A store within a store is an agreement in which the owner of a shop lets a part of the shop site to be used by different company to run another shop. This agreement is popular among filling stations and supermarkets. Many bookstores partner with coffee shops, as customers often desire a place to sit and enjoy a drink while they read. Companies employing this technique include BP/Amoco Sheetz, Exxon Mobil and Hollywood Video with its Game Crazy video game boutiques.
Often the store-within-a-store is a owned by a manufacturer, operating an outlet within a retail companys's store. So, for example. Bloomingdale's has had such arrangements with Ralph Lauren, Calvin Klein, DNKY and Kenneth Cole. Nieman Marcus has had them with Amani and Gucci. Zhang and Jerath [1] have found that the arrangement works, because the retailer offers prime locations for which they can charge high rents, the manufacturer makes a higher profit than it would through a wholesale model,and the consumer gets a lower price and better service. The operator of the store within a store can provide these benefits because it receives all profits, instead of having to share then with the retailer, as it would in the traditional split between manufacturer and retailer activities.
They have found that the arrangement works best for relatively unsubstitutable goods, like cosmetics and brand fashions.
Knowledge@Wharton, "The Economic Incentives of the Store-in-a-Store Model" September 2, 2009 http://knowledge.wharton.upenn.edu/article.cfm?articleid=2333