Donuts by the doors and couture in the corner

From left: SweetSpot CEO Kim Jung-soo explains the company’s pop-up rental business; Pop-up stores are set up by SweetSpot in the basement of AmorePacific’s headquarters in Yongsan, central Seoul. [SWEETSPOT]

It’s no secret that retailers around the world are heavily investing in e-commerce. Expensive rent, rising labor costs and a growing customer base have made it almost inevitable that if you want to sell something, you need to do it online.

And yet, there’s one local start-up that has managed to expand its revenue by an average 250 percent annually since 2015 by sticking with the brick-and-mortar retail scene.

SweetSpot started in Oct. 2015, by filling empty spaces in building lobbies with pop-up stores where brands sell products for a short period of time - from days, sometimes, to weeks.

As word spread among office building operators and consumer brands, the company quickly began to grow. It has now put more than 2,500 consumer brands in 280 locations across Korea, including malls and landmark office buildings like the Seoul Finance Center and D Tower in central Seoul.

“Pop-up stores are the fastest growing trend among brick-and-mortar retail channels - even in the United States the growth rate is around 20 percent, while other offline channels grow in single digits or retreat,” said CEO Kim Jung-soo.

“If you look at fashion, for example, trends change quickly and some brands see revenue move according to seasonal patterns. So revenue fluctuates, but running a brick-and-mortar store means there’s a fixed cost that flows out regardless.”

SweetSpot rents out empty space from building operators and lends it to brands in exchange for a commission fee proportional to sales.

This simple idea turns out to be a winning formula for everyone involved: Building operators earn extra cash by renting out corners that were unused in the past, while brands can present products for a short period of time without the burden of running an actual store.

Normally, a brand would have to rent a store for at least a year. At SweetSpot, they can do it for just a few days if they want. Office buildings are also the perfect spot to attract young office workers with money to burn.

The most popular contract period is a week, which is enough time for every potential consumer to visit the pop-up store and make a purchase, Kim said.

Small brands without any high street presence are not the only ones in need of pop-up stores. SweetSpot’s partners include major consumer brands that already have a wide network of stores like Samsung Electronics, Swarovski and Neutrogena.

“For electronics companies, it’s important to secure a market share right after the release of a new product, so they boost consumer contact at this point. Jewelry brands similarly have seasonal boosts like Christmas or Valentine’s Day - that’s when they come to us,” said Kim.

On a global scale, London-based Appear Here and Storefront, which started out in New York and San Francisco, are early pioneers in the pop-up rental business. But for Kim, a former real estate fund manager who was simply thinking of ways to make use of his office real estate connections, SweetSpot turned out to be an entirely different business.

“My initial plan was to match building owners and brands that wish to rent small pop-up spaces on a short-term basis. What I didn’t know at that time was that in Korea, brands prefer to pay commission fees proportional to sales for space, rather than a fixed cost,” he said.

Because SweetSpot’s model is based on brands’ revenue, the company had to come up with a new payment system to keep track of sales. What Kim didn’t realize in the beginning was the unexpected asset this system would bring - data. Three years in the business has left SweetSpot with accumulated data on sales and number of visitors per location that it can now use to lure new brands to the business.

As SweetSpot’s pop-ups gained recognition among building owners, the company got to expand its foothold from lobbies to malls and empty stores in hip, expensive neighborhoods like Garosu-gil in Gangnam, southern Seoul. It also runs seven multi-brand stores of its own in Seoul, where the brands change on a tight cycle.

Domestically, SweetSpot’s older competitors are property management companies that have years of experience linking retail brands and restaurants with property owners. Now in its fourth year, SweetSpot’s strength is that although it puts brands in brick-and-mortar stores, it’s taken its business online.

“Traditional companies send PDF files to promote good locations to brand managers in charge of developing stores, but they don’t know who opens the file and who shows interest - our newsletter keeps track of who sees the email and who clicks on what,” said Kim.

SweetSpot also sends newsletters to property owners to introduce young brands that are popular online or in specific locations but are relatively unknown to the general public. Kim cited a recent case of a donut brand launched by a celebrity chef. A property manager replied that it would be willing to lower the rent if SweetSpot could get the donuts in its building.

SweetSpot’s next plan is to source brands from overseas. Kim already has several ongoing deals with brands that want to gage Korean consumers’ responses on a small scale, rather than partnering with a major retailer.

“What’s interesting is that both property owners and brands now think of us as a company that fits content to a space, rather than a real estate agency,” said Kim.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]