Partnerships have long been a familiar feature in certain parts of the retail landscape with coffee shops or financial service providers inside your local grocery store. Big-box retailers saddled with too much static or unloved real estate may profit by allowing popular brands they already sell to ramp up their presence and create distinct, in-store destinations.
Below, we examine some recent examples of collaboration and discuss the potential positives and negatives of partnering in the retail space.
Traditional Brand-Retail Partnerships
A well-known brand carves out “store-in-a-store” space within a larger retail setting. Clothing and cosmetics labels have been doing this for years inside department stores.
Target announced a strategic, long-term partnership with Ulta Beauty to create a store-within-a store concept offering established and emerging prestige beauty brands online and in select Target locations nationwide beginning this year. It also provides beauty brands an opportunity to expand and grow in a new omnichannel retail experience. To bring Ulta Beauty's expertise and guest-centric experiences to life, the company will train newly hired Target team members to serve as experts on prestige beauty offerings, aligning to Target's focus on providing guest service with deep product expertise.
One retailer sets up shop, or takes over exclusive control of a category, inside another retailer’s store.
Asda for example, has entered a partnership with DIY store B&Q, in a new ‘store within a store’ concept which launched last year. The B&Q trial concessions in four Asda stores will offer a range of paint products as well as tools, hardware and other DIY essentials. The move was aimed at capitalising on customers looking to cut down on their number of shopping destinations because of the coronavirus pandemic, according to the retailer.
Upsides of Retail Partnerships:
- Reducing cost – Partnering with a large retailer under one roof can deliver more traffic and is almost always more affordable than establishing a stand-alone presence, especially for specialized brands with a narrow range of products. The same holds true for marketing reach, where a lesser-known brand can “borrow” the larger store’s equity to drive more rapid growth in awareness while the larger brand or retailer simultaneously benefits from lower costs and a connection to another consumer set.
- Attracting new customers - You may be able to reach new customers — younger or older; more or less affluent — who might not otherwise consider trying your brand, whether introduced via co-marketing or co-location.
- Gaining retail expertise - Brands that do not have a scalable retail model of their own can learn from their hosts, while also gaining access to profitable markets in a way that’s true to the brand and showcases the brand experience.
Downsides of Retail Partnerships:
- Protecting your strategic priorities - It may be tempting to partner with another organization specifically to gain access to best-in-class practices in an area where your own organization is weak. Just be careful not to relinquish what really ought to be an internal strategic priority.
- Beware of weak strategic rationale - Examine the potential benefit and ask yourself, “How critical is this benefit to my retail concept?” and “How does this really improve the customer’s experience?” If there isn’t a clear and compelling answer to these questions, the partnership is starting on unstable ground without a true value proposition.
- Protecting your identity - Hosts should be careful not to surrender so much of themselves to partners as to diminish the value they can deliver to customers on their own. First and foremost, customers need a reason to visit the host. The same applies to donors, who must be sure the partnership helps them deliver what consumers expect from them.
- Avoiding unhealthy relationships - Partnerships can leave both parties exposed to each other’s weaknesses. Even a smart, well-executed partnership might not be enough to prevent a weaker party from closing stores or compromising its brand in a way that harms the other party.
Keys to success:
- Similar markets - Customer overlap need not be 100% — part of the goal, after all, is to expand the market for both parties — but the pairing needs to make sense.
- Clear expectations - Both parties should understand and support one another’s goals from the outset. Requirements include a thorough business plan, aligned incentives and an activation plan designed to deliver maximum value across the board. Aligned metrics and financial incentives are a must.
- Adequate resources - Cooperation is key. Both parties must make the appropriate organizational and resource commitment — at the corporate level and the store level. There must be a close working relationship in order to present the customer with an experience that’s true to both brands.
- Flexibility - Both parties must commit to revisiting the partnership on a regular basis, typically with reference to a set of specific milestones. They must each be willing to refine the terms of the partnership as results indicate or abandon it altogether and part ways if it is not creating value.
As the retail landscape adapts to the changing requirements of the consumer and a potentially different post-Covid market, we can expect to see more innovation and collaboration as retailers look for positions of strength. Providing partners are open, transparent and prepared to share the risk and reward of working together, we should expect to see the partnership trend continuing to grow.