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NEW YORK — In these tough times, retailers are desperate to attract increasingly blasé consumers with everything from unique store design to products. And they’re running smack into Wall Street as a result.

Gone are the days when the race was on for brands to open mega-flagships worldwide, so that the string of cities would look impressive on their shopping bags. Given the sluggish economy, made even worse by the war in Iraq, the mere word “flagship” is taboo in many financial quarters these days and designers are focusing on smaller, intimate stores that are adapted for every location.

This story first appeared in the April 2, 2003 issue of WWD. Subscribe Today.

More and more, luxury companies and their architects are bringing novel themes to retail design in an effort to define their brands and burnish their maverick images. Over the last year, shoppers have been lured into Prada’s study of Chinese culture, Jean Paul Gaultier’s maharajah chamber, Alexander McQueen’s futuristic space odyssey, Nicolas Ghesquière’s airy art space and Stella McCartney’s edgy, fairy-tale boudoir. And that’s just in New York.

Designers’ new strategy for their stores marks a sharp departure from the cookie-cutter blueprints that companies have espoused for years. “I think it’s a cultural reaction to globalization,” said Trey Laird, president and executive creative director of New York-based ad agency Laird + Partners. “Maybe five, six, seven years ago, it seemed like there was a desire for this unified image all around the globe. But now that that has become so predominant, there’s sort of a reaction against it.”

There are other changes behind this trend, as well. Megastores, once the be-all-end-all symbol of a designer’s status, have come to be perceived as financial liabilities by Wall Street. Given that they’re often situated on well-trafficked streets that demand exorbitant rents, in recent years analysts have shied away from them because of their lack of immediate profitability.

Catherine Guinee, a fixed-income analyst with Moody’s Investors Service, noted that flagships have never been seen as a source of profits. “Just like couture is more of a loss leader, but it sets the tone for a brand, the same is true for flagships. It’s hoped that [a flagship] would at least cover its costs, but in most cases it doesn’t,” she said.

And as the economy tightens, the expensive doors can become a heavier burden to bear.

For example, Nautica Enterprises Inc. has traveled a rocky road with the 14,000-square-foot Rockefeller Center flagship it opened in April 2001. Unlucky timing has been one of the highest hurdles facing the store, which bowed just a year after the dot-com boom went bust and several months before the terrorist attacks of Sept. 11, 2001, severely wounded the New York retail scene.

In the third quarter ended Nov. 30, 2002, Nautica took an aftertax charge of $6.5 million to write down fixed assets at the store. President and chief executive Harvey Sanders, in the statement that first reported the write down, maintained, “The Rockefeller Plaza store serves as an effective testing ground for new products. In the current difficult retail environment, however, it has continued to perform below our expectations. We are in the process of evaluating a number of options regarding our longer-term strategy for the store.”

Wells Fargo Securities analyst Jennifer Black said the success of flagships varies. “For some companies it hasn’t worked out so well because they have too much square footage and their inventory turns haven’t been fast enough,” Black said.

Other firms view the cost of the often tony and unprofitable stores as a something akin to a marketing expense, said Black. That could be a notion that lost some luster as the go-go days of the boom faded, though.

“Companies today are going to have to take a closer look than they did a couple of years ago at a flagship,” she said. “Shareholders are putting more demands on these companies. They want to see a return on investment.”

Not surprisingly, companies looking to trim costs with smaller stores are turning to environments that are more personal and unique for consumers. “There is a movement toward more intimate rather than overtly commercial spaces,” said Michael Gabellini of Gabellini Associates, the architecture firm that designed the New York Jil Sander flagship on 57th Street. “I’ve seen a tendency with designers to personalize and make a space more accessible and casual for clients, along with more of a sense of discreetness and increased privacy.”

Randall A. Ridless, owner of the interior design firm responsible for reconceiving Burberry’s stores, noted a resurgence of client requests for residential touches. For Burberry’s 57th Street flagship in New York, Ridless created sitting areas replete with mosaic-topped coffee tables, cowhide rugs and floor and table lamps. “These are the kinds of things that you see in a home, not necessarily a retail environment, and it makes it much more inviting,” he said. “We’re finding a lot of clients asking for those touches beyond the architecture and the fixture design.”

However, there are those designers who have a penchant for intellectual references rather than homey touches. McQueen, for one, looked to space and the heavens for inspiration with his Meatpacking District boutique in New York. “I wanted the shop to be like a backdrop, like a blank page every time,” the designer said. “Also, kind of ethereal, almost like walking into a church, the idea of calmness where you’re not faced with too much design theory.”

In his new shop on West 22nd Street here, Nicolas Ghesquière merged industrial elements — exposed brick, wood beams and columns — with synthetic ones that reflect nature such as fake boulders, a ceiling made to illustrate a moving sky and a grotto-like enclave with jeweled stars. “It’s the idea of this artificiality and nature that’s the main concept of the store,” said Ghesquière. “It’s not about trying to re-create nature, but it’s about the evocation of nature with very artificial and technological elements.”

Designers are using more than interior design to create these environments. They’re turning to art exhibits, store-specific merchandise, local touches and even live performances to draw consumers. And no one has done this more than Miuccia Prada. In February, she unveiled the first of what she says will be many installations at the Prada store in SoHo. Entitled “Parallel Universe,” it is dedicated to contemporary China. She filled the downtown flagship, designed by Rem Koolhaas (who also collaborated with the new installation), with references to China, from wallpaper to Asian-featured mannequins and videos of daily life there. “The basic idea of the store was that it was a place where we could experiment on different levels,” Prada said. “Three years ago, we started saying that we were kind of fed up with the old stores all being equal. That was the reason we contacted these famous architects [Jacques Herzog and Pierre de Meuron were commissioned to work on the Tokyo Prada store], and since the beginning, the idea was to do something new and different.”

Besides the installation, screenings, dance recitals and readings have taken place at the flagship, turning it into a stage for cultural events as well as a retail outlet.

Other designers are turning to exclusivity, rather than design concept, to differentiate themselves. “What’s becoming even more important is the idea of regionalized stores with regionalized merchandise,” said Dana Telsey, senior managing director at Bear Stearns.

“Many luxury consumers are global consumers, and they want the Tod’s store in Milan to be different than the Tod’s store in New York and want to see different merchandise. It allows for more product to be sold at full price and for more efficient sell-through. That’s really key. We think it’s the next step in luxury branding.”

Many luxury firms are creating exclusive products to be carried in specific stores as well as adding one-of-a-kind features to different flagships. Burberry is offering a made-to-order trenchcoat service in New York and London, and its 57th Street flagship even has a tea bar; McQueen is planning to sell couture-like pieces in its Meatpacking District boutique come fall, and Miuccia Prada designed a line of spring bags exclusively for her SoHo store. Meanwhile, such designers as Paul Smith have perennially tweaked their stores worldwide to ensure they have differentiated products, from unique toys or art works to a certain color of knitwear or shirt.

Trey Laird sees neighborhood multibrand specialty stores — and the familiarity they cultivate — as retail’s next step. “I feel like that is going to have a huge resurgence,” he said. “It’s a backlash against the huge-chain-store mentality that everything is exactly the same all over the world. There was a time when I think that gave you a sense of comfort…and there will be again, but that’s not what we’re seeing right now.”

The idea of offering comfort with uniformity, he said, has evolved into creating environments consumers will find compelling for their individuality. “I think people want more, and I think they want an interesting and unique shopping experience,” Laird continued, “whether they are buying Donna Karan or Adidas — or even groceries.”

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