Before the coronavirus pandemic, mall and shopping center owners were so much more to pop-up tenants than just landlords. Specialty leasing has become more about business mentoring and support than it has about filling empty space. These supports in design, technology, POS, merchandising, data collection and much more have resulted in top developers becoming incubators for fresh new brands to keep the shopping experience unique and unexpected. During the pandemic, many owners are still finding ways to help sustain their smaller, digital-first or local tenants and to supplement the Small Business Administration’s Paycheck Protection Program. After the pandemic? That’s a story with an unwritten ending. But a big part of the conversation is about how the entire delivery of the shopping experience is going to have to be reinvented for a completely new kind of consumer.
Owner/operators may find themselves having to be even more partnership-oriented when consumers emerge from their homes. Pop-ups won’t be going away, according to many close to the industry. In fact, most expect shorter-term and specialty leasing to see a bump in business. “There’s going to be a lot of hesitancy to sign longer-term leases,” says Melissa Gonzalez, founder of The Lionesque Group. “Now, with so much more uncertainty, particularly around how consumers are going to respond, I think people are going to be doing short-term tests.”
Kimberly Flaherty, senior director of public relations with Washington Prime Group, says shorter-term tenants will provide extensive opportunities following the virus lockdowns. “Now more than ever, small retailers and specialty leasing tenants are vital to the health of the retail landscape,” she says. “Last year alone, WPG welcomed more than 3,800 specialty leasing tenants to town centers across the country. Tenants ranged from dining options to local purveyors to limited-time experiences like Candytopia.”
“Partnership” will be the buzzword when brands return to brick and mortar. They’ll be relying on landlords for more than they were before. In addition to needing real estate owners’ expertise in how to design, market, merchandise and analyze, retailers likely will be needing to share the burden over one-way signs, hand-washing stations, temperature checks, fitting room protocol, signage and decals promoting social distancing. “The question is, is it a mall-wide mandate?” says Gonzalez. “How much is the onus on the individual store? You’re already seeing that with the stores that are opening now. The next layer to that is, how do we do that in a way that’s on-brand, authentic to our voice and that doesn’t feel scary or clinical?”
Another key point to consider for life post-COVID-19 is a redefining of omnichannel. Consumers have learned how to pick up their items without getting out of the car. “As we think about a post-COVID world, the lines between shopping formats are permanently blurred,” says Heather Crowell, executive vice president, strategy and communications at PREIT. “We are in this together, landlords and retailers, and we have proven that there is tremendous value in being open for business, together.”
Many speculate that the transition from online to brick and mortar will have to be made more seamless by partnering on fulfillment. “It will be interesting to see how mall developers lead on this,” Gonzalez says. “I think there’s been so much attention given to leasing terms and how to think of percentage of sales. At the end of the day, physical is an important touchpoint, but the economics surrounding how a lease is structured might need to evolve. We need to look at this within a holistic look around the customer channel, which includes multiple touchpoints. Maybe it’s a fulfillment center, sometimes it might be a brand experience, sometimes it might be where customers return things. So we can’t make the argument that it’s all about sales per square foot. This has been evolving and now it will be accelerated with buy online pick up in-store or return in-store. There are a lot of questions about IT and logistics and how to make it more efficient. How do you think of the sidewalk differently, for example? There will be architectural services needed around it because we will have to rethink entrances and exits or the parking lot experience or how we’re running electric and IT and conduit. Anything that makes it more seamless for the consumer because these are convenience offerings, and they’re not convenient if they don’t run seamlessly. People have been role-playing this out in their heads, but we won’t know until the doors open and we’re really in it.”
Washington Prime Group
Since the COVID-19 closures, Washington Prime Group announced two measures to help its smaller tenants: Open for Small Business and Well Picked Goods. For the Open for Small Business initiative, Washington Prime Group partnered with the Institute for Justice and the University of Chicago.
The company says that lease re-negotiation doesn’t have to be a complicated part of survival during the pandemic, so the partnership created an easy-to-use lease modification template that allows for the deferral and/or abatement of rent payments until tenants get back on their feet.
The template allows for the option to defer partial or total rent payments during the relief period that are predicated on whether the small business remained opened or closed. If the store remained open, the rental payment would be 10 percent of the most recent monthly rental payment, and if closed the payment would be 100 percent deferred. At the end of the relief period, payment will be reinstated based on the most recent lease terms and conditions prior to the relief period. The relief period is defined as the reopening of an establishment following government approval to do so and a 30-day grace period beginning on the date of reopening.
