by: Deborah S. Kravitz, Principal, Pro Retail, Inc.
Specialty retail leasing is the shopping center industry name for the renting of short term placements in shopping venues, including malls, lifestyle centers, municipal locations and transportation hubs such as airports and train terminals. The idea of utilizing carts, Retail Merchandising Units (RMUs), kiosks, wall shops, bump backs or short term stores (temporary inlines, now sometimes referred to as ‘Pop Up’ shops), has been around for thousands and thousands of years. Wherever there was a marketplace, merchants have presented their goods and services on tabletops, pushcarts or storefronts to the consumer in every location around the globe.
The beginning of specialty leasing in shopping centers as a formal addition to the mall business has been attributed to The Rouse Company‘s Faneuil Hall in Boston, Massachusetts, United States over 35 years ago. The story goes that it had proved initially challenging to lease the storefronts in Faneuil Hall, which is a marketplace redevelopment, both indoor and outdoor, in the historical center of Boston. The executives at the Rouse Company had the idea of placing what were to be very temporary old style pushcarts (wooden units with large wheels) in front of the barricaded unleased spaces to create the sense of excitement and product choice for the Grand Opening of the center. The units were quickly rented by merchants, and the Rouse Company started to expand the program to its’ indoor traditional malls, first on a seasonal, and then year round basis. The malls owned the carts, and rented them out short term with license agreements, not leases, usually 3 months to 6 months. These agreements had seasonal upticks in rents, based on an expectation of increased sales during high traffic periods.
Specialty leasing was originally intended to add excitement to the common areas of the mall, increase the merchandise choices for the customer, enhance the merchandise mix of the center, test a concept or product for a manufacturer, allow for seasonal concepts, and incubate potential long term tenants. The barriers to entry for a merchant were low, with inexpensive rents, relatively low security deposits, and visual merchandising left to the merchant. Over time, as these programs grew into large scale placements, the value to the shopping centers and their owners became focused on the financial, with revenues from these programs becoming an increasingly important line item in a budget. Specialty leasing programs were originally managed and leased by rents, based on an expectation of increased sales during high traffic periods.
Specialty leasing was originally intended to add excitement to the common areas of the mall, increase the merchandise choices for the customer, enhance the merchandise mix of the center, test a concept or product for a manufacturer, allow for seasonal concepts, and incubate potential long term tenants. The barriers to entry for a merchant were low, with inexpensive rents, relatively low security deposits, and visual merchandising left to the merchant. Over time, as these programs grew into large scale placements, the value to the shopping centers and their owners became focused on the financial, with revenues from these programs becoming an increasingly important line item in a budget. Specialty leasing programs were originally managed and leased by mall managers or their assistants. However over time, the programs became larger and more complex, and many mall developers added specialty leasing departments to their home offices, with representatives on site at the malls overseeing a single center or multiples. Planning for these programs became an essential part of the development process in new projects, with utilities planned and locations determined in advance.
As these specialty leasing programs grew, and became more integrated into mall operations and management, the importance of the actual ‘cart’ or ‘kiosk’ also became a focus. Companies that designed and fabricated common area program elements grew to meet this market, and the designs became more functional and often more customized to match the aesthetic of the mall. The overall appearance of the merchants became more important as well, and visual display experts were used to create interesting and functional displays for the merchants. The more professional these common area units became the higher their sales, and subsequently the rents. The barriers to entry for a merchant rose as well, with applications being reviewed for product use, content, previous experience and credit capacity. The concepts that found a home in specialty leasing programs changed as well, with the mobile phone industry being a strong player in the 1990’s and onward. There was competition for space and use, and these national or strong regional merchants added to the value designated for these common area spaces. Merchants wanted to be ‘long term’, and looked for concepts that could be on an RMU month after month, year after year. These uses include such products as mobile phones and accessories; sunglasses; make up and women’s’ accessories, jewelry and wellness products. Manufacturers started to cater to this industry, packaging and pricing their products for a merchant to resell in the mall. In 2014 there were over 300 product lines that looked to distribute through specialty leasing. The ‘Mom & Pop’ nature of RMUs/Kiosks has evolved, and a level of professionalism is expected from these merchants by landlords.
