To Draw Customers, Retailers Invite Other Companies Inside

By Lauren Zumbach
Chicago Tribune

WWR Article Summary (tl;dr) As the retail industry struggles with how to compete in the online world, several traditional retailers are experimenting with everything from pop-up shops to mini stores staffed by another company’s employees. For example at J.C. Penney’s you can now find mini Sephoras inside more than half of J.C. Penney’s retail locations.


Maybe a store divided can stand?

Last month, Macy’s, Kohl’s, Nordstrom and J.C. Penney all reported drops in comparable-store sales compared with the first quarter of last year, blaming online competition and shoppers’ continued reluctance to spend.

One strategy traditional retailers are taking to fill too-big stores and spice up offerings is handing over some of that space to other sellers.

Retailers from Macy’s to RadioShack are experimenting with everything from pop-up shops to mini stores staffed by another company’s employees. The idea of opening stores-within-stores isn’t new, but it does seem to be “taking on more importance than in the past” as retailers look to maximize profits and make stores more enticing, said Arnold Aronson, partner and managing director of retail strategies at consulting firm Kurt Salmon.

“The retail industry is really struggling and losing share to the online world, so any clever new ways to still pay your bills and deliver a return at the end of the day is really powerful,” said Sucharita Mulpuru, an analyst with Forrester Research.

But the stores-within-stores strategy, while smart, is probably better seen as a boost for department stores that “still have life in them” than a rescue for foundering retailers, she said.

“For those that really need to rationalize a lot of stores, I don’t think stores-within-stores will save them,” she said.
Here’s how some companies are handling stores-in-stores:

The department store chain doesn’t initially seem like a likely partner for beauty giant Sephora, Mulpuru said, but the 10-year-old partnership seems to be working.

J.C. Penney said Sephora was one of its best-performing divisions in the most recent quarter, and CEO Marvin Ellison said the new Sephoras were expected to be one of the company’s “2016 sales drivers” in a statement on J.C. Penney’s first-quarter results.

More than half of J.C. Penney stores have a Sephora inside, and 60 more will open by mid-June, including one at Ford City Mall in Chicago.

On its opening day earlier this year, about 600 people lined up to be among the first to visit the Sephora mini shop, a brightly lit, black-and-white striped box-shaped area sitting just behind the shoe department, and have a shot at winning a gift card.

“It gives beauty junkies a reason to come in, but our core customers come too,” said Angela Swanner, senior vice president for Sephora inside J.C. Penney.

Elaina Castillo, 28, whose family arrived at 5 a.m. and was first in line, is a J.C. Penney shopper who said she loves makeup and wanted to check out the new products.

But the new Sephora attracted at least one new customer: Aimet James, 22, who said she probably wouldn’t shop J.C. Penney at all without Sephora.

“Maybe my mom would,” James said.

Swanner said J.C. Penney employees run the mini stores, but they get ongoing training from Sephora and have more beauty expertise than typical J.C. Penney workers.

Macy’s has been leasing space to other retailers for decades but is “more strategic” about those partnerships now, said Macy’s spokesman Jim Sluzewski.

“We look at it from the customer standpoint, what do they expect to find but don’t see,” he said. “In a lot of cases we can fill it ourselves, but in some cases we make the call that we’re just not as well-equipped as someone else.”

Before signing a licensing deal with Sunglass Hut about seven years ago, Macy’s sold sunglasses but didn’t have the connections to get the best brands, Sluzewski said. In exchange for a cut of sales, Macy’s gave Sunglass Hut departments in all its stores, with Sunglass Hut-selected inventory and Sunglass Hut salespeople.

Sunglasses sales have tripled, Sluzewski said.

He estimated Macy’s has similar agreements with about a dozen companies, including Finish Line, Lids and LensCrafters. It’s not that Macy’s can’t sell the products those retailers specialize in, the department store has just decided a specialist can provide better service, has better access to hot merchandise, can better predict what products will be top sellers, or some combination of the three, he said.

