From Bloomingdale's to Hollywood video, the concept of a store-within-a-store is gaining popularity - thanks to its many economic incentives. Already popular in Asia, where retailers face are fiercely competitive, this concept is slowly picking up in other parts of the world owing to the convenience it offers both consumers and retailers.
A store-within-a-store is an agreement under which a retailer rents out a part of its space to another manufacturer to sell their products. Basically, when you walk into a clothing store and spot a cosmetics section from a different brand, you are watching the store-within-a-store model at work. However, the question that arises is how such a strategy can be profitable to retailers.
The answer lies in the substitutability of the products being sold. The store-within-a-store concept allows manufacturers to compete against each other on service and price. Products are also priced lower since the model ensures that the retailers don't take excessive markup. This in-turn helps all parties involved reap higher sales. But, all of this is possible only when the substitutability of the products are at optimum level.
When the substitutability of the products is low, that is when the model works towards higher profitability. For instance, when a retail store sells clothing and allows a cosmetic brand to sell their products, the consumer won't interchange both brands in their minds; this ensures low sustainability and more profit for the retailer and the manufacturer.
One such retailer is Bloomingdale's, which also features Ralph Lauren, Calvin Klein, DKNY and Kenneth Cole. These brands enjoy low substitutability in relation to each other and hence benefit the retail store structure.
Apart from the substitutability of products, there are other factors that govern the adoption of the store-within-a-store model. One such factor is service. For instance, since the service required in selling cosmetics is more expensive, the store-within-a-store model benefits as customers pays lower prices thanks to lower substitutability and better service because of the location of the retail store. Having multiple stores in one store gives retailers the freedom to open at a prime location. This makes it easier for customers to come and shop for various items they may need, all at one place with lower prices and better service. For instance, a customer who uses public transportation benefits from having to travel to only one store to buy all the things she needs.
Another advantage of this model is that the store-within-a-store can help attract demographics that are otherwise hard to entice. For instance, J.C. Penney opened a Sephora cosmetics outlet in their store leading to an influx of the youth segment that the department store was struggling to attract.
All of this shows the economic benefits of adopting the model, as everybody involved prospers from it.
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