Ralph Hughes has a word for what’s happening at the Marshall Field’s flagship on Chicago’s State Street. “Nuts. Isn’t this nuts?” Pausing by the Australian Homemade ice cream and chocolate shop, Marshall Field’s regional director expresses the irony of selling such simple indulgences on real estate usually reserved for higher-priced, higher-volume skin care or handbags.

He cuts over to Uroda, a leased florist, right by an entrance on the main floor. “This is not as productive as if I had cosmetics here,” he said. “But if I had cosmetics here, I would look like everyone else [in retailing].”

Australian Homemade and Uroda are just two of the suppliers new to Marshall Field’s on State Street this year, following a nine-month renovation and remerchandising that Hughes is anxious to highlight during an exhaustive store tour.

The Marshall Field’s flagship is the world’s second-largest store, with 2 million square feet of gross space and 812,000 square feet of selling space. Years ago, Marshall Field’s sold the real estate to an investor group and now leases it. The store is said to generate annual volume exceeding $300 million in sales, but is shooting for $350 million to $400 million. “We expect a lift [in sales] and we’re getting one,” Hughes said. “Double digits.” He declined to specify.

Only Macy’s Herald Square is larger than State Street, with 1.1 million square feet of selling space. Manhattan flagships, including Macy’s, Saks Fifth Avenue and Bloomingdale’s, post higher annual volumes than Marshall Field’s on State Street but get more foot traffic. Those stores also have been renovating, though the changes on the New York scene have been gradual and not as rapid as State Street.

“I can’t remember ever doing a project of this size so fast, and I’ve been in this business for over 30 years,” Hughes said.

From 1988 to 1992, the Marshall Field’s flagship was renovated at a cost of about $110 million. Officials won’t disclose the cost of the current renovation, but it’s believed to be less expensive considering the last one involved some heavier construction, including installing new escalators.At this point, the State Street flagship is 90 percent complete with “phase one” of the renovation and remerchandising. The big box underwent a nine-month “gestation” period, as Hughes called it, involving bringing in 500 lines or brands new to the store. With these vendors, the company established “partnerships,” which are primarily leased spaces or merchandise owned or on consignment. About 10 percent of the store’s total floor space, or roughly 80,000 square feet, is now leased.

Leased operations yield an 8 to 15 percent net profit off sales, depending on how much the vendor chips in to build its shop, according to retail sources. The more the vendor chips in, the less royalties would be paid to the store. Leased fur operations are considered most lucrative, often generating a 20 percent net. Generally, department stores take the leasing route with merchandise or categories where they lack expertise, or in areas they’ve abandoned over the decades, but now seek a return, such as food, electronics and custom apparel

Marshall Field’s began leasing space last year to Mimi Maternity on its fourth floor and added Creative Kidstuff on the fifth, along with Thomas Pink on its first floor. The company has a business development team that travels to other stores and neighborhoods in the U.S., Europe and elsewhere, seeking out different merchandise concepts to import to Chicago.

Leasing is not a novel idea for Field’s or other stores, though the extent of the current program is new to retailing in the States and reflects more of the European retail model, such as at Selfridges.

Beyond the current phase, the State Street reinvention project will continue at least through 2005, with the changes so far most evident on the main and lower levels housing the most unique merchandise concepts. Often, they’re the kind of shops more apt to be found on trendier or more chic sides of Chicago, or New York’s SoHo neighborhood, rather than inside a downtown department store where big national brands tend to dominate.

“This is an ongoing project to keep us fresh and new from the competition,” Hughes said. “The intent is to never be finished.”By housing Australian Homemade and Uroda where you wouldn’t expect them, Hughes says he’s breaking a lot of the rules he learned at such places as the former Gertz store in Queens, N.Y., where he started his career, and later at Federated Department Stores and May Co. “That is whatwas so fun about this project,” he said. “I’ve thrown out all my experience.”

According to Hughes, just about every square foot of selling space in the store has been touched to some degree, and there’s been “serious renovation” in approximately half of the store’s selling space. Cosmetics, for example, has been revamped so it blends caselines and assisted selling areas, and home furnishings has been expanded to accommodate increased furniture offerings to emphasize European contemporary styles. A grand Juliette-style staircase has been constructed to link the contemporary floor to the floor for more traditional furniture. Also, some additional selling space in different parts of the store was captured by converting storage space.

Through the store, the level of light was doubled, and there is a music system that adjusts its volume depending on the amount of traffic in the store. The more crowded, the louder it gets. Moreover, the music is tailored to the location, so there’s classical music in the Walnut Room restaurant, and rock music blares in juniors’.

