities and/or services required? • What fit-out contributions do you grant? • How long does it take to fit-out/open a pop-up store from the time of signing of the lease?

Part VI Rent • How is the typical rental structure of your units? (fixed vs variable) • What services and/or amenities are included? • Do your rental levels feature a premium or a discount compared to the market rental level of classic retail stores in your neighborhood? 104

  Appendix

3: Interview Guides

Part VII Closing Questions • What are the essential criteria for the successful leasing of pop-up stores? • What are the essential criteria for the successful management of pop-up stores? • Do you believe that pop-up stores can become a (partial) alternative to classic retail stores for real estate owners? – Follow up question: if yes, why? – Follow up question: if no, what do you think is preventing this? • What are the main challenges your company faces? • Would you like to talk about anything else concerning pop-up stores I haven’t asked you about yet? • Do you have any questions for me?

105

Investments in Pop-Up Stores  

Appendix 4: Interview Transcripts At the beginning of each interview the topic and the aim of the book was intro­duced. The delimitations of the study with a focus on the retail sector in Switzerland (excluding F&B and other uses as well as pop-up shops within shopping centres) have been explained. The summary interview transcripts have been submitted to the interview partners for review and confirmation on the content. All interview partners granted their approval for the interview transcripts as reported on the following pages to be used as a basis for this research.

Bikini Berlin Date: 03.03.2022 Duration: 62 minutes Type of interview: Telephone interview Interviewer: Alessia Breda Participant: Bora Oezbek, Head of Retail Leasing Bikini Berlin Note: English transcript from audio-recording in German

1 2 3 4 5 6 7 8 9

Introduction What does your company do? • Concept Mall (15,000–16,000 sqm lettable area, of which 300 sqm ­pop-up spaces) • Peculiarity of the centre from a marketing perspective: pop-up spaces and boxes on the ground floor providing variety and attractivity to visitors • Pop-up spaces as a platform for young companies from Germany as well as international brands to present themselves in Berlin • One of the first malls in Germany offering pop-up units (2014/2015)

10 11 12 13 14

What is your role within the company? • Head of Retail Leasing • Centre repositioning (brand mix in the mid-price segment) with the goal of boosting footfall

15

106

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16 17 18 19 20 21 22

4: Interview Transcripts

Context Understanding and Market Assessment How would you define the term pop-up store? • Short rental term (1–3 months) • Flexible concept with regards to form: stand-alone solution (open space), box, retail store, shop-in-shop • Presenting a product that is not already available in a store: either a special promotion or an “attraction”

23 24 25 26 27 28 29 30 31

What kind of companies are looking to open a pop-up store? • 60% regional brands present in Germany (young companies, entrepreneurs) maybe already present online looking for a physical space to present their brand as well as large companies (such as Netflix) looking for a platform for promotions • 40% international companies wanting to test the German market (lack of availability of pop-up stores that have attractive financial condition and that are situated in the right location)

32 33 34 35 36 37 38

How do you attract tenants / how do you approach the letting process? • Combination between direct requests from brands (70%) and proactive acquisition • Pop-up event manager, whose role is to find exciting brands and newcomers as well as “magnets” • Without proactive approach, there would always be some vacancy

39 40 41 42 43

What are the main reasons for opening a pop-up store? • Unknown brands wanting to present themselves in a new market • Existing brands (potentially with already a retail presence) wanting to present new products

44 45 46 47 48 49 50 51 52 53

Temporal Requirements What is the usual duration of a pop-up agreement? • 1–3 months • The short duration of the agreement and the flexibility of the concept has led to an increased level of attractivity to young brands from a risk management and financial perspective • The short duration allowed to attract unknown brands in the Berlin market 107

