Retail stores typically operate in an extremely competitive businesses environment. Online retailers often cut prices to the bare minimum, forcing traditional brick-and-mortar retailers to seek new ways of generating revenue and customers. Department stores can generate new revenues by offering leased departments to specialized retailers and popular brands. By selecting the right type of companies to which it can lease departments, a department store may also generate interest in the overall department store and generate new customers from different demographics. Leasing space, therefore, has the potential to both bring in new customers and generate direct revenues from the leased space.
A leased department is a space within a store leased to a third party. The entity that leases the space typically runs the space as a separate business from the host store. The leased department may either have independent ownership or represent a co-branding effort with the host department store. For the company leasing the space, the arrangement provides an infrastructure of amenities without having to invest large sums of money. Conveniences such as parking, restaurants and other facilities are an incentive that the owner of the leased department can use to attract customers.
A department store needs to offer brands that generate interest from customers. Whether the department store sells electronics, clothing, shoes or books, increasing the customer base generates traffic and increases the revenue for the department store. Branding, however, requires the department store to consider the specific brands offered by the leased department and make sure that these brands don't interfere with other businesses leasing departments or with brands sold directly by the department store host. The department store needs to find a balance between the merchandise sold by the leased departments and the host department store.
Offering a leased department to a business that specializes in a niche market or offers unique products or services is a smart strategy to attract customers that would otherwise not visit a department store. However, before offering a leased space to a specialized business, the department store should consider the specialized customer base and make sure this specialized base is large enough to benefit the department store host.
New Customer Base
A primary reason that department stores offer leased departments is to generate a larger customer base. Department stores require a constant stream of customers to remain profitable. Although increased traffic doesn't always translate to a sale, the interest created by increased traffic creates new revenue possibilities for the department store. Leased department ventures, however, don't always work out for the department store or the business leasing the space. Department stores should, therefore, use trial and error and data from previous leased departments to find the right kind of companies to which they may lease the departments.
- "Merchandising:Theory, Principles and Practice"; Grace Kunz; 2010
- "Principles of Marketing"; Philiph Kotler, et al.; 2009
Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.