Are In-Store Shops a Problem for Department Stores?

Jun 29, 2009
Tom Ryan

By Tom Ryan

Part of the
problem with department stores, according to Lee Peterson,
has been the arrival of in-store shops. The EVP of
brand & creative services at WD Partners and RetailWire BrainTrust
panelist believes in-store shops have not only cluttered selling floors
and led to stores losing their identity, but have also taught department
stores’ best brands how to open their own stores.

Also known as
shop-in-shops, in-store shops began appearing in force in the late eighties
as valuable floor space was set aside for the most productive vendors.
Designed to create a specialty store “feel” within the department store
environment, most shops feature attractive fixturing, cohesive merchandising,
tailored music and dedicated staffing. Other retail channels also have
created dedicated space for key brands.

But Mr. Peterson
believes the prime beneficiaries of in-store shops at department stores
have been the brands. While in-store shops initially gave brands a block
of selling space and more in-store marketing clout, they’ve also worked
as training grounds for exploring their own stores.

“At first, the
eyes you’ll get from being a shop within a shop are very attractive, but
eventually, the real benefit will be to cut out the middle man and get
out to retail on your own,” said Mr. Peterson. “Sure, retail’s not easy,
but in this day and age especially, there’s certainly enough retail experts
out there to help you be successful in your planning and execution.”

For retailers,
the major downside is that as brands become cooler, they either can start
demanding better terms and conditions or start opening up shops across
the street.

To keep in-store
shops “fresh and unique,” Mr. Peterson believes that stores have to continually
create new spaces for the latest, hip brands and he noted that “there are
always enough new, cool brands to go around if you are in tuned with the
market.” But he also said this can be a risky strategy given the investment.

“You’re not
always right, but like anything to do with trends and fast moving consumer
desires, as long as you’re right more than you’re wrong, you’ll do very
well,” said Mr. Peterson.

A more effective
– or less risky – alternative would be for department stores to somewhat
return to their former model in which the hot brands were mixed among assortments
and trends drove the store layout.

“Frankly, I
like the Forever 21 model of brand within brand versus the shop within
shop concepts of old,” said Mr. Peterson. “Just get the hottest brands
in your store — forget about letting them have a ‘shop’ — keep them hungry.
Spread the ‘hot’ brand around your store in coordinated groups that fit
in with several other brands, including (and especially) your own. Whole
Foods is actually very good at this with their 365 brand as it blends in
with all kinds of great products from around the world and provides great
choice without denigrating the mother ship.”

Questions: Has the arrival of in-store shops been positive or negative
for department stores and other retail channels? What changes would you
like to see in how they’re set up or operated?

Please practice The RetailWire Golden Rule when submitting your comments.

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9 Comments on "Are In-Store Shops a Problem for Department Stores?"

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Carol Spieckerman
11 years 10 months ago
By and large, I see things moving in the opposite direction from the scenarios described in many cases. That is, brands already have their own retail stores and are re-entering department stores, or re-working their presence in those stores as shops-within-shops. Saks’ Fifth Avenue (the Fifth Avenue location) re-do is a great example. Chanel, a brand that has many stand-alone locations around the world, is serving as Saks’ anchor; yet it was previously considered to be a glaring omission in the store’s previous assortment and set-up. Other brands that will be featured such as Ralph Lauren, Gucci, Marc Jacobs, Louis Vuitton, and others also have well-established stand-alone presence. In terms of featuring up-and-coming designers, 1,500 square feet of Saks’ re-envisioned store will be “neutral” flex space of new brands, though without strong brand call-outs. Finally, Saks has also re-worked the good-better-best pricing matrix to be more wallet friendly (75% good and better; 25% best). The fact is that department stores are competing against their chosen brands’ pristine stand-alone showcases so anything less than that looked… Read more »
Susan Rider
Susan Rider
11 years 10 months ago

It’s about execution and the experience of the consumer. If it’s done appropriately, doesn’t affect customer service, and can create a fun profitable experience, it makes sense.

Dick Seesel
11 years 10 months ago

The topic of shop-within-shop merchandising gets to the heart of the debate between item (or category) merchandising versus “collection” merchandising. It’s easy to point out the merits of merchandising by lifestyle or collection: It provides a more pointed brand or demographic message to a targeted customer, and it also enables that customer to add more to his or her shopping basket.

