Special ICSC Report. 2000 Temporary Tenant Conference

Carts, RMUs, kiosks, wall shops, bump backs and temporary in-line stores... they are EVERYWHERE. You see them in malls, entertainment centers, tourist locations, airports and even casinos. You may not know what to call them, but you know that they generate income and sales.

Developers of new retail property have them in development budgets and count on them to contribute substantially to the bottom line. Management companies need the income they generate for overall project profitability. And permanent retailers may look at them and get annoyed because they compete for consumer purchasing power – but they also wonder if there is a way to participate and expand their businesses.

Looking like the space-age marvel that it is, the cyberXpo.com kiosk drew a crowd at the ICSC 2000 Temporary Tenant Short-Term Specialty Retail Conference. The company operates both kiosks and stores that offer interactive, free Internet access where customers may surf the Web, get free e-mail and e-mail access, and play games.

Anyone interested in specialty retailing and leasing should have attended the International Council of Shopping Centers (ICSC) 2000 Temporary Tenant Short-Term Specialty Retail Conference and Trade Exposition in Denver, Colorado on February 25-29, 2000. The conference brought together shopping center developers, tourist destinations, airports, city agencies, retailers, common-area unit fabricators, product importers and manufacturers in an annual event that has grown dramatically over the past 15 years. This year’s conference had almost 1,300 registered attendees.

The Temporary Tenant Conference is thought of by many who attend it as a mini-Las Vegas leasing exposition with developer booths and leasing personnel. The focus is different, however, as participants at this conference are looking for the short-term deal. Developers come to find retailers to fill their sites as ‘temporary tenants,’ either in carts, RMUs, or kiosks or in temporarily vacant in-line store space. Retailers and prospective retailers attend to make deals with the developers, scout out the competition and investigate new products.

High rents have created shopping centers filled with common-area
tenants who can afford to pay the rent instead of those with something new or different to offer, often interfering with the
creation of a dynamic tenant mix.

Serving as a comprehensive industry overview, the Temporary Tenant Conference offers shopping center tours, visual merchandising clinics, seminars, workshops and executive sessions, a trade exposition, dealmaking, and keynote speakers with industry name recognition. The seminars include retailer and developer classrooms, which teach both fundamentals and advanced topics, space valuation, business values and principals, power and strip center leasing techniques, and sponsorship management. Due to demand for them, Canadian and international specialty leasing seminars were added to this year’s conference curriculum. Executive sessions with titles like “NOI or Die” and “Win-Win Negotiating” addressed timely topics with industry executives.

The first day’s keynote speaker was Paco Underhill, author of the acclaimed book on shopping habits and desires, Why We Buy, The Science of Shopping. Underhill has been widely quoted in the national press, including a recent article in Newsweek, and his insights were entertaining and informative.

Later keynote speakers gave a strong indication of the value of specialty leasing to the retailers who participate and mall developers who need these programs and the income they generate.

Richard Green, president of Westfield America, Inc., made the most important and intriguing comment of the event when he chastised the conference for its tongue-twisting and lengthy name. He described the importance of the temporary tenant industry to the ambiance in Westfield shopping centers, saying that temporary tenants help to create a festive shopping environment. He reiterated Westfield’s commitment to its specialty retail programs and even included some specific examples of major anchors welcoming common-area units into their courtyards.

Robert DiRomualdo, chairman of Borders Group, Inc., emphasized the importance of his company’s specialty retailing division. Borders, through its Waldenbooks division, operated more than 800 temporary locations during the 1999 holiday season – 690 Day by Day Calendar locations (including 40 overseas) and more than 150 locations of All Wound Up, the company’s newly-acquired in-line store concept.

Permanent retailers are embracing specialty
retailing and helping it gain professionalism.
Borders, through its Waldenbooks division, operated more than 800 temporary locations
during the 1999 holiday season.

DiRomualdo’s presence was significant because it showed that permanent retailers are embracing specialty retailing and helping it gain a new professionalism. Other permanent retailers exhibiting at the show included Spencer’s Gifts, Wilson’s The Leather Experts and San Francisco Music Box. Also in attendance was See’s Candy, with both in-line and cart programs, and Golf America, which just recently entered the specialty retail game. One of the larger exhibitors at this year’s conference was Fantasy Entertainment, whose annual thank-you party is the ‘must go’ social event of the conference.

The conference made it clear that the challenges facing temporary leasing are increasing each year and there is no doubt that the industry has changed. Just over ten years ago, specialty leasing was typically used only during holiday seasons with a few carts out in center court and a local Halloween or Christmas store if there was vacant in-line space. Forward-thinking developers used carts or temporary tenants to ‘incubate’ those retailers into long-term permanent tenants. Specialty retail was used to enhance the merchandise mix of a center, to add excitement and activity to the common area, and to feature trendy goods or services.

But as specialty retail has grown, the industry’s expectations have increased. Specialty leasing income, once thought of as incidental, has become a necessity for REITs trying to enhance their net operating income for Wall Street and investors. Specialty retail programs now look for year- round tenants to reduce the fourth quarter burden. Common-area programs now encompass everything from developer-owned carts and RMUs to vendor-built kiosks. Every bit of common-area space is now evaluated for its potential to hold an income-producing unit of some kind, from photo or sticker booths, candy machines, and kiddie rides, to phone card machines and even, in Simon Property Group’s portfolio, the Wishing Well.
The pressure to beat last year’s net income numbers has created rental amounts that seem staggering. There are super-regional centers that think nothing of asking $20,000 and up for a 5- foot by 8-foot unit during November and December. These high-rent districts have been created by scenarios where, for instance, Waldenbooks’ Day by Day Calendar Co. competes with Barnes and Noble’s Calendar Club in a yearly ‘battle between the giants’ for temporary space. This type of struggle raises rents and creates what some believe is a difficult environment for ‘mom and pop’ operations because smaller retailers cannot afford to pay astronomical rents.

High rents have also created shopping centers filled with common-area tenants who can afford to pay the rent instead of those with something new or different to offer, often interfering with the creation of a dynamic tenant mix. The typical mall now has three or more cellular phone company tenants, Metabolife and its replications (Metabo-burn, Metabo-loss, Slim R X), and many jewelry carts in the same common area space.

As centers fill up with specialty retail, many permanent tenants have retaliated with lease restrictions prohibiting a proliferation of specialty units in the vicinity of their stores. Retailers including The Gap, along with Old Navy and other of the various Gap divisions, and The Limited have become notorious for placing such demands on developers. And Brookstone, who participates in specialty retail programs with kiosks and temporary seasonal stores, also requests specialty retail restrictions. These retailers are motivated to press the issue because if specialty retail programs are not well designed, common-area units can create crowding in front of storefronts and the loss of sight lines, and conflicting products can lead to poor displays and merchandising.

There are many concerns facing developers and retailers as specialty leasing moves to the next level. The ICSC Temporary Tenant Short-Term Specialty Retail Conference is a place to gather and begin the difficult discussions that are necessary to keep the specialty leasing industry moving forward.

Deborah S. Kravitz is a principal in Provenzano Resources, a specialty retail consulting firm. She can be reached at 949-723-8376 or by email: cartlady-@aol.com.