Macy'sThe idea of devoting floor space within one store to another company's brand and marketing has been tried in different ways over the years. One prominent approach is the Starbucks coffee shops that dwell within many Target stores. But nowadays, department stores are practically turning into mini-malls, with in-store shops dedicated to many brands, including some that might even be a competitor just outside the department store's doors.

The idea of the in-store shop has evolved from getting space on the floor and sharing marketing costs to a more formal relationship where brands lease floor space and create a shopping experience of their own, says Robin Lewis, CEO of The Robin Report, a retail industry trade publication and co-author of The New Rules of Retail due out in November.

"For the brands, they're immediately getting -- overnight almost -- hundreds of locations for very low capital investment. . .and of course, the department stores are gaining a whole other consumer market and/or a whole new product category," he says.

Finding "White Space" Inside Macy's


In other cases, retailers are using the branding of a purchased competitor so they can use the name to pull in new customers, such as Toys 'R' Us with FAO Schwarz and Best Buy (BBY) with Magnolia Audio and Video. That helps the stores leverage the former rival's consumer base (upscale shoppers for both FAO and Magnolia) and attract new shoppers, says Lewis.

Specialty store locations can generate sales of up to $300 to $400 per square foot annually, compared to roughly $150 to $200 roughly for a traditional retailer such as a department store, Lewis estimates. It's telling that Macy's (M) CEO Terry Lundgren recently appointed a new executive vice president of business development, Molly Langenstein, and charged her with finding "white space" in stores than can be filled in with in-store shops leased to other retail brands, says Lewis.

Macy's and J.C. Penney (JCP) have been aggressively adding in-store shops and exclusive brands. But other retailers are also looking at the practice, says Lewis. Someday, he says, we may see an Apple Store (APPL) or Victoria's Secret shop inside a Macy's, he says.

Here's rundown of some high-profile in-store shop deals:

Aldo (J.C. Penney): Penney announced a deal this summer with Aldo Group, a shoe retailer with over 1,500 stores around the country, to launch in-store shops aimed at 15- to 30-year-old shoppers. The first Call It Spring by Aldo shop is scheduled to open in Penney's New York City store this year, with another 100 stores by spring and 500 more openings by fall 2011. The deal includes men's and women's shops inside Penney's shoe departments, selling around 300 styles of footwear and handbags priced $29.99 to $69.99.

Destination Maternity (Macy's): The parent company of A Pea in a Pod and Motherhood Maternity expanded its relationship with Macy's this summer and became its exclusive maternity clothing shop. Under the new deal, Destination Maternity (DEST) will add more than 500 shops by the end of February, for a total of 615 locations in the U.S. They carry a selection of maternity and nursing apparel from both lines priced up to $200.

Edwin Watts (Sears): Early this year, Sears Holdings (SHLD) announced a deal with Edwin Watts Golf Shops to open 12 in-store shops at key locations in seven states, including stores in Hicksville, N.Y., and Falls Church, Va. The shops are designed to have the same layout and services as free-standing stores, including the in-store putting green and equipment fittings, carry similar products and are staffed by Edwin Watts sales associates.

FAO Schwarz (Toys 'R' Us): The specialty toy retailer was bought by Toys 'R' Us in 2009, and its new parent took advantage of the brand during the holidays, introducing a selection of FAO toys as a way to set itself apart from the $5 and $10 specials at big-box stores. This holiday, Toys is going big, with 10 pop-up stores and with FAO boutiques in all Toys 'R' Us stores around the country that will stay open year-round. The boutiques, set near the store entrance, carry a selection of about 85 popular toys at prices from $3.99 to $199.99, including FAO's signature teddy bear and a toy modeled after the giant keyboard at the Fifth Avenue store featured in the movie Big.

French Connection (Sears): Sears announced in September it will launch French Connection UK in-store boutiques at 500 U.S. locations starting in the first quarter of 2011. The line will start with clothes and accessories for women, men and children and will expand later to include swimwear, footwear, sunglasses, jewelry and housewares. French Connection had pulled back earlier this year as part of a reorganization and said it would close down all but six of its U.S. stores to focus on selling apparel in department stores.

