Storefront Fills a Growing Market for Short-Term Retail Spaces
It’s holiday time and in some cities across the U.S., you don’t even have to walk a few blocks before you come across a pop-up shop that has far more unusual items than you could ever hope to find in a traditional retail store. These temporary holiday setups are becoming something of a fixture of the omnichannel retail landscape.
Storefront is a startup that connects anyone who wants to sell and promote their wares with landlords who have retail spaces they want to rent. The matchmaking model, engineered by Erik Eliason, the company’s 29-year-old CEO and co-founder, and launched in late 2012, increasingly represents the new landscape for retail. The model is proving successful in syncing both large retailers and local artisan/makers with physical spaces that would otherwise lie dormant. Rentals can be as short as three days and as long as a year — and they’re often longer.
Nearly one-fifth of U.S. shopping malls have vacancy rates of 10 percent or more, making short-term rentals of physical retail space seem like a good idea. A report earlier this year in The New York Times with data from CoStar Group found that over three percent of malls are considered to be on death’s door, with 40 percent vacancies or higher. What that portends for 2016 is anyone’s guess.
Eliason, an affable Minnesotan who’s based in San Francisco, describes Storefront quite simply as a “marketplace for renting short-term retail space.” One side of the business focuses on entrepreneurial, artisan/small-batch brands that are looking for temporary digs to engage with customers face-to-face. For example, they might be Etsy sellers looking to build their brands and business relationships. The other side of the business consists of bigger brands like Target that are looking to create a more experiential, boutique retail presence, and not necessarily only around the holidays. They want to drive foot traffic, rack up additional revenue, build buzz, and create emotional connections through unique experiences.
“We launched with the idea that there’s all this empty retail space — 10 percent vacancy rates for retail — there’s a lot of inventory. Let’s make it accessible,” Eliason said. “When we started, we realized there was a lot of friction in the market. For example, property owners might have to invest money for tenant improvements, fix lighting or floors. Most brands want move in-ready spaces. They don’t want upfront costs. And a lot of the brokers want five-year deals to get a sizable commission. A one-month lease isn’t that interesting to brokers.”
In three short years, Storefront has managed to begin changing mindsets. It’s transitioned to owner-operated spaces, tapping small boutiques, art galleries, coffee shops, and kiosks and shops in malls. In New York City and Los Angeles, Storefront has noticed people setting up “collections” of spaces owned by companies that are available exclusively for short-term rentals. Storefront currently operates spaces in San Francisco, New York, Los Angeles, and Chicago, and will expand into more cities in 2016, though Eliason declined to specify which ones.
Eliason said often a retailer will sign a one-month lease then up it to six months, depending on how things are going. He cited Art Basel in Miami, earlier this month, as an example of how events, similar to Fashion Week, South by Southwest, and other themed-events inspire brands and retailers to think about creating short-term presences. New hyperlocal rental activity is forming in specific neighborhoods like the Silver Lake area of Los Angeles, where certain types of brands match up with the type of people who live there.
“We try to help brands find the space that’s right for them, secure transaction platforms and general liability insurance for both sides, provide reviews and trust features. We offer best practices for online marketplaces,” Eliason added.
The Storefront concept started in Minneapolis when one of Eliason’s friends who made organic soaps was trying to find a physical space from which to sell, apart from her Etsy presence. The space she took for six months was on Nicolette Avenue, the street where actress Mary Tyler Moore threw her hat into the air on the eponymous Mary Tyler Moore show, which aired on CBS from 1970 to 1977.
Target has used Storefront to create spaces for a connected home in San Francisco, which showcased the retailer’s Internet of Things (IoT) concept. Target tested the store in San Francisco’s Mission district, in Hayes Valley, and then downtown. Lululemon, the yoga giant, was doing pop-up stores before Storefront existed and continues to conduct A/B testing on new spaces in order to identify just the right places.
“Brokers use us to search for spaces for clients for short-term rentals of less than a year,” Eliason said. In fact, some brokers will list space on behalf of landlords while they’re looking for long-term clients. Some short-term deals turn into long-term deals.
Storefront has plenty of competition globally (Hong Kong, Japan, London) and keeps a close watch on it. Look at any major city around the world and there are dozens of similar models, Eliason noted.
For Storefront’s part, the company has raised $9 million between an initial seed round and its April 2014 Series A round. The company is likely to raise more money in 2016, according to Eliason, who declined to share 2015 revenues. “We opened thousands of stores in 2015 and we’ll open thousands in 2016.”
Another side of its business is working with developers. For example, some developers have a space and know it won’t be leased for a year or more. They want interesting brands in those spaces in the meantime. “We’re working with Westfield Corp. and some other mall developers that come to us and want big brands like Nike or Lululemon in those spaces. Developers don’t know Casper, Birchbox, or fashion companies, and they also don’t have contacts at those companies, so we help them with that,” Eliason explained.
In 2016, Storefront is looking to capture more mindshare and work with a larger set of partners. It’s working with malls, shopping centers, developers, and hotel chains, like Starwood Hotels’ W brand and Marriott Hotels. Hotel chains are looking to improve guest experiences with unique pop-up restaurants and retail shops on their premises. “We want to help brands and retailers access those spaces,” Eliason said. Sports venues also are in the mix and tie in nicely with hyperlocal marketing. Today, Storefront partners with professional sports arenas where the San Francisco 49ers, Chicago Cubs, and Seattle Seahawks play, among other pro teams. It has yet to work on college sports venues.
For Storefront, one of the hardest things to educate clients about is the total cost of a pop-up store. “It might be much lower than someone perceives.There are spaces you can rent from as low as $50 per day up to $40,000 a day,” Eliason noted. His advice is that businesses plan well in advance for stores — at least three months before they want to open.
He also suggested retailers, especially big-box stores, often have disproportionate expectations about individual store performance, which he described as a function of high overhead. “The expectation is that they’ll generate sales per square foot, and same-store sales will grow at a certain rate. That’s no longer the case.”
As for Storefront’s model, “We think consumers want to be delighted when they’re shopping in-store,” Eliason said, “and the bar for consumers to even leave their homes and go to a store or a market is higher than it’s ever been because they have so many options.” However, people are innately social creatures and increasingly, they want to meet the person who “made” what they’re buying face-to-face. That’s a good thing for Storefront.
Tobi Elkin is a business journalist and editor who combines reporting on digital marketing, media, and technology trends with an interest in personal stories and profiles. She’s interviewed hundreds of senior executives and entrepreneurs, and written for AOL, the Associated Press, CMO.com, eMarketer, Narratively, The Lo-Down, and The Huffington Post. Find her online at www.tobielkin.com.