Specialty leasing programs are integrated into many malls worldwide, with most new shopping centers reviewing the potential for these programs as they are developed. In the United States there are just a few luxury malls that have not embraced specialty leasing, although each developer takes its’ own approach. Some developers purchase their RMU’s (retail merchandising units, the new term for the cart) in bulk, perhaps just customizing small accents for each center. Some developers will have designed and fabricated units on a custom basis for each new center, and some will consider them only after the center is completed and leased. Shopping center owners or managers will also approach the leasing differently, with many solely focused on the revenue, and not the content of the program. In many malls it is not uncommon to see duplication of product or concepts, with multiple units of the same items in many areas of the mall. In some cases the leasing is focused on the uniqueness of the concept, with the product paramount over the revenue.
The components of a strong specialty leasing program are traffic in the center, a strong common area shopping or gathering point, a cluster of units possible in one area, and a reasonable rent to sales ratio expectation of owners. One of the ongoing challenges with specialty leasing is often an owners desire to use common area units to fill unused space, and or to try to create traffic flow to an area with the activity of RMUs and Kiosks. In some cases that can be successful, but there needs to be critical mass of merchants, a marketing campaign, and an understanding that initial rents may need to be adjusted.
Specialty leasing is ever changing. In mature markets, it is evolving into an environment that is less friendly to the start up entrepreneur or artisan, with a focus on professional presentation and rent revenue that is challenging to a new merchant or concept. Some shopping center developers are eliminating or limiting the RMU programs in favor of vendor built and maintained larger scale kiosks. Others are trying to recreate the original intent of specialty leasing, carving out areas for RMU programs with a lower entry barrier to utilize for test marketing of new concepts. In many malls the focus is entirely on the revenue that the program can generate, and consequently those programs are duplicates of programs in other nearby shopping centers. US and Australian mall management and development companies, which have had these programs for many years, include them in their plans as they enter new markets. In Russia and many parts of Eastern Europe, the shopping centers have found specialty leasing to be a high sales and revenue generating engine, and have embraced common area units.
Shopping venues will look to specialty leasing to add the ‘icing’ on the cake in their centers. How that is done, whether through entrepreneurial opportunities for small, start up local businesses or national or even international companies will vary by location, by developer, and as the economic climate changes. When there is vacant space, there is a desire to try new retail. When space is at a premium, and all is leased, the need for merchants in the pipeline of development is not as strong. Since there will always be malls, or other shopping hubs that have a need or desire to have new merchants or new concepts, the future of specialty leasing for both shopping center developers and retailers remains a strong and viable opportunity.
About the author:
DEBORAH S. KRAVITZ, CRX, CLS
Deborah is a Principal in the retail real estate consulting firm of Pro Retail, Inc. based in Los Angeles, and conducting business worldwide. PRI is a specialty leasing and commercialization firm that adds ancillary income to shopping centers, transportation hubs, airports and municipalities. PRI created, leases, manages and owns the largest RMU/Kiosk program in an airport at the Denver International Airport. PRI manages, consults and oversees specialty leasing (carts, RMUs. Kiosks, pop up stores, income enhancement) for super regional, regional, lifestyle and entertainment centers, and community and neighborhood centers throughout the United States.
Deborah is an active member of the International Council of Shopping Centers (ICSC); a member of the Airport Retail News (ARN); Airport Minority Advisory Committee (AMAC). She is designated a Certified Retail Executive (CRX), a Certified Leasing Specialist (CLS) by the International Council of Shopping Centers. Deborah is an accomplished public speaker and seminar leader, having conducted sessions for ICSC, both in the US and the Middle East for the past 20 years, as well as for other professional organizations and clients such as Westfield, General Growth and Ivanhoe Cambridge.
For more information on Deborah and to contact her: Pro Retail, Inc.