Fall 2010
Taking the Next Step

As specialty retailers know, a cart is a great springboard for business. But once you’ve outgrown the cart—both in terms of space and sales—it’s time to make the next move. In previous issues of Specialty Retail Report, we have covered the logistics of such a move in depth. Here we profile three specialty retailers who have successfully made the transition.

Whether you have a new retail idea, a proven brand or a seasonal product looking for additional exposure, the opportunities to lease retail space in shopping centers are unparalleled. The challenge is figuring out where (and on what scale) to begin. While it might seem easier to rent a booth at the local fair or flea market—there are many more advantages to launching a retail business in a shopping center.

The benefits of temporary leasing

Common area merchandising, or leasing space in the walkways of a shopping center, offers some of the best opportunities to reach customers. The beauty of this leasing format is there’s no long-term commitment involved and startup costs can be limited to under $5,000 (including rent, merchandise and operating costs). For retailers who are testing a new product or line, this is among the least expensive and quickest ways to get started. Most shopping centers have requirements relating to inventory levels, visual merchandising standards and the length of the lease, but establishing a presence via a cart is quick and easy and space can range from 60 to 100 square feet.

These pilot projects are often referred to as “incubators.” They allow retailers to learn about traffic patterns and collect customer data. Retailers can learn how to operate a business with a small investment and it lets them gauge consumer interest in a concept or product. If customer acceptance is high, most temporary common area retailers consider a larger format i.e., a kiosk or temporary or permanent inline store space.

Moving from a cart or retail merchandising unit to a kiosk is fairly simple since both are typically located in the common areas. The advantage of the kiosk is that the format allows the retailer to step up to a larger space, usually somewhere between 150-250 square feet. Often times, a shopping center will require a custom designed kiosk that meets the design criteria of the property and this requires an investment on the merchant’s part. With that in mind, retailers who are investing in fixtures need to be certain they negotiate a longer-term lease (3-5 years) to amortize the costs of the kiosk over the length of the term. Custom designed kiosks vary in size and complexity and can cost between $15,000-$80,000 or more. Typically, once a kiosk location is identified and a retailer invests in the merchandising unit, they stay in the same location until the end of the lease agreement.

Another leasing arrangement for a temporary retailer is a temporary inline store. This offers the retailer a chance to operate in a larger format. When retailers move up to an inline space, they must also increase the amount of inventory they carry to have a well-merchandised store. Inline stores usually cost more to rent, and have more complicated leases. When moving to a temporary inline space, remember that there are many costs in addition to inventory and rent. Expenses like HVAC (heating, ventilation and air conditioning), and common area maintenance also need to be factored in to your decision.

Going permanent

Here we feature varied examples of specialty retailers who moved up the ladder after initial success in the common area. Their sales success and confidence in running a smaller sized business contributed to their interest in becoming a permanent operator in the mall.

If you’re interested in making your business permanent, gauging sales success and discussing the next step with mall management (who typically want to see 6-12 months of sales records) is a first step. Mall management is often seeking growth from local merchants who bring new uses to a center.

Finding the right space can be a challenge but retailers who have experience in a center from a temporary deal often have a good sense of who their customer is and where they shop in
a property. Most retailers will say it is worth holding out for the perfect location and no one knows this better than the merchant who has operated in a center and understands the traffic flow and traffic patterns in a property. Dodie Robertson, a retailer in Hattiesburg, MS, went from temp to permanent with her store Monogram Hut Too. She reminds retailers to pay attention to store location. “I actually believe one reason our sales have been strong is because we are located in a high traffic area in our mall,” she says.

