Shop-in-Shops Is the Future of Retail and Ecommerce

Shop-in-shops combine the best of the retail and DTC worlds.

When stores shuttered in March 2020, online shopping saved us. We went into survival mode, and that accelerated ecommerce buying by nearly a decade. And while the rapid shift in buying for crucial items and stuff to cozy up with at home for both brands and customers was something of a “new normal,” it lacked the personality and tactile experience of being in a store. Our ability to select new items was restricted to what we could put in a digital cart. This left many craving a return to this errand, retail normalcy in their everyday lives. 

Even the most seamlessly designed app or online shopping experience is fundamentally different to the tangible experience of “retail therapy.” Partway through the pandemic, armed with masks, knowledge about physical distancing, vaccines, and more, people began returning to retail businesses, first a little, and then a lot. Retail sales dropped in 2020 by 2.9% because of the pandemic but have since steadily risen with a projected $27 trillion in revenue for 2022. And, according to Adentro, July 2021 saw month-over-month growth in customer foot traffic to physical stores of 43%, and that number consistently stayed above 28% for the remainder of the year.

The option of an in-person shopping experience instead of just online is now a crucial, valued attribute for many shoppers who didn’t realize how much they’d missed it. It can also be a more effective way for brands to sell, because while online carts can be easily forgotten, physical ones are much harder to ignore: customers are likely to convert and return if brands excel with in-person service and experiences.

Small business owners and direct-to-consumer (DTC) brands that exist solely online and want to capitalize on this paradigm shift might find themselves dreaming of new alternatives or directions for their business. Some may even be dreaming about opening their own retail space. With that comes an anxiety-inducing dose of reality that opening a retail store is daunting, complicated, and likely very expensive. From finding the right spot, paying increasingly high rents, decorating and merchandising, and hiring staff, “going brick-and-mortar” is a consuming and costly endeavor with serious time and financial commitments—and a fair share of risk. 

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Another approach to selling and buying is shop-in-shops. With shop-in-shops, brands can rent square footage in a larger store’s brick and mortar space, and become an attractive alternative to both traditional retail and ecommerce efforts. Shop-in-shops, also known as pop-in shops, are not a new idea, with examples of cellular brands inhabiting space in big-box stores over the past three decades, and major fashion and apparel brands taking up square footage in familiar department stores. Today, a brand, usually a digitally native direct-to-consumer brand, tries retail on for size by renting out a portion of a larger retailer’s brick and mortar store. 

There are many examples of successful shop-in-shops big and small, but some heavy hitters are helping to turn the trend into a bonafide, lasting option. Last year, Target announced it would open “mini Apple stores” in 10 locations, complete with an experiential focus and specially trained staff. This comes following the announcement of Ulta Beauty setting up shop-in-shops in over 100 Target stores. Keeping with the beauty trend, Kohl’s is going to be playing host to 850 Sephora shop-in-shops, a move that should be executed by 2023. 

Like Tupperware parties without the pressure or a babushka doll for grownups, shop-in-shops offer surprise and delight, and combine the best of the retail and DTC worlds.

The resurgence of retail wasn’t a matter of if but when. Even amid news reports of economic troubles, more sickness in the winter, and so on, buying in-person is something shoppers missed. By providing foot traffic, revenue, and an experience for buyers, shop-in-shops become an advantageous path to help online exclusive brands test and possibly expand into the retail market more effectively than more traditional retail routes that came before it. Retail won’t overpower the online buying world or vice versa. Instead, they can and will live in harmony in new, interesting ways in the years to come. 

Here, we’ll explore the evolution of shop-in-shops and brick-and-mortar retail, the advantages of shop-in-shops for both big name retailers and DTC online brands now and in the future, and, finally, how this translates to consumer trust. 

In the beginning, there were pop-up shops

Although shop-in-shops are part of the retail and DTC lexicon, it would be remiss to leave pop-ups out of the conversation, if only because they share many similarities. For nearly two decades, pop-up stores were the answer for brands that wanted to dip their toes in the retail waters. Mainstays at food and culture festivals large and small, as well as at gallery openings and special events, pop-ups always offer customers a limited timeframe and experience with a brand that builds both hype and affinity. Even though they’ve become familiar to consumers by now, the novelty of the pop-up has not worn off. Not only do they offer the opportunity to “make a second first impression” with existing customers, this time in person, but they can also tell a brand story that builds anticipation, entices people to show up and shop, and helps create lasting intrigue. 

Pop-up shops that turn retail into an immersive brand experience can linger in the minds of customers for years to come. Standouts of the form include 2019’s Depop Live, a two-day pop-up in New York that featured workshops, panels, and performances by fashion-industry creatives. Another win is the Hello Kitty Cafe, themed food trucks that bring joy to kids and adults alike by serving sweet treats alongside Hello Kitty merch. Speaking of merch, musicians can bring theirs directly to fans via pop-ups, like Kendrick Lamar did on his DAMN. tour in 2017, offering limited edition merch and even showing up at some of them much to the delight of his fans.

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The natural evolution of the pop-up shop is the shop-in-shop. Shop-in-shops differ from pop-up shops because they are within the walls of existing, bigger stores. Planned examples of these include department store chain Nordstrom, which is set to open 40 shop-in-shops spaces selling high-tech fitness mirrors made by Tonal, and Lids, a sports apparel retailer in Canada that will welcome 45 shop-in-shops featuring DSW and The Shoe Company products.

Why shop-in-shops are beneficial for DTC brands and enterprise retailers

While the many brands who pursue the shop-in-shops model operate separately from the retail space they are in, they also reap the benefits of the higher foot traffic and built-in customer base the bigger stores come with. Shop-in-shops are a win for big brand name retailers and DTC-first online companies alike: this partnership can entice customers with an element of the unexpected while bolstering the appeal of both brands. 