Investments in Pop-Up Stores  

54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

What is the link between the reason for opening a pop-up store and the type of company to the duration of the store? • Each type of product has a seasonality – brands might be forced to rent a space for a longer period of time in order to ensure presence during the correct product’s season • Product testing usually has a longer duration: should be tested over one year to identify demand seasonality and repurchasing patterns (extended duration in exchange of lower rent) • Large brands with a strong external impact (such as Netflix, ­Spotify, etc.) have a very short duration measured in days and not months, whereby the marketing effect during these days is sufficient to generate a buzz • The stronger the focus on marketing goals (vs sales), the shorter the duration • Further influencing factor on lease duration: large companies work with agencies also with regards to personnel leading to higher costs. Finding personnel for pop-up stores is extremely difficult and at the same time a key success factor

71 72 73 74

When is the demand for pop-up stores at its highest? • Shopping mall: Easter period – early summer (April–May–June), pre-Christmas–Christmas (end September–January)

75 76 77 78

Are there periods when there is no demand? If yes, when? • Low demand summer season ( July, August, September) • However, never had vacancy (before COVID -19)

79 80 81 82

How do you manage periods of low/no demand? • The term of the agreement is extended (ex: demand for December, leasing December-February/March)

83 84 85 86

What is the link between the reason for opening a pop-up store and the type of company to the period in which demand is high? • Depends on the sector – each sector has a different seasonality

87 88 89 90 91

Spatial Requirements What are the advantages of your location making it attractive for pop-up stores? 108

  Appendix

92 93 94 95

4: Interview Transcripts

• Pop-up stores and brands among each other: “pop-up community” within the concept mall leading to synergies • Location within a mall where a certain footfall is already given • Lower rental level compared to street locations

96 97 98 99 100 101 102 103 104 105

Is there a link between the reason for opening a pop-up store and the type of company to location criteria? • If the goal is to open a store in the future, then the preferred location for a pop-up store would not be within a mall • Golden rule (also among young companies): if you want to test a ­concept you choose a strong location (in terms of visibility, ­footfall, etc.) and accept a higher rental level, so that if the concept does not work it is clear that the problem is with the product and not with the location

106 107 108 109 110 111 112 113 114 115 116

Fit-Out requirements What are your typical store formats? (size & layout) • 10–30 sqm • Squared form, boxes (3×4 m & 5×3) • Open on all sides to have visibility & accessibility from all sides • What are the storage requirements of pop-up stores? • It depends on the sector. For example, fashion sector would usually also require changing rooms. The units therefore need to have the ability to be convertible/flexible

117 118 119 120 121 122 123 124 125

What is the basic fit-out you provide your units to tenants? • Wooden boxes including illumination system • Potential future offering (in the next year): flexible and movable shelving system as some brands do not have their own interior equipment and end up not furnishing the store in an appealing way What are the technological / IT installation requirements? • Internet (important for POS system) • Potential future offering (in the next year): digital displays

126 127 128 129

What are the amenities and/or services required? • Digital equipment on demand, although one needs to be careful not to overdesign/over digitalize the unit 109

Investments in Pop-Up Stores  

130 131 132

What fit-out contributions do you grant? • None – interior equipment dependent on the store concept and is arranged by the tenant

133 134 135 136

How long does it take to fit-out / open a pop-up store from the time of signing of the lease? • Usual time-lag between two tenants of one week (3–4 days)

137 138 139 140 141

Rental Structure How is the typical rental structure of your units? (fixed vs variable) • Fixed

142 143 144

What services and/or amenities are included? • Internet

145 146 147 148 149 150 151 152 153 154 155

Do your rental levels feature a premium or a discount compared to the ­market rental level of classic retail stores in your neighbourhood? • Discount – a rent at market level would quickly lead to bankruptcy for unknown / young brands • The exception to this are large companies wanting to test a new product / new format, although if they know that vacancy would be the alternative, they will not be willing to pay a rent at market level • In shopping centres many use spaces for pop-up stores, for which no long-term tenant can be found, i.e. pop-up stores used to avoid vacancy, which has an important negative effect on the neighbouring spaces

156 157 158 159 160 161 162 163 164 165 166 167

Closing Questions What are the essential criteria for the successful leasing and management of pop-up stores? Integration in the neighbourhood / mall – how can I increase the attractivity of the overall mall? • Letting process / tenant acquisition: people from the event / pop-up sector with the ability to identify young brands / new concepts with high potential to be “different” and surprise customers • Fit-out: the standard fit-out of the units is gaining increasing importance 110

