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Whether multiple retailers join forces in one location, or one retailer segregates a department into a boutique, the store within a store concept proliferates. Leased departments, such as jewelry and cosmetics in department stores, were the earliest forms, but today there are many variations on the theme.

Two or more different retailers often occupy space under the roof of another one. Many retailers are segregating certain categories of merchandise into distinct in-store boutiques. The trend is taking place among independent retailers and giants.

The marriage between GNC, retailer of vitamins and nutritional supplements, based in Pittsburgh, PA, and Rite Aid Corp., the giant drug store chain in Camp Hill, PA, began at the end of 1998. And it is apparently a happy one. The duo has just agreed to extend their partnership to add 1,125 more GNC LiveWell locations inside Rite Aid units by the end of 2014. There are currently 1,300 such stores within stores at Rite Aid units.

Furthermore, the two companies have signed a contract to give Rite Aid the option of extending its contract with GNC for another five years, through 2019. It allows for extending the concept to an additional 250 Rite Aid locations.

"This is an excellent example of the store within a store concept," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking company in New York City. "GNC wants to expand, and it costs a lot of money to go out and build stores," he reasoned.

"Clearly, vitamins and supplements fit into the Rite Aid concept. It's a natural," he said. "On its own, Rite Aid could never do a vitamin section as well as GNC can. GNC is the expert, and it will control the section, make sure the presentation is what the customer expects, and, as a supplier, replenish it correctly. This is a win/win for the supplier and the host."

"Obviously GNC has a brand of its own in the nutrition field," added Britt Beemer, chairman and founder of America's Research Group, a retail consulting firm in Charleston, SC. "It can manage the space best, and the success depends on how much space it gets."

"Every retail company is experimenting today," Beemer said. "By aligning yourself with another company, the other company (the specialist) will handle the section for you." The host retailer is not buying the goods directly, but taking them on consignment. It can give back what doesn't sell, Beemer notes.

He points to the combination of Office Depot, the office products retailer, Delray Beach, FL, and Albertson's, the grocery store chain from Boise, ID. "Office Depot expands distribution, gets more sales, and more exposure. The additional exposure could drive traffic to its own stores," he pointed out. Davidowitz said a retailer with X amount of space, has to ask: "How can I maximize productivity of the space and reduce redundancy of merchandise?" A store within a store can provide exclusivity, he noted.

Calling Coach, "the hottest accessory player by far," he said, "when it joins Bloomingdale's, everybody wins. Effectively, Bloomingdale's gets a Coach store. If you're Coach, you want to control how your goods are presented, and, when you're as powerful as Coach, you can demand that, and it does. Both Coach and Bloomingdale's expand sales, and the customer likes it, too."

While the concept works best, "with things that are special," according to Davidowitz, he also pointed out that "special" can apply at all retail sectors, from Bloomingdale's to Wal-Mart and Target. Wal-Mart has Pizza Hut and McDonald's in some units, and Target has Starbucks, he offers as example, pointing out that the food and coffee brands, "have credibility." The driver of the concept, Davidowitz said, "is really the redundancy of retail. There's 20 square feet of retail for every man, woman and child in America, and there's too much sameness, too much commoditization. The addition of an area with a premium brand offers something special."

Best Buy has announced plans to expand its Mac pilot store within a store program from 57 units to 200 this fall, and the Apple products are expected to be in separate, walled off layouts. Apple's expansion within Best Buy stores is expected to go beyond the mere addition of Apple brand products on the shelves, to distinct sections similar to a Chanel shop within Nordstrom, and to Coach units within both Bloomingdale's and Nordstrom. Home Depot is testing a store within a store concept with its Home Decorators Collection catalog. The sections reportedly could occupy as much as 5,000 square feet.

"Home Depot's sales aren't growing," Beemer said. "This is an attempt to get more customers to spend more money; and especially more women customers who don't normally frequent Home Depot," he suggested.

The store within a store concept is not limited to giant retailers. Kolo LLC, a supplier of photo albums, headquartered in Hartford, CT, has teamed up with Kate's Paperie.

Kate's, a company based in New York, is a high end stationery and gift retailer with four stores in Manhattan and one in Greenwich, CT. Kolo has opened its first store within a store in 450 square feet of the Kate's Paperie unit in Manhattan's Soho district.

It includes an Album Bar, where customers can drop off prints or digital photos, consult on album design and then pick up the finished piece a few days later. Kolo is also hosting in-store workshops on digital photography and album design, a good fit with Kate's history of hosting events for its loyal clientele.

"Certain category combinations will work very well," Beemer said, "if they draw additional traffic. Some products combine more synergistically than others," he added.

"There have been all kinds of formulas, but not all of them have worked." He points to earlier efforts to install a proliferation of bank branches in retail locations. "Having all those little branch banks didn't work," he said.

Article ID: 368