The store-within-a-store concept has reemerged as a viable, cost-effective way for companies to build their brands while increasing revenue and their customer base, and that goes both for the host store and the smaller store within. The smaller store can leverage the larger store’s traffic, and the larger store can broaden its appeal.
The concept isn’t new, but recently, niche brands like Claire’s in Macy’s, Starbucks in Safeway, Sony in Best Buy and Apple in Target have used stores-within-stores to implement new marketing strategies. “These opportunities also offer manufacturers, digitally native brands and legacy brands opportunities to reach retail consumers at a much lower cost and with a shorter commitment than conventional brick-and-mortar stores,” said Trademark CEO Terry Montesi.
The trend likely will accelerate this year and beyond, “as strong partnerships can help drive customers,” he said. “The best strategy is finding partnerships that will add financial productivity.”
Discount and full-price department stores that have extra space especially can take advantage, he said.
JLL Retail Advisory Services president Naveen Jaggi said the big opportunity is for brands that were previously prominent, well known and ripe for reinvestment to locate into department stores that are looking to reinvigorate. “One of the biggest criticisms department stores receive is that nothing has changed in over 30 years, so the idea of bringing different brands to freshen up the look is a healthy strategy for both the brand and the department store,” Jaggi said.
Stores-within-stores may be positive for many, but it’s not for every category, he said. “Health, beauty and toys will have great success because there is a demand for these categories and many brands do not have a stand-alone store in a mall.”
Opportunity for Customer Catchment
FedEx has been operating inside Kohl’s stores for years, grocery stores have had bank branches and other businesses in their stores for decades and department stores long have had branded areas within stores, such as Polo Ralph Lauren displays in the men’s department.
Greensfelder Real Estate Strategy managing principal David Greensfelder said the approach drives additional trips to stores and can help host stores leverage other brands to expand host stores’ own brands. By extension, it’s customer catchment. “Stores-within-stores can represent strategies to expand market share just as they can indicate market weakness; it’s situational,” he said.
The store-within-a-store concept is a response to constantly changing market conditions, Greensfelder said, “so these types of partnerships aren’t going to work when the market evolves in such a way that the partnership is no longer responsive to customer tastes and habits. In the case of banks in grocery stores, it has taken the advent of online and mobile banking to start to render the partnership obsolete. We no longer need a physical bank to make a deposit or start a loan, so look for grocers to find something else to drive the additional trips to the store that the bank branch represented.”
Placer.ai marketing content manager Shira Aliza Petrack said recent results are “incredibly promising,” as visits to stores that have other stores within have increased by more — both year over year and over three years prior — than for stores without.
“The concept also has a unique level of staying power in that it dovetails with a rising interest in finding better ways of engaging in physical retail on the part of different digitally native brands, product-oriented companies or even struggling retailers,” Petrack said. “Shop-in-shops emphasize a significant but often overlooked element of physical locations: They can serve as a platform for brands to maximize their reach. In a digital age that has been heavily influenced by the ability to cross-sell online, leading brick-and-mortar retailers are now bringing that same capability to the physical store.”
Target, for example, launched a partnership with Disney in 2019 with 25 stores-within-stores, and it plans to add 100 more in 2021, according to Placer.ai. The retail traffic analyst firm said Targets with Disney shops have seen greater growth in visits over the course of three years than those without, which could mean that the Disney merchandise is attracting some shoppers who otherwise would not have visited those Targets. “The trade area of the Target with a Disney shop also included a larger share of family households than the trade areas of the two Disney-less nearby Targets, indicating that the partnership is helping Target reach this key demographic,” she said.
Increasing Exposure While Minimizing Overhead
Stores-within-stores also benefit host retailers by increasing their exposure and diversifying their sales channels while minimizing overhead, and these partnerships even can drive traffic to the other store’s own locations and online sales channels, according to Placer.ai.
Sephora launched its partnership with Kohl’s in 2021, and the companies recently announced plans to expand the program to every Kohl’s nationwide by 2023. Placer.ai checked data in a few states and found that Sephora shops within Kohl’s stores have driven visits to Sephora’s own stores. “Foot traffic data from California, New York and North Carolina indicates that the share of Kohl’s shoppers who also shop at Sephora jumped in 2021 when the partnership first launched,” Petrack said. “Since then, the share of cross-shopping with Sephora has continued to increase, indicating that, like with the Ulta-Target partnership, the Sephora shop-in-shops in Kohl’s stores are not cannibalizing visits from stand-alone Sephora venues. Instead, Kohl’s visitors who encounter the beauty retailer during their trip to the department store seem more likely to also seek out [Sephora’s] owned retail outlets.”
Maven Commercial retail leasing partner Ali McEvoy said the store-within-a-store concept’s newest iteration is just more egalitarian and far more widespread. “The recent rise in these partnerships is due to the challenges COVID-19 has brought to traditional retail, coupled with the real-time data [that] brands get from omnichannel systems.” Even today, new COVID variants create uncertainty in the minds of retailers, she said.
She added, though, that omnichannel technologies — customer interface and supply chain — have allowed brands to streamline their business decisions “by connecting different information endpoints. These new data points have given brands a clear picture of how and where they reach their target demographic. This synergy of information, coupled with uncertainty in the market, has contributed to the growth of the store-within-a-store trend as retailers can clearly see where their demographics overlap with other retailers’ demographics. If online sales indicate a brand is not in a market they need to be in, a store-within-a store allows them to quickly enter challenging markets for a fraction of the price of traditional retail and for less of a time commitment.”
Stores-within-a-stores offer retailers more ways to optimize their physical footprints beyond site selection. This flexibility empowers companies to focus more on bringing the right products to the right audiences and on maximizing the impact of each location. That’s a process that ultimately will drive greater success.
A Risk of Diluting the Brand
However, McEvoy said, there are no quick fixes to finding and retaining great retail spaces or finding and keeping customers and there is no greater advertisement or statement a brand can make than an impactive storefront. “For example, an Apple in a Target will never be an Apple Store,” she said. “In-store mini-shops also run the risk of lowering the image of their brand by partnering with the wrong retailers. Starbucks in Safeway elevates a Safeway location but [does] little to nothing brand-wise for Starbucks.”
She continued: “However, the sales and exposure clearly outweigh that concern, given their decades-old partnership. Sephora in JCPenney is a good example of a pairing that was too mismatched with clearly not enough capital returns to justify a continued partnership. I don’t see this as a long-term strategy or a solution to our current real estate challenges. At some point, a retailer will need to look within itself for answers to the questions omnichannel information raises or risk diluting their brand.”
RDC principal for store planning Virginia Maggiore said stores-within-stores can be costly to build and can have major impacts on space planning within a store. These arrangements vary widely, and costs could be borne by the smaller shop, the partner retailer or a combination of both. Even the space-planning and operations are negotiated to accommodate both parties. “An alternative to consider is single displays. This can be a simple wall unit or small kiosk by the checkout,” she said. “When going with a smaller footprint, make sure there is appropriate signage, branded finishes and colors, and marketing graphics so it stands out. Depending on the merchandise, having back-stock within the display works best. That way, it can be a self-supporting shop and won’t be intermixed with other merchandise.”
This alternative can benefit both the host retailer and the store-within-a-store brand. “A small display can be a great way to test a branding partnership and generate important data from customers that can inform decisions to move forward with a larger shop-in-shop in the future.”