Araceli Montalvo, of suburban Chicago, came to a downtown Chicago Macy’s specifically for the Barbara’s Bookstore amid the kitchen products on the department store’s lower level. Montalvo, looking for a book to help her 9-year-old daughter with a school project, said the stores made Macy’s feel “like a one-stop shop.”

“Especially now that you can’t find bookstores everywhere, it’s convenient,” she said.

Some licensees are in all stores, others in just a few. The company also plans to expand Macy’s-owned brands to more of its stores, including cosmetics chain Bluemercury and off-price concept Backstage.

Each Macy’s only leases out a single-digit percentage of its square footage, Sluzewski said.

Still, the outsiders have a meaningful impact on Macy’s bottom line. Last month, the retailer reported comparable-store sales of Macy’s-owned merchandise were down 6.1 percent in the first quarter of 2016. Add in sales from the licensed stores-within-stores, and sales declined about a half percent less.

“The truth is for today’s world, most of our stores have a lot of space,” Sluzewski. “That can be reallocated to a license partner that brings in new traffic and new energy.”

At a downtown Chicago Nordstrom, the first display greeting customers walking in on the third floor last month touted not typical Nordstrom merchandise, but skin care products from Australian brand Aesop.

It was part of Nordstrom’s ongoing series of pop-up shops, dubbed Pop-In@Nordstrom, which feature new products each month in certain stores and online.

“We know customers want newness in fashion, and we hope to have the brands our customers want,” said Nordstrom spokesman Dan Evans.

In addition to the rotating series of temporary pop-ups, Nordstrom tries to appeal to customers with growing brands and new designers, like those featured in its in-store “Space” boutiques, or sections for brands not found in other department stores, including Madewell and U.K. apparel company Topshop, Evans said.

Highlighting different, frequently changing products is a way to encourage customers to make repeat trips, but Aronson said a retailer like Nordstrom will be cautious about who it invites to share its space. At the downtown Nordstrom, Space and the Aesop pop-up were both marked off with open-walled displays with signs explaining the shops’ concepts.

“They’re very conscious about maintaining their brand identity and how the store resonates with customers. A patchwork quilt doesn’t work for a major department store,” Aronson said.

When RadioShack came back from bankruptcy, most stores came with a new mini Sprint store inside.

Out of the 1,700 RadioShack stores where General Wireless assumed the lease after purchasing the RadioShack brand, 1,400 set aside some space for Sprint, most of which are also staffed by Sprint employees, said RadioShack’s Chief Revenue and Marketing Officer Michael Tatelman.

“From a business perspective, there are a ton of efficiencies, shared labor, shared rent, demand creation and advertising,” Tatelman said. “This is something where one plus one should equal two and a half.”

He said RadioShack is pleased with the results so far and is open to considering similar partnerships with other retailers looking to open small stores or kiosks.

RadioShack wanted to be in the mobile business, and people buying a new smartphone tend to want accessories, many of which RadioShack sells. But there are advantages to outsourcing, Tatelman said.

Sprint representatives have extra expertise to help customers with their products and services, he said. Sprint also handles all the merchandising, an advantage when it comes to smartphones, a “hit business” where retailers don’t want to be on the hook for inventory that lingers on shelves when a new, better product comes out, he said.

Every Best Buy store now has at least one store-within-a-store, including Apple, Windows, Verizon or AT&T stores, Sony home theater stores, and Samsung stores focused on mobile devices or home theater equipment, said spokesman Ryan Stanzel.

Stanzel said the partnerships with those companies have helped Best Buy renovate stores and provide better customer assistance since each is staffed by employees with particular expertise in the company’s products. Samsung says it hosts “skills workshops” at its Best Buy-based Samsung Experience Shops.

Best Buy likely won’t see a big increase in the number of stores-in-stores, but the company does see an opportunity to work more closely with the vendors it hosts to provide more help, service and classes, Stanzel said.

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