  Appendix

168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193

4: Interview Transcripts

Do you believe that pop-up stores can become a (partial) alternative to ­classic retail stores for real estate owners? • Financing question: banks require high yielding (i.e. long term) rental agreements. Such agreements are necessary to provide guarantees and prove the profitability of the property / real estate. The financial viability of pop-up stores is usually below the required guarantees by banks in a financing process • Agreements for pop-up stores have a very short duration and are usually signed with young companies (limited proof of covenant strength). These are therefore not sufficient to prove the financial viability of the property • A minimum occupancy of “classic” retail stores is necessary to be able to provide pop-up spaces • Pop-up use alone does not work due to financing issues and the lack of economic stability • Pop-up stores are useful to increase attractivity and variety: ensure continuous attractivity of your property to visitors by providing them with something new to discover, although a number of pop-up stores (15–20 brands) is necessary to achieve this • Using a space as a pop-up store throughout its lifecycle requires high efforts with regards to leasing: a leasing team is necessary to ensure continuous occupancy and avoid periods of vacancy without rental income. This in turn leads to a low net rental income. The same is valid for pop-up stores in shopping centres / train stations / airports, although synergies with other stores within the mall can be achieved therefore leading to potentially additional revenues

194 195 196 197 198 199 200 201 202

What are the main challenges your company faces? • Avoid becoming a platform only for brands that want to test their products, as this would lead to an “image damage” • Also attract brands that already benefit from awareness in the market. Important aspects: online and social media presence, as such brands create their own marketing campaign specific to their target market, which is sometimes more effective than a general campaign launched by the mall

203 204 205

111

Investments in Pop-Up Stores  

206 207 208 209 210 211 212

Would you like to talk about anything else concerning pop-up stores I ­haven’t asked you about yet? • Pop-up stores within malls / airports / train stations: viable business model due to the mix of 5–10-year fixed agreements (revenue drivers) and pop-up spaces (increasing attractivity) • Pop-up stores in street locations: current framework is not a viable business model due to the short contract duration

brands’n mind Date: 16.03.2022 Duration: 60 minutes Type of interview: Zoom video call Interviewer: Alessia Breda Participant: Tim Budig, Head of Retail brands’n mind Note: English transcript from audio-recording in German 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Introduction What does your company do? • Founded in 2018–2019 in Germany • Provide spaces to companies who are only present online in Europe with a focus on the luxury segment (since these brands have a higher likelihood of spending money for such a marketing operation without the need of earning a substantial amount of money from it) • Additional services such as the support to brands for the development and implementation of retail concepts • The available space can be used by one brand or multiple brands simultaneously depending on the potential synergies (ex: wine, chocolate, tea; example from 2019/2020: watchmaker Seiko with divers’ watch and Ozeaneum) • 160 sqm space in Berlin, leased

16 17 18

What is your role within the company? • Head of Retail (focus on international brands)

19

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  Appendix

20 21 22 23 24 25 26 27 28 29 30 31

4: Interview Transcripts

Context Understanding and Market Assessment How would you define the term pop-up store? • Temporary retail space • Marketing operation • Presentation space • In comparison to wholesale, gives the opportunity to use showroom space more intensively • Giving customers the opportunity to discover and experience something new (Point of experience vs point of sale) • Beauty brands as leaders in this area • Asian market as an example for perfectly executed staging of the story behind

32 33 34 35 36 37 38 39

What kind of companies are looking to open a pop-up store? • Mainly international brands, due to their awareness of the effect of ­pop-up stores • German/regional brands are more cautious. They often do not know what the term pop-up stands for, and do not see the potential. Pop-ups are then rather considered as a waste of money (cost of the space can range from EUR 500 to 20,000/month + cost of marketing)

40 41 42 43

How do you attract tenants / how do you approach the letting process? • 3 people in the team responsible for the letting process • Regional brands, European brands, international brands

44 45 46 47 48 49 50 51 52

What are the main reasons for opening a pop-up store? • Present the brand (offline) / increase brand awareness and tell your ­story (create an emotional link to the brand/product) • Development of corporate identity • Test a product (offline) and how this is perceived/rated by customers • Elaborate on, extend, and strengthen B2B contacts • Launch of a new product (usually collaboration with influencers) • Luxury brands in particular: present the brand in a new way

53 54 55 56

Temporal Requirements What is the usual duration of a pop-up agreement?

