Shoppers pass through Eaton Centre in Toronto on June 5.Sammy Kogan/The Globe and Mail
Joanne McNeish is a professor at the Ted Rogers School of Management at Toronto Metropolitan University
Popular opinion and retail consultants have been predicting the decline of physical stores for decades.
Such forecasts gained a new poignancy in recent years, when COVID temporarily closed most physical retail stores and the associated financial fallout closed some permanently.
Yet, Statistics Canada’s latest annual retail survey reports that 89 per cent of retail sales still occur in a physical store.
One innovation that has been helping physical retail spaces stay relevant is the “store-within-the-store.” I predict that more large-space retailers will use this strategy to increase revenue and manage costs.
It’s not a new phenomenon. Early players in the store-within-the-store space were perfume and clothing designers. Canada Post also entered this space by partnering with drug stores to put post offices in their stores.
Depending on how you define a store, another example is Service Ontario offices nested within Canadian Tire.
And the concept of stores within stores has become more popular recently.
Examples include department stores such as The Bay partnering with Mountain Equipment Company. In the United States, the likes of Target, Macy’s and Walmart have been embracing the concept.
In 2022, Target more than tripled the Apple stores it had in-house. That same year, Walmart counted more than 360 instances of the fashion retailer Claire’s in its outlets.
The store-within-a-store is a way for retailers with large retail space to increase revenue per square foot and to provide customers with complementary products in an unexpected way that increases convenience.
Part of its rise can be attributed to depressed retail landscape. Recent cost management activities resulted in retail stores with large retail spaces having lots of unused space. It’s a smart way of using space in the remaining locations to create pop-up stores (short-term partners) and stores-within-a-store (longer-term partnerships).
However, the difference between presenting multiple brands within a store and a store-within-a-store may not immediately obvious to consumers. A store-within-a-store creates a separate retail entity operating inside the host store. That means the resurrection of the Zeller’s brand by its owner, Hudson’s Bay, for example, is not a store-within-a-store.
In a store-within-a-store arrangement, the host retailer collects rent for the space occupied as a way to increase overall revenue. The partner retail brand using the space decides on the products and prices offered; the employees work for and are trained by the retail brand. They don’t sell or have knowledge of the products and services of the host store.
The store-within-a-store concept is a win-win for both partners as long as the two brands are complementary.
What do complementary brands look like? They share a similar customer profile and the quality of products and services meet the needs of both customer groups.
The success of this format depends on the brand fit between the two retailers. In most cases, the host retailer is at greater risk of damaging its brand image so picking a partner brand with an equivalent quality brand image should be carefully managed.
With multiple brands within the retail space, foot traffic is increased. Customers come in to look for a specific product and may discover the partner retail brand in the same space. The competitive but complementary offering can be good for both retail brands
If done well, the store-within-a store concept is a profitable way for retailers to respond to shifting consumer habits amid high inflation and competition from several old and new retailers.
Editor’s note: (Aug. 13, 2024): A previous version of this article incorrectly cited the launch of Rooms+Spaces within Toys "R" Us locations as an example of the store-within-a-store concept. Both retailers have the same owner. This version has been updated to remove the incorrect example.