Cake retailer Kki Sweets has come up with an adorably novel way to boost sales amid the challenging economic outlook.

It collaborated with Japanese plush toy retailer Craftholic to set up a themed cafe, which opened last month. Located within Kki Sweets' existing premises at the School of the Arts, it is the first Craftholic pop-up cafe outside Japan.

It serves Kki Sweets' range of Japanese-inspired cakes, and also sells Craftholic merchandise like plush toys and stationery. "We wanted to try something new and reach out to a new audience," said Kki Sweets co-founder Delphine Liau, who runs the business with her husband.

Sales have been hit this year, she added. "We're doing half (the sales) we used to... Cake is not essential. People are cutting back on their spending, and luxuries are the first things to go."

The pop-up cafe has helped - there have been daily queues since it opened, said Ms Liau. It will remain open until Nov 13.

"Retailers are suffering now because, often, we just plug and play. We must be able to create experiences for customers so that they will return again," she added.