57

113

Investments in Pop-Up Stores  

58 59 60 61 62 63 64

• At least 3 months: 2–3 weeks for the activation of the space, i.e. custo­ mers are aware of the space + 2 weeks for customers to actively engage with the space (generate “regular customers”) + 7 weeks for events, give customers the opportunity to visit regularly • Maximum 6 months – everything beyond 6 months would already be a temporary occupation (and no longer a pop-up) • Event pop-up: 3 days

65 66 67 68 69 70 71 72

What is the link between the reason for opening a pop-up store and the type of company to the duration of the lease? • Product launch of an existing brand – shorter (3 months) • Existing brand wanting to go offline – longer (6 months) with a ­stronger focus on influencer (usually 2 months classic public + 2 months ­in­fluencer marketing with the classic public + 2 months B2B for business partners)

73 74 75 76 77 78 79

When is the demand for pop-up stores at its highest? • Highest demand: from second half of Q3 going to Christmas • Low demand: January & February (usually period of event pop-up such as Valentine’s Day) • Summer months (product specific such as alcoholic beverages and food products) strong increase

80 81 82

Are there periods when there is no demand? If yes, when? • February/March (could theoretically close the shop)

83 84 85 86 87

How do you manage periods of low/no demand? • In periods where there is no brand that leases the space, brands’n mind present their own brands and offer the spaces as showroom, whereby indemnification is through commissions

88 89 90 91 92 93 94 95

Spatial Requirements What are the advantages of your location making it attractive for pop-up stores? • One of the most popular streets in Berlin • Bridge location (AB location vs AA) but proximity (350–500m) to high street brands 114

  Appendix

96 97 98

4: Interview Transcripts

• Main advantage: proximity to such high street brands that have a strong beam power; gives the ability to brands to attract customers through visual marketing means

99 100 101 102 103

What are your typical store formats? (size & layout) • 160 sqm, perfect intermediate solution (not too big, not too small) • Not a lot of personnel required but enough to set the scene for the products

104 105 106 107 108 109 110 111 112 113 114 115

Based on tenants’ requirements, what would you adjust to meet the demand? • Renovation planned in 2022: lighter painting (currently black), “­greener” space with plants, wood elements to have the flexibility to accommodate any brand (according to brands’ feedback the space with white furniture is currently too modern and too technologized), lighter/more delicate tables • Digital elements and in particular the LED wall: provide the ability to quickly adapt to interior design requirements/layout requirements of brands • Stronger focus on hybrid concepts (combination between online and offline), focus on the experience around online shopping

116 117 118 119 120 121 122 123 124

Fit-Out requirements What is the basic fit-out you provide your units to tenants? • 10m LED wall • 8 digital displays • Fixed and flexible lighting system • Live streaming services • POS system

125 126 127 128 129 130

How long does it take to fit-out/open a pop-up store from the time of ­signing of the lease? • Planning ca. 3 (when the brand already has a strong identity and a clear idea of what they want to do) – 6 months • 4 weeks between one tenant and the other

131 132 133

115

Investments in Pop-Up Stores  

134 135 136 137

Rental Structure How is the typical rental structure of your units? • Fixed: EUR 20,000 for 4 weeks (large companies), EUR 6,500/week • Variable: 50%–60% revenue share (smaller, regional companies)

138 139 140 141 142 143 144

What services and/or amenities are included? • Personnel (1 FTE + 1 part-time) for sales • Digital preparation of the material • Drinks (and personnel) in combination with evening events, whereby the network of brands’n mind is also activated • Utilities & internet

145 146 147 148 149 150 151 152

Closing Questions What are the essential criteria for the successful leasing and management of pop-up stores? • Authenticity and passion as well as the ability to get excited for the brands • Ability to communicate the advantages/benefits of a pop-up stores vs classic retail

