Part of the problem with department stores, according to Lee Peterson, has been the arrival of in-store shops. The EVP of brand & creative services at WD Partners and RetailWire BrainTrust panelist believes in-store shops have not only cluttered selling floors and led to stores losing their identity, but have also taught department stores' best brands how to open their own stores.
Also known as shop-in-shops, in-store shops began appearing in force in the late eighties as valuable floor space was set aside for the most productive vendors. Designed to create a specialty store "feel" within the department store environment, most shops feature attractive fixturing, cohesive merchandising, tailored music and dedicated staffing. Other retail channels also have created dedicated space for key brands.
But Mr. Peterson believes the prime beneficiaries of in-store shops at department stores have been the brands. While in-store shops initially gave brands a block of selling space and more in-store marketing clout, they've also worked as training grounds for exploring their own stores.
"At first, the eyes you'll get from being a shop within a shop are very attractive, but eventually, the real benefit will be to cut out the middle man and get out to retail on your own," said Mr. Peterson. "Sure, retail's not easy, but in this day and age especially, there's certainly enough retail experts out there to help you be successful in your planning and execution."
For retailers, the major downside is that as brands become cooler, they either can start demanding better terms and conditions or start opening up shops across the street.
To keep in-store shops "fresh and unique," Mr. Peterson believes that stores have to continually create new spaces for the latest, hip brands and he noted that "there are always enough new, cool brands to go around if you are in tuned with the market." But he also said this can be a risky strategy given the investment.
"You're not always right, but like anything to do with trends and fast moving consumer desires, as long as you're right more than you're wrong, you'll do very well," said Mr. Peterson.
A more effective - or less risky - alternative would be for department stores to somewhat return to their former model in which the hot brands were mixed among assortments and trends drove the store layout.
"Frankly, I like the Forever 21 model of brand within brand versus the shop within shop concepts of old," said Mr. Peterson. "Just get the hottest brands in your store -- forget about letting them have a 'shop' -- keep them hungry. Spread the 'hot' brand around your store in coordinated groups that fit in with several other brands, including (and especially) your own. Whole Foods is actually very good at this with their 365 brand as it blends in with all kinds of great products from around the world and provides great choice without denigrating the mother ship."
Discussion Questions: Has the arrival of in-store shops been positive or negative for department stores and other retail channels? What changes would you like to see in how they're set up or operated?