Can the Boutique ‘Store-Within-a-Store’ Concept Save Big Box Retailers from Extinction?

When successful, a store within the store will improve the appeal of both brands involved. That's especially important for a retailer presumed to be on its deathbed.

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Last week, Best Buy introduced the Samsung Experience Shop. It’s a kiosk, or a “store with the store” that’ll feature only Samsung products, located inside Best Buys around the country. By the end of May, Samsung Experience Shops will be installed in 900 Best Buy stores, and 500 more are planned.

Best Buy may be launching one of the biggest store-within-a-store initiatives, but it’s not the only retailer that’s experimented with the concept. Why are major chain retailers drawn to the idea? Forrester Research’s Sucharita Mulpuru says that if a store within a store is done well, the host retailer gets to enjoy a boost in foot traffic (and sales) without the usual amount of legwork. “The retailer no longer has the burden of managing inventory and managing the appearance of the display,” says Mulpuru. “They become a ‘landlord’ of sorts.”

When successful, a store within the store will also improve the appeal of both brands among consumers and other businesses alike. Any retailer would love that. But for a struggling retailer such as Best Buy, the store-within-a-store operation could be critical. The Associated Press quoted Morningstar analyst R.J. Hottovy saying that the Samsung partnership shows that “a very high-profile consumer electronics vendor still finds Best Buy a relevant distribution outlet.”

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Likewise, the hope is that JCPenney’s store-within-a-store concept, which has been in the works for more than a year now, would breathe new life into a brand that some feel is on its deathbed. When CEO Ron Johnson announced a dramatic makeover of the JCPenney brand in early 2012, one of the key components of the plan was the introduction of boutique-style “Shops” within the larger store, with each section focused strictly on Levi’s, Liz Claibourne, Joe Fresh, or another brand. So far, the concept has mostly seemed successful for JCPenney. Some of the first minishops have been outselling the rest of the store by 20%, and most retail analysts say that the store-within-the-store model is JCPenney’s best hope for revitalizing—reinventing, really—the brand for a new generation of customers.

The problem, though, is that installing the Apple Store-style boutiques inside JCPenney department stores also seems to be alienating the chain’s core shoppers, who were already being alienated due to the dramatic changes to pricing and sales inside stores. As a Fast Company post put it, Johnson’s efforts to “Apple-fy” the JCPenney brand with boutiques is backfiring in an important way:

This rapid and dramatic change at JCPenney totally baffled JCPenney’s loyal customers. He was trying to take JCPenney upscale while their shoppers wanted a respectable but low-price alternative that offered some terrific deals each and every week.

It’s also unclear whether Johnson’s original vision for JCPenney will ever become a reality. The store prototype shown off to the media last fall included cafes featuring Caribou Coffee. Yet in March, the Minneapolis-based coffee chain announced it has no plans to move forward with a JCP partnership.

(MORE: JCPenney’s Ron Johnson, and 9 Other CEOs Trying to Do the Impossible)

Not long after that, JCPenney filed a report stating that its much-hyped turnaround “may take longer than expected,” and that “there is no assurance that we will be able to successfully implement our strategic initiatives.” More recently, news broke that, amid continued declining sales, Ron Johnson received no bonus or stock awards last year, a situation viewed by many as a warning that the CEO’s days are numbered at JCPenney if sales don’t pick up in a hurry.

It’s difficult to tell the extent to which the “Shops” experiment is to blame for JCPenney’s struggles. But it is clear that the store-within-the-store concept doesn’t work for every retailer and every brand.

Target made a splash in early 2012 by unveiling “The Shops at Target,” ministores located within a larger Target location that would feature the designs of a handful of small boutiques around the country. Last month, Target quietly pulled the plug on the operation, however, likely because the initiative didn’t generate much excitement among shoppers.

“I never really heard much about it” after the initial announcement, retail consultant Doug Stephens told the Minneapolis Star-Tribune. “I suspect it was not much of a showstopper.”

Target has previously partnered to great success with well-known brands such as Missoni and Jason Wu. Forrester’s Mulpuru says that the absence of big, highly recognizable brands may have doomed “The Shops at Target.”

“Stores-within-stores make the most sense when you have stand-alone brands that people recognize and have an affinity to, and then within those stores, the assortment needs to be compelling,” Mulpuru says. “I think Target has a lot of little-known brands in their mini-stores, and that probably didn’t resonate all that well for shoppers.”

Target demonstrated another way to fumble a branding partnership via the previous holiday season’s Target-Neiman Marcus Collection, which shoppers largely deemed too expensive and too impractical to tempt many into buying. Much of the merchandise wound up discounted by 80% or more.

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Janney Capital Management analyst David Strasser told the Star-Tribune that neither Target’s Neiman Marcus partnership nor “The Shops” experiment should be viewed as outright failures, however, because if nothing else they demonstrate the retailer’s willingness to try new things. They also helped Target draw national attention:

“Did they make much of a sales impact?” Strasser said. “No. But Target got tons of publicity. There is no detriment.”