On the other hand, collection merchandising has contributed to the “breakdown of order” in the traditional department store. It’s become less convenient to shop within a category (for example, women’s shorts or men’s knit shirts) because of the fragmented approach to the product. I believe this has helped traditional department stores lose share over the past 15 years to more convenience-driven retailers like Kohl’s or the category killers.

Len Lewis
Len Lewis
11 years 10 months ago

It gives department stores the opportunity to get into areas which are not their core competency with minimal risk. It gives the other retailers exposure they might not be able to otherwise afford.

Paula Rosenblum
11 years 10 months ago

This is not a new story, really. Department stores have been organized into brand manager “collections” for as long as I can remember.

It’s what makes the stores fundamentally unshoppable. If you want to buy a v-neck black blouse in size 7, and don’t really care who the manufacturer is, you must wander around aisle after aisle. It’s an incredibly inefficient use of consumers’ time. If you have a brand you like, well, it’s just as easy to go into that brand’s retail store and avoid the hassles of crowded aisles and hard-to-find staff.

Rather than getting better, the problem is getting worse. I was in one major department store the other day and discovered that the handbags aren’t even all together anymore. They’ve become part of the manufacturers’ collections too. As a consumer, I can tell you I won’t shop there anymore. As a retail observer, I can tell you it’s a terrible mistake in layout.

Advantage? Marginally the merchandise vendors. Disadvantage? Everyone else, including the consumer.

Ted Hurlbut
Ted Hurlbut
11 years 10 months ago
I find myself drawn to a middle ground between pure “shop within a store” and straight category merchandising. On the one hand, “shop within a store” leaves similar merchandise too Balkanized, as Paula points out. While there are many department store customers that are brand driven, and choose a specific store because that’s where they can get the brand they want, many others aren’t. Intelligent merchandising which pulls collections together as features within categories and departments makes the most sense to me when I walk in a department store. If I’m brand-focused (and I am on certain things), they are easy to find, and if I’m just looking for something appealing within a category I’m not chased all over the store. All of this masks to a certain degree, however, the real merchandising challenge department stores are facing. Fashion at those price points, and for younger customers in general, is no longer established in department stores, it’s driven by the purely vertical brands. That leaves the department stores with older legacy brands, or secondary brands… Read more »
Tim Henderson
Tim Henderson
11 years 10 months ago

Retail is constantly changing, evolving. That shop-in-shop brands used these spaces to eventually launch their own stores is simply a smart business decision. The onus then falls on the department store to be just as smart and find new brands to fill the spaces.

The shops can be differentiators by using them to sell unique product that’s exclusive to the department store or for selling local brands. There are ways to make stores-in-stores work for the department store brand. Department store merchants just need to demonstrate some creative thinking and be willing to take reasoned risks.

W. Frank Dell II
11 years 10 months ago

The problem is not store-within-a-store but with execution oversight. Just like meat and produce in a supermarket, they can be a key element with customer draw. A department store with an exclusive designer serves the same role. For the designer, the benefits are great; they don’t have to invest and operate stores which few have done successfully long term. When a designer falls out of favor, the stores close. The department store has the option of dropping the designer when they no longer attract sufficient sales and target customers.

The problem I see is presentation control. Too often the store within a store presentation does not support the overall store image in an effort to stand out.

William Passodelis
11 years 10 months ago
The collection is the ultimate reflection of the completeness and timeliness of any merchant. The department store should be the destination sought after because it can fulfill so many needs because of the ability to carry a good array of desired materials–not just ALL of the available goods. Having complete lines does not make a store desirable. If half of what is there is not wanted–what is the point? Stores-within-stores when overdone simply make the particular department store a mini mall with limited offerings. Thus the importance of knowledgeable buyers and merchandisers (on a smaller scale). It IS simple–and VERY difficult–know your customer and what they want and have it in stock. A store-within-a-store may seem to solve many problems but proliferation of merchandise to have every possible thing a customer might want is simply a mess. The original beauty of the department store was the ability to easily mingle offerings from different designers and manufacturers, and price points, to create a style that was unique and hopefully, inspiring. It seems that it was easier… Read more »

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