Stores within bigger stores seem to pump up sales

It seems almost counterproductive.

A grocery store with shelves of coffee for sale offers a Peet's Coffee & Tea stand selling fresh-brewed java and coffee beans.

A department store with yards of makeup counters installs a ministore selling handmade soap and natural cosmetics.

Turns out, the more the merrier. The more coffee brands, the more customers. The more makeup lines, the more hand lotion, the more food choices, the more sales.


You might notice that department stores, restaurants and grocery stores are beefing up what looks like a store within a store: Peet's Coffee & Tea inside some Raley's grocery stores; Sephora makeup stores inside JCPenney stores; and coming soon, Sunglass Hut stores in Macy's.

The collaborations will continue to multiply rapidly, retail analysts say.

The J.C. Penney Co. will soon launch Mango ministores, selling a popular European clothing brand targeting young women.

The co-owner of the popular Sacramento sandwich-shop chain La Bou hit on the idea of offering a miniversion of Lemon Grass, a contemporary Asian restaurant, inside his Howe Avenue restaurant.

"It's a concept that is working well for us," said Trong Nguyen, who is a co-owner of both restaurants. "We're offering more choice and leveraging the infrastructure," he said, which he frankly explains means having only one restroom for the two restaurants.

"Sometimes it's stronger to offer more than one brand, making it better for the customer. Sunglasses, electronics, music, whatever it is, it can create a better, more powerful mix. That's where we're heading," said Marshal Cohen, a chief retail industry analyst with NPD Group.
Retailers need to offer something different from their competition and make better use of their space, he said. Stores have drawn new services and retail lines onto their floors before, but without the fanfare going on nowadays, Cohen said.

That's because it's all about the brand, especially those marquee brands.

"Has the power of the brand gotten lesser or stronger? It's gotten stronger," Cohen said.

J.C. Penney encountered cold shoulders when it tried to attract marquee makeup brands to the store, said Tim Lyons, a spokesman for the Texas-based department store.

"What we were offering was not the most current and relevant," he said.

Penney's abandoned makeup altogether, then partnered with Sephora, the European makeup store that carries its own line, prestige names and trendy favorites such as Urban Decay.

To much fanfare, Sephora shops opened in JCPenney stores in 2006, some of the first of which were at the Galleria at Roseville and at Arden Fair mall. The minishops are in 155 JCPenney stores, a number that continues to grow, Lyons said.

Penney's got what it needed.

"It gave them cachet they didn't have," said George Whalin of Retail Management Consultants in Carlsbad.

Sephora also benefits by spreading its brand within the vast reach of the national department store, he said.

"What Sephora brings is the ability to merchandize and sell cosmetics that Penney's hasn't been able to do well," Whalin said.

Attracting customers who would normally bypass your store is another benefit, said Cohen, from NPD.

"If you stop to get a Starbucks in the grocery store, maybe you'll pick up some milk and frozen pizza on the way out," he said.

The financial arrangements vary, with some stores contracting with another store to operate independently under its roof.

Lush, known for its natural cosmetics and fragrant, colorful slices of handmade soaps, opened ministores in Macy's as leased departments, meaning Lush buys and owns the inventory and employs the clerks.

"The customer can't really tell the difference," said Jim Sluzewski, a senior vice president with Macy's. Purchases can be paid with a Macy's credit card.

But Penney's employees work in the Sephora stores, wearing the Sephora's trademark black uniforms after undergoing training with Sephora, and Penney's owns the merchandise, Lyons said.

Peet's Coffee has its own 200 corporate-owned stores, and it extends the brand with 100 licensed locations in grocery stores, casinos, airports and college bookstores, said Peter Keim, general manager of wholesale licensing for Peet's.

In their licensing agreements with grocery stores like Raley's, the grocery store builds and operates kiosks and trains employees to Peet's specifications. Afterward, Peet's does detailed audits and sends "mystery shoppers" to check on quality, Keim said.

"But at the end of the day, it's their employees and capital and inventory," he said.

Ministores could fill a gap in other ways.

Some retailers might not have the critical knowledge to sell ever-evolving technology, such as cameras and gadgets, Cohen said.

"Everyone would love to sell flat-screen TVs if they could," he said.

Macy's offers eSpot, which looks like a big vending machine. It sells iPods, camcorders, digital cameras and earphones displayed like potato chip bags and sodas.

The department store also decided that Sunglass Hut has the expertise to sell sunglasses and lined up an exclusive deal, said Sluzewski, the company vice president.

"It's better than trying to do it ourselves," he said.

The company feels the same way about coffee. Starbucks serves coffee to Macy's customers – in four locations inside one New York City store.

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