Working with the fine print

Like the temporary inline lease, negotiating a permanent lease may require outside legal counsel and most retailers say it’s worth the investment. If a retailer’s sales numbers are consistently strong, management will consider a tenant for a permanent store. Negotiating a 3-10 year term lease is something a tenant cannot afford to take lightly. Many of the negotiation points from “use clause,” “personal guarantee,” “marketing fees” and “kick out clauses” can be new terms and having a real estate attorney to navigate through it all is wise. For the tenant, there are substantially more investments involved in things like “build out”—a process required of the retailer to outfit a new store. Hiring designers and architects and builders who help steer a retailer through design review, signage and storefront design and interior finishes not only takes time, it can be costly. The entire process of graduating from temporary to permanent location can sometimes take up to a year. Temporary merchants who are confident their concept is a winner don’t mind the wait because it is all part of developing their business.

If you play your cards right, a move from temporary to permanent can be a winner for everyone involved—your bottom line and mall management.

Monogram Mania

Sometimes the road less traveled can bring you to a place where you discover your true passion. That’s just what happened to Dodie Robertson when after 15 years teaching high school science, she left and moved into the retail world. Robertson says it started as a hobby when she purchased a sewing machine and began to sew simple monogrammed fabric purses with ribbon handles. “I would put my purses in the teachers’ lounge and sell them for $20 with a custom monogram,” Robertson recalls. By the end of that school year, she realized she was making more money selling her purses than she was as a teacher.

Both Dodie and her husband Jonathan, also a former science teacher took a huge risk: They changed careers and opened a store in Turtle Creek Mall in Hattiesburg, Mississippi.

The Monogram Hut Too went into business over four years ago on one RMU in the shopping center. Working all day selling monogrammed products and all night producing inventory, the Robertsons don’t know how they got through those early days. “Every day I would sell my purses so I would have to sew again that night to fill the shelves for the next day,” Dodie says. The couple, who had little retail experience and no business education, quickly realized they needed to find a resource to buy purses from, that they in turn could monogram. A month later, they renewed their lease for one more month. As business continued to boom; the couple extended their lease for three and then six-month intervals. “Our kiosk rent was as much as our house payment, so we didn’t want to get in over our heads,” Dodie explains.

As business grew, the Robertsons expanded to two RMUs selling duffle and makeup bags, totes and children’s monogrammable accessories. A temporary inline store followed and today, the store is on a three-year permanent lease agreement. With these changes came fixed monthly rental fees, the additional costs of electricity and a much more detailed use clause that outlined the products the store could carry. “We also had to make personal guarantees which meant if our business failed, we could lose our home,” Dodie says. But the inline store opened up the ability to sell new product lines, which they couldn’t on kiosks. Robertson says mall management has always been helpful. “They encouraged us and pushed us to grow our business,” she says.

What prompted the move to inline?

After Dodie Robertson attended Atlanta’s Mart, the decision to move from a cart/RMU to a bigger inline store became much more pressing. “I saw so many things that we wanted to carry and sell, but there was no way we could fit them on the carts,” she says. Customers also signaled it was time to grow their business into a store. When a 1,000-square-foot space (700 square feet of merchandising space) opened just off the food court, they jumped at the opportunity. The couple designed the store themselves and hired some friends to paint zebra stripes on the walls. Their employees liked moving to an inline space but it did add new responsibilities including cleaning, arranging and, re-stocking daily. Today Monogram Hut Too sells purses, backpacks, nap mats, suitcases, pillowcases, clothing, diaper bags, blankets and painted furniture. Price points range from $5 to $100.

Recently, a decision to break out the children’s business from the basic business allowed Monogram Hut Too a chance to open a temporary store for a six-month term in a different wing of the mall. “I think we may have split our sales—with this move—and we will probably recombine the stores,” Dodie says, predicting her next move and providing a cautionary example.

Fayetteville’s Jewelry

When Zales Jewelers downsized recently, Andy Tutor, an independent jewelry contractor, found himself out of a job. With the economy in a slump, Tutor figured the best way to find a job was to create one. So he decided to open Jewelry Repair on a cart in Cross Creek Mall in Fayetteville, NC. Tutor signed a four-month lease agreement and his business took off. “We offer fast, friendly service and most of our repairs are done in an hour or less,” he explains. His success was immediate and after five months he moved up and into a kiosk increasing the store size by 75% and sales by 20%. The store’s website allows Tutor to augment his business by offering coupon specials from time to time.