153 154 155 156 157 158 159 160 161 162 163 164 165 166 167

Do you believe that pop-up stores can become a (partial) alternative to classic retail stores for real estate owners? • They are already (ex: automobile industry with showrooms) • Pop-ups are the future of retail also with regards to sustainability and the ability to save money and at the same time achieve the highest ­possible success (activating online purchases) • Brands’ n mind concept (operator model): interesting for real estate owners, whereby the financial risk is borne by the operator • What are the main challenges your company faces? • Corona: catalyst for “short-term”/flexibility trend; brands no longer want to take the risk to sign agreements for 10–15 years • Find brands that are as excited about and believe in pop-up stores – flow-through: 5–8/100 requests (due to uncertainty about the pop-up concept, limited awareness on the potential brand impact, costs)

116

  Appendix

4: Interview Transcripts

Pop Up Shops Date: 18.03.2022 Duration: 40 minutes Type of interview: Zoom video call Interviewer: Alessia Breda Participant: Chalid El Ashker, CEO Pop Up Shops Note: English transcript from audio-recording in German

1 2 3 4 5

Warm-Up What does your company do? • Active in Switzerland, Germany, France, Italy, UK and USA • Platform extended with a property management tool for owners, used as operating system to manage the flexible rental spaces

6 7 8 9 10 11

Context Understanding and Market Assessment How would you define the term pop-up store? • Temporary physical touchpoint for consumers but also B2B concepts • Focus on marketing, can however also be focused on sales

12 13 14 15 16 17 18 19 20

What kind of companies are looking to open a pop-up store? (International vs local, chain vs independent) • Very small companies (new or already established) that do not want to enter a long-term commitment; in general, requiring more support • National/international brands with a large budget that in view of the changing market dynamics want to remain flexible; these companies are generally more experienced and have internal resources to implement a pop-up concept

21 22 23 24 25 26 27

What are the main reasons for opening a pop-up store? • Promotions • 80% marketing orientation: physical interaction with customers, collect customers’ feedback, build customer loyalty, product launch/ presentation • 20% sales orientation

28

117

Investments in Pop-Up Stores  

29 30 31 32

In which context do real estate owners look for a pop-up tenant? • Large real estate companies with either a larger shopping centre port­ folio or with a larger retail portfolio – differentiation • Smaller companies / private owners

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What is the general attitude of real estate owners towards pop-up stores? • Companies with an existing shop/gallery looking to sublet their space for a limited period • In cities there are a lot of situations where institutional investors and real estate owners are strongly limited by the existing valuation ­models, although a portfolio manager would like to rent retail spaces on a flexible basis • Some account for a temporary pop-up leasing period as “extraordinary marketing income” instead of rental income in order not to negatively impact the property value • The expectation is that in the coming 2–3 years the “valuation issue” will resolve, whereby valuation models will be adjusted to reflect the new market situation. It is unlikely that the market will go back to the “old model”. Flexible rental models will rather become a fixed component of a portfolio strategy so that owners, brokers and property managers will have to learn how to deal with this

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Is there a difference between the rental structure of classic retail and p ­ op-up stores? • Marketing orientation: usual fixed rent • Not yet established in Switzerland: footfall-based rent (model already seen in the USA and the UK). A general restraint from owners (­tenants would welcome this option as they would only pay by contact) is however noticeable in CH towards footfall-based rental models, since owners often do not have such figures (no footfall measuring on site) and in cases where such data is available, owners are reluctant to share this information (belief that one would create a disadvantage for the location). This is however expected to change in the future as systems get better so that tenants will be able to get this data without the help of owners. In this case owners will be forced to open towards such a model, as they will not be able to charge the same rental level in periods where frequencies are low • Sales focused: most tenants would prefer a variable/hybrid rental model. However, this is only in ca. 50% of the cases 118

