Sweet Spot, a Seoul-based property technology startup that introduced the concept of retail short-term space rental marketplace in South Korea, is looking to expand to the untapped realm four years after launch.
Acting as a marketplace platform that connects real estate owners with brand operators in search of pop-up shops, Sweet Spot is now stepping up its game by running its own outlets in Seoul, CEO Jay Kim said in a recent interview with The Investor.
“Starting this year, we have embarked on our own offline store operations,” Kim said. “We are planning to add more stores, which will facilitate the transformation of Sweet Spot from a broker to shop operator.”
Sweet Spot CEO Jay Kim.
These are under its original select shop franchises -- Kaleidoscope, a fashion brand for women and kids and Seut, a retail outlet with a retro touch. Partnerships for consignments of retail giants like Walt Disney Company also gave birth to its new shops. Sweet Spot currently runs eight shops.
This is an addition to some 350 small rental spaces, mostly located in grade-A commercial properties across Seoul and Gyeonggi Province, to some 500 retail brand vendors for up to a one-year lease offered by Sweet Spot.
From pop-up store rental marketplace to flea market operations, leasing management for landlords and marketing solution provider for vendors, Sweet Spot’s diverse business portfolio enabled the startup to know what is actually selling in pop-up stores, said the 37-year-old Kim.
Its confidence in expansion is based on the power of data it has accumulated since its launch in 2015. The data comprise two sets: one with regards to sales and the other for foot traffic.
“We have a vast collection of sales data since all transactions in our stores are processed through our platform, which in turn allows us to analyze customer purchasing patterns by gender and product price point,” Kim said. “For space in arcades, we measure foot traffic by the hour which allows brands to efficiently manage sales staff working hours.”
An exterior view of a Sweet Spot store dedicated to consigned sales of Walt Disney Company products.
The database is key in Sweet Spot’s push to take the lead as the one-stop pop-up store platform service provider in the domestic market.
“Sweet Spot is capable of not only managing stores but also can make use of our accumulated customer database for marketing purposes, which is a source of extra revenue. We have also amassed expertise in maximizing the value of short-term spaces in commercial properties,” he said.
“I believe there is a strong demand from property landlords, especially institutional investors and asset management firms.”
The success is based on not only Kim’s effort to but also trials and errors as a real estate investor-turned-entrepreneur, who formerly worked at CBRE, Hana Alternative Asset Management and Gaw Capital Partners.
It was easier to reach out to owners of grade-A commercial real estate assets in Seou’‘s business districts -- including Center One Building, Gangnam Finance Center, FKI Tower, Gran Seoul, Parnas Tower, among others. While Kim noticed spaces in arcades and lobbies within the properties went empty frequently and regularly, he soon faced hurdles he had to overcome.
“My previous experience as a real estate investor allowed me to establish a strong network of landlords swiftly,” Kim said.
“On the flip side, since I had never had the chance to meet with retail vendors and brand representatives in the past, I had to start from scratch for the retail side of our business.”
An exterior view of Seut select shop, run by Sweet Spot.
Recalling the nascent stage of Sweet Spot, he thought retail vendors and brands would flock to high-value real estate properties secured by Sweet Spot, only to find it was wishful thinking. Until July 2016 retail brands’ demand did not outnumber supply for short-term lease.
“Retail vendors initially cast doubts on our business model. Some questioned the viability of our business because Sweet Spot is not the actual owner of the vacant spaces. Others hesitated because initially, we charged a fixed rent, which is not the traditional retail model in Korea,” he said.
“Over time, we began to prove our business model to retail brands by selling their products in our pop-up spaces for them ourselves on a consignment basis.”
He added that, while saying Sweet Spot’s business model was inspired by UK-based Appear Here and US-based Storefront, many change had to be made for its introduction here.
“Foreign offline retail distribution channels usually charge a fixed rental fee for short-term leasing services from brands,” he said. “Sweet Spot had to pivot its revenue model in its early stages because traditionally in Korea, retail brands usually pay a sales commission that is pegged to overall sales generated from their stores.”
Setting aside the startups’ previous overseas pilot pop-up space projects in Shanghai and Hong Kong, Kim said Sweet Spot will focus on the domestic market for the time being.
By Son Ji-hyoung (firstname.lastname@example.org)