How much does it cost to open up a pop-up shop?
The appeal of temporary ink is that it offer the same aesthetics without the long-term risks.
And startup Inkbox, which sells two-week tattoo kits online, is taking a similar approach to expanding the business by turning to the latest retail trend: pop-up stores.
“E-commerce brands that are serious about (the) later-stage growth need to eventually move brick-and-mortar (locations) one way or another,” Tyler Handley, the company’s CEO told Yahoo Finance Canada in an email.
“Our pop-ups act as testing grounds for a potential move to brick and mortar in the future.”
The Toronto-based startup — which opened a pop-up store for a week during the summer in the city’s trendy Queen West area and another for two weeks in the downtown core last month — is part of a growing industry that is worth upwards of $80 billion in the U.S. alone.
Many smaller retailers are using pop-up shops to test out potential physical locations, create buzz, get feedback on new products, boost sales by creating a sense of urgency and capitalize on seasonal events.
Celebrities, such as Drake and Kanye West, and established companies have also jumped on the bandwagon for similar reasons, as well as to develop their brands and engage with fans.
But how much does it cost for small businesses to take advantage of this emerging trend?
The first expense that entrepreneurs have to worry about is rent.
Handley said Inkbox’s pop-up location near Spadina Avenue and Adelaide Street cost about $8,000 for two weeks.
Sean Sedlezky, the manager of program design at Ryerson University’s Ted Rogers School of Retail Management, told Yahoo Finance Canada that rent can vary drastically, but prime locations in big cities such as Toronto and Vancouver won’t come cheap.
Sedlezky said that monthly rental rates hover around $60 or $70 a square foot on Yonge Street in downtown Toronto, but landlords may ask for even more on a temporary basis.
“They (could) say ‘why would I want to rent to you for one week, two months from now when that means I can’t to someone else for all that time?’,” he said.
However, rates drop drastically, in some cases to zero, as you head further outside the downtown core.
Sedlezky said entrepreneurs might even be able to negotiate with landlords of vacant stores that have fallen into disrepair.
“If you’re going in and saying to a smaller landlord, ‘Hey, I’ll paint everything. I’ll make the place look nice – it’s been empty for a year,’” said Sedlezky.
“’And when I leave you can bring real estate agents in and it I’ll look a whole lot better than it does now,’” he added, noting that this, in turn, can help landlords attract permanent tenants.
That’s exactly what happened to the Handwork Department, a vintage and craftwork store in Toronto’s East End.
The store started as a pop-up shop in the spring of 2015 with the aid of the Danforth East Community Association, which helps entrepreneurs get temporary leases at a lower rate with the goal of beautifying the neighbourhood.
The retailer, which is owned by Maggie Krawczyk and her fiancée Jeff Roblin, secured a “small” and “awful-looking” space that they transformed thanks to help from friends and family.
Krawczyk told Yahoo Finance Canada that they managed to negotiate rent down to half the asking price of what it would normally cost for three-months.
Just a few months later, the store was ready to set down permanent root and now has a brick-and-mortar location on Danforth Avenue.
“We saw a good enough response by mid-July that we decided to seek out a real space in the same neighbourhood, and the DECA helped with negotiating the rent with our new landlord,” Krawczyk in an email.
Arati Sharma, the director of marketing at Shopify, told Yahoo Finance Canada from Los Angeles, where she was helping set up a pop-up shop, that spaces in Toronto can range from $5,000 per week to $10,000 for a couple of days.
However, Sharma said that retailers may be able to negotiate a better rate if they stay in the space for a longer period.
“If you do a pop-up shop for a week versus two weeks, sometimes the longer you go the cheaper it will actually be,” she said.
Sharma added that property owners are starting to come around on the concept, which has caused prices to drop.
“In the past, landlords have been very apprehensive about the pop-up model … for traditional retail they usually want you to sign a five- to 10-year deal,” she said.
“So, it has always been a barrier as a cost there, but I do know they’re a little bit more receptive now.”
But making these empty locations shopper-ready sometimes doesn’t come cheap either.
Handley said Inkbox spent $3,000 furnishing its second pop-up shop.
Again, the costs can vary, according to Sedlezky, as some businesses may try to leave a lasting impression on customers by spending “hundreds of thousands of dollars” on customized showrooms.
Sharma said the more “savvy” merchants will try to use unique spaces.
Staff and other expenses
Staff also need to be brought in and trained on a temporary basis to run a pop-up shop.
On top of that, there’s insurance, garbage collection, utilities, Internet services and other miscellaneous expenses to account for.
Handley said that Inkbox’s second pop-up shop cost about $500 to staff over two weeks.
Perhaps the most important cost to budget for, according to Sharma, comes down to the essential goal of the pop-up shop: is it trying to create buzz for the retailer, or trying to make sales?
Sharma said stores that are using a pop-up shop solely to market themselves are going to face higher costs as they will not be getting as much money back from products sold.
But she said that the most “innovative” retailer will attempt to do both.
“It should never just be for marketing purposes — your objective should be to sell just like it is with your online store,” said Sharma.
“But you have to know a certain amount of the money is going to go into marketing, not just product.”
However, Sedlezky said small retailers should be able to create a marketing campaign “quite frugally.”
“For most, it would be pretty economical – things they could do on their own, or have a staff member do,” he said, noting that costs could include printing flyers, developing your website and purchasing Google AdWords.
Kersi Antia, a marketing professor at Western University, estimated that only a few thousand dollars would be necessary for a campaign, especially if the business has already cultivated a strong online presence and has a mailing list of customers.
It’s also vital that a pop-up shop adequately accounts for how much inventory it will need.
Sedlezky said many likely don’t carry much inventory at all, and won’t stock up on any more products than what it already has for its online store.
However, he said that retailers that are employing a pop-up shop primarily to boost sales will have to be careful to ensure its shelves are fully stocked.
“You don’t want to disappoint customers by running out of stock — though part of the plan might involve promoting the “exclusive” and “limited quantity” nature of the pop-up — but you also don’t want to ship lots of merchandise into a temporary location, as you may not have space for it or may need to pay again to ship it back to your warehouse if it doesn’t sell,” said Sedlezky.
He added that one way of getting around this issue is to have display products and provide customers a way to arrange for on-the-spot home deliveries.
In total, Inkbox said its second pop-up location cost about $15,000 to operate over the course of two weeks, plus the $3,000 for furniture, much of which will be used to decorate its next venture.
However, this is by no means the standard, as experts stressed that there is no research on the average cost of a pop-up shop, likely due to their varying forms.
But overall, if properly organized, pop-up shops are a “fairly cheap” way to promote and grow a business, according to Antia.
He pointed to research that indicates that the set-up and operating costs are about 20 per cent that of a traditional brick-and-mortar store.
“Yes. It definitely helps to have deep pockets but … you’re only limited by your creativity thanks to this perfect storm of social media, digital strategies and the ability to just create buzz for your brand in very creative ways,”
“And for small entrepreneurs who don’t have the wherewithal to open up these large stores on Main Street, this a great option to have — it allows for experimentation. You see how this works for your brand and try it out in different locations … without any commitment. What could be better?”