Does It Pay to Pop-Up?

SAN FRANCISCO—Wouldn't it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. the principal sociologist overseeing market research and analysis at Gruen Gruen + Associates, is here to answer readers' questions.

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Dear Ms. Real Estate,

I am a fashionista entrepreneur. I design a variety of colorful ladies' tops, including blouses, vests and lightweight jackets, which I have been selling on the internet. I am sufficiently successful to support myself in an outer Bay Area suburb—who can afford to live in San Francisco? I have noted the increasing popularity of pop-up stores—particularly with younger buyers. And I have been told I should lease some space—about 100 square feet—in order to test whether it will increase my business. Should I, and will it?

—A Cogitating Clothier. 

Dear Cogitating,

Many of today's pop-up stores are supported by retail chains who want to test a variety of new products and ways to market them. These chains include Target, Macy's, JC Penney, and Levi's, to name a few. Pop-ups are developed by companies, as well as independent landlords, who convert vacant spaces into short term retailing opportunities, particularly at holidays. Rental terms range from one day to several months—though some require a minimum of two days. Retail pop-ups typically range in size from under 100 square feet to about 800 square feet. As in all real estate, the rent is based on location and quality of space—the amount of daily foot traffic is usually a determinant of the rent.

Your primary purpose for becoming a pop-up tenant is the opportunity for you to directly connect with your customers. If you elect to go forward, I recommend you consider paying the higher rent required to obtain a high foot traffic location, which is likely to be in San Francisco. I also recommend you rent for a minimum of two days, perhaps a Friday and Saturday, to test differences between a weekday and weekend day, if this is possible. But this is not going to be cheap. San Francisco pop-up rents are averaging $2.00 per square foot or $200 per day for a 100-square-foot space. Popup rents in some of the most desirable neighborhoods rent for $3.00 per square foot.

Obviously, given the size of the investment you would have to make in the form of rent, you should not select any pop-up until you complete a careful due diligence effort that includes consideration and evaluation of all your costs in addition to the $200+ daily rent, such as your travel and on-site time, as well as your preparation of displays and auxiliary advertising. However, your first effort should be to visit two to three high foot traffic pop-up locations to see firsthand how the operations work, as well as to observe the numbers of walk-ins and the demography of the on-site customers. I have had the opportunity to talk directly with some designers at a well located downtown San Francisco pop-up, who were surprised to find that their product appealed to a far wider range of customers than they had previously thought. Your learning process will begin with your due diligence.

I hope I have given you the information to make an informed decision as to whether you should go forward with a pop-up rental. As to whether it will improve your future business, I believe it will if you use what you learn about your customer base both in your future designs and marketing.