Lush (Macy's): The British toiletries boutique couldn't find space to open a store in Chicago in 2005 and instead worked out a deal to lease a part of Macy's on Michigan Avenue. Now 37 of its 100 U.S. stores are in-store shops at Macy's stores nationwide. Ironically, in New York City, a Lush store on Broadway is located just down the block from Macy's flagship store on 34th Street -- not inside.

Magnolia Home Theater (Best Buy): The big-box electronics retailer bought Magnolia Audio Video, a longtime retailer of high-end electronics, in 2000 and now has more than 350 in-store Magnolia shops at Best Buy stores nationwide. In February, it opened a new concept, Magnolia Design Center, inside a Costa Mesa, Calif., Best Buy. That was followed by four other California locations and the company plans to open 15 more in early 2011. The design center works as a showroom for premium audio and video brands, and for design services such as home automation and outdoor electronics. It displays products such as a 103-inch plasma screen in setups that mimick the rooms in a (very upscale) home.

Mango (J.C. Penney):
The Spanish "fast fashion" chain had been trying to plant its flag in the U.S. market, but it found a way to leapfrog the process by joining with Penney. MNG by Mango shops opened in 77 stores around the country in August and will expand into 600 by fall of 2011. The shops have a selection of women's sportswear, accessories, handbags and shoes, starting at $9.90 for a t-shirt to $159.90 for a jacket.

Sephora (J.C. Penney): The French chain of cosmetics superstores is owned by the luxury conglomerate LVMH Moet Henessy Louis Vuitton (LVMHF), but that didn't stop it from going mid-market in 2006, when it joined with Penney. It's been a good deal for Penney, which continues to ramp up the Sephora outlets. Penney recently announced a store renovation plan that will bring the number of Sephora shops to 231 by year-end.

Sunglass Hut (Macy's): Luxottica Group (LUX), an Italian eyewear company that also owns brands such as Ray-Ban and Oakley, signed a deal last December that expanded the relationship between its Sunglass Hut store chain and Macy's into an exclusive arrangement. Sunglass Hut already had about 240 in-store shops under its previous deal with Macy's and plans to have another 430 open by spring 2011.

And more in-store shops are on the way, says Lewis. Next up: Experiential locations such as restaurants and event spaces in stores, he says.

"It's a matter of our old traditional department store mentality being broken down and replaced by people who have more of a vision," he says. "[They] envision the building they occupy as a mall owner would do, or a real estate developer."


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Ronald Tucker

I read with great interest your article on the relationship that LVMH has with J.C. Penny. Will Kim Kardashian perfume still be sold in their Sephora stores, now that they no longer have exclusivity to her brand?

December 04 2010 at 9:11 PM Report abuse rate up rate down Reply
Mary L Corso

This is not a new concept. I own and manage an antique mall with 70 shops within a shop vendors. We have been sharing advertising costs and other great amenities for years. We are in one signgle building creating a way of earning income without the huge expense of having a brick and morter structure. It's a beautiful thing and should be welcomed.

November 12 2010 at 5:55 PM Report abuse rate up rate down Reply
silveradotrading

This is not new. I once worked for a local camera store chain that had mini-shops with one hour film processing and cameras in local Boscovs and Strawbridge department stores. Maybe this idea had finally come into its time with the mall rents as high as they are.

November 12 2010 at 2:42 PM Report abuse rate up rate down Reply
1 reply to silveradotrading's comment
Dusty N Dirty

silveradotrading... I read your 2nd Comment below... I am a size 5 - 58 yrs old and the Comment you had made about Fat People Is Not a True Statement. I am a Business Owner and I also work Part Time in a Retail Store(20 hrs a week) Thin People can be Just as Rude or Arrogant as fat People... It's an individual thing > it's a INSECURE PERSON that acts this way, whether Fat or Thin!!! I've dealt with Both in the past 10 years!

