Page 38 - June 2021

RLI EVERYTHING DIGITAL RLI EVERYTHING DIGITAL

The Rise of the

Micro Tenant

In this month’s column, Gary Burrows, Managing Director, Malls & Meeting Places,
FitForCommerce and Steve Brooks, COO, Micro Tenancies, FitForCommerce, discuss
how the micro tenants in pop-up shops are a viable route for operators looking to offer an
alternative solution for landlords.

he pandemic dramatically changed how we live, work and brands as well as local retailers. At the same time, mall owners
do business. For the mall industry specifically, this high- increasingly embrace more social, cultural and community activities
speed change has resulted in the restructuring of lease in the mall space, requiring new short-term leasing agreements, while
Tarrangements, shortening terms, reacting to vacancies, existing tenants seek scalable space for clearance stores, flash sales or
embracing new and diverse categories of tenants, operationally new design trials.
adopting new safety/cleaning procedures, reimagining risk and following Forward-thinking mall owners are pursuing new ways to bring
consumer preferences for locally unique and authentic retailers and locally unique and authentic retailers and brands back into the mall
brands. and are introducing new leasing structures as part of the meeting place
The traditional asset management-based operating model has or placemaking strategy.
historically been driven by the desire to increase capital valuations Mall owners and operators need to proactively consider pop-up
by constantly chasing higher rents, applying significant deposits and stores as a new class of Micro Tenants to fill vacancies and provide
bank guarantees, combined with high service changes. As a result, the unique and differentiated shopping experiences. These micro tenants
majority of local retailers and brands have been forced out of malls need landlords to invest in their success through supporting solutions
in favor of large international brands. This has created a “copy/paste” and services that foster strong partnerships.
mall experience that shoppers quickly tired of. Mall owners can learn a lot from Amazon and its turnkey solutions
Today, most malls include less than 20 per cent locally unique and for entrepreneurs to support their fledgling businesses. A co-created
authentic tenants, and as a result, the customer experience is not mall offer should include a suite of support tools and services such
representative of, or authentic to, the average region or city. Most as discounted space, shopfitting, logistics, websites, e-commerce
consumers have an innate desire to enhance the space in which they platforms, marketing and social media. With these services, malls
exist, and to see it thrive. For this reason, buying local, and thus are in a better position to attract a new wave of locally unique and
supporting local growers, manufacturers and retailers, resonates with authentic brands, digitally native brands and start-ups. This incubator
many consumers. model is more advanced than the traditional reactive pop-up approach
From Inditex increasing its local sourcing strategy to the American and fits the current and urgent need for a new tenant class – the
Express “shop small and buy local” initiative and town and cities with emerging Micro Tenant.
a “shop local” mission, in many ways, local should be considered the Micro tenant structures cater to many different types of organisations
new global. Beyond meeting customer demands, there are many other - from farmer markets to local brands and exclusive retailers like the
positive aspects to this development, including reduced transportation Beta store. Major brands such as GymShark are also looking at micro
costs, improved sustainability, environmental protection, and of course tenancies as testbeds for longer term leases.
investing in the local economy and its community. These varied types of Micro Tenants are quickly emerging globally,
The increase in digital sales has had an equally drastic impact on and companies like Sook in the UK have built businesses providing
physical retailing, with store closings and vacancy rates reaching all- platforms for leasing out space on an hourly basis. Creative owners
time highs. The US has been badly hit, with an average of 20 per cent and operators have made some progress toward this approach as well
vacancy and recent forecasts indicate that 25 per cent of all malls in the via the pop up model, but most leasing teams are stretched too thin to
US will close their doors permanently within the next five years. The develop a wholistic model.
UK is tracking at 13 per cent vacancy, with many malls being purchased By embracing a micro tenant model that integrates with the entire
by local authorities, to stop towns and cities from descending into physical and digital mall experience, mall owners and operators
ghost towns. The UK even has a government-backed high street task can attract the right mix of micro tenants, enabling them to create
force designed to revitalise town centres. a creative, interesting and exciting environment that attracts new
Not all is doom and gloom though – with these new challenges customers and keeps them coming back.
comes new opportunities. While mall trading, pop-up stores and
commercialisation are not new concepts, the historic model has been
mostly reactive, aimed at backfilling mall space and vacant units with
an array of short-term tenants, some good, most not so good. The
shift in customer preferences presents a unique opportunity for malls
and meeting places, that are already challenged, with a new approach
for filling increased vacant space. Some newly vacant department
stores are already being repurposed and converted into lifestyle
entertainment centres, such as the 82,000sq ft Gravity Centre at
the Southside, Wandsworth in the UK. A treasure-trove of new and
diverse experiences on every level of the five floors.
While many digitally native brands have been experimenting with
physical retail stores for some time, the aforementioned vacancies
have resulted in a never-before-seen level of interest from digital

40 RETAIL & LEISURE INTERNATIONAL JUNE 2021