The business also sells stainless steel men’s jewelry and designs custom jewelry using exotic stones returning soldiers purchase in Afghanistan and bring back to nearby Fort Bragg. Most jewelers fear working with precious stones because of their delicate nature. Tutor has been working with them for years.

For Tutor, there were lots of advantages to starting small and gradually growing his business. It allowed him time to see if the business concept was going to work. “It also gives you the advantage of looking for that perfect space,” he says. Starting out in a smaller space and earning capital and saving it for a permanent location, allowed Tutor to not have to borrow money from a bank.

Following a 16-month track record of being profitable, and with encouragement from mall management, Tutor decided he would sign a permanent lease at Cross Creek Mall. “I watched the traffic flow in the mall; identified the busiest wings; counted the number of people that walked by; and then we waited for the right space to open.” Today his five-year lease agreement is for a 160-square-foot kiosk and he got his favorite location—right in center court. Jewelry Repair is a family-run operation with his son and daughter-in-law, both fine arts college graduates, now also working in the business.

For more information, please visit www.jewelryrepairfayetteville.com

Vintage Valuables

Kim Dye, owner and entrepreneur, began by The Vintage Market in Zona Rosa in Kansas City, MO, lives up to its moniker: Unique, old and new. The store is an eclectic mix of fun fashion items, shabby chic products, antiques, retro jewelry, and home furnishings.

Kim Dye, owner and entrepreneur, began by hosting trunk shows in her basement selling a collection of vintage goods she had purchased from her travels. Then in 2000, she opened a home furnishings store, The Pink Chandelier, in her hometown of Parkville, Missouri. In 2009, following the store’s closure, she had the unique idea to create an event—part flea market, part retail store that would showcase vintage goods and new merchandise from a selection of local vendors in Kansas City. That’s when she approached, Rosemary Salerno, general manager of Zona Rosa, an urban community lifestyle center on the north side of town.

“[Kim Dye] is such a promotion-oriented retailer that her creative marketing and promotion has helped our center and other merchants greatly. She publishes her own ‘Vintage Market’ magazine, has a strong social media campaign and has promoted her events with direct mail and television appearances. All of this creative outreach is beneficial to the other merchants at Zona Rosa,” says Salerno.

The Vintage Market occupies 3,024 square feet and with special events like “Girl’s Night Out”, “Visions of Paris” and “Company’s Coming,” is periodically turned into a focused retail sales venue. Dye even expands the store by setting up an outdoor tent offering a larger assortment of merchandise. She subleases 100 square feet of space within the tent to each of 10-12 vendors who have the option to pay her rent or work a designated number of business hours at the store. “We think the outdoor events add unique animation to our center and we love to work with our merchants to support these fun events,” Salerno says.

Dye creates seasonal events within her store that draw traffic to the entire lifestyle center. “Each showcase event is designed with different vendors and I build anticipation through media,” Dye says. The retailers at Zona Rosa love Vintage Market because it’s a unique addition to the center, that doesn’t compete with anyone else. The other merchants see the line of visitors Kim draws during the special events and understand what a great addition Vintage Market is to Zona Rosa.

Dye, who is formally trained as a hair stylist, says retail is in her blood. “My grandfather was a grocer in a small town, and the grocery store had a pool hall and it sold men’s clothing in it,” she says. Dye is busy with her second location now up and running in Leawood, MO.

For more information, please visit www.vintagemarketkc.com.

Duffy C. Weir

Duffy Weir is the former vice president and director of specialty retail and marketing at The Rouse Company of Columbia, MD. Now an independent retail marketing and sponsorship consultant and writer, Weir travels the world searching for what she says "makes marketplaces tick." She can be reached at Duffyllc@comcast.net or 410.252.8885.
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