Re-thinking retail: When pop-ups become permanent
A Q&A with the CEO of Popuphood, which brings cities and developers together to help retailers occupy once vacant spaces.
Cities around the world are grappling with a vacant storefront crisis. The causes are complex — ranging from the rise of online competitors, to the role of private equity firms, to, of course, rising rents.
Sarah Filley is intimately familiar with these challenges. The Oakland-based artist is the co-founder and CEO of Popuphood, a social enterprise and retail incubator (the first in the U.S.) that helps pop-ups to become permanent fixtures in urban communities. “A thriving business ecosystem is fairly fragile,” explains Filley, “and it can be decimated with rising rents that are more rapid than the actual growth of the business.”
Filley’s organization not only negotiates with landlords to provide lower rents, but works with cities to provide support to retailers at every step. “Businesses don’t just move into a shop and it’s over,” says Filley. “They need continuous marketing support, economic development support. They need technical tools to grow. And they really do need to connect into these larger pieces of infrastructure in cities. The sidewalks, the cultural events, the distribution centers.”
Filley spoke with Sidewalk Talk about Popuphood’s groundbreaking model, the importance of aligning the incentives of landlords and retailers, and the policies that can help cities generate a vibrant retail ecosystem — and safer, stronger communities in the process.
How did Popuphood begin?
Popuphood was founded in 2011 in Oakland, California. Our model came about because we were looking at strategies for survival and innovation. Oakland is one of those working class port cities that really got hit by the Recession early. The vacancies were a symbol of a 30 to 40 year disinvestment in downtown Oakland.
At the time I was doing public art and community engagement, and I was also participating in a lot of civic hacks, where artists and designers and computer folks came together to solve civic problems in tight 72-hour timeframes. We really saw an opportunity to take the ethos and the startup culture of the Bay area and apply it to civic innovation.
Personally, I was looking at ways in which I could stay in Oakland. There weren’t a lot of opportunities for creatives. And that was in stark contrast to the incredible amount of creativity in the city at the time. There was a First Friday art festival: 20 to 30,000 people coming to Oakland for one night out of every month. We could see each other and see how big our community was. There was a new excitement and visibility of creative people, the makers and artists in Oakland. But it wasn’t translating into economic opportunity for the people at all levels. All the culture and vibrancy that was underground wasn’t really translating to the street level.
So we focused on this neighborhood of Old Oakland to try to bring all the artists, and creatives, and the makers, and make them visible in these empty storefronts.
So in 2011, we came together and we just brainstormed. And then literally one week later we got a call from the City to invite us to a roundtable. It just happened to be all the people that we needed to make this happen, economic development, marketing, the business improvement district managers, the property manager, the property owner, and a community group representative. The tone of the meeting was, “Hey, we’re looking to have some input on Old Oakland and what could be done to jumpstart this neighborhood.” We had prepared a one-pager on our concept, outlining the benefits to the property owners, the small businesses, and the neighborhood, which we slid over to them. The city said, “Well, this sounds great. How much money do you need?” Off the cuff we were like, “30 grand?” And they were like, "Great." All they asked was that we get the property owners on board.
So we had to look at what the incentives were for each of the different sectors. We knew we needed to incentivize the small businesses, because it’s a big leap to go from vending, or wanting to do a store, or owning a gallery even, to something that’s specifically retail. So we knew we needed to incentivize them to take a risk on this neighborhood and participate in the program. So we decided six months free rent was a great incentive.
Because we got this grant money from the City to do this pilot and prototype this concept, we also incentivized the property owner in two ways. We said, we’ll use some of the portion of the grant to upgrade one of the retail spaces. So they put in money, we put in money, and we converted a storage unit into one of the cutest retail spaces.
We also incentivized them by taking on all the marketing. So the city donated seven billboards to us, and we designed an entire place-based marketing campaign around popping up an entire block, six new retail shops. We had bus shelters, we did social media. We really went all out to showcase what the story of Oakland was, the story of these creatives, the brilliant innovative spirit of Oakland, how resilient the city was, why we lived there. So it was a very authentic narrative. That pride really did inform our messaging. And we really focused on the entrepreneurs themselves and their stories.
So the shop owners benefited. The property owners benefited by more awareness of the neighborhood itself, which translated into accelerated office occupancy rates, increased foot traffic. Several of the pop-ups signed long-term leases. In a few years, the property was sold at a 25 million dollar profit from its purchase price. We knew that we had hit it out of the park when people started traveling to Oakland from outside of California just to check out Popuphood, at a time when Oakland didn’t invest any money into marketing outside of its city for tourism.
How did you convince the property owner to rent space for six months for free?
They had been vacant for three years, so what’s another six months, you know? There was almost no demand for ground floor retail at that time.
Also, for them, there were a few things that really worked. The spaces were really beautiful historic Victorian architecture. They were under 1,200 square feet. They were finished. They had shared amenities, and they were really close together all on one block. So from an economic development standpoint, that’s leveraging cluster economics. So the marketing really went further because we were focusing on one block as a destination.
At that time, not many people were opening up retail in downtown Oakland, period. There wasn’t adjacent retail to feed off of. There wasn’t any foot traffic. So it was a big risk for retailers, but they trusted us to curate quality retailers. And because they were next door to each other, they could co-market, they could work together, they could share insights. Everybody was in it together.
The timeline is also really important. We started in September, officially when we got our grant, then we did a grand opening in December. It was super fast. Everybody just pulled together, and it really demonstrated the proof of concept. And then the community really came through to support it.
That followed with international press. So if you can imagine a retailer opening up their first brick and mortar and then getting in the New York Times? It was a big deal for Oakland, to get some of the first positive press in 20 years, and it was a big deal for these new retailers.
