Jonathan Elvidge is not a happy man. The founder of the Gadget Shop and Red 5 spent 2007 patiently waiting for Christmas at Bluewater, but when the festive season came around, he found himself up against a clutch of temporary stores. His frustration in having to share the market at what should have been Red 5’s most profitable time of the year has prompted Elvidge to resolve to quit the centre and reapply for a short-term lease next Christmas.
The need for landlords to fill their shopping centres has led to an increasing number of temporary stores and the issue has become a bone of contention for many permanent tenants. Landlords may simply let vacant units on a short lease of two to three months, or they can offer retail merchandising units (RMUs), free-standing kiosk-style shops placed in the middle of the concourse.
Vacant stores in a shopping centre means landlords lose money and, with a fall in footfall, existing stores have to work harder to draw Christmas shoppers to the centre. While landlords want a fully let centre, bringing in temporary stores can lead to tension and resentment among some retailers if the situation is not handled correctly. This balancing act is the responsibility of shopping centres, but in the festive season it can be difficult to get it right, as the departure of Red 5 from Bluewater shows.
The loss of gift retailer Red 5 will be a blow to Bluewater which, according to Elvidge, could have been avoided if the centre’s policy on temporary stores had been more accommodating to permanent retailers.
Temporary retailers stand to make big profits in the two or three months they inhabit a centre, but they are not the only people trying to make the most of Christmas. Festive profits, says Elvidge, are partly boosted by the strong reputation and goodwill towards the centre that the permanent retailers have been patiently cultivating throughout the year.
“When it becomes a problem is at Christmas,” says Elvidge. “A shopping centre has RMU spaces and empty retail units and they allow gift retailers in to compete head on with gift retailers like us, who’ve been there for the full year and have supported the scheme. They’re benefiting from the goodwill that’s been built up by the permanent retailers and it affects our ability to make profits doing the full year.”
However, Bluewater’s owner Lend Lease defended its stance on temporary retailers. “We’ve worked very hard with R5 in the past few months on its marketing and promotions,” says Lend Lease head of leasing Russell Loveland. “Wherever possible, we wouldn’t let someone adjacent to a competitor. We’ve had no temporary traders that have been competing with R5.”
Some retailers have gone as far as to accuse landlords of biting the hand that feeds them by bringing in temporary retailers, which often compete with the permanent tenants and, in some cases, take a chunk of their profits. This situation tends to affect a fairly narrow section of retailers, because the type of stores that take temporary space or RMUs around the Christmas period tend to be in very particular markets.
Promotions company Space and People acts on behalf of retailers interested in securing temporary lets. It has done deals with about 190 shopping centres across the UK to book temporary space for retailers.
The key products taking temporary lets around Christmas, according to Space and People chief operating officer Nancy Cullen, are cosmetics, toys and fashion accessories such as belts and handbags. These shops often stock a limited range and, when placed against an established retailer selling a huge variety of items, pose little threat.
But for a retailer such as Red 5, which makes a large chunk of its profits in the last two months of the year, any temporary gift stores opening nearby can cause big problems.
How much threat a Christmas store poses to a permanent retailer depends to a great extent on where it is located. The presence of temporary stores and RMUs is not intrinsically threatening to permanent retailers, says Cullen, but the impact depends greatly on the careful management of the letting by landlords.
“I wouldn’t see temporary stores as competitors to permanent stores, they are complementary,” says Cullen. “We exist to present the products to the shopping centre management to see if it would complement the existing retailers. It’s then down to the centre. The centre should be representing the interests of the retailer.”
Competing with and undermining existing stores is not the intention of many temporary retailers. Calendar Club, which specialises in calendars and other dated products, is one of the UK’s major Christmas stores. Now in its 10th year, the retailer has 231 stores in the UK in both free-standing mall units and vacant stores.
According to Calendar Club managing director Gary Beck, the existence of a Calendar Club store is anything but detrimental to permanent retailers if handled correctly. Despite initial difficulties faced by the company, he believes his temporary stores have been an asset to the industry.
“There was a lot of resentment, particularly in the early days, but I think my trade would now agree that we’ve grown the market place by being in it,” says Beck. “It’s a spirited negotiation to get stores and obviously location is the key. We don’t want to upset other retailers because we want a quiet life. We can’t find anyone where calendar sales account for more than 1 per cent of their turnover and I don’t think we impact on anyone’s business.”
The buck stops with the landlord, retailers say, which accept that temporary stores are an inescapable element of Christmas trading, but say what matters is how they are implemented. Part of this responsibility falls to lettings agents such as Churston Heard, which oversees the leasing of temporary space to retailers, including Calendar Club, in centres across the UK.
Churston Heard senior surveyor Victoria Gould says: “Temporary lets need to be managed well. Strict guidelines on operation, product line and shop fit, need to be maintained and adhered to, to ensure that the mall operators add to the overall ambience of the centre and do not detract from it.”
While temporary stores risk damaging business at permanent units at a centre, there are benefits too. Vacant units are a big turn-off to shoppers, reflect badly on the centre and reduce footfall to the other stores. Plugging the gaps with temporary stores may not be a perfect solution, but it does at least create the impression of a more thriving centre.
Deciding where a temporary retailer will be placed varies from centre to centre, but most have a set of guidelines aimed at ensuring that the temporary/permanent balance is organised in everyone’s interests. The Liberty Centre in Romford had three temporary stores for Christmas and several RMUs. Liberty general manager Mark Callery seeks to ensure that the relationship between the centre, its letting agent CBRE, the permanent stores and the temporaries is smooth by maintaining close contact with everyone throughout the process. All new arrivals, no matter how long their lease lasts, are subject to the terms of a tenant mix policy, which ensures that existing stores are not affected adversely.
“We say to ourselves, ‘where should a new store go and will it be good for the centre?’ We meet our tenants to discuss the stores and if they meet our tenant mix policy then we don’t have a major problem. It depends on what the store is. Some stores like Calendar Club are an asset. I’m not always keen on doing temporary deals, but the last thing you want is empty units.”
The British Retail Consortium says temporary stores are fundamentally beneficial to a centre and its existing tenants, provided the right balance can be reached.
“It depends on who you are,” a BRC spokesperson says. “Potentially it’s unwanted competition but, of course, retailers won’t want to see empty premises because it reduces footfall at shopping centres and at Christmas it’s even more important to have premises occupied to attract customers.”
Another hidden benefit of temporary retailers is that they may provide tenants with an opportunity to sub-let for a short period, especially if keeping a store open is proving unworkable but they are tied into a lease. This depends on the terms of the lease, but has provided welcome relief to retailers in the past.
For retailers, temporary stores may be the lesser of two evils. While for many they are unwelcome competitors at a crucial time, they serve a purpose for stores and landlords. The success of the scheme from the permanent retailers’ point of view depends on sensible and even-handed control on the types of stores permitted to occupy a unit, what they can sell and, perhaps crucially, where they are positioned.
A common-sense approach by landlords and letting agents has meant that, on the whole, temporary stores live happily side by side at shopping centres with the long-term fixtures, but there have been exceptions. Landlords will be well advised to remember the case of Red 5 if they wish to avoid a similar Christmas hangover at the end of 2008. RW