5 ways companies can leverage pop-up stores

Shoppers view Google produces at the Google's new temporary Winter Wonderlab inside the Roseville Galleria, in Roseville California U.S., on Saturday, December. 14, 2013. Google has set up 6 temporary Winter Wonderlabs across the country were shoppers can view google produces and create slow motion video. Photographer: Ken James/Bloomberg
Ken James/Bloomberg/Getty

FORTUNE — Walk through any major shopping district, and you’re likely to stumble upon a number of pop-up shops. From online brands testing the waters for a physical presence to major retailers testing out new products, the pop-up concept has become a major tool for businesses regardless of size.

The short-term retail market has exploded over the past few years, bridging the gap between e-commerce and brick-and-mortar stores and enabling brands a chance at premium real estate at a fraction of the cost. In fact, temporary retail continues to thrive as an $8 billion industry that’s grown 16% annually since 2009, according to a recent Specialty Retail Report. Major online brands like Amazon (AMZN) and Google (GOOG) have experimented with short-term leases to showcase new products while national retailer Nordstrom has collaborated with online jewelry marketplace BaubleBar and fashion brand Topshop to set up within the department store.

More and more companies are realizing a pop-up is not only a chance to generate more sales but also to learn more about customers and how a brand translates and who it influences. To illustrate, here’s a look at five ways how a business can benefit from a soon-to-be permanent model in the retail industry:

1. Offload inventory and test out a new revenue stream

Pop-up shops inherently evoke a sense of urgency with “limited time” offers, which helps boost sales and often converts to larger purchases.

“We have had clients that have seen their cart size grow two times when their online customer walks into a space where they can touch and feel the brand,” says pop-up architect Melissa Gonzalez.

The informal, spontaneous setting might generate more revenue or allow a store to feature inventory in a fresh way, says Anton Commissaris, the North American president for point of systems service Vend. For example, let’s say a running store is trying to move old inventory through the use of sidewalk racks. If the storeowner instead uses a pop-up truck and drives to a different part of town, the clothing becomes instantly new to a different group of consumers. Meanwhile online companies like Etsy can test the brick-and-mortar business to see if their merchandise attracts foot traffic in the same way it can digitally.

2. Test out new products or experiment with new concepts

Pop-up shops are a great way to incubate an idea in a confined timeframe and isolated scope, adds Gonzalez, who owns a pop-up specialty firm. Demonstrating new products enables a business to collect customer feedback and suggestions before fully going to market. Existing brands like Google or Nordstrom (JWN), which more recently launched a New York pop-up to promote Sarah Jessica Parker’s new shoe line SJP, are also leveraging pop-up shops to experiment with new collections or concepts.

MORE: Pop-up shops are becoming more permanent

Smaller retailers can also use pop-up shops or trucks as an opportunity to reach and retain more customers. Use it as a chance to hand out an exclusive discount or gift card to spend at the larger store or online, giving consumers a reason to return after the pop-up closes.

3. Use it as a marketing opportunity to create brand awareness

More companies are using pop-ups as a marketing tool for brand extension. By incorporating incentives for customers to share their experience on social media channels like Twitter and Facebook, companies can create a larger organic buzz about their brand. By analyzing social media chatter, a marketing team could examine word sentiment around their brand and look for new potential influences for future campaigns. A temporary physical setup also gives online brands a chance to make consumers aware of their online store, attracting local foot traffic they may not have otherwise had.

Technology-driven companies can also use a temporary space as a way to educate customers on what makes their product unique to the market.

“A sense of discovery will deepen a customer’s connection of the brand as they embrace the ‘wow’ factor,” Gonzalez says. “Be it a groundbreaking formulation or a disruptive technology.

Vend’s point of sales system and in-store sensors allow companies to collect data on their customers. For example, a customer can assess foot traffic during specific weather conditions, conversion rates and cart contents. This type of big data can inform merchandisers and marketers on how to better position and target campaigns or window designs in the future, Gonzalez adds.

4. Timing a pop-up in conjunction with seasonality or holidays

As we already know, consumers tend to buy during seasonal and holiday shopping. By creating a seasonal experience, companies can provide a “one-stop shop” for customers.

Seasonal shops are also an opportunity for retailers to collaborate with other businesses. For example, an online jewelry store could partner with a florist or a chocolatier and brand the whole experience as a Mother’s Day shop, giving consumers more of a discovery experience while inside.

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The store-within-a-store model is another type of pop-up that’s becoming more common. Allowing smaller businesses to test market their items by setting up a stand or an area within a larger store may attract new business for the bigger retailer.

5. Omni-channel retail is the future of the industry

More businesses are leveraging Omni-channel retail, or the seamless approach of a retailer selling online, in a store and on the road. As the Massachusetts Institute of Technology (MIT) report “Beyond the Checkout Cart” points out, many retailers are no longer distinguishing sales by channels while consumers are using a multi-platform for discovery and purchase.

Consumers expect accessible brands that enable everything to be at their fingertips. The increase in “showrooming,” or when consumers compare prices online while browsing in-store, signals that customers are engaging with the multi-channel shopping approach. According to the MIT report, the industry generated $12 billion in sales made on a smartphone while 80 percent of shoppers admitted to “showrooming” before a purchase.

“More than just being multi-channel,” Commissaris says, “companies are trying to ensure the brand experience and the buying experience are the same.”

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