Look for more stores-within-stores
Stores-within-stores have been prevalent in Europe and Asia for years, and while they’ve been in play for decades in the U.S. (think perfume counters in Macy’s), all indications call for much wider adoption here in the years ahead. Already, the concept has branched into new combinations. Apparel shops within supermarkets, electronics boutiques in department stores, and branded sections of sporting-goods stores are some commonly seen examples.
The main goal for a department store, or the “host retailer,” is to find a suitable retail partner. On the horizon are possibilities such as cocktail lounges inside apparel stores, spas within luxury department stores, travel planners operating in department stores, kids’ haircuts inside discount retailers, and outposts for kitchen housewares inside high-end grocery stores.
Department stores are racing to optimize their store portfolios in the evolving retail market. As so many store closing headlines have proved, they are under tremendous pressure to monetize their underused space and recapture lost market share. They are also being urged to provide deeper experiences to shoppers, and that could well play out with varied merchandise, services, and store designs. Stores-within-stores address both those issues. The partner retailer provides a product or service that is beyond the scope and expertise of the host, yet targets the same demographic and behavioral profile of the host licensor’s customers.
A great example would be an optical provider in a department store. Eyeglasses and eye exams are specialized and highly regulated. Rather than trying to do this in-house, a host retailer could bring in an optical retailer to provide the product and service as a concession business in exchange for the host receiving a share of the revenue. It’s likely that the host’s target demographic and existing customers would find this to be a benefit.
Some natural-fit-category alignments are being missed at retail. For example, a home-improvement store may find it advantageous to host a workwear-apparel merchant. The store focuses on the hardware products it knows, while the apparel partner handles clothing and footwear sales outside of the host’s core competency.
The usual arrangement in these partnerships is for the specialty retailer to share a percentage of sales with the host. Surprisingly, this is not considered a real estate transaction. The specialty store is not “leasing” space from the host, but rather using the host’s underperforming physical space while benefiting from the provider’s marketing and operational support. In many situations, the host will build out the space for the specialty retailer and then support them with storewide services such as merchandise replenishment and integration into the host’s transactional point-of-sale system.
The specialty retailer typically owns all the merchandising, payroll, and operational costs of running their store inside a host environment. However, these are all contractual obligations that should be ironed-out in the initial store-within-a-store agreement.
Done well, the store-within-a-store is the proverbial win-win situation. The host retailer reduces expenses such as inventory and payroll, while extracting value from underused floor space. Not to be overlooked are ancillary benefits for the host such as enhanced brand image, an energized store environment, and increased customer draw.
The specialty retailer experiences low risk, low overhead, minimal start-up costs, and rapid scalability. Absent from the arrangement are real estate expenses such as rent, real estate taxes, or utilities that are charged to the store-within-a-store retailer. But the ultimate payoff for the partner brand may be expansion into potentially hundreds of new locations virtually overnight.
Store-within-store operators also benefit from exposure to a much larger customer profile than their stand-alone stores do. Other pluses: higher margins by selling directly to consumers rather than wholesaling to the host retailer and exposure to the host’s customer base, marketing channels, operational support, distribution resources, loyalty programs, and financial services.
We are certain to see more innovation spring up around retail partnerships that solve the needs of today’s consumers. They are a powerfully effective counter-balance to the threat of e-commerce and category-specific retailers that continue to seize market share.
Kevin Marschall is a Vice President of Retail Advisory & Transaction Services and store-within-a-store specialist for CBRE Group, Inc. He is based in Chicago.
An architect’s take on building experiences
Store closings are commonplace. Online shopping options grow. From time immemorial, stores were built with brick-and-mortar. Better materials for today would be innovation and experiences.
We in the field of store design are seeing some promising signs that an evolution is underway.
While the majority of these innovative steps are taking place in town centers and other hybrid and mixed-use developments, enclosed malls stand to benefit from these strategies as well. If the underlying demographics are still strong for struggling retail spaces, there are a number of techniques mall owners and operators can employ to step up their games.
