SWAS for E-Commerce and Big-Box Retailers: Visual Merchandising and Space Planning is a Win-Win Strategy
The ever-changing retail landscape is seeing a fascinating trend: E-commerce giants and legacy brands are reviving brick-and-mortar presence through “store-within-a-store” (SWAS) concepts.
While the store-within-a-store concept is nothing entirely new, the participating brands and their motivations are.
Digital-only brands, like Amazon and Warby Parker, are moving into existing brick-and-mortar spaces instead of standalone stores, while dying brands, like Toys “R” Us, are making a comeback by adopting the same strategy.
This trend signifies a shift in retailers’ approach to physical space, raising new implications for visual merchandising and space planning.
Scaling E-Commerce to Brick-and-Mortar: The Risk-Reduced Approach of SWAS
Transitioning from online-only retail to brick-and-mortar stores is not easy.
(In fact, One Door wrote a how-to guide on scaling your e-commerce brand into physical stores to help.)
It’s also not cheap. Whether you pay in sales numbers or brand reputation, there’s a lot of risk involved.
However, digitally native brands feel the pressurized need to increase customer trust. A physical space to shop lends credibility and can boost conversions both in-store and online.
To begin their brick-and-mortar journey, many e-commerce brands are skirting the full risk of building a standalone store by adopting SWAS models.
Here’s why:
- Reduced financial risk: Opening a store comes with significant expenses. SWAS minimizes these costs by sharing resources with the host retailer, allowing brands to establish a physical presence without the financial risks of full-scale operations.
- Access to built-in foot traffic: SWAS locations benefit from the existing customer base and foot traffic of the host retailer. Brands don’t need to invest as heavily in marketing to draw customers to a new location since they can tap into shoppers who are already visiting the larger store.
- Market testing and data collection: SWAS models let e-commerce brands gather data on customer demographics and buying behaviors in physical retail without the commitment of a full store. This market testing can inform future store openings or modifications to products and visual merchandising strategies.
- Increased sales and brand exposure: The store-in-a-store concept works best when two retailers have mutual or complementary customers and products. By co-locating with reciprocal retailers, e-commerce brands can align with retailers that share or enhance their target audience, creating cross-selling opportunities.
The bottom line is that the SWAS model offers more flexibility to pivot than standalone stores. Store-within-a-store allows e-commerce brands to either adapt to changing shopping trends or exit if the location underperforms –– all with less financial risk.
Legacy Brands Reborn: A Case Study for Toys “R” Us & Macy’s
SWAS isn’t only for new or e-commerce brands. Legacy brands and products are driving a retail renaissance.
In fact, nostalgia is highly influential when it comes to consumer decision-making and purchases.
“More than half of U.S. adults say they are likely – either ‘extremely’ or ‘somewhat’ likely – to make a purchase when it makes them feel nostalgic for the past,” according to the CivicScience What We’re Thinking: Insights on Current Events & Consumer Psychology report.
A textbook example is Toys “R” Us.
In the mid-1980s, “Toys “R” Us accounted for a quarter of all toy sales in the United States.”
However, its stronghold on the market share for children’s toys began to shake in the 1990s. The company filed for Chapter 11 bankruptcy but made a quick rebound.
In the early 2000s, bigger box stores, like Target and Walmart, expanded into the market for children’s toys and books. This further jeopardized Toys “R” Us’ market share.
In 2017, the toy store retailer filed for bankruptcy a second time. The company had almost $5 billion in debt and closed all its stores.
With debt and operations outpacing sales, plus new competition from larger retailers, Toys “R” Us was due for a drastic change.
While a massive store was too much overhead – as cited in their bankruptcy documents – the toy retailer moved to SWAS models to stay afloat.
By 2022, Toys “R” Us got a new lease on life with a Macy’s partnership.
Toys would be sold in 400 U.S. department stores, and Macy’s revived the Toys “R” Us brand:
- Renewed focus on the customer shopping experience. Macy’s added new customer experience benefits, including demonstration tables for new toys, play areas, and a life-size Geoffrey giraffe photo opp.
- Better visual merchandising. Macy’s also provided a brand refresh for Toys “R” Us. Consumers cited the toy brand as “stale” and “uninspiring,” unable to shake its 80s and 90s identity. Toys “R” Us had to adhere to new visual merchandising standards fueled by Macy’s luxurious shopping experience but kept the Toys “R” Us signage and images, as it’s a recognizable brand.