The initiative also hosted educational programs via webcast seminars led by agency officials and other experts to address how to access Small Business Administration (SBA) guaranteed loans as well as other public and nonprofit programs. Open for Small Business also held tutorials focusing on leadership, accounting, recruiting, social media, advertising and marketing led by industry professionals in order to address the necessary catalysts required to jumpstart a small business when it’s time to open back up. Seminar topics included: how to reach the socially distant customer; utilities management and cost efficiencies; an overview of SBA programs and the CARES Act.
“While the impact of the coronavirus pandemic has been dramatic to say the least, there will be a return to normalcy, and when things settle down, we all better make sure small business owners are indeed ready to open for business,” says Lou Conforti, CEO and director of Washington Prime Group. “These individuals, many of whom are women and minorities, possess an entrepreneurial spirit. They also provide local flavor whether it be in the form of a falafel sandwich, a sweatshirt emblazoned with your favorite minor league baseball team (shout out to the Albuquerque Isotopes!) or a handmade shelf to display your collection of Iron City Beer cans honoring the 1975/1976 Super Bowl champion Pittsburgh Steelers. They’ll also repair a broken heel as well as prepare your income tax return.”
Conforti says these businesses generate substantial tax revenue and employ a lot of people — approximately 48 percent of the private U.S. workforce. “Plain and simple, it is imperative we do everything possible to keep our local entrepreneurs afloat.”
On April 17, WPG also launched Well Picked Goods. This program’s goal is to keep people connected to the physical property and to support its retailers. Well Picked Goods targets a WPG property and, under the curation of that property’s management lead, sells select items from its retailers online. After purchasing items from the site, customers are eligible to earn gift cards to use in person when the properties once again open for business. The company so far has highlighted retailers at Polaris Fashion Place in Columbus, Ohio; The Outlet Collection Seattle in Auburn, Washington; and The Mall at Johnson City in Johnson City, Tennessee. Town Center at Aurora in Aurora, Colorado, launched on May 1.
“Both our Well Picked Goods and our Open for Small Business initiatives provide much-needed support to hardworking tenants — through highlighting their products and giving them resources and expertise to come out on the other side of this pandemic stronger,” Flaherty says.
On April 20, PREIT gave the smaller-business brands in its portfolio a national e-commerce outlet through a program called Shop Local. The site can be accessed on any PREIT mall website. Twenty-eight percent of PREIT’s portfolio is comprised of tenants that are local or regional. “Smaller businesses often don’t have robust digital marketing budgets, and therefore aren’t able to let consumers know they are continuing digital operations,” says Heather Crowell, executive vice president, strategy and communications at PREIT. “We are able to assist by sharing these small businesses with our audience of over one million people through our digital channels, in hopes of assisting in sustaining their business through online sales until our properties are able to reopen. Local and regional businesses help shape the shopping experience at each of our properties and lend value to our portfolio.”
The value of smaller businesses helps boost a retail property’s sense of community, which keeps people coming back. “Mall and shopping centers are community centers, where our consumers come to shop, dine, and participate in experiential activities,” says Crowell. “Local and regional businesses often fill a void of a unique product or service that helps differentiate the merchandising mix. Currently, smaller, local brands are among the enterprises hardest hit by this pandemic. Many of these brands didn’t design their businesses with the intent of limiting their sales to online platforms, and the lack of a brick-and-mortar presence has caused a material degradation of sales volume.”
The website covers several categories including home goods, athletic and outdoor, apparel and accessories, food, health and wellness and more. It serves small businesses at properties throughout the portfolio. Some of these retailers are permanent tenants, but many of them came from pop-ups and kiosks. “We featured any and all of the various tenants if they were local or regional and had an e-commerce platform,” Crowell says. “We have longstanding relationships with many of them and others are shorter-term in nature based on the use of our real estate, but we prioritize relationships so we consider them to be never-ending.”
Kite Realty Group
Kite Realty Group (KRG), a publicly traded REIT based in Indianapolis, announced a plan to help its retailers on April 20. The KRG Small Business Loan program was created exclusively for KRG tenants and is designed to provide expedited, low-interest loans to select KRG small-business tenants to help navigate the current environment.
The program in aggregate will provide up to $5 million in total assistance and allow KRG small business tenants to request a loan amount of up to three months of operating expenses. Applications were accepted from April 24 through May 1. Loans will be awarded to tenants based on a variety of criteria, including credit history, length of tenancy, and financial performance.
“We have many small businesses in our shopping centers who have made every effort to make it through this crisis, but who need additional funds to cover expenses until they are able to fully re-open,” says John Kite, Chairman and CEO of Kite Realty Group. “This program is designed to supplement other available sources to help them pay employees, vendors, and other expenses. Our small-shop, local tenants are an extremely important part of our business and our local communities, and we will continue to look for creative ways to help them through this period.”
— By Lynn Peisner. This article originally appeared in the June 2020 issue of Ancillary Retail magazine, a sister publication of Shopping Center Business.