Is the ‘shop-in-a-shop’ the solution for retailers?

Heiner Evanschitzky

More retailers are looking at new ways to expand their business, with any form of diversification considered – and many of these non-food. Now, after Sainsbury’s announced plans to sublet floor space, could small retailers learn something from the actions of the supermarket?

by Professor Heiner Evanschitzky

Last month Sainsbury’s announced it would start subletting floor space to other retailers, as part of its long-term plan to free up 1.5 million square foot for non-food retailing. It’s been obvious for some time that the Big Four supermarkets have over-reached themselves on space. Our shopping habits have changed fundamentally since the days of the weekly shop; we now buy what we need, when we need it, with consumers often using their local convenience store. But the supermarkets continued to build huge, out of town hypermarkets that – unsurprisingly – have turned out to be unprofitable and over-resourced.

The concept of a shop-in-a-shop allows retailers to use their excess floor space more wisely, and is by no means confined to the big boys. Independent retailers can work together to offer customers what they want, where and when they want it, for the benefit of all parties.

Producers and tenants – especially start-ups or ‘kitchen table’ enterprises – have the chance to directly interact with their customers whilst receiving advice and help in running their business from established shopkeepers. Sharing space in a physical store also positions them in a good location, attracting footfall and therefore new customers. Tenants sub-letting from strong retailers can also benefit from the halo effect; positive customer sentiment and loyalty to a retailer then translates into loyalty towards the shop brand – including complementary products being sold in-store.

The advantages are also there for retailers themselves. By letting out excess space, retailers can generate extra income from rents, appeal to new customers and increase the attractiveness of their store as a shopping destination. Partner with a particularly strong producer and customer perception of your store as a brand will be lifted, especially if they complement the products you already have on offer.

There are, of course, disadvantages. As with any relationship, cooperation and compromise are key. Depending on the brand, each partner is perceived as responsible for any service failure on the part of the other. If an independent shop within, for example, a Tesco delivers poor products, chances are that customers will blame Tesco – and you can bet that the supermarket will be none too happy about it.

The key to making a ‘shop-in-a-shop’ work is to choose complementary partners that offer a wide, but targeted array of products. For example, it makes sense for a dry cleaners, bakery or even nail bar to be in a convenience store, as it provides a retail hub for local customers, allowing them to get everyday products and services in one location. This is particularly beneficial to both retailers and customers if the store is in an area of high footfall – near homes and offices, for example.

The brands must be similar enough in style and purpose not to cause confusion; a Louis Vuitton shop would find few profitable customers in a low end discounter, for example. But if you can strike the tricky balance between giving customers what they want and not overloading them with too much choice, stores of all forms can reap the benefits of the ‘shop-in-a-shop.’

Professor Heiner Evanschitzky is a Professor and Chair of Marketing at Aston Business School, a long established research-led University known for its world-class teaching quality and strong links to industry, government and commerce.