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4: Interview Transcripts

Is there a difference between the rental level of classic retail and pop-up stores? • There are cases where pop-up rental is financially more attractive (­premium) compared to a long-term rental agreement in the current market environment (due to the reduction of rent) • Depends strongly on the location, but there are cases where the port­ folio market rent deviates strongly (30%–40% in case of long-term agreements) from what tenants are willing to pay • Where the operational risk is in any case high (new reality), owners need to ask themselves what risk they want to take • Two types of operational risk: – long-term lease agreement with a very low fixed rent (eventually with a variable rent component in CH mostly linked to revenues) – flexible rental structure (risk of having to find new tenants) but with the possibility to demand a premium on the rent, since ­flexibility has its value in particular if the unit already has a certain fit-out (floor, light installations, etc.). This option could in the end be more lucrative, provided the letting process is set-up in a reasonable / useful / efficient way. By following the “old” letting strategy (long negotiations, etc.) there would be a mismatch between effort and revenues • With a flexible rental structure, the ability to “play” with the price is much higher and the pricing is much more agile

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Temporal Requirements What is the usual duration of a pop-up agreement? • Promotion spaces: 3 days – two weeks • Pop-up stores: 1–3 months (with exceptions of longer durations of 6–12 months)

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When is the demand for pop-up stores at its highest? • February – June • Mid-august – December

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Are there periods when there is no demand? If yes, when? • January (except for promotion spaces) and July (slow months)

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What is the link between the type of company and the period in which ­ emand is high? d • There are brands that know that they can generate a buzz/frequency with their pop-up. Such brands are usually less focused on seasonality

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Spatial Requirements What are the location criteria for pop-up stores? • Locations with relevant footfall. Relevant in the sense that the location needs to have the footfall / target market relevant to the specific brand / product • Popup shops works with tools that define which concepts work best when and where • The notion that in any case high footfall is necessary is wrong • Good accessibility by car / public transportation

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What are the size requirements of pop-up stores? • Promotion: 4–50 sqm (sales cycle: 1 week) • Stand-alone retail / shop-in shop: 10–200 sqm • Larger pop-ups (400–500 sqm) are much more difficult to let (longer sales cycle of 2–3 months, pricing more difficult)

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What are the storage requirements of pop-up stores? • Important for sales-oriented pop-ups (store area 200 sqm, storage 15%–20% of the store area) • Marketing oriented pop-ups less important

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Fit-Out requirements What are the most requested fit-out requirements of pop-up stores? • Minimum fit-out: floor, wall painting, light installation • Without the above, it is unlikely that the unit will be successfully let to a pop-up tenant • Often it would be preferred to have an all-inclusive deal and not to have ancillary costs on top • The availability of modular furniture would be an advantage

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What are the technological / IT installation requirements of pop-up stores? • Wi-Fi, POS, “space as a service”: advantage if available in shopping centres • POS: in reality, most tenants already have their own systems (mostly mobile i-pad-based systems such as sumup and square) that can also be operated without wi-fi • In general, the availability of Wi-Fi would be an advantage

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What are the amenities and/or services required by pop-up stores? • Important aspect for the future: one of the most important obstacles for tenants (in addition to fit-out and furniture) is the availability of personnel leading to a higher operating risk for the owner • Depending on the concept, a certain fit-out with digital solutions can decrease the need of personnel • Another solution could be retail as a service, i.e. personnel is part of the deal (example: Beta, went however bankrupt), whereby the brand must have the opportunity to have direct customer contact

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How long does it take to fit-out/open a pop-up store from the time of signing of the lease? • Lead time promotion spaces: partially 1 day – 3 months, very dynamic • Lead time stand-alone pop-up space: 1 week – 2 months • The larger the space, the longer the lead time • There are owners that do not want to commit their spaces long in advance, since they would not want to miss a better / longer contract

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Closing Questions What are the essential criteria for the successful leasing and management of pop-up stores? • More dynamism and higher efficiency • Change the classic letting model: move from a rather network-based letting process to a process actively using online marketing channels with good pictures and descriptions • Counterparties (brands/tenants) are younger and living online • Requirements on the information to be delivered are much higher – ­increase in required transparency

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• Management: need to be much faster with for example standard ­contracts and terms, higher degree of standardization, higher pricing flexibility (driven by the higher transparency)

