Quickly becoming a defining trend in physical retail, the store-in-a-store concept shows no sign of running its course anytime soon.
The idea has been around for years—miniature Starbucks inside grocery stores were an early manifestation and manufacturer-run spaces in department stores have been a staple of retail for decades—but the concept has recently gained momentum and expanding well beyond food, beverage, and apparel.
Announcements of shop-in-shop partnerships have become common, including by big box retailers like Target, Kohl’s, and Walmart, typically with name-brand specialty partners like Apple or Sephora. Kroger said Bed Bath & Beyond will start selling some of its home goods inside select supermarkets. Defunct stores like Toys “R” Us and Disney are finding new life inside other stores’ footprints.
“The primary driver is that is just makes sense,” according to Brittain Ladd, a retail and supply chain consultant. “If you’re a large nationwide chain, it’s something that can add additional value for your customers. For smaller companies, it’s easier for them to scale without needing buildings—just some racks and display cases gives them access to new customers.”
Also, because of the growth in online shopping, many large retailers don’t have the same floor space requirements they used to. Offering some of it to another retailer provides an additional value proposition.
Making It Work
Such partnerships—which represent a more lasting commitment than a pop-up kiosk—need to be strategic to work, Ladd notes. It doesn’t make a lot of sense to have a specialty candy store inside a Kroger, for example, since it already has a candy aisle. Especially effective partnerships are ones that minimize the need for a big store’s customers to head to another store after checking out.
“In my research, even if you’re a massive retailer, you might have a large number of customers going right to another store to buy other products because of a gap in what they offer,” said Ladd. Being able to fill that gap with a specialty store-in-store arrangement is an enormous value for customers that can benefit both retailers.
Ladd suggested that a large grocery store incorporating a hardware store’s top 100 SKUs is the kind of symbiotic relationship that makes a lot of sense. Or, if a big box store sees its female customers heading to beauty stores after shopping, partnering with a popular cosmetics retailer would be a good fit. “A specialty retailer with another specialty retailer is something that is only going to work in maybe a few cases,” said Ladd.
A retailer’s values are also an important consideration in a partnership, warn some retail analysts. Partnering with a retailer that isn’t perceived as adhering to similar principles can result in blowback from loyal customers.
Target said it aims to have Disney stores in 100 of its locations by the end 2021, and it is continuing a rollout of its partnership with Apple stores. Ladd said to expect many more such announcements in the months to come. “There is so much value creation that we will see this grow rapidly in the next five years and through the [decade],” said Ladd. Look for Amazon Go branded stores in a Kohl’s near you, he predicted.
Operationally Speaking
When they complement one another, the store-in-store concept is paying dividends for retailers—and its full value isn’t yet being tapped, according to Ladd. Supply chain cooperation is the next step. “Stores will wise up and realize they can collaborate on supply chain. Instead of, ‘you have your supply chain and I’ll have mine,’ seeing where we can combine,” he said. “Instead, say ‘how about if I send product to your warehouse and you can put in your stores,’ because it’s easier for me to ship to 20 distribution centers, instead of 3,000 stores.”
It varies by the type of arrangement—co-operation, sub lease, or other—but Ladd suggested that loss prevention and security issues aren’t likely substantial enough to dissuade retailers from pursuing an otherwise valuable partnership. There are issues to address, however, as interior stores are reliant on the envelope store’s LP program and associates.
The host store’s security procedures, personnel, and anti-theft technology dominate, so the specialty stores inside them will want to assess if they are a good fit. When products are of a similar value, there is not likely to be an issue, Ladd suggested, but if a high-end electronics store is located inside a large discount store, then issues related to crime could be material.
The store-in-store concept puts a premium on employee management, according to Ladd. “You want to have a very thorough on-boarding program and orientation to introduce procedures so you’re not increasing the opportunity for theft.”
In addition to business questions around lease agreements and allowable product ranges, legal experts have identified safety-related questions that store-in-store formats need to address, including: Who is liable for the safety of the employees? Who maintains the shop-in-shop area? Who is liable for defects of this area or near it?
Questions around safety and security can get even more complicated when retailers turn over floor space for experiential uses. Lowes Foods, for example, announced it is going to turn a 25,000-square-foot former store site into a combination food hall and community event center that houses events, parties, and classes. Such uses usher in an entire new set of safety and security considerations.
If an LP executive is hearing chatter in their organization about store-in-store as a potential business strategy, what should they do? “My advice would be to assume it’s going to happen and to come up with a plan for what will it take for a store within a store to work seamlessly in terms of LP and theft prevention strategy. What are the data requirements? What do you need to assess?” said Ladd. “I would even think they’d do themselves good by taking a plan proactively to senior executives and saying, ‘we can do this based on how thought through our LP program is.'”