Brand Store Retailing

Hershey's Kiss and Reese's characters greet people on the sidewalk, beckoning them into the 3,600-square-foot store. Inside, the visually arresting display of replica chocolate-pouring towers and vats invite children to "make" candy that actually tumbles down the slide fully wrapped and ready to eat.Vintage oversized posters line the walls, and merchandise such as a Reese's racing jacket, Hershey's Kiss maker, and a chocolate molding kit line the shelves. In the rear, customers line up for snacks and drinks at the store's "cookie and cocoa bar."This shrine to Hershey's on Chicago's Michigan Avenue, which held its grand opening June 15, is but the latest in a long line of branded stores located on the Magnificent Mile, in New York's Times Square, along the Las Vegas Strip, and myriad other locations around the country. Consultants say that these stores, once viewed primarily as vehicles for building brand awareness, are increasingly expected to make money -- and brand-retailers say they do."We think that an experiential marketing opportunity is an incredible way to create connectivity with consumers," says Don Papson, vice president of consumer interactive for Hershey's, which has a stand-alone store in Times Square in addition to its factory headquarters tours in Hershey, PA. "The most important part of this is to create that connectivity. But we will make money."Industry observers liken the experiential marketing opportunity to a three-dimensional website, in which consumers can fully surround themselves with branded messages and information presented exactly as the manufacturer chooses.Some manufacturers attempt to create immersion at varying levels, ranging from mall-based and outlet stores to temporary "pop-up" locations. But the "flagship" stores in high-traffic, upscale, often tourist-oriented locations draw the most attention -- and investment."When we're creating a brand store, in many ways, you're creating a living brand, the store as a medium for the brand," says Claire Rosenzweig, president of the Promotion Marketing Association, New York. "When you have a brand creating their own store, they are creating the brand experience. They're in control of the environment, the space, and the experience the consumer is going to have."She adds, "It's a little bit different than when you're going into another retailer. You're living by somebody else's rules. You might have the opportunity to create stores-within-stores, but it's still not going to be the same."'This is who we are'The flagship stores often are the centerpiece of a broader set of branded stores, says Susan Nelson, executive director, strategy at San Francisco-based Landor Associates. "They're the billboards, the Broadway, the Las Vegas, 'this is what we stand for, this is who we are, this is the be-all and the sum-all," she says. "You put them in high-traffic locations where you're getting people from all over the country."Rob Frankel, president and owner of Los Angeles-based consulting firm RobFrankel.com, who consulted with The Right Start when it evolved from a completely catalog-based operation to retail locations in the 1980s, likens branded stores to company-owned car dealerships. "If you wanted to look at something old in a new way, these are exactly what your GM dealerships are," he says. "They're taking that type of exclusivity of environment and applying it to things like apparel."For Christian Davies, vice president of design for FRCH Design Worldwide, Cincinnati, the key impacts of flagship locations should be creating an emotional connection -- and getting people talking. "This is our ultimate brand delivery vehicle. We have a captive audience, in a building we own, interacting with our products in a controlled environment, and we've got them for 20 to 40 minutes," he says. "The primary benefit is your ability to create a very rich and memorable experience in the mind of the consumer. The consumer can go home and say, 'I went to this place today, and it was unbelievable.' "Branded stores are particularly effective at reaching -- and creating excitement among -- core consumers, says David Gester, partner at the architectural firm of RTKL Associates, New York. "A lot of times you're able to talk to some pretty die-hard consumers in there, people who are really immersed in the brand," he says. "You're already preaching to our core consumer -- to launch a new product to them is one way of determining whether early adopters like it."Testing ShoppersFlagship stores serve as effective "testing labs" within which to glean reactions to more cutting-edge product offerings, says Steve Chang, partner at Chicago-based Prophet. "I typically see flagships showing a lot of the newer stuff," he says. "You are testing some of your newer products and aspects of your experience."Such stores also offer the chance to display a broader offering than consumers typically see in today's increasingly consolidated retailers, says Doug Fleener, president and managing partner for Dynamic Experiences Group, Lexington, MA. "So many of them cherry-pick the lines," he says. "You might offer 300 SKUs, but only 10, if you're lucky, get into Target."Even more relevant to in-store marketers, brand stores present the possibility of trying new merchandising or messages before attempting to roll them out to third-party retailers, says Kevin Appelbaum, managing partner with Hawk Hill Advisors, Mill Valley, CA. "One of the by-product advantages is having that direct interaction with a consumer that's not filtered through the eyes and ears of another retailer," he says.This means a better way to communicate complex products, says Fleener, who worked for Bose Corp. for 25 years. "The value of the product really needs to be demonstrated, and it was very difficult to get the retailer's employees to demonstrate that," he recalls. "If I showed you a $100 stereo and a $3,000 stereo, and all I did was talk about the difference, you'd probably go with the $100 stereo. But if I demonstrated to you the sound quality, you're going to make a more informed decision."Dr. Martens AirWair, Portland, OR, tries out both new products and new merchandise in its flagship location in downtown Portland, says Scott Drew, marketing services coordinator. "We don't have to negotiate, of course, with the owner of the store," he says. "It's ours. It's a nice testing ground for any new concept we come up with, be it product or marketing."Levi Strauss & Co., San Francisco, uses its 14 stores -- with a flagship in San Francisco and mall-based locations elsewhere -- to put out the best breadth and depth of the company's merchandise, says spokeswoman Amy Gemellaro. Levi's