Special Report: Vendor Shops and Beyond

At one mall in Garden City, N.Y., Nike has built vendor shops at Dick's Sporting Goods, Foot Locker and Finish Line. It seems like cannibalization, considering the Beaverton, Ore.-based sportswear and equipment company operates a Nike store in the same mall.Not so, says Mike Poole, vice president for new customer development with Rolling Meadows, Ill.-based RTC, a vendor for Nike. "Nike is very conscious about finding the right balance among its own stores and shop-in-shops, as well as the right balance with individual retailers. The challenge is, how do we maintain the Nike retail DNA but give the individual retailers their own sense of flavor and uniqueness?"Nike began using the shop-in-a-shop concept, or vendor shops, beyond the Jordan brand in 2009, ramped things up in 2010 and opened more than 100 such locations in fiscal 2011, according to its annual report. (The company did not respond to requests for interviews.) While retailers might see these shops as a way to compete with brand-owned stores, Nike hasn't necessarily found the competition eating away at sales. "They're being pretty good about separating one another in terms of the types of products they give, with exclusives in basketball to Foot Locker, running to Finish Line," says Camilo Lyon, analyst with Canaccord Genuity, New York. "It is an interesting dynamic that needs to be managed, and so far it's being managed pretty well."Nike has become more discerning about which products it places where and with whom it partners, Poole says. "There's been a focus over the last year-and-a-half to go from more stores to more important stores. Elevating better-performing locations has been a focal point, and I think will continue to be going forward."But sales are not the only consideration; Nike is also concerned about being in the right merchandising environment, Poole adds. "Certain retailers [not identified] … didn't maintain the brand equity Nike is looking to be associated with; Nike pulled away from those retailers. That speaks volumes to where Nike is going with its partnerships. Nike is willing to walk away from an account that did over $1 billion."Athletic DestinationsVendor shops began in the apparel sector but have bounded into the world of sporting goods during the past few years, with Nike leading the way. The company has opened shops that it dubs "Field House" at Dick's, "House of Hoops" at Foot Locker and "Nike Track Club" at Finish Line. Lyon says the branding simply reflects the traditional product assortment and what the consumer expects to find in each location, with Foot Locker seen as a basketball destination, Finish Line seen as a running destination, and Dick's seen as sort of a one-stop shop. Nike has collaboratively opened 44 brand-exclusive "House of Hoops" stores in the United States and 23 "Nike Track Club" locations, supporting both concepts with dedicated microsites accessible from the retailers' home pages.Elsewhere, Under Armour has partnered on an "All-American" shop-in-a-shop at Dick's and "Armourville 2.0" at The Sports Authority. The North Face has opened similar shops at Dick's, while Adidas created NBA shops at Champs Sports, which is owned by Foot Locker.All those partnerships hold synergies for both brands and retailers, industry observers say, and they don't necessarily cannibalize either the brands' other partnerships or brand-owned stores. "It's something that's been evolving for a while," says Mike May, director of communications with the Sporting Goods Manufacturers Association. "It's something that is good for both the retail store and the brand. It shows a commitment to the brand by the retailer, and it creates a different and separate shopping experience for the consumer that might prompt them to spend more money."From the retailer's point of view, the shop-in-a-shop concept presents an opportunity for growth during a time of stagnant mall development, says Lyon. "This is almost becoming a different and unique way of supplanting that lack of organic square footage growth opportunity until it actually does materialize. It's something that I think the athletic [chains] clued into a little bit later than some of the other retailers. They found this gem whereby investing a little bit of the money into building out a shop-in-a-shop improves the sales by 25%."May figures part of the motivation for retailers is the ability to compete against brands' own stores. "It may be somewhat of a reaction: 'To encourage the manufacturer not to create his own store, why don't I create a store within my store for him?' It's a way of giving that brand more visibility and limiting the chance of that brand creating its own store two miles away."Brands enjoy that estimated 25% sales growth as well as an additional edge over smaller competitors that lack the sales clout to warrant their own shop-in-shops, Lyon says. "You're not going to want a brand that nobody cares about. You don't want to give that 'luxury box,' if you will, to somebody who can't afford it. So the better brands win. It's really a good tool to call attention to the brand and the stronger brands are taking advantage of it, as well as the retailer that wants to partner with those brands."However significant the returns may be, retailers need to carefully balance how much favoritism they show, May says. "You don't want to … alienate the others, but then again, you want to do justice to a brand that has wide appeal."Nike and JordanFor Nike's Jordan brand, which has about 200 shop-in-shops ranging from independent retailers to Finish Line and Dick's, the format provided the ability to showcase Jordan footwear and apparel integrated under one masthead, says Jonathan Lander, a Portland, Ore.-based independent retail branding consultant who formerly worked as retail brand director for Jordan."Shop-in-shops have long proven to be a pretty good vehicle for brands," he says. "Most brands are after them from a couple standpoints. It shows the brands from their perspective – not the retailer's – which is good for the brands, not so good for the retailer sometimes. And it's also to gain real estate and show the brand as a complete showcase."The returns-on-investment have been "huge" for the Jordan shop-in-shops, which rolled out from about 2005-10, says Greg Windell, director of business development for BlackBox Productions, which designs and manufactures retail displays and environments. "The Jordan brand was a luxury brand. They would pack in the SKUs, a few SKUs that were highly sought after. It was all premium materials, too; custom everything. They didn't want to be like anybody else, and it worked well."'Niketown' to 'Field House'The Jordan shop-in-shops were even put into Nike's own stores, which are now dubbed "Field House", Windell says. "[Jordan and Nike] were like Apple and Macintosh back in the day – the same company but two totally different entities."RTC's Poole does not see Nike as shifting toward or away from its own stores but developing them alongside shop-in-shops. The brand might see more growth in its own stores, which have dropped the erstwhile "Niketown" label, at least partly because of the abundance of available real estate at reasonable prices, Poole says.In moving to the "Field House" concept (the same concept as at Dick's), Nike is taking the brand-owned retail concept deeper into merchandising, Lander says. "The strategy is primarily to be more conscientious of merchandising and less of creating a brand billboard [or an advertisement]. It's more about acting and operating like a retailer. That means paying attention to your merchandising and product assortment in terms of the depth and breadth they're carrying, how it's displayed, and being conscious of the operational aspects."Vendor Shops at Whose Cost?Brands and retailers typically split the cost of shop-in-shops 50-50, Lyon says, but he emphasizes that's just an average. "You will, on one end of the spectrum, have a retailer say, 'We will pay for all the fixturing if you agree to this,'" he says. "For a stronger brand and a smaller retailer, the retailer might say, 'You know what? It's worth the $5 million to retrofit all our stores.'" The 25% lift on average is "a meaningful lift for not really changing the assortment; maybe adding a few SKUs."Lander has found that the brand most often foots the bill for the shop-in-a-shop. From the retailer's perspective, he says, "It boosts their sales of the brand, and it positions them as having a much more concentrated assortment of a really desirable brand like Jordan over some of their competition. They do often ask for tweaks or modifications to the program to make it either exclusive to their stores or more sympathetic to their store environment."Lyon predicts the shop-in-a-shop trend will continue to spread. "They're fairly straightforward. You're seeing more of them happen. The vendor wins. The retailer wins."

Special Report: Vendor Shops and Beyond

P2PI MEMBERS

JOIN P2PI

Related Images

Business Topic

Company

Market Segment