Dan Bacani explains “What Happens To Vacant Big-Box Stores During Halloween Season”

News Trick Or Treat: What Happens To Vacant Big-Box Stores During Halloween Season? Many Turn Into Pop-Up Stores

October 21, 2018 Joseph Pimentel, Bisnow Los Angeles

Freddy Krueger, Michael Myers, Chucky and Geoffrey The Giraffe. Inside this vacant Toys R Us in Seal Beach, California, the horror stars are taking residency inside Geoffrey’s old 47K SF retail home.

With pictures of cartoon kids and the Toys R Us mascot still on the walls after the toy company shuttered its stores just a few months ago, a Spirit Halloween has taken over. Though the hedge fund that owns Toys R Us has flirted with the idea of bringing back the toy company, for now the retail spaces that the toy chain once occupied have been vacated.  Pumpkins with scary faces, life-sized dolls of scarecrows and horror villains, giant stuffed spiders and corn stalks decorate the store. Hundreds of costumes and scary masks line aisles. There is even a small makeshift haunted house with screams echoing from a speaker that reverberates throughout the former Toys R Us when an unsuspecting customer steps inside.    This is no longer America’s toy store. Every year — from September to the first week of November — seasonal Halloween stores set up at retail strips nationwide, often taking over vacant big-box stores. This is a profitable business model for Halloween companies that operate for a couple of months, for the landlords struggling to fill vacant spaces left behind by Sears, Toys R Us and Kmart, for the retail strip trying to attract crowds and for the city looking for a sales tax generator, said Dan Bacani, Lee & Associates founding principal of the Pasadena office. “Seasonal tenants have been part of the retail landscape for many years,” Bacani said. “It’s become more prevalent nowadays since the big-box properties are struggling to find their place in the commercial landscape … more and more of these pop-ups are occupying vacant properties and are extremely vital to the landlord’s cash flow. “It is also important from a city perspective,” Bacani said. “It brings folks to shopping centers that normally wouldn’t go. … The nearby businesses feed off of it. It generates sales. It becomes the anchor for that season.”

Though seasonal, Halloween pop-ups are part of a multibillion-dollar Halloween industry. In September, the National Retail Federation’s annual survey conducted by Prosper Insights & Analytics, found that total spending for Halloween is expected to reach $9B this year, the second-highest in the survey’s history and second only to last year’s total of $9.1B. More than 175 million Americans will celebrate the holiday, with the average person shelling out $86.79, up from last year’s $86.13, according to the survey….“There is no need for any tenant improvements.” Lee & Associates’ Bacani said in some cases there are lease deals that include a combination of low base rent and percentage rent or profit-sharing.

There are at least 50 Spirit Halloween stores in Los Angeles, Orange, San Bernardino and Riverside counties, according to the company’s website. Many of the locations are former Toys R Us, Babies R Us, Sears, Staples or OfficeMax stores. Spirit Halloween spokeswoman Marisa Uzzolino said she could not speak about the company’s business model but mentioned there are advantages and disadvantages to being a seasonal store. “For example, as the economy continues to improve, retailers are beginning to expand their portfolios and vacant spaces are beginning to backfill,” Uzzolino wrote in an email to Bisnow. “We do face challenges securing the best locations; however, Spirit Halloween has an excellent real estate team that works year round to scope out and lock in the best locations available.” Though getting a large lump sum or profit-sharing from a company for occupying a retail space for three months could be seen as an advantage for landlords, it is not a viable business model, Bacani said. Customer demand for these pop-up stores is only seasonal and some seasonal stores just don’t work.  “No landlord is saying to themselves, ‘Oh boy, I can’t wait for Halloween,'” Bacani said. “Even if they make more money in those few months than they would leasing to a regular tenant, it just doesn’t do much for their debt service obligation. It makes their lenders nervous and could create negative comments from the community on why the landlord can’t find a tenant. “Landlords want a tenant to be committed for a number of years,” Bacani said. “Is this something you want to bank on as a long-term solution? Absolutely not.”

Read full BisNow article here.