Though vendor-branded boutiques have long been a fixture in modern U.S. retailing, lately, toy retailers have started experimenting with the store-within-a-store format in hopes of boosting their share of overall toy sales. Toys ‘R’ Us began quietly selling toys through a TRU-branded section at a Giant supermarket location in Dulles, Virginia this summer, and the deal has since been expanded to include an additional four stores. More recently still, Pittsfield, Massachusetts-based KB Toys announced that it was partnering with Sears to test-market KB boutiques at 29 of its stores.
The KB Toys at Sears departments, which the two companies began unveiling in late September and throughout October, are stationed at malls in Chicago, New York, L.A., Detroit and Mobile, Alabama. Each area occupies 1,500 square feet and is stocked with a variety of licensed and non-licensed toys. Like KB’s seasonal KB Express stores, the boutiques will operate from October to mid-January to take advantage of the holiday rush.
For KB, the partnership with Sears is a way for it to gain access to a new and larger customer base. ‘We’re always looking for opportunities where the traffic is, and where we can best serve our customers,’ says KB’s CEO and president Michael Glazer.
As per the deal–which the companies are terming a licensing agreement–KB will pay a fee to lease the space from Sears, as well as an undisclosed percentage of all toy sales. The Toys ‘R’ Us agreement with Giant supermarkets is believed to be similarly structured, says Richard Zimmerman, managing director of equity research for Philadelphia-based financial services company Commerce Capital Markets.
However, Sears is likely hoping the partnership–albeit a test, at this point–can deliver more than just increased toy sales. Though it has a long and storied history selling toys, like other department store chains, Sears has dramatically scaled back its offering in the last 10 to 15 years, due to increased competition from discounters and the low-margin, low-return nature of the category. But in doing so, it has also lessened its appeal with its target customer–moms. ‘I think stores like Sears are realizing that if your traffic is weak, offering toys is a good way to boost it. And who buys toys? Over 70% of buyers are moms,’ says Zimmerman.
Since KB is overseeing buying and inventory management, Sears won’t be incurring the same risk that comes with selling toys by itself, which means it won’t have to deal with overstock and markdowns, says KB’s Glazer.
With half the boutiques located in malls that already feature KB stores, for KB, the only downside to the partnership is that it could be cannibalizing the sales in its regular stores. However, Glazer thinks that represents a remote risk, given that for several years, KB has operated Express stores and its regular stores in the same malls without experiencing a negative sales impact.
While he hasn’t ruled out the possibility of opening the boutiques year-round, Glazer says KB and Sears will wait until after Christmas to review the performance of the areas before deciding whether or not to roll out additional boutiques next year.