Small Format Stores Poised to Grow in 2022

Small format stores—small shops in big stores—could be the next big thing in retailing, a trend likely to play a key role in shaping the future of brick-and-mortar retail in 2022, Placer.ai predicts.

In support of its contention, the research firm notes with the opening of 200 Sephora shops in Kohl’s locations, Kohl’s stores containing Sephora had consistently outperformed those without in year-over-two-year visits.

“Kohl’s location data from July through October only affirmed the potential of the shop-in-shop concept. Comparing Kohl’s visits from the last four months to a July 2021 baseline showed that Kohl’s with Sephora locations had higher growth in visits than Kohl’s without the Sephora addition,” the white paper says.

Placer.ai reports Kohl’s CEO Michelle Gass said in a recent interview that Sephora in Kohl’s shops was driving “extraordinary growth” in Kohl’s beauty business and boosting average unit sales in the category with Sephora customers purchasing a across a wide range of beauty categories and price points and tending to shop across the store.

Another benefit for Kohl’s Gass pointed to in the interview with the Sephora additions is that over 25% of those shopping in these Sephora spaces are new to Kohl’s.

Other formats in addition to strict shops-in-shops are also taking hold that show promise, Placer.ai notes.

Among the variations, the company says this year Macy’s launched three “off-mall” store formats of Market by Macy’s while Bloomingdale’s opened its first small Bloomie’s store in Fairfax, Virginia.

“More retailers are showing (willingness) to test new concepts as a means to better optimize their overall ability to reach customers. Expect these tests to drive wider adoption and interest in pushing new boundaries-especially for more established retailers looking to diversify their mix,” Placer.ai predicts.

This trend was identified by JLL last October, when it noted some retailers are focusing on smaller, more efficient locations with the average store footprint continuing to fall, dipping below 3,100 square feet in the second quarter.

Those retailers have included Target which has partnered with Ulta Beauty to launch 100 shops-in-shops this fall, with a target of 800 of these mini-shops in the next few years.

Another aspect of this trend was separately highlighted last year when Erin Schmidt, senior analyst and co-author of the recent Coresight Research report, The Future Model in US Department Stores, said as department stores look to navigate the post-pandemic world, it may make sense to explore working with other retailers in arrangements that could benefit both parties.

“I think partnerships with other retailers are going to be a big, big driver for department stores.”