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In a year of cutting back on store openings, inventories and staff, there’s one place where some retailers aren’t scrimping: the flagship.

This story first appeared in the June 4, 2008 issue of WWD.  Subscribe Today.

From Bloomingdale’s 59th Street to Saks Fifth Avenue and Macy’s Herald Square in Manhattan, retailers are pumping millions into their core stores to upgrade product presentations, reinvent key departments and capitalize on strong selling categories like accessories and shoes.

Bloomingdale’s on 59th Street has initiated the beginnings of a sweeping renovation of its 75,000-square-foot main floor, B-way and all, that will be accomplished over the course of a few seasons.

“This is a two-year project, covering the entire main floor,” Bloomingdale’s chairman and chief executive Michael Gould told WWD. “We’ve done handbags and elements of cosmetics before, but we have never done the whole floor.”

The strategy has intensified since last fall when department store executives started sensing consumers holding back in many regions, except at those core flagships in gateway cities. They became their salvation. Tourists from overseas, taking advantage of the weak dollar and assortments offered at steep markdowns, flocked to the sites, helping retailers compensate for struggling branches elsewhere around the country.

Even competitors are taking notice. “The big flagship department stores are picking up huge benefits from tourists,” observed J. Crew’s chairman and ceo Millard “Mickey” Drexler, during a conference call last week.

Bearing in mind that flagships even in tough economies generate huge revenues, every aging nook and cranny are under examination. Brooks Brothers intends to rebuild its 120,000-square-foot Madison Avenue flagship, which it bought last year, in advance of the location’s 100th anniversary in 2015. Nearby, the 646,000-square-foot Saks flagship generates close to $700 million in annual volume, while the 859,000-square-foot Bloomingdale’s flagship generates an estimated $650 million.

At Bloomingdale’s there already have been significant investments — often partially funded by vendors. In the past three years, bridge, lingerie, shoes, YES contemporary sportswear and contemporary men’s wear, among other departments, have been overhauled or reinvented. In February, Bloomingdale’s Metro level was remerchandised with young men’s contemporary sportswear and premium denim, and rebranded No. 59 Metro. The bridge floor was renovated and rebranded The New View in 2005.

Bloomingdale’s main floor project is the chain’s biggest renovation at least since Gould became chairman and ceo 17 years ago. It’s also the most critical, as the main floor sets the tone for the entire store.

Gould said it was too early to provide details of the project, which are still being worked out with designers and vendors. The mission is to capture greater selling space, create a cohesive and easier-to-shop floor, showcase designer brands and pump up an already energized floor and its slick, contemporary upper East Side aura. Currently, the main floor is tough to navigate and congested. But everything from the B-way for cosmetics and fragrances to designer handbags, fine leather goods and men’s furnishings will get renovated at a cost that architecture sources conservatively estimate at $250 to $300 a foot.

However, it’s not just about bricks and mortar. “This is a total branding exercise,” said Gould, who is known for his marketing acumen, having recast Bloomingdale’s into an upscale, contemporary national brand, at a price niche above Macy’s and below Saks and Neiman Marcus.

With the right marketing hook, a renovated floor can cast a halo over the entire store and sharpen its image. Saks, for example, generated enormous buzz last year with its revamped shoe floor. It was rebranded 10022-SHOE and billed as “so big, it has its own zip code.” With high-styled shoes encompassing most of the eighth floor at the flagship, which is on Fifth Avenue between 49th and 50th Streets, Saks seemed to one-up the competition. It’s considered the city’s biggest shoe assortment, aside from Macy’s Herald Square. Even an express elevator right up to 10022-SHOE was rigged. The shoe concept will be replicated at several Saks branches, including Beverly Hills, San Francisco, South Coast Plaza and Houston.

Saks now sees additional branding opportunities stemming from other floors. “You will see some angles coming up as it relates to bridge, and as it relates to cosmetics — probably several. Not all right now but in ’08 and ’09, absolutely,” said Saks chairman and chief executive Stephen I. Sadove.

