The store-in-store concept is a thriving retail strategy that has reached a wider audience and scaled businesses among big box retailers like Target, Walmart, and others. These retail giants are exploring brand partnerships, using the store-in-store (pop-in shops and shop-in-shop) concept to attract new prospective customers. Retailers considering this strategy can implement several revenue models, including operating, co-operating, concession, and lease agreements. However, lease agreements are the most popular option, where a section of the store is subleased to another retailer. The interior real estate assigned to sub-lessors varies from 50 to 2,500 square feet. The store-in-store concept allows brands to leverage the existing customer traffic of a larger retail space while the hosting store benefits from diversifying its portfolio of products and experiences.

Of the existing partnerships, beauty brands have seen the most revenue traction. The cosmetics and beauty sector was the fastest-growing U.S. retail category last year, per our The U.S. Beauty Consumer report, with consumers spending $94.36 billion. Analysts attribute the increased spending to the “lipstick effect,” where consumers prioritize affordable luxuries like beauty products even in an economic downturn.

Sephora partnered with department store Kohl’s in 2020 to bring prestige beauty to Kohl’s customers. The rollout of 850 Sephora at Kohl’s stores made over $1.4 billion in sales in 2023 and is on track to reach $2 billion by 2025. The strong performance replicates across Kohl’s portfolio, with 140 new smaller locations planned to open later this year. Kohl’s reportedly sees these types of partnerships as attracting new customers. In a recent announcement from the department store, Kohl’s entered into a brand partnership with Babies R Us to launch a rollout of shop-in-shops of new baby clothing, accessories and gear aimed to entice their core consumer of Millennial moms.

Target experimented with the concept in 2021 when they partnered with Ulta to launch mini shop-in-shops to complement their beauty care offerings. It was a bold move for the beauty brand, which has undoubtedly benefited from the increased brand visibility by Target shoppers while offsetting real estate costs. Since then, Ulta Beauty has made a big push to improve its beauty offerings and attract new customers. They expanded their partnership with Target to open Ulta Beauty shops inside select Target stores, offering shoppers a curated Ulta experience with new products and a virtual tool, GlamLab. This virtual tool allows customers to try makeup digitally rather than share samples with others. Ulta Beauty aims to have at least 800 shop-in-shops inside Target locations and operate more than 1,350 retail stores countrywide. 

Claire’s is the most recent brand to expand its retail presence by partnering with Walgreens to sell its accessories and cosmetics in over 4,400 stores nationwide. Claire’s expansion strategy is to grow through concession locations in addition to their stores. Claire’s will manage the inventory at Walgreens, selecting items based on what their young customers want. A good move given that teen spending on beauty products has reached its highest point in six years, growing 8% YoY annually, according to a recent eMarketer survey. This partnership follows a period of significant growth for Claire’s, with revenue increasing 53% in 2022.

Nordstrom has a long-standing pop-in shop initiative that integrates up-and-coming brands and designers in a themed shopping experience that alternates every four to six weeks. This year’s Nordstrom’s Pop-In shop is focused on self-love and will offer lingerie, loungewear, body care, and intimacy products designed to be inclusive in size and production methods. This limited-time pop-up aims to empower customers to explore self-discovery. 

As retailers wait it out, the store-in-store concept benefits established retailers and smaller brands. From a CRE perspective, the smaller store tests out new markets with a subleased space, which helps offset the larger retailer’s overall real estate costs and allows the larger retailer to test new ideas and product categories without a long-term commitment. It’s a win-win, enhancing the overall shopping experience for existing customers, leading to increased customer satisfaction and potentially in-store purchases.