Observations & Conversations
It never hurts to make an extra buck.
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Temporary tenants used to be the last resort for
generating income on vacant space, but times have changed. Specialty centers used to lease
space for next to nothing or for free to existing tenants because it kept the center from
appearing empty. In their heydays, successful mall developers rarely leased in-line space
to temp stores. They relied heavily on kiosks and special events to supplement income. In
another era, when over-leveraged strip center owners and independent shops battled the
onset of power centers and category killers, developers needed to generate cash flow while
negotiating with a long-term replacement. They usually did month-to-month deals at just
about any price. Temporary tenants were unsophisticated in their presentation, but they
were extremely entrepreneurial. |
Today, times are good. Most strip and specialty centers have little vacancy. Older malls,
aching for traffic and income, look to temp tenants for relief. Newer malls build
temp-tenant income into their proformas. Mall developers now coddle temporary tenants and
the big bucks they generate almost as gingerly as an anchor store. Temporary tenants have
evolved into homogeneous chains, often owned by retail conglomerations that operate
permanent stores.
A shift in mindset took hold of both developers and tenants. In-line store chains once
despised temporary tenants. Now many operate their own temporary concepts, supposedly to
control market share. Mall developers are co-dependent. The underpinning of it all is
money, and there’s nothing wrong with that.
The problem with the growth of the temp tenant industry is that it has matured into
“me too” and “ho hum.” Presentations are institutionalized in the form
of identical carts/kiosks. Merchandise mixes are dominated by clown-sized house slippers,
power beads and cell phones. Leases are usually one to three years. High rents deter
start-ups and adventurous merchandising. Fixing any problem takes creativity and
that’s what the temp tenant business needs right now.
I live near Princeton MarketFair, a small mall anchored by Barnes & Noble, Restoration
Hardware and Pottery Barn. At one time the mall had a high in-line vacancy, but probably
close to ten kiosks. Today the occupancy level is relatively high for in-line space, and
the temp tenants are fewer but more interesting. Carts were replaced by dividers with
shelving. This allows for better displays, more visual impact and an open feeling that
encourages browsing. MarketFair’s temp tenants sell $300 sunglasses and wool
tapestries, which better reflect the taste buds of a more sophisticated shopper. I’m
sure the developer isn’t getting top dollar for its temp space, but I’m also
certain that these are the types of tenants who make money in this center.
A lot of temp tenants succeed on sheer traffic, in spite of low-quality or faddish
merchandise. I often walk by kiosks and wonder who buys this crap, as I spot my teenage
son angling up to a cart with money burning a hole in his pocket. Missing links to the
merchandise mix are items catering to a more adult crowd. Another issue not being
addressed is the entertainment/browsing element that temp tenants can bring to a mall.
It’s amazing that developers are recreating malls to appear as main streets and
forgetting the street vendors... the reinvention of temp tenants. Take a lesson from
walking the streets of New York City or San Francisco – it’s the sights, smells
and noise of street vendors that add to the main-street experience. I often wonder why
malls don’t at least supplement permanent-temporary tenants with true temporary
tenants that change weekly or monthly. Yes, this would take time away from the mall
manager, since it’s comparable to a bar owner constantly auditioning bands. But it
would give shoppers another reason to visit more often and bring diversity to a ho-hum
merchandise mix.
As to temp stores in strip centers, the market is so tight, and most of the vacancies are
still generating income from the supermarket or drug store chains that are on the hook,
that most developers aren’t going after this use. However, the chains are breathing
heavy for temp tenants to help offset occupancy costs of a dark store. I’m familiar
with The Book Market (865-558-8187), a chain of temporary bookstores that often takes over
vacant supermarkets for a few months - and not just during the holiday season.
Interestingly, The Book Market took over a vacant SuperFresh and did big business as a
temp store for months while the center’s owner was in negotiations with Barnes &
Noble. I would bet the activity and sales that The Book Market generated helped B&N
determine what kind of volume to expect. Barnes & Noble eventually opened a large and
high-volume store at the site.
Speaking of sales volumes, I recently visited Jersey Gardens, Glimcher’s newest mall,
in Elizabeth, New Jersey. Here’s a center that needs temporary tenants in the worst
way. It was quite obvious that some of the existing tenants had taken over vacant stores
to make the mall seem less empty. There were a few chains with two stores in the center,
with one unit having less than a dozen racks of clothes priced at under five bucks. If
they sold everything in a day it still wouldn’t have covered the payroll and electric
bill. I dropped by the jewelry exchange in the center to see that probably 75 percent of
the space was vacant. A few days later I met with the owner of a jewelry exchange in
another project and he had been approached several weeks earlier to take over space at the
Jersey Gardens... an interesting chain of events, especially since the project just
recently opened. But I can tell you that the jewelers that stayed on carried merchandise
reflecting the customer profile, which was heavily skewed with ethnic and blue collar
shoppers. The project had some interesting tenants, however I don’t think it’s
compelling enough for a New Yorker to visit the center twice, unless they were already at
Ikea and still had a few hours to kill. There were a lot of bodies, but not enough of them
were carrying bags and there’s a lot wrong with that!
On the topic of lots of bodies... we’ll see you at the ICSC Convention in Las Vegas
next month. Stop by our booth at 667 Sixth Avenue.
Until next month,
Ann O’Neal
Publisher