Store-within-a-store concept helps smaller guys compete

By Dan Nakaso
Advertiser Staff Writer

KAILUA — 808 Skate's new 500 square feet of floor space inside the Hawaiian Island Creations surf shop is neatly defined by the Pergo flooring that divides two separate retail businesses under the same roof.

Chuck Mitsui, right, is the owner of 808 Skate, which shares space inside the Hawaiian Island Creations shop in Kailua. That's HIC owner Stephen Tsukayama at left. Gregory Yamamoto • The Honolulu Advertiser

Since 808 Skate moved a few blocks across Kailua into Hawaiian Island Creations, customers can buy merchandise from either businesses but have to have their sales rung up on separate cash registers. And both businesses sell some of the same merchandise, which means the owners will have to figure out who will keep carrying it and who will give it up.

Just getting to this point has meant going through a long list of issues, such as the cost of rent, floor space and store hours to accommodate both operations. But Mitsui and Tsukayama believe their new arrangement gives both of them a better chance to reach new customers and — in Mitsui's case — expand into more locations by next summer.

It also puts them in a small group of businesses that have found bigger opportunities by putting one store inside another.

"This kind of concept is a little bit 'out there' as a way to grow your business," Mitsui said. "But doing things as only one skate shop can only take you so far."

Businesses within a business can work as long as both sides anticipate issues that can cause problems, said Roger Lyons, senior vice president of retail services at CB Richard Ellis Hawaii, Inc.

"Have a clear understanding of everything: utilities, air conditioning, water, rent — is it based on square footage or sales?" Lyons said. "Does one user have a substantially heavier use on sewer and wastewater and the other has a heavier use on electricity? Who's going to pay to reconfigure the space? Does it need a building permit? Where's the inventory going to be stored and who's going to be in charge of security?"

It's been a little hard for some people to understand the new arrangement, but for Mitsui it makes business sense.

Sales had plateaued at his old 1,120-square-foot store after eight years. By moving his $160,000 worth of merchandise into a much smaller corner of a bigger store, Mitsui cut his rent by two-thirds and at the same time doubled the volume of foot traffic and exposed his business to different customers.

Mitsui had to expand his hours to coincide with Hawaiian Island Creations' seven-day-a-week operation but thinks that increased sales will pay off.

More importantly, developing a relationship with Tsukayama means that Mitsui might be able to open similar 808 Skate sites inside some of Hawaiian Island Creations' three other locations, starting in the summer.

Mitsui frequently visits Japan and is used to seeing stores within stores. He also got help looking for a new arrangement from consultant Gary McCarty, who used to run the Splash Hawaii swimsuit shop inside the DFS Galleria.

"What we're doing is taking two smaller guys and saying, 'How in the world are we going to compete with Costco and Wal-Mart?' " said McCarty, who is now an associate consultant at Business Consulting Resources. "Having a store within a store in many ways is a great way to compete in today's market."

Mitsui found a willing partner in Tsukayama, who co-owns Hawaiian Island Creations with his brother. Both Mitsui and Tsukayama are soft spoken, easygoing and laid back. Both also saw the same potential in bringing surfing and skateboarding customers into the same building.

"The biggest thing is seeing if you can work together," Tsukayama said. "That's No. 1, regardless of square footage or how much you're going to charge them. It's more of a relationship."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.