“New York is doing extremely well. We are touching six of the 10 floors over the next year,” Sadove added. A major piece is the third floor for designer collections, which Sadove said would be an 18-month project, opening in phases, with 35 new shops for designers to be created.

Most of the main floor’s handbag shops are being redone this year. So are pieces of the sixth floor for men’s including adding Kiton. On the fourth floor recently, space for evening collections was redone.

“It’s not just renovations for renovations’ sake. It’s about adding vendors. It’s about creating an environment. It’s about creating a buzz,” Sadove said.

Lord & Taylor is considering downsizing its Fifth Avenue flagship from 10 to six selling floors. But the retailer also is bolstering its product assortment. On the drawing boards are Fortunoff jewelry and home floors, as well as possibly a bridal department and a restaurant. L&T’s parent company NRDC Equity bought Fortunoff out of bankruptcy last February. NRDC is interested in Kleinfeld’s, the bridal retailer, and in pursuing other retail acquisitions.

“When you are dealing with stores of this scale, it might seem as if you are in a constant state of renovation. In fact, we are,” said Jim Gold, president and ceo of Bergdorf Goodman. “There is always another project around the corner. To keep the store current and special, it’s important to reinvest in the physical plant. We are forging ahead.”

About a year and a half ago, Bergdorf’s renovated its contemporary floor and named it 5F. “We made the decision to put a branding effort behind our contemporary business,” said Gold. “We think of that business differently than the rest of our business, from every perspective — advertising, merchandising, visual presentation, staffing, events. Bergdorf Goodman can be, for those clients who aren’t familiar with the store, very intimidating. This was an effort to make us more accessible, to open up people’s eyes to the breadth of what we do.”

By Labor Day, Bergdorf’s hopes to have 4,000 square feet on the 57th Street side of its main floor renovated to house “modern” handbags, jewelry and accessories at designer price points, Gold said. “It’s been a mix of accessories and not clearly defined. But we developed a very specific merchandising strategy and once we put that in place, we will design an environment that would reinforce our product strategy.”

Combined with the recently renovated 58th Street side of the flagship, Bergdorf’s, said Gold, has “a much more powerful statement about the importance of jewelry. It’s become a destination for designer and precious jewelry.”

The new space, however, is not expected to pose the same kind of unique marketing opportunity for a “subbrand’ that 5F presented. “We are not going to have seven or eight subbrands,” Gold said. “You have to pick your shots where it makes sense.”

This month, Macy’s Herald Square, which does an estimated $800 million in volume in its 1.1 million square feet of selling space, will be opening bridge and fashion jewelry shops in June, luggage in September and last month opened new mattress, men’s and sunglass areas.

Macy’s, which has long been criticized for poor housekeeping, is upgrading fitting rooms, rest rooms and service departments such as MBA personal shopping and bridal, according to Ron Klein, chairman and ceo of Macy’s East.

Macy’s has seen some resistance from consumers who shopped various regional nameplates converted to Macy’s, so upgrades are as critical as ever. According to Klein, the Downtown Crossing store in Boston, formerly Filene’s, is remodeling cosmetics, adding FAO Schwarz, as are many other Macy’s units. Also, taller windows on the Washington Street side were added. “The windows look into our cosmetics department so we wanted to create an exciting environment for our customers not only on the inside but from the outside who are passing by.”

At the former Marshall Field’s in Chicago on State Street, men’s is being remodeled. And the former Hecht’s in Metro Center in Washington is expanding better sportswear and suits.

“We are committed to making capital investments at our major metropolitan stores based on their performance and sales trends,” said Klein. “New York, Boston, Chicago, Philadelphia and Washington have and will continue to see renovations that will upgrade the shopping experience for our customers. In cities such as Philadelphia and Washington, Macy’s is the only department store in the downtown area, so these destination stores in downtown will see new concepts, merchandise and continuous renovations and improvements.”

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