November 13 2010 at 8:50 AM Report abuse rate up rate down Reply
empire1646

A solution is the keep Macy's and other depatment stores intact. Just break the outside walls of the Macy store and lease the space that way you will not have people running in and out to disrupt the other people in Macy's. and the other deparment stores. This works best. The Main store inside and the smaller stores outside. If you are just going to just to one store you come in from the parking field. Less foot traffic.You can also have an entrace from Macy"s into the small stores. If you lease the inside you have problems This leasing space without all the problems. And people running all over the place. This also makes for a smaller intact Department store like Macy's etc. Good Luck

November 12 2010 at 1:22 PM Report abuse rate up rate down Reply
bonaventture

here's another new trend at shopping malls: SHOPLIFTING, or as it is also known as THE OBAMA STIMULUS...

November 12 2010 at 10:16 AM Report abuse +2 rate up rate down Reply
1 reply to bonaventture's comment
pezmills

That is an ignorant reply. As a retailer, shoplifting has been a major problem for decades, has nothing to do with politics. Just plain old dishonesty.

November 13 2010 at 11:53 AM Report abuse -1 rate up rate down Reply
rae

Service in these department stores is quite minimal. Not very knowledgable about items, if your lucky enough to fine someone. Shopping in small individual stores is the way to go. Stop big business and help the little guy. You will get service and individual attention!

November 12 2010 at 9:49 AM Report abuse +5 rate up rate down Reply
falsocreativity

This is not new. Sears has ownership of Kmart and this means Kmart has Sears in Kmart stores. Also Sears has that furniture.. what the name of it.. I forgot! They bought out and put that chain into Sears Department Stores a few years back. Also I want to say this that this is pretty old news. A long time ago, Dey Brothers used to be in the business (was bought out by Sibly's, then Kaufmann's, Macy's. Well, if my memory serve me right, back in 1960's and 1970's, I was a child. Well, Dey Brothers Department Store had a restaurant that was in the Department Store but it was not part of Dey Brothers. It was already a mini-mall. Edward's was another Department Store that was locally like Dey Brothers. Well, Edward had a mini-theme park in their department stores! I remember the train ride above everybody at the ShoppingTown Mall in DeWitt, NY store. Both chained folded. Wal-Mart already has restaurants in their stores such as McDonalds, Pollo Campero, etc. This story is not exciting because this happens all the time. They get ended up as merged, not a "mini-mall". In fact, Wal-Mart is now going downsized.

November 12 2010 at 8:54 AM Report abuse +1 rate up rate down Reply
1 reply to falsocreativity's comment
pezmills

Actually, check it out. K-Mart bought out Sears not the other way around.

November 13 2010 at 11:55 AM Report abuse rate up rate down Reply
wmccars

Sears Kmart a lost cause.No customer service and high prices.

November 10 2010 at 2:44 PM Report abuse rate up rate down Reply
sageast

I used to love department stores. And do you know why? Because at one time a buyer had the authority to make choices. They did not buy a 'safe' choice and carry the same household items or fashion styles as everyone else. They may have carried the same designer label or maker but the styles/models themselves were different. The manufacturer of clothing kept the same color dyes so that you could still match up their clothing from different stores. Footwear manufacturers make shoes in multiple widths so they actually fit. You paid more for quality, but it would look great and last. We did not own large quantities of goods, but what we had was the best we could afford (cash not credit). The caliber of people back them were of a higher moral code than today. I'm not saying they were perfect, but we didn't have five locks on our doors and have to worry about our children being kidnapped. Once drugs came into play (worldwide) the **** hit the fan and civilization has gone downhill.

November 10 2010 at 2:40 PM Report abuse +4 rate up rate down Reply
mike

If department stores were really shop-saavy, they would add several chairs or benches on every floor for seniors and tired mommies to occasionally rest and recupe so they would stay in the stores and calmly finish their shopping instead of fleeing in fatigue. It's not worth it to continue shopping if you are weary and uncomfortable and can't take a restful break.

November 10 2010 at 11:59 AM Report abuse +9 rate up rate down Reply
1 reply to mike's comment
westsidedk

the nicer stores (nordstroms and macys offer couches in thier ladies restroom) do, but more should thats for sure!

November 10 2010 at 12:40 PM Report abuse +2 rate up rate down Reply