Pop-Up Stores Earn a Permanent Place in Retail Strategy

(Bloomberg Businessweek) -- The next time you sink into a modular couch at Costco—use your imagination—know that you’re sitting in the middle of a retail paradigm shift. This fall, 700Lovesac pop-up stores will appear inside the warehouses across the U.S. for 10 days, selling the adaptable sectionals the company is known for. “We have 200-square-foot branded environments with our own trained demo expert ready to sell you a $2,000 to $3,000 couch set,” says Chief Executive Officer Shawn Nelson. Yet those simple setups, which Lovesac has ramped up, starting with 200 in 2017 and 500 last year, “bring in very high revenues,” Nelson says. In fact, 10% of Lovesac Co.’s annual sales come from pop-ups.

Just three years ago, pop-ups were mostly used for three purposes: experiential marketing exploits, fashion-week stunts, or e-brands making the leap to brick-and-mortar. The latter filled empty storefronts in New York’s SoHo district and downtown Los Angeles, selling then-unknown brands such as U.K. clothing retailer Boohoo.com Plc and dog food delivery service Ollie. The staff often included the founder. “I would get calls from a lot of emerging brands that were on Etsy and barely had their own website, and they wanted to do a one-off holiday pop-up for two weeks,” says Melissa Gonzalez, of the pop-up architecture company Lion’esque Group.

Today, Gonzalez fields calls from such established companies as Amazon.com Inc. and Nordstrom Inc. or direct-to-consumer brands looking for 3-to 12-month installations. They want to “test the viability of stores in certain markets,” she says.

Mohamed Haouache, CEO of TheStorefront.com, which runs a large pop-up space listing, says a shift occurred about 18 months ago. Storefront’s bookings were previously funded by marketing and media budgets, he says, aimed at generating social media noise. Now the goal is to sell as much as possible in a short time. Budgets have mushroomed accordingly, and Storefront’s bookings and revenue have grown by triple digits for each of the past three years, Haouache says, while declining to give specific figures. It now has more than 10,000 spaces.

Pop-ups have even become something of a bragging point. At Lululemon Athletica Inc.’s analyst day in April, Executive Vice President Celeste Burgoyne highlighted its 60 “seasonal stores” opened in North America in the past year. More than 35% of the shoppers in those outlets were new, she said, and the locations will inform Lululemon’s choices about where to expand.

Part of pop-ups’ appeal is that they represent little risk. Executives can commit to eight weeks and see how it goes. Why launch a collection nationwide or bet the farm on a 10-year lease when anything can be tested in the short term: new collections, new locations, new concepts. “There’s definitely a lot of ‘let’s learn and iterate’ mentality, which is in parallel to what you see in Silicon Valley as you’re growing a startup,” Gonzalez says.

Experiential marketing has become increasingly intertwined with sales and location testing. Glossier Inc., the makeup e-tailer with more than $100 million in revenue and permanent stores in New York and L.A., has gone all-in on pop-ups. In 2017 the startup ran three weeklong flash stores in three cities. Glossier attracted ample media attention in 2019 with six-to eight-week pop-ups in London, Boston, Seattle, and Miami; it has one more planned—for Austin this fall. The Seattle pop-up featured green plant mounds with bursts of pink and purple, designed by landscape artist Lily Kwong. Boston’s was an eight-hut pop-up village, with a different shopping experience in each hut: One focused on brows; another delivered orders while customers gabbed. (“It’s very pink,” wrote the Boston Globe.)

Gonzalez and Haouache have seen plenty of failures, mostly with companies that don’t have the manpower to expand to a store. “Brands have to have the operational infrastructure to handle the growth of their e-commerce and also have a store, or else it becomes a very big hit to their bandwidth,” says Gonzalez.

Social media engagement is essential. “Booking a space with high foot traffic is not enough,” says Haouache. A store should have a lot of followers. Celebrities and influencers with just that have joined the game, including Taylor Swift. She opened a flash store in New York in August for her fashion line with Stella McCartney.

When it’s well-executed, a pop-up—or pop-in, as shops installed with another retailer are sometimes called—persuades customers to return in person, beating back the long-prophesied domination of e-commerce. Online shopping accounts for 14% of all U.S. retail sales, according to a 2019 analysis by Internet Retailer, and roughly half of retail growth.

The first floors of four Bloomingdale’s locations in New York, L.A., and San Francisco feature the Carousel, a 1,500-square-foot pop-in. The merchandise and design are switched every two months. The latest theme is Window Into Seoul, with a couple dozen Korean brands on hand and a K-pop aesthetic. “One of our big focuses is to create these ever-changing and very exciting elements to continue to drive customers to our stores,” says Justin Berkowitz, men’s fashion director for Bloomingdale’s Inc. “I really think that for the future of retail,” he says, it’s important to make “brick-and-mortar a place where the customer really wants to come.”

To contact the editor responsible for this story: Dimitra Kessenides at dkessenides1@bloomberg.net

©2019 Bloomberg L.P.