CHICAGO -- Last month, Macy's Co., Kohl's and J.C. Penney Co. all reported drops in comparable-store sales compared with the first quarter of last year, blaming online competition and shoppers' continued reluctance to spend.
One strategy traditional retailers are taking to fill too-big stores and spice up offerings is handing over some of that space to other sellers.
Retailers, from Macy's to RadioShack, are experimenting with everything from pop-up shops to ministores staffed by another company's employees. The idea of opening stores-within-stores isn't new, but it does seem to be "taking on more importance than in the past" as retailers look to maximize profits and make stores more enticing, said Arnold Aronson, partner and managing director of retail strategies at consulting firm Kurt Salmon.
"The retail industry is really struggling and losing share to the online world, so any clever new ways to still pay your bills and deliver a return at the end of the day is really powerful," said Sucharita Mulpuru, an analyst with Forrester Research.
But the stores-within-stores strategy, while smart, is probably better seen as a positive for department stores that "still have life in them" than a rescue for foundering retailers, she said.
"For those that really need to rationalize a lot of stores, I don't think stores-within-stores will save them," she said.
J.C. Penney doesn't initially seem like a likely partner for beauty giant Sephora, Mulpuru said, but the 10-year-old partnership seems to be working.
J.C. Penney said Sephora was one of its best-performing divisions in the most recent quarter, and Chief Executive Officer Marvin Ellison said the new Sephoras were expected to be one of the company's "2016 sales drivers" in a statement on J.C. Penney's first-quarter results.
More than half of J.C. Penney stores have a Sephora inside, and 60 more will open by mid-June, including one at Ford City Mall in Chicago.
On its opening day earlier this year, about 600 people lined up to be among the first to visit the Sephora minishop, a brightly lit, black-and-white striped box-shaped area sitting just behind the shoe department, and have a shot at winning a gift card.
"It gives beauty junkies a reason to come in, but our core customers come, too," said Angela Swanner, senior vice president for Sephora inside J.C. Penney.
Macy's has been leasing space to other retailers for decades but is "more strategic" about those partnerships now, said Macy's spokesman Jim Sluzewski.
"We look at it from the customer standpoint -- what do they expect to find but don't see," he said. "In a lot of cases we can fill it ourselves, but in some cases we make the call that we're just not as well-equipped as someone else."
Before signing a licensing deal with Sunglass Hut about seven years ago, Macy's sold sunglasses but didn't have the connections to get the best brands, Sluzewski said. In exchange for a cut of sales, Macy's gave Sunglass Hut departments in all its stores, with Sunglass Hut-selected inventory and Sunglass Hut salespeople.
Sunglasses sales have tripled, Sluzewski said.
He estimated Macy's has similar agreements with about a dozen companies, including Finish Line, Lids and LensCrafters. It's not that Macy's can't sell the products those retailers specialize in -- the department store has just decided a specialist can provide better service, has better access to hot merchandise, can better predict what products will be top sellers, or some combination of the three, he said.
Each Macy's only leases out a single-digit percentage of its square footage, Sluzewski said.
Still, the outsiders have a meaningful impact on Macy's bottom line. Last month, the retailer reported comparable-store sales of Macy's-owned merchandise were down 6.1 percent in the first quarter of 2016. Add in sales from the licensed stores-within-stores, and sales declined about a half percent less.
"The truth is for today's world, most of our stores have a lot of space," Sluzewski said. "That can be reallocated to a license partner that brings in new traffic and new energy."
When RadioShack came back from bankruptcy, most stores came with space for a Sprint store inside.
Out of the 1,700 RadioShack stores where General Wireless assumed the lease after purchasing the RadioShack brand, 1,400 set aside some space for Sprint, most of which are staffed by Sprint employees, said RadioShack's Chief Revenue and Marketing Officer Michael Tatelman.
"From a business perspective, there are a ton of efficiencies -- shared labor, shared rent, demand creation and advertising," Tatelman said. "This is something where one plus one should equal two and a half."
He said RadioShack is pleased with the results so far and is open to considering similar partnerships with other retailers looking to open small stores or kiosks.
Every Best Buy store now has at least one store-within-a-store, including Apple, Windows, Verizon or AT&T stores, Sony home theater stores, and Samsung stores focused on mobile devices or home theater equipment, said spokesman Ryan Stanzel.
Stanzel said the partnerships with those companies have helped Best Buy renovate stores and provide better customer assistance since each is staffed by employees with particular expertise in the company's products. Samsung says it hosts "skills workshops" at its Best Buy-based Samsung Experience Shops.
Best Buy likely won't see a big increase in the number of stores-in-stores, but the company does see an opportunity to work more closely with the vendors it hosts to provide more help, service and classes, Stanzel said.
Business on 06/07/2016