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How to succeed with a store-within-a-store strategy

Shopping centers and every one of the retailers in them have to create compelling reasons to tear shoppers away from the convenience of buying online and come out and visit them. Center owners have been doing their part by expanding food, beverage and entertainment options and by creating 24/7 audiences with office space and hotels. Retailers, meanwhile, have found that one of their most effective options for increasing customer engagement is the store-within-a-store (SWAS) strategy.

In this model, a retailer invites a specialty retailer to set up a shop inside its store in exchange for a share of the guest retailer’s revenue. Done well, store-within-a-store is the proverbial win-win situation. The host retailer reduces payroll and unproductive inventory while extracting value from under-monetized floor space. Halo benefits for the host include an enhanced brand image, an energized store environment, and increased customer draw.

Finding a SWAS partner that shares a synergistic customer profile with the host is one of the most important considerations. If the customer demographic and behavioral attributes of the host and specialty retailer are identical, the partnership is likely to thrive. If they are askew, however, the venture is destined for failure.

We at CBRE have found that retailers can increase their SWAS batting averages by adhering to principles deftly laid out by the acronym SUCCEED: specialized, unanticipated, convenience, category, experience, expected, and discovery. To wit:

Specialized: Grocery stores, for instance, are becoming more specialized in health and wellness. As such, hosting a prescription eyewear provider, medical clinic, or hearing aid retailer fulfills a proficiency that is beyond the grocer’s expertise.

Unanticipated: Encountering an unforeseen product or service in a store can disrupt the customers expectations in a positive way. The placement of a luxury travel boutique inside of a high-end department store has a meaningful overlap in customer behavior for cross-sell opportunities.

Convenience: General merchandise retailers such as discount, drug, and grocery stores are focused on reducing friction points for customers by aiding convenience. These high-frequency retail formats could benefit by hosting pack-and-ship stores, dry cleaners, coffee shops, QSRs, banks, and salon services.

Category: Department stores have lost some of their relevance to category-killers. Department stores should consider an “if you can’t beat them, join them” approach by hosting one of these specialty retailers that has become a leading brand in the merchandise category that the host no longer sells effectively its their own.

Experience: Customers will respond favorably to retailers that use their physical stores to create an experience that cannot be replicated online. Cosmetic stores could provide complimentary hair treatments that demonstrate the effectiveness of the styling products and tools, while creating a one-on-one personal relationship that results in high sales conversion rates.

Expected: Host retailers should partner with specialty stores that sell a product or service that is expected to be found at the host. Home improvement stores could profit by hosting a rugged work apparel, boots and shoe retailer. An art supply store could benefit by hosting a custom framing shop.

Discovery: Creating a discovery zone of products that changes with regularity, say every 3 months, will create a serendipitous moment that delights customers. The discovery zone could be curated with a rotation of pop-up vendors that provide a feeling of freshness and discovery to the store environment, resulting in an uptick in store visits.

Retailers must have the courage to innovate and disrupt the status quo and adapt to the new preferences of consumers. When executed effectively, the store-within-a-store strategy is among the most efficient, profitable, exciting, and measurable ways to satisfy customers—and to motivate them to get off their sofas.

Kevin Marschall is VP of Retail Partnerships at CBRE and its store-within-a-store practice leader for the United States.
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