Luxury Brands Push Store-Within-A-Store Model

Discussion
May 04, 2011
George Anderson

The store-within-a-store
concept is nothing new.
It’s been used in a
wide variety of retail channels. Often it involves largely non-competing merchants
such as a toy or office supply chain getting an aisle inside a supermarket,
a beauty products retailer inside a department store, etc.

More recently, according
to a Wall Street Journal article, the store-within-a-store model has caught
on with luxury icons such as Dior, Gucci and Prada that are looking to maintain
control over brand presentation, prices and sales. The brands lease space and
staff it.

The push for store-within-a-store is largely the result over unhappiness
with the discounting that took place with luxury brands in 2008. A number of
high-end merchants cut prices up to 70 percent on some luxury merchandise.

Saks
is one of the luxury chains that is open to letting brands manage space within
its stores. It has worked with Prada on a store-within-a-store in its New York
flagship location.

"It’s very selective," Stephen Sadove, chief executive of Saks,
told the Journal. "We’re not doing this broad scale. We do this where
we believe it can be a win-win."

Still, many retailers are reluctant to
carve out space within stores to let suppliers operate their own businesses.
A disagreement between Prada and Barneys New York led the brand to pull its
women’s line from the department store
chain. The space is now devoted to another designer, but operated by Barneys.

A
RetailWire poll in January of this year asked how successful store-within-a-store
concepts were in building sales for retailers. Sixty-two percent said the concept
was "somewhat successful,"  17 percent answered "very successful," and
seven percent "somewhat unsuccessful."

Discussion Questions: Does the store-with-the-store concept work better or worse with luxury brands? Do retailers get the short end in such arrangement with luxury brands?

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22 Comments on "Luxury Brands Push Store-Within-A-Store Model"


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Dan Berthiaume
Guest
Dan Berthiaume
10 years 4 days ago

Store-within-a-store is a natural fit for luxury brands as it creates a unique destination within the store which is set off with different assortment, presentation and staff. Thus the luxury brand becomes a special feature, rather than one more product, which is exactly how any luxury brand wants to be perceived.

Bob Phibbs
Guest
10 years 4 days ago

This works if the luxury brands go out of their way to be “exceptional” and not see their S-W-A-S as a museum. That means they have to sell the merch. That’s why I wrote a post about how to sell luxury without a discount.

Leased departments are nothing new, but the attitude within them must be to match the quality of the goods.

Dick Seesel
Guest
10 years 4 days ago

This model has been used for many years in department stores in Asia and Europe. Many of these retailers appear to be a collection of designer and upscale brand “shops” rather than driving their own assortments or point of view. Whether the mindset will work in American stores (outside of the high-end luxury department stores) is another story. Even the Saks and Neimans of the retail world have pursued this strategy in a limited way.

For the brands in question, this gives much greater control over issues like staffing and design. But for the retailers housing a “collection of shops,” it requires a willing suspension of control over issues like guaranteed floor space, sales/margin productivity and so on. The bottom line is whether the customer targeted by a particular retailer wants to shop this way (by designer) or is more interested in broad category statements across multiple brands.

Marge Laney
Guest
10 years 4 days ago

Considering the state of customer service in department stores due to lean payroll models and the wide variety of brand availability, the store in store concept is a good idea. It’s the knowledge and service expertise of the associates that sells high end products. Without well selected and trained associates the brand value is often not communicated well or misunderstood. Having a well trained team focused on a brand is a key differentiator that not only sells merchandise but for the most part keeps it from becoming commoditized.

Carol Spieckerman
Guest
10 years 4 days ago

The “concession” model of retail, common in Europe, gives brands more control and sometimes that puts them in conflict with the main brand (the retailer)as was the case with Prada and Barneys. Who cut back on who is still not clear; however, Valextra now sits where Prada once parked!

