How Retailers and Restaurateurs Can Boost In-Store Sales Through Specialty Leasing
Patrons at Irvine Spectrum Center, an upscale open-air shopping center in Irvine, CA, were surprised to see a familiar face in a brand new form. This summer, Japanese company Sanrio debuted the first Hello Kitty pop-up café in the U.S..
The company operates a chain of retail stores in the U.S. that sell kawaii (cute) novelty items with the likenesses of it’s many characters, including Sanrio’s most famous, Hello Kitty. Sanrio detoured from more traditional marketing methods. Instead, they embraced experiential marketing by launching a pop-up café and traveling café truck. Both the cafe and truck serve a selection of Hello Kitty refreshments and wearables.
Irvine Company, the shopping center’s owner, is one of several property owners that offer specialty leasing programs as an effort to maximize rental income. Hello Kitty’s creative marketing campaign is one example of how retailers can capitalize on these programs.
How Established Retailers Can Create Their own Pop-Up Stores
Specialty leasing is a different animal. Specialty leasing programs are primarily found in high volume traffic areas such as shopping centers and districts, strip malls and airports. These programs can only offer a small number of spaces. Therefore, prime locations are widely sought after. Leasing managers don’t allow too many competitors in the same shopping center. And they’re always looking for fresh ideas to excite or engage their consumers.
By building a rapport with specialty leasing teams, you can increase your chance to rent during busy seasons, get placement in high-traffic areas and be able to negotiate favorable lease terms.
What are Specialty Leasing Programs
Specialty Leasing refers to leasing Retail Merchandising Units (RMUs), kiosks and temporary in-line spaces. These programs offer access to high-volume foot traffic (in common areas) and can be a less expensive alternative to traditional retail leasing.
RMUs or, as leasing pros like to call them, “carts” are landlord provided. Most will also provide signage, but others will allow you to display your own. Setting up a cart is a simple process. All you have to do is bring your merchandise and visually stock the cart to the leasing manager’s approval. Visual is the key word here, because it’s critical for shoppers to be drawn to your cart and not the other way around. In many locations, calling out for the attention of customers or “hawking” can get you fined or even thrown out.
Kiosks will be either a 10X10 or 10X20 foot space. Costs generally range anywhere from $15,000 to $30,000 and up, depending on the concept and functionality of the unit (i.e.plumbing, electricity, etc.). For instance, a small or mid-sized toy retailer who aims to drive in-store traffic by distributing colorful cotton candy and in-store coupons will be on the lower end.
Pop-Up In-Line Store
These spaces tend to only become available while owners are in-between permanent tenants. For owners it’s better to have a temporary tenant than having an empty store, which can be a negotiating advantage for you. Build-outs for pop-ups are the business owner’s expense. To help cover build-out costs, Landlords will offer permanent tenants a TI Expense, or Tenant Improvement Allowance. This is rarely available for a pop-up deal; however, they may consider a rent abatement — free rent for the first few months after lease agreement.
Nuts and Bolts of Specialty Lease Negotiations
RMU rents can range from $1,000 in a low-end shopping center to $8,000 at a premier property. Monthly costs for kiosks range from roughly $3,500 to $15,000. In-line pop-up rents are typically consistent with kiosks. In any case, it all depends on the location. The highest traffic areas with the best exposure will have the highest cost. Another key factor is the lease term and whether your stay overlaps a high volume season, like the holiday months of November and December where its common for rents to double. As general rule of thumb, longer lease terms can get lower monthly rents.
Specialty Leases are percentage leases. With this type of lease landlords ask for a percentage of sales above a certain breakpoint in the form of rent. Landlords set the breakpoints, which typically range between 7 and 15 percent. For example, if your rent is $5,000 per month, in addition to $5,000 you will owe percentage rent once your monthly sales exceed $33,333. Additional rent is the percentage of the amount above the breakpoint. A simple formula for calculating breakpoint is to divide the rent by the breakpoint (i.e. 5,000 / 15 percent = 33,333).
Typically, the lease term for an RMU is between 3 and 6 months; however, they can range from 1 month to 1 year. A kiosk lease is usually 1 to 2 years, unless it’s a sub-lease. In-lines are trickier because there’s the build-out costs. And some landlords will ask you to leave the moment they find a permanent tenant. Your budget will determine how you get started in this business – but there’s tremendous growth potential.
To learn more about shopping center leasing How to Lease Space in Shopping Centers: A Guide for Small Business Owners by Barry Fleisher offers in depth look at the ins-and-outs of lease negotiations and specialty leasing opportunities.
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