Flagship Stores - Did Adidas or Ralph Lauren reinvent brand retail?
by Tim Robinson & Guido Schild
Imagine you are Chief Sales Officer at Germany´s # 1 sporting goods brand, planning a retail flagship, showcasing the brand with its premium assortment? Here’s the recipe:
Partner with a PR agency, select a location no affluent consumer dares to go, rent an old Skoda garage, ask a net journalist to operate the store, make him to work with the social community as he likes, to ignore the common corporate brand principles. Oh, and let him pick from the assortment across all Adidas brands whatever he likes to see in the store. After 3 years you will get a highly bespoke flagship, profitable, and still with that unique garage feeling – ready to be rolled out to New York & Tokyo.
This is the story of “No. 74”, Adidas‘ brand flagship – opened in Berlin in 2008.
Brands struggle with retail. Is Apple next?
No secret: brands not born as retailers have struggled with retail for 50+ years, getting in & out of retail. Just two recent examples are Esprit’s decision to withdraw from its 93 stores in the US and Nike deciding to close Niketown in Berlin. Wholesalers struggle to get their full price strategy right, due to a lack of clarity or a pendulum around one key question: „is our retail brand showroom or is it about being commercial?“
Apple was seen as a splendid exception, an icon in brand retail. But Apple had to eat some very public humble pie recently when addressing its high retail personnel cost. Apple´s public KPIs on retail give us clues why. Apple retail in 2011 (2009 in brackets): Revenue share was down for the 4th year, to 13% of total (19.5%). Headcount was 60% of FTEs (44%). FTEs per store were 100.8 (60.4). So retail’s 13% of revenue generated only 7,5% of total income (excluding 19 flagships taken as a marketing cost). With operating income of 23%, one may say Apple had a luxury problem, but a challenge to retail, and particularly retail costs, was probably inevitable.
Virtual Brand Retail – Adidas didn´t invent it
Adidas re-invent flagship retailing by building the store & brand in the net community first. In using virtual retail for its Berlin store Adidas has shown a way to engage target customers much more affordably – leveraging fashionistas, actors and actresses, celebrities, sport stars to promote the store. Supported by digital commerce and smart use of other channels, investing in secondary locations, but pulling traffic with direct marketing, it represents a lower risk solution to building a brand.
Virtual branding is not new, mail order have proven, to reach new foreign consumers, using less capital and without retail leasehold. No 74 only highlights the future in brand retail, and reaching new consumers or a new country no longer means building 10 stores and investments in leasehold, fixtures and fittings.
Building Retail Brand is a multi-channel decathlon
Future brands will be built online and offline, hybrid. The future is multi-channel & even cross chanel. Multi-channel will include bricks and mortar, as long consumers will leave home for shopping experience. But the number, mix and role of stores is changing. And a few true large flagships maybe enough brick & mortar for many brands.
In parting, perhaps the hidden benchmark for a truly intelligent flagshig & retail strategy is one which appears most conservative – Ralph Lauren. In brief: Partner retail in the nineties, take-over and own retail last decade, and bricks and mortar going “Lighthouse Retail” for the last 5 years. You may have experienced the brand in one of its seven global flagships, but what is most impressing is the financial intelligence and productivity behind the multi-channel approach. Ralph Lauren is definitively old world brand distribution, and still e.com is in many ways already best practice. And their approach to flagship retail is. In 2011 the majority of POS was capital light concession – the company had more factory outlets than full price stores, and their seven global flagships truly stand out from the crowd of flagship stores. On the surface it looks like conservative old brand retail – but they’re growing retail productivity to „best practice“ and looking great in store