A-List Celebrity Stores Boost Retail Center Traffic, But Landlords Proceed With Caution
Retail landlords are hopping into bed with the stars.
Celebrity-attached retail isn’t a new concept. Actresses like Charlize Theron strut through Versailles in ads wooing department store customers to buy the latest Christian Dior perfume; Jimmy Buffett turned his hit song “Margaritaville” into a popular restaurant chain; and athletes can thank Nike for endorsements that net them a bigger payday than their initial team contract.
But celebrities now want a bigger piece of the retail pie, especially with the ongoing migration of digitally native brands into physical stores. Landlords are proceeding with caution.
“It would take millions of dollars to create the buzz of Kim Kardashian or Gwyneth Paltrow opening a store,” Bialow Real Estate CEO Corey Bialow said. “But is a landlord going to sign a 10-year deal with someone because it’s celebrity driven? The concept has to stand on its own and prove it’s a viable venture.”
Lifestyle brands like Gwyneth Paltrow’s Goop or apparel brands like Reese Witherspoon’s Draper James and Kate Hudson’s Fabletics are all owned and endorsed by the celebrity. These stores are known to drive traffic to retail centers from fans clamoring for a chance to potentially run into its famous founder, but retail experts say it is a more nuanced landlord-tenant relationship than one would expect.
“These brands have a captive base of fans and, with brick-and-mortar now focused on the ‘experience,’ celebrity brands are sure to be on-trend,” Douglas Elliman Real Estate Chairman Faith Hope Consolo said. “However, not all landlords are focused on just that.”
Many celebrity-backed brands have utilized pop-up stores instead of traditional leases that are more appealing to landlords. The current star-powered retail sector is slightly different from its predecessors with creative arrangements, Consolo said. Goop found a unique formula in its pop-up store strategy by partnering with corporate sponsors like Cadillac and Prada that would build out each store in exchange for product placement and programming.
“These sponsorships ensure the store’s operating costs are entirely taken care of and, consequently, all sales are 100% profit,” Consolo said.
Goop has expanded from a Paltrow-helmed lifestyle blog into high-end shopping, but even celebrity brands are following the trend of online natives turning to brick-and-mortar.
A Wall Street Journal profile of Paltrow and her brand in early December mentions how the global conversion rate of online shopping to an actual sale is just below 3%. Despite Goop’s growth that has included several rounds of multimillion-dollar fundraising, the company has adjusted its investment strategy to include a physical footprint that includes several pop-up shops across the U.S. and in London, as well as permanent brick-and-mortar stores in Los Angeles and New York City.
“Retail is a pretty simple and straightforward business: bring enough bodies through the door, the greater the conversion rate will be,” JLL Vice Chairman Michael Hirschfeld said. “For the most part, mall developers more than some other types of landlords need to find new ways to bring people to their centers.”
When retail landlords are looking for tenants to fit certain categories of a shopping center, they are turning to brands with more star power. That means the Mark Wahlberg-attached Wahlburgers is a more coveted burger brand today than Johnny Rockets due to its ability to differentiate an asset from lower-tier malls, Metro Commercial CEO and principal Tom Londres said.
“The nice thing about these brands is they’re becoming a destination,” Londres said. “It’s becoming as important in retail as a ‘Top Chef’ alum opening a restaurant in a high-end hotel or casino.”
Stars may shine brightly, but they are also known to dim. That can cause a headache for landlords.
Problems can arise in the celebrity-backed retail sector because of the star’s close grip on the brand they own. Traffic to a store can hinge on the public perception of the name behind the company. Papa John’s founder John Schnatter was ousted from his namesake company after saying a racial slur on a company conference call in the fall of 2017.
Although not an A-list celeb like Paltrow, Schnatter’s image was synonymous with the brand just like many star-backed retail outlets. Negative public opinion of Schnatter translated to the Papa John’s brand, according to Casey Taylor, a vice president at consumer data firm Civic Science.
There was a 7% increase in the unfavorable rating for Papa John’s in the 60 days following the report of Schnatter’s racist comment, according to Civic Science data. The company could also close as many as 250 stores if sales don’t improve following the controversy, analysts predicted after reviewing the company's performance in Q3.
"It reinforces that, if your brand is tied to the name of the person, it’s going to be hard to separate from that controversy," Taylor said.
It can be easier to weather a storm when the celebrity is hired simply to endorse a product in commercials.
Jared Fogle was known as “the Subway Guy” for 15 years and promoted Subway as a healthy fast-food option after he lost a significant amount of weight on a diet tied to sandwiches from the company. Subway dropped Fogle as the face of the company in 2015 after he was arrested and investigated for multiple charges of sexual misconduct with minors and possessing child pornography. Subway didn’t see an impact to its unfavorable rating following the Fogle controversy, Taylor said.
Goop’s unfavorable ratings have gone from 20% in 2015 to 31% in 2017, the same year advertising watchdog agency Truth in Advertising cited the company for 51 “deceptive” health claims. But Paltrow’s company continues to attract investors and reached a $250M valuation earlier this year.
Landlords and brokers still see merit in continuing to court brands like Goop and Draper James.
“From the landlord side, you still get the cachet of saying you have Gwyneth Paltrow’s concept,” Transwestern Senior Vice President Patrick Owens said. “And you might get a pop-in like Reese Witherspoon is known to do.”
Representatives with Goop and Draper James did not respond to Bisnow’s request for comment.
Other brands with celebrity ties are banking on growth without their famous name integrated into the branding.
Bialow is a retail tenant representative and has worked with his client George Foreman III on Everybody Fights, a growing chain of boxing gyms. Foreman’s father, two-time world heavyweight champion and Olympic gold medalist George Foreman, is a household name. Foreman III decided against using his famous last name to drum up business at his Boston-based company that has grown to locations in New York City, Chicago and Lexington, Kentucky.
“His comment was, ‘I want this to stand on its own because of what we’re building and creating — not because my name is on it,’” Bialow said. “That gets people in the door maybe once.”
Bialow likes companies that have taken that path, pointing to Draper James as another example where the celebrity may have wisely let the company stand on its own rather than hinge on the star’s own likeness.
Landlords are still protecting themselves in the sector just as they have with other digitally native brands. Leases are often for shorter terms, and kick-out clauses can enable the tenant to leave the space in the event of poor financial performance.
“These things can be the cool thing to have around if the brand is pristine,” Londres said. “But it’s like someone has flipped a switch when [the celebrity] goes off the deep end.”