Affordability is a massive advantage to the shop-in-shops model. The pandemic resulted in a surplus of available retail spaces followed by commercial rent decreases. The US, UK, and France all saw 125% increases in available retail space listed between June to August 2020, according to research by Appear Here. Even though things have picked up since then, the current moment remains a prime time for brands to explore the benefits of having a physical space within well-known retailers. 

These setups prove hugely beneficial to retail owners who can leverage their square footage while providing a relatively safe way for DTC businesses to access new customers in a hands-on way. 

Shipping and delivery is costly, and oftentimes buyers are asked to absorb those costs. Combined with the expectation of free shipping that many DTC consumers look for, these high costs risk a reduction in profitability and lead to abandoned online shopping carts. Buying highly buzzworthy DTC products in places shoppers already exist, like department stores or familiar retailers, can only help in the bid for more brand awareness and revenue.

Shop-in-shops, while an enticing way to bring in new customers to a new brand, draw on one of the most powerful marketing tactics of modern-times: nostalgia. An example of this is legendary Canadian retailer Hudson's Bay Co. announcing their plans to bring back the country’s much-beloved Zellers brand as a shop-in-shop to be housed in some of their department stores. Along with this, they’ll also have a dedicated Zellers ecommerce site, bringing the old into the new digital world. In addition to Zellers, The Bay is welcoming Mountain Equipment Co-op, another Canadian classic, as a shop-in-shop in select stores, too. 

Not only does this draw on the memories shoppers may have of these retailers, but it also helps all three brands by calling upon the collective force of convenience, reminding people why they loved these brands in the first place—becoming a physical place where brands associated with pride for one’s country can exist together peacefully. 

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Retailers will benefit from bringing on digitally native brands or resurrecting ones we thought long gone. Customer demographic will widen, and perhaps—in the case of hyped, specific brands brought into physical spaces—create a feeling of community. The biggest advantage for retailers, though, might be that smaller shops renting space in their store come with their own marketing and merchandise, taking pressure off of retailers to be constantly updating their store with new products or plans. 

They also offer each other a bit of insurance: both for DTC online brands and enterprise retailers. As we saw in the pandemic, outside forces can sometimes make one-stop shopping a necessity, so visiting one large store and still getting boutique experiences within it gives customers the best of both worlds. 

Shops-in shops add a real treasure hunting element to the big-retailer shopping experience that usually doesn’t exist on its own. Like an Easter egg for consumers, these shops can give shoppers a rush of excitement that makes the experience especially satisfying. 

Why shop-in-shops is the future of retail and ecommerce 

The lessons the pandemic bestowed upon us were many, but one that stood out was that without the ability to leave our homes, we are at the mercy of the internet to meet even our basic needs. Retailers learned they need to have a strong ecommerce platform to succeed, and that won’t change. With shop-in-shops, online brands and big box chains alike now have a new pathway to bridge the digital and physical experience, changing how buyers think and buy the products they want. Digitally native brands can get up close to their customers in a way that simply wasn’t accessible to them before. The partnerships these arrangements offer give brands access to a larger customer base without the pressure of needing a physical location to house their stock. 

Shop-in-shops reduce risk for buyers and brands. For DTC brands, shop-in-shops are a much more affordable option than renting out space for a stand alone store, and this path has cost-saving measures by reducing the rent of their host store. Smaller brands can expand more quickly than they would if they were opting for full brick and mortar businesses, by opening shop-in shops in multiple retail locations. This can help to diversify their reach and become familiar to different customer bases. This is a great way to test certain locations for their retail potential, especially if permanent brick-and-mortar stores are a future consideration.

The future of buying revolves around a key pillar of flexibility. How nimble will a brand be both online and in-person? That will help determine if a customer is going to stick around. Shop-in-shops position brands so they adapt to consumer demands and trends due to the relative flexibility of the arrangement. They are also a step in the multichannel, or “click and mortar,” retail direction where customers get to choose whether they shop online or in-person. 

Because retail shopping offers customers a holistic shopping experience, running a shop-in-shop can give retailers the ability to bring their brand narrative to life and create memorable shopping experiences for customers. According to a study by Forrester Consulting, conducted on behalf of Shopify, more than a third of consumers (35%) have plans to engage with brands via experiential moments. One way to create experiential shopping moments is by taking advantage of seasonality. Businesses offering seasonal fare can maximize marketing and selling efforts during the time of year that makes the most sense for their goods with a shop-in-shops.

The idea that DTC business is incompatible with retail is the product of equating the convenience of online shopping with the “burden” of in-person shopping. Aside from the fact that the pandemic turned in-person shopping from inconvenient into an act of freedom and fancy, putting them together doesn’t make one work less effectively. The two shopping styles exist in harmony more than we’ve previously given them credit for: they are meant to give consumers different shopping experiences. 

Shop-in-shops give consumers something crucial: options. Buyers love to pick a lane that fits their lifestyle. Discovering new brands within a trusted large store—and leaving with the knowledge that a brand's products, and a store, are available online— is exciting, convenient and happy-making all at once. Knowing that two brands you like also like each other simply increases the good shopping vibes, and everyone benefits.

The momentum retail gained will stay apace in 2023, but not without a few challenges for brick and mortar stores. There is still a chance of further economic slowdowns in 2023. All of this is made more difficult by the fact that the past three years have been full of change and unprecedented loss and grief that is still very difficult to unpack.

Forewarned is forearmed. Retailers that have adapted and survived the last three years have learned countless lessons about how to navigate changing circumstances. Online brands thrived in an ecommerce world but now the winds are shifting again. Remaining agile and fast is crucial for brands and brick-and-mortars alike. This is where shop-in-shops is the advantage, and the future.