Stores-Within-a-Store: An Overrated Strategy

by Alyssa Oursler | March 14, 2013 2:06 pm

Earlier this week, Target (NYSE:TGT[1]) announced that it was calling it quits[2] with its “Shops at Target” concept — the big-box retailer’s take on the stores-within-a-store layout.

If it sounds familiar, that’s because it’s the same strategy JCPenney (NYSE:JCP[3]) is banking on as part of its turnaround, and one Best Buy (NYSE:BBY[4]) recently decided to adopt to improve its own fortunes.

The change of direction implies that the strategy didn’t go well for Target. If that’s the case, frankly, I’m far from surprised. The store-within-a-store concept sounds compelling in theory, but the strategy falls short once applied to the kind of business these companies are trying to do.

The Concept

Target announced plans for its in-store boutiques last January. JCPenney’s specialty shops — just one piece of the attempted turnaround led by CEO Ron Johnson — were announced about a year ago. And finally, Best Buy jumped on the bandwagon just before Target jumped off.

Even in the wake of Target’s change of heart, I understand some of the strategy’s appeals, such as:

  1. It draws attention to certain products: For Best Buy, the goal is to give kitchen appliances — a booming sector that’s grown for nine straight quarters — a more prominent spot[5] in the retailer. That makes perfect sense. Then for JCPenney, sorting clothes by brands makes it easy to appeal to those with extreme loyalty. Why browse through all the cookware when you know you want one brand to begin with? Just hit up that mini-shop.
  2. It attracts new customers: In the case of JCPenney — and until now, Target — the move could attract a new type of customer … at least in theory. As the Huffington Post put it, Johnson hoped that “customizing 100 unique shopping experiences will help the retailer attract customers beyond frumpy moms on a budget, its long-time demographic.” Adding a new format — and hip one at that — is a way to keep the store fresh for existing and future customers alike.
  3. It’s a better experience: Finally, the shift is also meant to improve the shopping experience. Target, for one, was trying to emphasize the idea of “discovery,” while JCPenney was trying to imitate Apple (NASDAQ:AAPL[6]) — Johnson’s former employer — and high-end retailers like Bloomingdale’s. The goal? A more “immersive” shopping trip. Immersive is a great buzzword — and one that’s hard to argue with — so I can see why people got excited.

The Reality

But when it comes down to it, the stores-within-a-store concept is nothing more than a remixed merchandising model, and the possible upside is unlikely to appear — something to which Target’s move could testify. Here’s the trouble with each perk:

  1. Retailers already do it: While in theory it seems like these mini-stores could make it easier to find things, big-box retailers and department stores alike are already sorted into sections (by type of product) and have other ways to highlight certain items. For instance, Target has end-cap displays, while JCPenney uses feature tables.
  2. Not for the old customers: On top of that, the idea that JCPenney’s new format is convenient for customers with extreme brand loyalty just shows yet again how JCP ignores what existing customers want. One of the biggest appeals of destinations like JCPenney and Target is price — not brand (and even many popular brands are attractive because of their pricing[7]). Of course, JCP also has alienated its existing customer base by tossing sales out the window[8], which it reneged on recently[9]. Both changes (in pricing and layout) were meant to target new customers, but instead appear to have pushed out old ones.
  3. Experience isn’t paramount: Along the same lines, the reality of said current customers is that they are not often driven by the “experience.” A high-end retailer like Apple (which creates expensive, cutting-edge technology) doesn’t have the same goals — and therefore shouldn’t have the same strategies — as stores like JCPenney and Target, where customers generally are hunting for deals. An immersive experience sounds nice, but it assumes the experience is the draw. And that’s just not the case. (In fact, if these customers are seeking any experience at all, it’s likely the bargain-hunting one, which once again, JCP has already flubbed.)

The Bottom Line

Of course, all of these problems are moot when you consider the biggest issue of all: You have to get people in the stores for the new design to matter.

When chatting with some friends — everyday consumers — about the store-within-a-store concept, most were unfamiliar with it in the first place. It might be common from the perspective of analysts and even investors who follow CEO chatter and turnaround strategy, but it’s the shoppers who must care for the strategy to ultimately be effective. And at the end of the day, many simply don’t care — and a few do because they don’t like it.

That’s because what really matters, in the case of stores like JCPenney, is what products they can get, and at what price — not how they get them.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

  1. TGT:
  2. calling it quits:
  3. JCP:
  4. BBY:
  5. more prominent spot:
  6. AAPL:
  7. because of their pricing:
  8. tossing sales out the window:
  9. reneged on recently:

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