Flexible retail: Pop-up stores as an antidote to structural change

Flexible retail and pop-up stores are finding their place in the retail sector.

Flexible retail is trending with Swiss retailers. In response to structural changes in the retail sector, flexible shop concepts such as pop-up stores are becoming more popular. Learn about the pros and cons.

The structural revolution in the retail sector is moving full steam ahead

The Swiss retail sector is in the middle of some profound changes. In 2013, there were approximately 53,000 points of sale; in 2017, there were barely 50,000. The development of offered retail spaces is also in flux. The volume of new construction approved has been below its long-term average for many years now. At the same time, around 330,000 square meters of retail space was vacant at the end of 2018.

Due to high vacancy rates, many locations are being threatened with redevelopment. In 2017, for example, only 20% of advertised ground floor space was rented back to retailers when redeveloped for mixed use. Instead, many service providers and restaurants are moving in, or former retail spaces are being rented as office space. Redevelopment does have disadvantages for landlords, however. They have to factor in increased costs for the renovation as well as deal with fact that tenants unfamiliar with the sector generally have a lower willingness to pay.

Flexible retail concepts such as pop-up stores are in vogue

The retail sector has a role to play in combating the vicious cycle of vacant retail space, declining customer traffic, and falling turnover. These developments require new point-of-sale concepts so that space can be used efficiently and clients get a unique shopping experience. Flexible and innovative retail property forms offer a way out. Such spaces can take a variety of forms, from the shop-in-shop concept (where a small area of a shop is subleased), fixed-term or short-term rentals, to event spaces and pop-up shops.

Such alternative shop concepts are currently in vogue. Over the past three years, the amount of flexible retail space being advertised has more than doubled, while the total amount of newly advertised space rose only slightly. This suggests that more and more space is being advertised as pop-up retail space or other types of flexible retail space.

Share of flexible retail space and pop up stores rising sharply

Share of flexible retail space and pop-up stores rising sharply

New tenders according to listing type, moving average over four quarters, indexed: 100 = Q4 2015
Source: Meta-Sys AG, Credit Suisse

Pop-up stores have potential, particularly in urban centers

According to a survey conducted by the consulting company Fuhrer & Hotz, there is a strong need for flexibility among retailers, especially concerning lease conditions. This is where the increased utilization of pop-up stores shines. Major advantages include the possibility to try new product ranges or retail concepts, to expand point-of-sale marketing, and perhaps most importantly, to allow efficient intermediate usage.

The wide range of possible uses shows that pop-up concepts are a valuable supplement. In some cases, they can even be seen as an alternative to traditional retail spaces. This is true not only for traditional retailers but also for so-called digital native brands such as Zalando and BRACK.CH, who are looking to gain a foothold as part of an omnichannel strategy.

Retailers also see the downsides of pop-up stores

Although they are advantageous in some ways, pop-up stores are not without considerable disadvantages. More than half of the surveyed retailers said that pop-up stores are not a sustainable solution and that they have a problematic cost/benefit ratio. Although rental terms are more flexible, this flexibility results in increased coordination expenses. In addition, pop-up stores are disproportionately located in city centers and areas with heavy foot traffic. Their potential is much lower in the suburbs and countryside. This suggests that even pop-up stores are not a panacea against vacancies in retail spaces.

The advantages and disadvantages of pop up stores according to retailers

The advantages and disadvantages of pop-up stores according to retailers

Percent share of respondents; multiple answers possible
Source: Fuhrer & Hotz survey

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