Pop-up shops are becoming more permanent
FORTUNE — The fashion industry has long benefited from the concept of pop-up shops, but with the rising cost of online advertising and a saturated e-commerce market, more retailers are turning to temporary brick-and-mortar retail to stand out among the competition.
Earlier this week online marketplace Storefront, which pairs retailers with temporary leases for physical space, raised $7.3 million to add to its $1.6 million in seed funding from last summer. Akin to Airbnb, Storefront streamlines the short-term lease process by offering everything from shelf space and mall stands to entire stores or street festival stalls. The platform gives businesses the flexibility to rent as much space as they went at a daily, weekly, or monthly basis while providing insurance and rent upfront for property owners.
Flush with new cash from Spark Capital, the venture capital firm behind Warby Parker, Storefront is expanding its operations from New York and San Francisco to Los Angeles, with the aim of adding up to four more cities by the end of the year, according to Storefront co-founder and CEO Erik Eliason. The company boasts its merchants have raked in $5 million in merchandise sales in New York and San Francisco in the last 30 days alone.
“Online there are a lot of great platforms like Gilt or Amazon or Shopify,” Eliason says. “But we found in the offline world it’s really complicated to grow your business.”
But online stores seeking a brick-and-mortar presence is nothing new, says Alexander Chernev, a marketing professor at Northwestern University Kellogg School of Management. Marketplaces like Storefront that help businesses find space in a seamless and economic fashion are enabling more brands to join the pop-up shop phenomenon.
Inefficiency with the retail market rental process, Chernev says, coupled with an abundance of supply over demand in the real estate market, has created a sweet spot for short-term renting and independent businesses or artists looking to experiment with temporary storefronts. Landlords and property owners are also more flexible about short-term leases, allowing pop-up shops to serve as a staged apartment, displaying the space for possible future long-term renters while collecting revenue.
But pop-up shops are not limited to online brands looking to come offline. Larger brick-and-mortar retailers like Nordstrom (JWN), which has partnered with online jewelry store BaubleBar and Sarah Jessica Parker’s new shoe line SJP, as well as Kate Spade, which partnered with eBay (EBAY), are leveraging the concept as a marketing tool.
“It’s all about the experiential element and tying it into the physical space,” says Melissa Gonzalez, founder of the Lion’esque Group, a brand and pop-up specialty firm. “It allows retailers to really hone in on a message or a specific product.”
Indeed, Amazon’s (AMZN) Jeff Bezos has broached finding a more physical presence while Google (GOOG) is rumored to be opening a flagship store in New York City as a marketing tool. Meanwhile hotels, malls, and even retailers like Home Depot (HD) and Target (TGT) are looking for ways to freshen up inventory and drive new foot traffic. Last year Storefront partnered with the New York Metropolitan Transportation Authority (MTA) to lease empty subway stalls and has also partnered with Kanye West to sell tour merchandise and National Geographic to display photography.
“Retail now is about the experience and connecting customers with makers or brands,” Eliason says. “The most effective way to do that is really through traditional conversations and getting to know the designer.”
Gonzalez, who also sits on the advisory board for Storefront, has worked in pop-up concepts since 2009, and has noticed her clientele shift from small and seasonal businesses that didn’t want to commit to long-term leases to a variety of fragrance, beauty, and technology companies exploring new products, promotions, and markets.
With more media channels than ever and as the e-commerce market grows larger, businesses are finding it harder to engage customers online. Social media companies like Facebook — which recently limited organic reach in its new News Feed algorithm — have caused ad prices to soar. Retailers are rethinking marketing strategy and finding alternative ways to create a brand lifestyle and build customer relationships.
“It’s really becoming apart of their 360 strategy,” Gonzalez says of her clients. “They’re looking at marketing budgets a year ahead and pop-up shops is one of the verticals they’re factoring in.”
In fact, more brick-and-mortar businesses are leveraging the concept for faster exposure to test market new products, market research, or even build customer loyalty promotions. In February fashion house Marc Jacobs launched the Daisy Marc Jacobs Pop-Up Tweet Shop, where customers could snag fragrance samples and products in exchange for posting to Facebook, Twitter, or Instagram. Kellogg hosted a similar pop-up experience in 2012 in London. Other uses include educational components for beauty or technology brands looking to demonstrate a product or process that may not transpire online.
But online and offline brand strategy are not so different. Performance analytics companies such as ShopperTrak, mFour, and Euclid Analytics allow businesses to measure foot traffic, body heat, shoppers converting into sales as well as sending opt-in, dedicated messages to shoppers’ smartphones in-store. New technology can even help retailers determine pricing strategy, effective window displays, or which colors sell better — the same type of data marketers mine online
“It’s not about the sales you’re making right then and there, but it’s about all the information and data they’re learning about their pop-up space,” Gonzalez says. “That becomes a great marketing tool going forward when the store closes.”
Though pop-up shops may be the newest component to brand strategy, the trick will be keeping the temporary concept from becoming a fleeting trend.
“Brands will have to continue to evolve the hook in what they create in the space so it doesn’t become cliché,” she says. “As long as they focus on the experiential aspect, that’s why customers will come.”