J. Peter Deeb
Guest
10 years 4 days ago

There must be a marriage of the minds for this concept to work. You can match luxury products with an upscale retailer but the sales strategies and techniques need to be consistent across the store for the SWAS to be successful. A retailer who relies on discounts for a large portion of their sales will not be a good fit for a luxury brand that aims for full revenue. Due diligence is important for the brand to do before they commit. A mixed message to either the store’s customers or the brand’s consumers should be avoided.

Gene Hoffman
Guest
Gene Hoffman
10 years 4 days ago

The luxury icon brands lease space so they can give their “icon” items the sales presentations they feel they “need” and deserve. Luxury brands don’t believe the leasing retailer has the polish and persistence, or the time and talent, to do the best selling job.

A store-within-a-store concept appears to work better with the luxury brands since buyers of luxury goods want to be sold on why the high-ticket price they pay is “reasonable” and they also want “oozy” personal attention. The higher margins in luxury items allow the time for preferential customer treatment, which is best given by a brand rep.

Steve Montgomery
Guest
10 years 4 days ago

As has been already mentioned S-W-A-S is not new. If it is to be seen as different and a destination then it has to have all the hallmarks it clients expect of the brand. The physical plant has to match the image from the floor to the ceiling to the dressing rooms. The staff and service have to meet the customer’s expectations. If not, it will be yes you can buy Prada in Saks but they don’t (pick one) have a good selection, store staff doesn’t know how to treat me, I didn’t like the “feel” of the “little” area they had, etc.

Kevin Graff
Guest
10 years 4 days ago

The key here is that these brands take the responsibility for staff and as such, staff performance, in these store-within-a-store concepts. They could never get away with using the staff provided by the department store and tolerating the same level of service and salesmanship typically provided. Bob is right with his comments above. All too often I walk into luxury stores and somehow the staff think the product will sell itself. If the brand itself is supposed to differentiate itself within the larger department store (and it will) then the staff’s performance must be equally differentiated.

Paula Rosenblum
Guest
10 years 4 days ago

The other value to the retailer for a SWAS is about inventory ownership–no capital outlay is required since the brand owns the inventory. For slow turning merchandise like jewelry and (I would imagine) high end luxury product, it’s pretty convenient and handy for cash conservation.

I was always under the impression that brands like Prada had contracts with their retailers dictating the markdown cadence anyway. I’m surprised retailers were allowed to “get away with” massive discounts.

Given the way department stores are set up today, I don’t think the customer would notice one way or another if the brand actually ran the department rather than the retailer. I don’t think it’s a good store design, personally, but clearly it’s the tradition.

Susan Rider
Guest
Susan Rider
10 years 4 days ago

Store within a store identifies the area while branding the entire area for the design. This helps the consumer identify the location and the products for that designer or department. This concept has been gaining some speed for some time and will clearly be adopted more in the future for it’s obvious benefits.

Liz Crawford
Guest
10 years 4 days ago

This is a tested model–in Europe and in certain cases in the States (Chanel in Bloomingdale’s, et. al.) The department store is a house of brands, and shoppers expect this. Look at the cosmetics department on the main floor of almost any department store. It’s a house of brands–a bazaar of vendors. It works.

Mark Burr
Guest
10 years 4 days ago

The SWAS concept can work. It also depends on how you define ‘luxury’. Nevertheless, luxury or not, there are a couple of things two consider. One is, can the SWAS do better than the retailer could do on its own in a given category? The other is, can the SWAS enhance BOTH brands and successfully become part of the identity of the overall store and be perceived as adding value to the whole.

Two of the best I’ve seen are Sephora and Brighton Jewelry. Both have their own stores but have also gone in as SWAS and appear to be equally as successful in doing so. They both do better than the retailer could do on its own and enhance the brand image of the overall store.

Ed Dennis
Guest
Ed Dennis
10 years 4 days ago

It works great for luxury bands because their margins enable them to hire and train sales people who know the product. A customer doesn’t have to wait until someone can look something up. You aren’t given a telephone number or web site to get information.