There’s also a “wayfinding” system of 50 green kiosks with arrows pointing to different departments, in addition to the more standard wall directories. Customers also are assisted by the new Field’s Express team of salespeople with radios and headsets who can retrieve items from various floors for time-pressed shoppers.

In addition, the store has organized “hot zones” for trendier clothes, which are right off escalators in direct view. Designer collections are sold in the 28 Shop, including Issey Miyake, Jean Paul Gaultier, Missoni, Armani Collezioni and Marc Jacobs. And Field’s moved its hosiery from its highly trafficked first floor to the fifth, near intimate apparel, to make room for an Yves Saint Laurent Rive Gauche accessories boutique and sections for Bottega Veneta and Kate Spade handbags.

Other shops along Hughes’ tour, intended to provide a sense of discovery and the unexpected, were:

  • Femme Gems fashion jewelry, for making your own necklaces, earrings and bracelets, sold only at Field’s and Henri Bendel in New York.

  • Qiora, a Shiseido division offering eye-wrapping spa masks for $30, Innerserum C aromatherapy for $30 and night creams for $180.

  • Merz Apothecary, a local business owned by Abdul Qaiyum and his son, Anthony. It sells herbs, facial products and aromatherapy, and among the more esoteric items: Santa Maria Novella Cologne, an 800-year-old Italian brand, in 12 to 15 varieties, priced from $55 to $65; the Paris-made L’Aromarine fragrances, lotions and bubble baths priced from $16 to $19, and Mason Pearson hair brushes, from $60 to $200. Mason Pierce was the first company to patent rubber-cushioned hair brushes.

  • Levenger, adapted from the Levenger catalog based in Delray Beach, Fla., where it has a store. It sells “tools for the serious reader,” such as writing equipment, organizers, furniture and lighting, to make reading and writing more comfortable.

  • Aprilla scooters and clothes from Italy.

  • The first Reflect.com shop installation where you can get a skin analysis for customized cosmetics and a selection of 1,100 lipsticks.

New partnerships also were formed with Thomas Pink, Yahoo, Bottega Veneta and Olsen Europe, and there is a General Motors concept car exhibit, currently displaying a Saturn four-door convertible.

On the lower level, there’s the Down Town Dog shop for pet accessories, including treats and doggy duds, such as Swarovski crystal dog collars, priced from $60 to $120, and dog fragrances, priced from $7.50 to $10.

There’s also a Cooks of Crocus Hill, selling cookware and staging interactive cooking demonstrations, and an Eziba shop offering crafts from artisans in home decor and fashion accessories around the world. Aside from State Street, Eziba is sold at ABC Home and Carpets in New York.

Then there is Barbara’s Bookstore, a representative of a 40-year-old small chain of bookstores in Chicago, that has managed to thwart the invasion of Barnes & Noble superstores by maintaining its neighborhood appeal.

Soon, Marshall Field’s on State Street will create a wine-tasting bar to complement its liquor store and promote its French Bordeaux, at $200 to $300 a bottle, and Tete de Curvee champagne, among other bottles. The company also is creating a culinary studio to televise cooking demonstrations for the Food Network.A Bally’s fitness store is scheduled to open in November, and this fall, too, there will be a shop selling Bose and Phillips high-end electronics. “We’re bringing in two [electronics] brands. Not a classification,” Hughes said. No point in trying to compete with Circuit City or Best Buy, he noted.

The State Street store, while certainly a full-line department store, excludes a Sears-type assortment of big-ticket appliances, auto supplies and tools. “We can’t be all things for all people, but I believe we can be an awful lot to a lot of people,” Hughes said.

According to Marshall Field’s officials, the State Street flagship regularly draws from a population of 650,000 people who live or work in the nearby area.

Of all the department store flagships in the country, the Field’s flagship remains the most towering and dramatic in its architecture and sense of open space. While there’s plenty of merchandise newness at State Street flagship, the store impresses with the Beaux Art architecture of its 13 floors, three atriums soaring 140 feet to the ceiling, a Tiffany rotunda and 11-foot-wide aisles.

There are also two food courts (one for gourmet food), three sit-down restaurants, a catering service and ballroom space and a 45-foot Christmas tree which, combined with the architecture, create the sensation of being in a vertical mall.

“Marshall Field’s has a history of being an innovator,” said Hughes, who, in addition to the flagship, oversees two Marshall Field’s home stores, in Oakbrook and Woodfield, Ill. “The store was the first to install escalators and restaurants. We are capitalizing on that history. I like to characterize this project as a rebirth.”

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