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Custo’s Big Expansion Plans

Custo Barcelona eyes retail buyout.

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Custo Barcelona founder Custo Dalmau seems blissfully oblivious that the world is in the middle of an economic downturn.

After all, there’s nothing but growth on the horizon for the 80 million euro, or $124 million at current exchange, brand, which has been enjoying 5 to 10 percent annual increases for the last decade. Dalmau specifically has an eye on growing Custo Barcelona’s U.S. retail platform with more of its own retail doors, additional product categories and even a new franchise strategy.

Perhaps it’s the brand’s colorful whimsy that is welcome in a down economy, or the relatively cheap prices for a European label (averaging $80 at wholesale), but the 27-year-old Spanish firm seems happily isolated from the gray pessimism of the rest of the industry.

“Our customers say they feel very happy when they wear our T-shirts,” Dalmau said. “They create a mood.”

Since launching in the U.S. a decade ago, Custo has found a home in more than 250 wholesale doors, including Saks Fifth Avenue and Nordstrom. Custo opened its first U.S. shop seven years ago, and the company is stepping up the pace of its store openings, with four so far this year and four more to come by the end of the year, for 20 total.

But this year’s rollout, in cities that included New York and Miami, is just the beginning. Custo is coordinating a plan to franchise its retail operations in the U.S. The company hopes to have a deal in place by the end of the year, which will enable the brand to roll out about another 20 stores in the U.S. next year.

“We’d never considered franchises here before now,” Dalmau said. “But it’s a slow process opening stores on our own.”

Franchised shops closer to Custo’s headquarters in Europe could be the next step, said the company.

Custo has about 60 stores worldwide. While it currently owns its European and U.S. stores, the company already has licensed partnerships in other regions and countries, including Columbia, Brazil, Southeast Asia and the Middle East. Growth is booming, thanks to these partnerships. For example, between 2009 and 2010, Brazil is on track to get eight to 10 stores, and 20 more units are set to open in the Middle East. Custo added that hopeful partners regularly contact the brand about expanding into additional countries, such as Argentina. The company is on track to reach at least 100 stores globally by 2010.

One thing Custo has found is that warmer climates favor the brand. For example, business in Italy is better than business in Sweden, and business in Las Vegas is better than business in Chicago.

“It’s a colorful brand, and color goes directly with the sun,” Dalmau said. “America for us is a difficult market to figure out, because the South is much easier than the North.”

That’s not stopping the company from opening at least three stores in New York alone, in addition to openings in California and Miami.

The average store in the U.S. is about 1,400 square feet, but as the brand adds additional product categories — including sunglasses in September, fragrance in October, swimsuits for resort and watches in the near future — the stores likely will grow to around 2,000 square feet.

One of the brand’s strategies to beat the lackluster U.S. economy is targeting tourist-frequented retail areas. In the U.S., the brand is priced less expensively than it is in Europe, given the weakness of the dollar, so international tourists are taking advantage of the bargains they are finding in the U.S. stores.

The well-known aesthetic has created an opportunity for Dalmau to apply his designs to other ventures, from the Perrier bottles in Europe to furniture (restyling two historic chairs by the Gruppo Industriale Busnelli) and hotel interior design (Capricho Residences on the Mexican Caribbean).

Pivotal to Custo’s success has been its relative indifference to trends, instead focusing on the DNA it has developed over the last 27 years.

“Sometimes trends help us, and sometimes they hurt us, but not following trends is probably the key to lasting in this market,” Dalmau said.�

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