A shopping center’s surrounding community is invaluable. The cure for a center owner’s woes could lie somewhere within a five-mile radius. Large common areas can be created or transformed to host farmers’ markets or pop-up shops for local crafters, designers, or musicians. Millennials are charged about giving back to the community and being involved. In the retail environment, they are eager to support local producers, causes, artisans, and growers.
Easton Town Center in Columbus, Ohio, has a store called Celebrate Local that features the products of area artists and vendors. It’s something of a brick-and-mortar Etsy, and it capitalizes on a growing national trend of people eager to celebrate and display local civic pride. The Northstar Café, an eclectic organic eatery at Easton Town Center, is locally owned and offers a menu made from locally sourced ingredients. Northstar has fared so well that it now operates five locations.
Think about turning empty stores into assets by offering them ups as gallery and studio spaces for local artists and craftsmen. This can infuse a tired center with a spark of creative energy. Shoppers get a rewarding experience from the peek behind the curtain, while center owners add popular artisans to their paying tenant rosters. To see how effective this can be, look to the Short North Arts District in Columbus, a popular arts-based community destination with a wide range of studios, galleries, and retail and dining options.
Empty anchor spaces are often ideal locations for a health and fitness-based concepts like yoga studios, rock climbing retailers, spin classes, and martial arts. New activity-based entertainment concepts are proliferating, with creative golf and bowling concepts, rock climbing, and indoor skydiving. Opportunities to be social and get active are increasingly popular. Brands like lululemon host yoga sessions. Bass Pro Shops and REI offer classes, gear tutorials, and special events.
Consider helping to create a tech lab for startups and entrepreneurs. Not only does this provide a community space for people to develop ideas and build businesses, but the mall or surrounding retail area offers a great benefit to the entrepreneurs: people to test their products! A mall in San Francisco opened a similar concept, Bespoke, over a year ago and has seen a significant increase in shoppers with the help of this space. Adding interactive technology — from wayfinding to kids’ play areas — is another way to encourage shoppers and guests to engage with the space and elevate a passive experience into an active one.
Millennials, and even many Boomers, are increasingly looking for walkable communities and residential options that deliver a true live, work, and play experience. Arcade Providence in Providence, Rhode Island, (one of America’s oldest malls) transformed a deserted mall space into micro apartments, giving residents direct access to shopping and entertainment. These micro apartments, mostly one-bedroom units that are approximately the size of a hotel room, are an ideal addition to the Arcade. The former indoor shopping mall is now two stories of micro lofts — 48 units — over first floor retail. Situated adjacent to downtown Providence, Arcade Providence offers residents the convenience of living in a walkable downtown environment at an affordable price — a win for the developer as well, as the previously vacant space is well occupied.
Struggling malls in still-vibrant residential areas need to re-think and re-market their square footage. Ultimately, they need to give people a compelling reason to get off the couch and visit — and these days it takes more than a food court pretzel or a generic sweater to make that happen.
Jessica Neal is a project manager at M+A Architects, a Columbus, Ohio-based architecture firm. You can reach her at [email protected].
It’s hot in Texas: Another new project for North Dallas
One of the fastest-growing regions in the nation–in both jobs and population — will be home to another retail-heavy mixed-use project.
RPS development and High Street Residential, a Trammel Crow unit, will be building 342,000 sq. ft. of retail and restaurant space encompassing 23 buildings in Allen, Texas, according to the Dallas Morning News.
Cornerstone Village @ Allen will also contain 638 apartments on a 60-acre site on State Highway 121 and Custer Road, north of Dallas. Also about to begin construction in Allen is a $91 million convention center and hotel Complex from Altera Development.
Specific plans for the retail component of Cornerstone Village were not revealed, but RPS VP Ben Roodhouse told the Allen city council that it will be “a first-class shopping center.”
Four of the 10 fastest-growing counties in the nation are found in Texas, according to the U.S. Census bureau, and North Dallas is a hotbed for corporate headquarters. Toyota announced it will hire more than 1,000 employees for its new headquarters in Plano.