With the opening of the 40,000 square foot Hollister “Flagship” store by the Abercrombie and Fitch group in the last week or so, it gave me pause to think of the relevance of investing in this type of brand experience.

Of course, Ralph Lauren pioneered this type of branding effort by deciding to create its own environment in order to increase brand presence, showcase exactly the way the Ralph Lauren brand should be merchandised to the public and increase awareness for their labels which were (and still are) carried by almost every department store in the country. I remember the hew and cry emanating from their wholesale accounts that these stores would cannibalize sales and that it would ruin the relationship. The end result was that business everywhere increased substantially as people became more familiar and comfortable with the Ralph Lauren name and brand and this led to every other designer opening their own stores to show off their true brand essence.

Nike was also at the forefront in opening their own homage to the swoosh and the sporting icons they had under contract and called it “NikeTown”. They opened usually in the highest profile areas in major metropolitan centres and created a buzz when athletes showed up for autographing sessions or product launches.

But what is the real purpose of these “Brand Stores” (usually built several stories high and at huge expense to the company)? What should the real purpose be?

As retailers know, most of the time, these stores cost almost twice as much to build per square foot (not to mention the footprint usually being at least five times larger than the average store – in Hollister’s case around 8 times), the rent is usually exorbitant as it is usually located smack in the middle of the highest profile metropolitan shopping hub and the operations of a store like this one is not only different than the company is used to, but takes that much more effort, staffing, security and inventory than any other store in the chain by a wide margin.

So, why bother? What, exactly, is the point?

Most wholesale brands do not have the retail capacity or mentality to operate stores profitably or properly, nor do they want or need to. To them, it is a sidelight purely for increasing their brand profile. Ralph Lauren is the exception, since he has been able to hire and develop a retail division and create a business model that works. But he has been an exception to the norm in many ways (his outlet, off-price channel is actually his most profitable channel in the entire company, but that’s a different story for a different day). I don’t believe NikeTowns have made money since day one. But I am not sure that really matters.

To my mind, opening a flagship, brand-illuminating store should be all about marketing and public relations. The store should be run independently of either a standard retail chain or a wholesale division with the goal of breaking even. Even if it does lose some money on an annual basis, it should be part of the marketing department’s budget as opposed to hanging the retail operations team with that burden. This way, everyone wins.

There is no better vehicle for showcasing exactly what your brand is about (be it retail or wholesale) than an actual store where your marketing department, your visual merchandising department, your buying teams and even your human resources department can create the ultimate brand expression. The downside is time and energy for sure, but if both those are compartmentalized and the emphasis on maximizing profits on these locations is not the driving force, these flagship stores like the 40,000 square foot Hollister “Soho Grande” can be successful at helping build brand loyalty and customer share of mind.


Postscript: I forgot to mention Apple stores for their brilliance and their ability to increase their market share almost instantaneously and creating awareness and the ultimate brand image for themselves. They are extremely profitable which flies against my theories above. They are a unique case though but worth mentioning. TRT:)