Kohl's is expanding its variety of in-store shops beyond beauty to include boutiques for babies, all with the same goal: to attract younger customers.

The Menomonee, Wisconsin-based chain said Tuesday it will debut its first Babies R Us in-store shops in August, with plans to roll them out to about 200 of its locations across the country this fall. Kohl's has already opened Sephora boutiques in 910 of its more-than-1,100-store footprint as part of a deal with that beauty-goods seller that, if successful, could lead even more U.S. retailers to consider launching stores within stores.

Now Kohl's has struck a licensing agreement with New York-based WHP Global, owner of the Babies R Us brand, for the new in-store baby boutiques. The Babies R Us shops inside Kohl's will range from 750 to 2,500 square feet of dedicated space offering baby gear, activity, bath, furniture, feeding and safety products. Those boutiques are meant to "complement Kohl’s existing assortment of baby apparel, which will be adjacent to the new offerings, creating a comprehensive baby shop for customers," according to Kohl's.

The baby goods retail sector has undergone sweeping change and upheaval, and Kohl’s CEO Tom Kingsbury described baby gear as "a compelling white space opportunity" for his company. The Babies R Us and Toys R Us chains — now attempting a comeback — were liquidated in 2018, as was Buy Buy Baby as part of Bed Bath & Beyond’s demise last year, although a new owner is trying to resurrect the brand. Also,kids-apparel retailer The Children’s Place has said it faces challenges. In this landscape, Walmart and Target have become formidable competitors for market share of children's goods.

In recent years both department stores and discounters have experimented with different formats, including opening in-store shops of other retailers in their namesake locations to drive foot traffic and attract different, including younger, shoppers. That's why Kohl's said it opened its in-house Sephora shops. Like Kohl's, Macy's has also partnered with WHP Global, but in its case it was to roll out Toys R Us shops in its department stores, predicting that at some point that will be a $1 billion business. And Target has opened Ulta Beauty shops in its stores.

These in-store shops also benefit retailers such as Babies R Us, Toys R Us, Sephora and Ulta, by broadening their reach without forcing them to invest in their own brick-and-mortar locations. WHP Global acquired both the Toys R Us and Babies R Us brands three years ago, following the chains’ demise. Since then, WHP Global has opened flagship stores for both Toys R Us and Babies R Us at the American Dream megamall in East Rutherford, New Jersey.

WHP Global has expanded Toys R Us's presence through the arrangement with Macy’s, and it "will replicate the strategy for Babies R Us," Yehuda Shmidman, WHP Global's CEO, told CoStar News last July.

The in-store Babies R Us shops will help Kohl’s reach new customers, including younger families who never previously come to Kohl’s, according to Kingsbury.

"This partnership [with WHP Global] provides a significant growth opportunity in a large category that has been displaced in recent years and build on our existing assortment while broadening our reach with younger customers," Kingsbury said during a fiscal fourth-quarter earnings call.

The Babies R Us shops “will make it easy for customers to test and try products and stock up on everything they need for their little ones,” according to Kohl’s. In addition to the children's brands Kohl’s currently offers — including Graco, Chicco, Boppy, Skip Hop, Delta Children, Fisher-Price and Carter’s — the retailer said it will be adding new brands to its assortment. In addition to offering an expanded assortment of products on Kohls.com, Kohl’s will become the exclusive retailer for the Babies R Us at Kohl’s registry online.

Kingsbury deemed 2023 as "a truly breakout year" for Kohl's partnership with Sephora.

“We delivered more than $1.4 billion in sales, which was up more than 90% year on year and included greater than 25% comparable beauty-sales growth in the shops opened in 2021 and 2022," he said. "For Q4, Sephora sales increased more than 70% and comparable sales growth was nearly 25%, which was on top of a strong growth in the prior year. ... Based on our current trajectory, we now believe that we'll surpass our previously shared goal of $2 billion in sales by 2025."

Kohl's will open about 140 small-format Sephora shops at its stores this year, and roll them out to the rest of the chain in 2025, according to Kingsbury.

Kohl's reported that in the fourth quarter net sales were down 1.1% year over year, to $5.7 billion. The quarter ended Feb. 3 included net sales of about $164 million from the 14th week of that period. Comparable sales, which compare the 13 weeks ended Jan. 27 this year versus the 13 weeks ended Jan. 28 last year, decreased 4.3%.

"Kohl’s has capped a challenging year with another poor set of results," Neil Saunders, managing director of GlobalData, said in a note to clients. "There is some relief from the bottom line where last year’s $273 million net loss has been transformed into a $186 million profit this time around. This is largely thanks to much better gross margins which, last year, were impacted by extensive discounting. In this regard, Kohl’s management deserves praise as, operationally, there is now much more discipline around inventory management and buying."

He referenced Kohl's plans for "improvements including a more aggressive push into home categories, plans to open 200 Babies R Us shop-in-shops by the fall, and a sharper focus on gifting occasions and categories."

However, Saunders expressed reservations about the company's ability to implement the changes.

He said the chain's "success relies on good execution and Kohl’s sufficiently differentiating itself from rivals — an area where it does not have a great track record."

Kohl's didn't respond to an email from CoStar News seeking a response to Saunders' comment.