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Would you like to talk about anything else concerning pop-up stores I ­haven’t asked you about yet? • Challenges: demand is high and as a platform they are waiting for a shift in supply to flexible rental models. What is currently offered does not correspond to the market demand

Research Project “Pop-up City” Date: 21.03.2022 Duration: 28 minutes Type of interview: Zoom video call Interviewer: Alessia Breda Participant: Prof. Dr. Stefan Nertinger, Project Leader Note: English transcript from audio-recording in German

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Introduction What does your company do? • Pop-up city project lasted for two years and was concluded in February 2021 • City of Zurich, city of St. Gallen and popupshops.ch were involved • Goals of the project • Assess the impact of pop-up stores in particular in neighbourhood ­centres (in ZH) and the city centre (St. Gallen) • Determine how the management/letting process could be simplified (ex: permits, visibility on vacant spaces) • Based on the collected data, create a matching tool / recommender system for retailers and real estate owners (i.e. available retail spaces) • Paper will be published in the Journal of Applied Business Research in April 2022 • Limited observations possible due to the timeline of the project (­mostly during the pandemic where market uncertainty was high) 122

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4: Interview Transcripts

Context Understanding and Market Assessment What kind of companies are looking to open a pop-up store? (International vs local, chain vs independent) • Fashion industry (clothing) • Food industry (deli, food brands) • Alternative concepts (such as sustainable products) • Non-retailers (financial service provider) • Owner-operated groups were mostly Swiss companies, otherwise chain stores (ex: Adidas, Hyundai, etc.)

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What are the main reasons for opening a pop-up store? • Showroom / brand pantheon (larger companies are communication-oriented) • Retail outlet (sell off old collections) • Testing of products or locations

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In which context do real estate owners look for a pop-up tenant? • Mainly in periods of vacancy • Cooperation with the cities of Zurich and St. Gallen: through them, workshops were organized mainly with local, private owners • Real Estate in ownership of the respective cities where also included • Larger owners could not be attracted due to different requirements: • As the project was launched, the market was not yet mature • Large, professional investors wanted an automated process and at the same time pop-up stores as an instrument was not yet popular due to the impact on the property valuation (no 10-year contracts, lower rental level) • Because of COVID -19 a shift can be observed, whereby also larger ­investors are increasingly interested

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Is there a difference between the rental structure of classic retail and p ­ op-up stores? • Depends on the operator/retailer • A general desire towards an “all-in” package could be observed (daily rent including all ancillary costs) to be able to predict total costs • No demand for a frequency-based rental structure

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Is there a difference between the rental level of classic retail and pop-up stores? • In most cases it was lower, whereby it varied depending on the micro location • In top, high-street locations the rental level could be higher compared to a long-term rental level • It depends on who the tenant is (large international companies have a higher willingness to pay) and what is the goal of the pop-up store

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Temporal Requirements What is the usual duration of a pop-up agreement? • Brand pantheon: 4–6 weeks • Product testing: 4–8 weeks • Retail outlet: 6–8 weeks • 6 weeks on average; communication focus shorter, transaction focus longer

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When is the demand for pop-up stores at its highest? • Due to the timeline of the project (during COVID -19) and the high market uncertainty no real seasonality trend could be observed

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Spatial Requirements What are the location criteria (within a city) for pop-up stores? • Footfall was by far the most important criteria (also for brands with a lower budget) • Accessibility • Further criteria specific to the individual brand • Based on the limited number of observations it cannot be scientifically proven but there are indicators that pop-up stores are not suitable for neighbourhood centres (i.e. outside A-locations) • The selection of a location was not as much driven by strategic considerations, but rather by opportunities

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Is there a link between the reason for opening a pop-up store and the type of company to location criteria?