Christopher P. Ramey
Guest
10 years 4 days ago

Brand standards are generally higher than merchants’ standards (note: this is not the case at Saks). However, most retailers should consider this an issue as much as it is an opportunity. Ceding control begs the question whether you are a landlord or a retailer. There is a fine line between a flea market and a lease department.

Lee Peterson
Guest
10 years 4 days ago

I believe the store within a store idea works for the brands, but not so much for the store housing the brands. The reasons Prada wants a store they run within a retailers space are simple: built in traffic/demographic model, less for real estate (total $), less operationally and they control their markdowns and brand portrayal–just to name a few. So, it’s no surprise they would opt for that.

For the retailer, however, all the reasons just stated are not necessarily ideal. If Prada looses it’s mystique, or delivers a lousy line (one that doesn’t fit!) or decides on a portrayal that isn’t brand right for you, the retailer, there’s few options (as most leases are structured, they’re there for while).

It’s better in my book for the retailer to develop their own brands as option A, and also to be very tough with flexibility clauses in terms of store within a store contracts.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 4 days ago

I’m curious: If a dissatisfied customer demands of a privately-staffed luxury brand island inside a department store, “Let me speak to your supervisor,” who is supposed to respond? The store manager, for whom the luxury clerk does not work, or the clerk’s real boss, reachable immediately only by phone? Bob Phibbs wrote, “Leased departments are nothing new, but the attitude within them must be to match the quality of the goods.” All well and good, but what if the attitude within the luxury island does not match that of the store? Who monitors the behavior and performance of the luxury brand clerks in real-time?

Gene Detroyer
Guest
10 years 4 days ago

This is a very good solution to a very broken department store business model. Consider, no inventory, no sales people and a guaranteed ROI. Who wouldn’t buy into that?

Doug Stephens
Guest
Doug Stephens
10 years 4 days ago

Expect the trend to continue and not only amongst luxury brands. I wrote this article in early 2010 in which I project that this phenomenon of “aggregation” as I call it, will come to a point within the decade where almost every square foot of a Macy’s, Penney’s and possibly Sears are leased out to brands with more niche appeal and brand power.

As the store within a store concept becomes their primary strategy, the department stores themselves will become malls within the mall.

W. Frank Dell II
Guest
10 years 4 days ago

Luxury products are different. The target customer is usually higher income, higher educated and higher in demands. Luxury products are more than just high quality. They establish a tone or image. Discounting simply kills the image. Second tier consumers want the luxury items, but cannot pay the price. Luxury manufacturers want and should control the entire process. This includes providing exceptional customer service. Sales people are expected to know the product and how to dress the customer; what they like and dislike not that everything looks good on them. Service in the department store segment has continually declined except for Nordstrom. The issue generally is a clash of cultures. The luxury sales people are better paid and dealing with the best customers. This causes problems for managing the rest of the store. Agreed to rules and responsibilities are needed.

Jerry Gelsomino
Guest
10 years 4 days ago

Store-within-a-store concepts are successful for customers and brands, but often a headache for retailers dealing with real estate concerns. Huge ego problems cause retailers to negotiate between brands as to who is in the adjacent shop.

William Passodelis
Guest
10 years 4 days ago

This really is the way to go — especially regarding the higher level and couture merchandise. The design house must take responsibility for the space and the merchandise and its sale. This provides a potential for MUCH BETTER service, and sales associates’ knowledge, of those particular goods and can provide a much better overall shopping experience for the customer. It also relieves the store itself of inventory and also of having to staff that merchandise, or risk a less knowledgeable associate who may not be as effective. the customer for these goods is very astute and likely somewhat loyal as well.

Of course this is not a new, but a very tried and true mechanism — as stated — heavily relied upon by some of the European stores.

I think it has potential benefits all the way around and the better stores which remain in the US should definitely utilize this method to gain sales, distinction, and stature through and with association of the potential clients and design houses.

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