Pop-up shops - driving retail’s ESG agenda?
Pop-ups shops are regularly cited as a solution to high vacancy - but could they actually, by the law of unintended consequences, be the answer to retail’s looming ESG crisis? We explore the environmental, social, and governance benefits the format provides…
7 minutes to read
Retail property is facing something of an ESG crisis. Environmentally, previous research conducted by Knight Frank unveiled some very sobering findings - less than 1% of UK stores can be classified as ‘green’ according to global BREEAM standards. And, operationally, retail is one of the top consumers of non-domestic building energy. Progress in retail property industry sentiment has also been slow. The latest PERE survey found just 7% of investors saw ‘significant or moderate’ progress in the retail sector vs 80% in offices.
Even socially, the retail sector’s impact appear to be diminishing, with local high streets seemingly playing a lesser role in our everyday lives than they did decades ago. The state of physical retail is increasingly a barometer of a town or city’s health (or otherwise), high vacancy rates synonymous with wider social ills.
With the sector desperately in search of sustainability on all fronts – economically, socially, and environmentally – could pop-up shops prove an unlikely source of salvation?
Pop-ups not a long-term solution to persistent vacancy…
The pop-up format has become more commonplace, rising in popularity over recent years. According to Elastic Path, the industry is now worth £2.3bn, with the format commonly / lazily cited as a universal solution to high retail vacancy rates. Offering retailers shorter and more flexible leases, pop-ups have been praised for revitalising space that would otherwise lay unoccupied.
However, the format’s ability to lower vacancy effectively and permanently has been somewhat overstated. This is particularly true in locations suffering from longer-term, persistent vacancy.
This is for four key reasons -
1. Pop-ups, by their very nature, are temporary, making it difficult to measure positive quantifiable impact on vacancy. The duration of time popups are operational (weeks, days, or even hours) gives limited opportunity to make meaningful impact to streetscape quality. The UK’s leading authority on vacancy rates, Local Data Company (LDC), has highlighted the difficulty of capturing pop-up activity within its surveys, due to the ‘here today, gone tomorrow’ temporality.
2. Pop-up operators are of variable quality. For every artisan baker, there is a ‘less desirable’ vaping shop or mobile phone unlocker. For every bone fide trader, there is a shady wheeler dealer.
3. Operators typically regard pop-ups as a marketing or event cost, rather than property cost, meaning conversion rates to permanent space is low. Pop-ups help operators test new ideas and profitability before fully committing to bricks and mortar. But in many cases, brands view pop-ups as a promotional tool, attributing costs to marketing, rather than property. Many have little intention of taking space longer term. In contrast, operators committing to longer temporary leases (spanning months, rather than weeks), have far higher conversion.
4. Locations blighted by high vacancy are unlikely to be desirable to operators seeking to elevate their brand. Newer brands in particular need to raise their profile among consumers, favouring high visibility / footfall locations. Such locations are considered ‘prime’ and equally desired by those with permanent requirements. Owners of such assets are more likely to favour tenants providing longer-term rental income.
The key takeaway? We cannot assume all vacant space will be desirable to pop-up operators. There are exceptions to this – for experiences which are destination-led or ticketed, and less reliant on passing trade.
…but pop-ups key to unlocking ESG value
Given these challenges, why have pop-ups proven so popular?
Several major landlords have embraced the notion of pop-ups proactively rather than by default, realising the plethora of environmental and social benefits the format can bring. Accepting pop-ups will contribute only marginally (if at all) to rent roll, leading landlords are placing greater emphasis on the ESG value pop-ups generate for their schemes. Specifically, the activation of a vacant premises in an otherwise vibrant scheme, alongside contribution to wider placemaking and community strategies.
The Regent Street Edit is a good example. Established in partnership with Westminster City Council, The Crown Estate & the New West End Company have handed over prime retail space at 88 Regent Street to six local independent brands possessing strong sustainability credentials.
A strategic rather than a defensive move - Regent Street remains a top prime retail destination in the UK, with a vacancy rate of less than 10%. The Crown Estate made explicit its motivation for using the format: to support Westminster’s objective of educating consumers on responsible consumption.
Uncovering the ESG benefits of pop-ups
Clearly, there are attractive ESG benefits both landlords and operators accrue from embracing the pop-up format. To date, these have included -
1. A credible testbed for stress-testing sustainable fitouts. Regular retail tenancies average 5+ years providing few opportunities to trial greener fit-out methodologies. The frequent rotation of tenants mandated by pop-ups enables landlords to experiment with modern technologies, sustainable fixtures and fittings, and more collaborative green-lease models.
Figure Eight, a New York-based luxury pop-up boutique, experimented with repurposed copper clothing racks, 3D printed furniture, and recycled paper accordian walls for its changing rooms. Collaborating with third party companies such as Reform Design Lab, it advocated for whole industry change and hopes to apply its learnings across the major global cities.
2. Improved quality and attractiveness of the retail-scape. Pop-ups must attract a roster of rotating operators, meaning units must be maintained to a high standard to achieve ongoing occupation. The required and regular investment contributes to overall attractiveness and appeal of the retail landscape.
Sook, a flexible retail space provider, works with landlords to create clean, attractive ‘white-boxed’ pop-up space, appealing to a diversity of operators. Located in prime locations including Birmingham’s Bullring, Leeds’ Victoria Gate, and Newcastle’s Metrocentre, Sook activates vacant space in otherwise vibrant retail schemes.
3. Delivery of essential community services, on-demand. Pop-ups have proven advantageous during times of community need. During the pandemic pop-ups became a key pillar of innovative health delivery models, facilitating delivery of services quickly, at scale, and in convenient, accessible locations.
Biggroup Laboratories’ use of pop-up space was essential in providing crucial COVID-19 testing facilities, allow employees to return safely to work and facilitating resumption of overseas travel, with key centres across London communities.
4. Genuine incubator space for the next generation of retail brands. Although many leverage pop-ups exclusively as event space, others have used the experience to learn about their customer base and the benefits of physical retailing.
Homeslice Pizza is a classic example of the transition from pop-up start-up to robust mainstream operator. Establishing itself as a pop-up resident at Kings Cross Filling station, the brand took its first permanent restaurant back in 2013 in Covent Garden’s Neal’s Yard. It prospers to this day with five iconic locations across the capital.
Freddie’s Flowers is another great example of a retail business on a similar journey. Founded in South London, it uses popups successfully to connect with its customer base. Shoppers met face to face keep the subscription for an average of five boxes, versus just one when customers travel through online channels.
5. Showcasing responsible landlord stewardship of retail assets. The Portas review criticised absentee landlords who possess little interest or knowledge of local need, advocating for better contracts of care. Operating pop-up space demands landlords have authentic, hands on engagement to ensure their success.
Landsec is a keen advocate of the pop-up format to illustrate commitment to the local communities in which its assets sit. Historically, it has offered prime space to new start-ups, to benefit from co-location near globally-recognised flagships. Most recently, it announced headline partnership of LEEDS 2023, a cultural showcase and s celebration of community. Its planned year long-pop-up in Trinity Leeds shopping centre will host a programme of events tailored to local stakeholders.
Realising the ESG benefits of popups:
Pop-ups: the latest example of the law of unintended consequences? Perceived to be short-term space fillers, pop-ups could actually provide solutions that run far deeper and are much longer term. In a retail market craving flexibility and woefully short of ESG ideas, pop-ups have the potential to offer both.