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September 9, 2021

Why the Macy’s and Toys R Us’ partnership could turn the ‘shop-in-shop’ model on its head

David Vanamburg

The “shop-in-shop” concept is not new.

Sephora has been putting mini shops in JCPenney stores for over a decade, and it’s now doing the same with Kohl’sUlta Beauty and Target have a similar arrangement, while Apple will open mini stores in 17 Targets, with plans for further expansion.

So, when word of Macy’s and Toys R Us’ new partnership broke – which includes a “shop-in-shop” strategy – it felt like a non-story. But that’s not entirely true.

Despite following a repeated model, this case is more unique and could have bigger windfalls that redefine how these partnerships are approached in the future. Let us explain.

Macy’s is bringing toy stores back

Unlike Sephora, Ulta, and Apple, Toys R Us is not a thriving standalone brick-and-mortar retail brand. In fact, it’s not a brick-and-mortar anything. That’s about to change.

Next year, Toys R Us will be in over 400 Macy’s department stores. In other words, save for the rare mom-and-pop shop, Macy’s is essentially bringing back physical toy stores – a place where kids (and adults) can play with actual toys. And that opens a world of possibilities.

For Toys R Us, it’s the chance to hitch its wagon to a relevant brand and dip its toes back into the retail game without overextending. For Macy’s, it’s a chance to recreate the ultimate department store experience of yesteryear – a little Miracle on 34th Street magic, if you will. And boy do they need it.

Department stores were struggling before COVID-19 cut off foot traffic and sent in-sales stores plummeting. The pandemic hasn’t helped. Macy’s same-store sales dropped by more than 20%, and the company announced it’ll be closing dozens of stores this year. Further, in our most recent Retail and Consumer Shipping Report, customer satisfaction with Macy’s dropped 1% to a score of 77 among department and discount stores.

With this new arrangement, Macy’s has signaled it isn’t ready to give up just yet. It’s looking to flip the script, transforming into a one-stop shop for shoes, shirts, pants, ties, makeup, and toys. Macy’s can position itself as a place the whole family can enjoy. Talk about marketability.

And the benefits are not limited to the physical retail space.

A new place to purchase toys online

For a stretch, Target ran Toys R Us’ website. Now, that honor belongs to Macy’s. It couldn’t have come at a more opportune time.

On the internet retail side, customer satisfaction with Macy’s tumbled 4% to 77. The retailer now sits below the industry average.

Although Macy’s is struggling from a satisfaction standpoint, the retailer has a growing online customer base and a burgeoning toy business. Powering Toys R Us’ website should only improve its standing in the space.

Meanwhile, Toys R Us, which still has name recognition, gets prime real estate on the Macy’s website, likely expanding its reach to new customers. It’s a real win-win possibility.

The reward outweighs the risk 

There’s always risk in deals like these. And there are no guarantees that this will be a fruitful partnership. But it feels like a risk worth taking.

Macy’s customer satisfaction was slipping both in-store and online, and it needed a jolt. Toys R Us, well, do you really need to ask?

Together, however, there’s something exciting brewing.

Whether you’re searching for a new place to shop for toys online or eager for the chance to get your hands on the toys themselves, this Macy’s and Toys R Us partnership has all the makings of a slam dunk.

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