- Product adaptability. The toy retailer made a comeback just in time for Gen Z. While nostalgia is great for generational shoppers, Macy’s quickly recognized the need to adapt to the new generation of kids. Toys “R” Us at Macy’s is a place where kids can play, see, and touch the toys, which makes for a better shopping experience than online.
This partnership showcases the power of SWAS models. With the right strategy, these companies brought back some of the old magic – both for Toys “R” Us and Macy’s.
Hard Numbers: Benefits of the SWAS Model in Retail
A list of vague benefits for the store-within-a-store model would include:
- Less overhead due to shared expenses
- New customers due to built-in brand recognition and existing foot traffic
- Cross-selling products and bigger basket sizes
- And so on…
But, if you’re an industry exec, you want to know about the bottom line: What do those benefits look like in terms of hard sales numbers and deep brand loyalty?
Take a look at Kohl’s for the potential.
Kohl’s “was never really in the beauty business,” according to Kohl’s CEO Tom Kingsbury.
However, the company saw an opportunity to usher in Sephora’s young demographic as new-age department-store shoppers. Sephora brings a trend-centric and more diverse customer than Kohl’s could ever target on its own.
Plus, Sephora offers luxury beauty, fragrance, and hair care products that loyal Kohl’s shoppers are accustomed to.
The retail partnership began in 2020, and Sephora at Kohl’s quickly became a major success:
- More sales. Sephora at Kohl’s sales exceeded $1.4 billion in 2023. The department store said it expects Sephora’s sales to surpass a previously projected goal of $2 billion in sales by 2025. (For reference, that’s about 10% of Kohl’s net sales in 2023.)
- New customers. 40% of customers who shop Sephora at Kohl’s are new to the department store.
- Bigger basket size. 40% of customers who came for Sephora at Kohl’s have additional items in their basket.
- Scaled stores. At the end of 2023, Kohl’s had Sephora in about 900 of its approximately 1,200 stores. The entire chain should have the beauty brand shop-in-shops by 2025.
New retail partnerships. Because of the success of Sephora at Kohl’s, the retailer is confident in finding other beneficial SWAS opportunities. Investors announced that Kohl’s would open Babies R Us shops in 200 Kohl’s locations in fall 2024.
What Store-within-a-Store Means for Visual Merchandising
Store-in-a-store setups introduce unique visual merchandising challenges. These spaces require distinct design elements to create brand differentiation and enhance the customer experience.
Here’s how SWAS influences visual merchandising:
Distinct Visual Identity
Merging two (usually recognizable) brands in a shared space is a complicated visual process. SWAS brands must visually set themselves apart from the larger host retailer, creating a cohesive, identifiable look within a shared space.
Creating synergy in the space without overlapping signage and displays can be done with the right tools. Visual merchandising software, like One Door, can help:
- Categorize pieces of content from each brand to help distinguish visual identities
- Identify unique lighting, custom shelving, and other fixtures to reinforce two separate brands in one space
- Add interactive elements to boost the customer experience and make shopping more participatory
Proper Space Planning
The foundational concept of SWAS models is that there’s a host retailer and a smaller retailer. The smaller retailer has less space, so it must make efficient use of it without compromising customer experience.
To optimize store layouts in these confined spaces, you need visual merchandising software. An all-in-one platform, like One Door, helps:
- Establish clear boundaries for each brand within the larger store
- Plans layouts to maximize product displays and manage inventory visibility
- Helps experiment with configurations to attract attention in limited space, like using vertical space or multi-functional fixtures
- Strategize traffic flow to easily guide customers in and out of the SWAS
Omnichannel Retail Presence
Most of these retailers sell online and in-store, which means visual merchandising software can help:
- Create a seamless experience that bridges the online and in-store environments for the host retailer and SWAS while maintaining individuality
- Reinforce brand consistency and encourage cross-channel engagement, like updating signage to add QR codes to the brand’s website or app-exclusive offers
- Adapt to fast-paced trends and seasonality by quickly swapping out displays and communicating planogram changes to store teams
As brands embrace SWAS, visual merchandising and space planning are pivotal to creating unique, cohesive experiences that draw customers into the physical store.
To see how One Door can help with the visual merchandising and space planning of your SWAS strategy, request a demo.