Another factor of success was just making sure that all this marketing that we were doing was being captured by the retailers having good social media, a good online presence, and an online store as well. It seems obvious now, but in 2011 many of these platforms were new.
What conditions are necessary for pop ups and small businesses to be successful in cities?
There’s a lot of tertiary things you have to solve to catalyze economic development through pop-up retail. One of them is policy. There’s a lot of local, building, and business permitting that needs to be addressed for success.
In 2014 we were working in different cities, and we realized that one of the major barriers was that a lot of municipalities were very behind with permitting for mobile truck retail, for street vending, for cottage industry. We realized that this was a national problem. If you look at our model as the midpoint in a pipeline of economic development, then all those permitting and policy issues become very important — those are the people that are going to eventually grow into brick and mortar. They’re going to start out street vending, with mobile truck retail, working out of their home. And if those nano and micro businesses aren’t properly encouraged, and the pathway to their growth isn’t articulated by the municipalities in accessible and streamlined ways, then it’s going to take years, if ever, to get to brick and mortar.
In your experience working with cities and municipalities, what are the kinds of policies that tend to be most successful in generating more brick and mortar stores?
One solution is just to have a pop-up program. We are big proponents of spreading our model, our Pop-up to Permanent Program, and working with BIDs and municipalities to really articulate what that program should look like in their specific markets. Having a planning document, that coordinates all the different piecemeal projects and the various outcomes, is really helpful to align the different departments around that common goal of vibrant retail.
Then, within that, there are other specific programs around permits and policies for street vending, for mobile truck retail, for pop-ups in general. For example, one of the hurdles that we have is when a business wants to pop up and do something out of the ordinary. A cat cafe is a great example of that, we did one in Berkeley. And what was brilliant about it is that it had a social mission to increase cat adoption, and they coordinated with the cat adoption organization around the corner. So it was a way to increase cat adoption and lower the stress of people, to hang out with animals. But that was a little bit of a hurdle to get permitting allowance. There are other many examples of brilliant new retail concepts that are going to be coming down the pike, so to speak, and responsiveness to experiment with those ideas is really slow. You can only be as innovative as the person sitting at the desk in the municipality who’s going to approve your business.
And there are more concrete policies that cities can do, like tenant improvement or fund-matching programs. Often cities have tenant improvement programs that are tied to long-term leases. So we retool those existing programs for a temporary lease or a pop-up program. And, again, clustering those funds in certain areas, so it visibly communicates that the city does have a program and is investing in certain properties, it does really incentivize the property owners — especially if the city’s going to do fund matching. Then they can invest in some long-standing vacant properties in ways that are strategic to attract tenants.
In the best-case scenario, you have a city that’s really got progressive policies around stewarding those sidewalk vendors. There is technical support and organizations who can help them build their business capacity. There is plenty of manufacturing building stock that businesses can grow into and then have retail frontage. There is sophisticated marketing strategies around cultivating people’s awareness of the makers and creatives in their neighborhoods. There also has to be awareness in planning processes around streetscaping that supports businesses. The best possible outcome would be that there is the nurturing at the very small micro-level all the way to the planning office.
How do you align the incentives of small businesses and landlords?
We’re talking about economic opportunities, and a sense of prosperity, for communities. There are landlords who want to participate in that conversation, for the triple bottom line of people, planet, profit. And there are landlords who do not.
A lot of times we get asked: how do we get landlords on board? There’s always the early innovators who say yes right away, and want to try it, and prototype it, and be on the vanguard. And we prioritize those landlords first, and hope that the success of the program demonstrates the value and benefits to the other property owners. They can come on later as late adopters so to speak. Others will follow — along as it’s demonstrated what the actual benefits are for the property owners. And there are several. There’s a potentially large ROI in a long-term play; when you have a populated, thriving retail with unique individual businesses, it makes your property very attractive for sale.
On a smaller level, property owners care about rent. So the upper floor office spaces usually can charge more if there is a vibrant first 20 feet. The occupancy rates usually go up in a residential building if the tenants feel like they can go down and hang out and have tea, or learn a craft, in the bottom floor retail.
So I think occupancy rates, rents, and the profit from the whole project are tangible financial incentives. And then the other, less tangible incentive for property owners is just the feeling and the cohesion of the pedestrian experience along these corridors, and the well-being and increased safety that these businesses provide, as stewards of the sidewalk.
Why do you think so many cities are experiencing vacancies today?
There’s several different causes for vacancy. Absentee landlords, family-owned properties that just don’t have the capital to upgrade the spaces. It could be high rent blight. In every city, you have a combination of all of these factors.
We also see that retail is overbuilt in cities because there’s an outdated requirement of 10,000 square foot retail spaces, and then those are empty. So those really damage that pedestrian continuity, that experience of walking through your city and having open doors, of feeling that there is a community there. Smaller spaces is one concrete strategy from the planning offices that could be introduced. Most of our retailers want something that’s 400 to 800 square feet, not 5,000 to 10,000. Even big stores like Target and IKEA are now shrinking their footprint in urban centers. Online stores, when they come to cities for the first time, they also seek out smaller footprints as well, so this seems to be a trend that cities and developers should be responding to.
Flexibility is key because you want these businesses to start small, with the option to grow in place or expand into the space next door, which happens. That should be built in. But I do think that a lot could happen in the planning side in terms of building requirements to keep that pedestrian scale. I really think that these soaring 40 foot glass frontages are just not conducive to the small retailers succeeding.
The built environment can be part of our business incubation or it can impede it. If we acknowledge that new jobs are being created by these small businesses and if prosperity is the goal, then shouldn’t we design for this? Design for what we know works, for the future of cities. Small, flexible, iterative, aggregated, and multi-nodal.