By Dave Wendland as seen in Chain Drug Review, April 24, 2017

Call them pop-ups or stores-within-a-store, the use of retail real estate is transforming before our very eyes. And it seems to be happening everywhere.

Let’s begin with a definition. What is a store-within-a-store? Simply put, it’s an entire category, grouping of products or manufacturer- exclusive offering from a retailer that is placed inside of another retail store setting (occasionally as seemingly strange bedfellows). In a store-within-a-store arrangement, retailers essentially rent out retail space to other retailers or manufacturers and give them complete autonomy over retail decisions, such as pricing and in-store service.

Perhaps one of the best- known examples is Sephora inside J.C. Penney stores. The two have had a flourishing relationship for over 10 years. Housing mini Sephora stores within the department store chain’s larger footprint has allowed the retailer to attract a younger, more product-savvy beauty consumer (Millennial) while introducing its core customers to new products and brands.

Sales from ladies’ accessories (which include products sold within the Sephora mini stores) rose from 10% in 2012 to 12% in January 2015. As reported by the Chicago Tribune in May 2016, J.C. Penney said Sephora was one of its best-performing divisions thus far that year. Chief executive officer Marvin Ellison went on to note in a first quarter sales statement that the new Sephora stores (60 planned to open in new locations last year) are expected to be among the company’s “sales drivers.”

The store-within-a-store concept is also occurring at Dick’s Sporting Goods and Tesco. Macy’s has an exclusive assortment of Finish Line shoes, and more recently has been sprinkling in-home technology solutions from Best Buy within its stores. Perhaps you’ve heard of the Chobani cafés currently being piloted within a number of Target locations and, more recently, by Walmart? These are innovative stores-within-a-store. They represent categories, product offerings or solutions not otherwise found in their partner location.

Consumers find these pop-ups (more often temporary or seasonal) and stores-within-a-store exciting and convenient. They enhance the product offerings and convenience of the host store, and consumers also may experiment with brands in the store-within-a-store setting because of the trust they have for the host retailer. Not to mention the incremental sales dollars generated because the shopper searches for additional ancillary items or simply spends more time in the host store.

Creating a win-win situation requires patience and dedicated measurement of the return. Obviously, there is a trade-off — some merchandise has to be moved out of the way within the host operation to accommodate the mini-store, and that becomes a question of productivity of space. If it is favorable, then it is working. If not, it’s time to reevaluate and move on. Then there is the sales factor. Patience in this evaluation is vital, given the possible incongruity of the message, the time it takes to expose shoppers to the new store-within-a-store, and the time it takes the advertising to reach the target demographic.

So what about chain drug stores — are they jumping on board with this concept? Some are…slowly. The challenge is one of space. Most chain drug stores are 15,000 square feet or less. That doesn’t give an immense amount of space for replacement of categories or rearrangement of fixtures.

Despite that obstacle, there are several shining examples of stores-within-a-store relationships. For example, General Nutrition Centers (GNC) runs stores-within-a-store at Rite Aid Corp. pharmacies, for which it receives fees from Rite Aid for store openings, though Rite Aid purchases products at wholesale prices from GNC and GNC does not perform any retail functions inside Rite Aid stores. In addition, nail polishing centers, prepared food coolers, and giftware sections all have appeared within the four walls of chain drug stores. All could be considered stores- within-a-store.

Here are few more areas to consider:

• A Fresh Idea: Some stores have dabbled with fresh produce. Imagine setting up a “farmers market” within the drug store itself. Much more could be done.
• Cleanup in Aisle 4: For an urban setting, what if the drug store created a complete cleaning solution center, from mops and rags to cleaners and toweling? A store-within-a-store such as this (perhaps powered by a strong manufacturer or retail partner) could draw traffic and drive incremental sales.
• Thinking Craftier: What if a drug store partnered with a JoAnn Fabrics or Michaels and created a store-within-a-store around craft projects? How much space would it require? What value would it bring shoppers while reinforcing a broader range of products at the primary store location?

Such symbiotic relationships bring mutual benefit to the consumer brand and the retailer. We can expect to see more emerging as traditional brick-and-mortar retailers struggle to remain relevant to their shoppers and enhance the shopping experience.