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4: Interview Transcripts

• Larger companies have a larger budget and therefore can afford to go to locations with a higher footfall • The lower the budget, the more complicated the selection of the location

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What are the size requirements of pop-up stores? • In general, smaller stores (150–200 sqm) • With owner-operated brands, the stores can also be smaller

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What are the storage requirements of pop-up stores? • Pop-ups with transaction goals (such as the sell-off of old collections) need a dedicated storage area

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Fit-Out requirements What are the most requested fit-out requirements of pop-up stores? • Stores ready for occupation (lighting, wall painting, flooring) • Relatively limited requirements with regards to store fitting elements, as brands/operators had their own ideas for the store layout/design • Through Umdasch, brands/retailers were offered the opportunity to order modular store fitting elements, demand however remained low

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What are the technological / IT installation requirements of pop-up stores? • Wi-Fi is a nice to have but not essential, as operators could quickly ­organise this themselves • POS was not required

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How long does it take to fit-out/open a pop-up store from the time of signing of the lease? • Smaller companies are more opportunity-driven • Larger companies have a longer planning timeframe

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Closing Questions What are the essential criteria for the success and successful leasing of ­pop-up stores? • Efficient and automated management processes, including standardized contracts • Ability to deliver data to retailers on the micro location 125

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Do you believe that pop-up stores can become a (partial) alternative to classic retail stores for real estate owners? • Pop-up stores in shopping centres are leading (availability of data on footfall, customer segments, availability of spaces ready for occupation) • Definitely; soon we will also probably no longer need to differentiate between pop-up and classic retail, due to the changing market fundamentals (i.e. shorter rental terms) towards more flexibility

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Authors

Alessia Breda graduated with a Bachelor’s degree from EHL Hospitality Business School with a major in Real ­Estate and Finance. Combining her passion for hospitality and real estate, she started her career at CBRE, the world's largest commercial real estate services and investment firm, where she joined the hotel valuation and advisory team in Milan, Italy. After returning to Switzerland in 2017, she is now co-head of the Hotels & Operational Real Estate team at CBRE Switzerland. In her current role she is involved in CHF 2.5 billion worth of operational real estate assets per year and is specialized in strategic advisory assignments across the country, including transactions, asset management, valuations and operator selections. In fall 2022, she successfully completed her MSc. in Real Estate at the Lucerne University of Applied Sciences and Arts with her master thesis on the development and management of pop-up stores.

Prof. Dr. Michael Truebestein FRICS is professor of real estate management and investments as well as Head of the Master of Science in Real Estate (MScRE)-program at ­Lucerne University (HSLU). Furthermore, he was elected president of the RICS in Switzerland in 2019. He studied international business administration at the EBS University of Economics and Law (D) and wrote his Ph.D. Thesis at the University of Regensburg (D). He was appointed professor of real estate © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Breda et al., Investments in Pop-up Stores, https://doi.org/10.1007/978-3-658-42834-1

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management at the University of Kufstein (A) for 5 years (2008–2013). Since 2013 he has been working as a professor of real estate investment and management at Lucerne University/HSLU (CH). Michael Truebestein is author of various publications in the area of real estate strategies, (international) real estate investments, asset management, real estate markets and digitization. In 2014, he initiated the annual study on “Real Estate Investments and Asset Management” of institutional investors (in cooperation with the ASIP / Swiss Pension Fund Association) and carried out the world's first tokenization of a property in 2019, the “Hello World” in Baar (CH). He serves as a member of the board of directors for an international real estate investment company. In 2021, 2022 and 2023, the Swiss media elected him as one of the 100 most influential and important personalities in the Swiss real estate industry.

Dr. oec. HSG Matthias Daniel Aepli is a lecturer at ­Lucerne University (HSLU) and an entrepreneur in the real estate sector. He studied business administration with a major in finance at the university of northwestern Switzerland (FHNW). At the University of St. Gallen (HSG) he completed the Master of Arts program in banking and finance and received his Ph.D. with his thesis in quantitative finance. Matthias Daniel Aepli is author of various publications in the area of real estate management, investment strategies, asset management, corporate financial management and risk management. Since 2012 Matthias Daniel Aepli has been working as a lecturer of corporate finance, risk management and real estate management at Lucerne University (HSLU) (CH). In addition to his work in academia, he serves as a member of the board of directors and is a renowned serial entrepreneur in the field of real estate.

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