uses the stores as consumer testing labs and performs case studies on merchandise, which it shares with accounts.Nintendo of America, Redmond, WA, intends to monitor consumer traffic flow and interaction at its newly opened Times Square location, says Bob Stoik, director of merchandising. "Nintendo World will be used as a brand marketing and public relations vehicle for Nintendo," he says. "Consumer awareness and satisfied gamers will be a measure of our success."Hershey's plans to test foodservice and bakery items in its Michigan Avenue cafe and believes retailers will glean ideas from the store's merchandising, Papson says. "It's a great showcase," he says. "Our top customers, like Wal-Mart and Target, they all just love to come to see new ideas."A Huge InvestmentWhile flagship store locations provide a multitude of benefits for product companies, they also represent investments of mid-six to mid-seven figures, consultants say, and their returns are limited if product companies roll them out without a well-considered strategy.Investments can be all up and down the spectrum, Frankel says. "That is like asking, 'How much is a car?' It's one of those how-high-is-up questions," he says. "They're going to put whatever it takes to make a location like that look good for public relations purposes -- not necessarily your meat-and-potatoes business reasons. There is no cut-and-dried formula [for how much to invest.]" Fleener of Dynamic Experiences says investment must be sufficient to make the right brand statement. "You can't build an Apple store and throw up some sheet rock and set up some iPods," he says. "You have to balance your build-out and fixtures and signage [with] what's appropriate for the market position of the brand, but also the real estate site."Davies of FRCH cites the Louis Vuitton flagship in New York as a high-end example. "That is a staggering piece of branding," he says. "You walk into that environment, and it's difficult to imagine how they would have spent more money on that experience. It's incredibly rich and powerful."But Davies imagines that store, like most today, was not designed to lose money. "The honeymoon is over in terms of building these things and having them not generate revenue," he says. "I would not ever recommend to a client to open a store that is primarily a museum. What you can say is that the model of investment that you're going to put into a building like that may be significantly higher. Therefore, your return may not be as high as in certain other markets."To justify an investment that loses money, a product company must expect a very high echo-effect in other retailers, says Bob Phibbs, principal with The Retail Doctor. He cites Sony's San Francisco store as one that consumers will brag about having been to, creating a buzz that can lead to sales down the road."It probably loses money, but that's O.K.," Phibbs says. "The best ones have found the premium locations, and they'll pay for that. It's not a matter of whether they make money in Manhattan." But it's ideal if they do, he adds. "Clearly if you're in retail, the goal should be, they have to move product. It's not just a marketing expense."Chang of Prophet agrees that the experience in Sony's store might lead to future sales. "Their strategy with stores has been more about educating people with the coolness of the gadgetry and technology," he says. "They don't look to sell a ton of volume. They're trying to get you better educated so when you go into Best Buy, you have that brand awareness."Dr. Martens has earned money in its Portland location since opening in "2000 or 2001," Drew says. "You don't operate at a loss just for the sake of having your own store. Otherwise, it's just a brand exercise," he says. "Of course we want to make money, and we do make money."Levi's has taken a more judicious approach with its current fleet of stores, Gemellaro says, after losing money on many of its more than 100 franchised stores, an operation that the company closed in the early 1990s. The company owns the current stores, she says.Hershey's says an average of 2.3 million people shop its Times Square location annually with purchases around $18 per person. "We sell an incredible amount of product," he says. "That creates incredible sampling" in other, non-Hershey-owned retail locations.Heather Hayes, in-store planner for Portland-based adidas and its retail stores, says the company has high-end "concept stores" in New York and Las Vegas and several other "Sport Heritage" locations that sell older, more fashion-based lines. "We make money. That's obviously the goal," she says. "The retail division of adidas is one of the strongest-growing. You get to present your brand in the way it's meant to be presented and merchandised."Consistent Message RequiredBut simply having a location of one's own doesn't guarantee the right presentation, consultants and other observers say, adding that return-on-investment is guaranteed to be poor if careful attention is not given."The challenge is to create an environment that's going to reflect your message," says Rosenzweig of the Promotion Marketing Association. "Make sure your store reflects that through shelving, environment, approach of the people you're hiring. You're going to need to make sure that everything about that store says what you want it to say. If it doesn't, you run into the potential for disconnect with the consumer."Consistency of message is critical, Landor's Nelson says, or consumers who hear one brand story in the media will feel let down when they enter the store. "It's a lot more difficult to modulate or adjust your brand strategy when you have bricks and mortar," she says. "You have to be sure when you're doing these experiences, the message is completely supported by them. That's when it gets scary, when you don't live up to the promise."Product companies should also plan to have to massage their relationships with third-party retailers near their newly opened flagship locations, says Fleener, recalling his years spent with Bose. "I always felt bad for the wholesale guys who were going to go into the buyers," he says. "That poor guy just has to get the crap kicked out of him. When you take the time to educate your entire company on why you would do a retail strategy and help them translate that to your customer base, it goes much smoother for everyone."Mall StoresDepending on their particular strategies, product companies sometimes choose to locate branded stores in mall locations -- ranging from high-end "destination" malls to factory outlets in the sticks.Consultants and other observers say the suburban mall-based locations typically feature a scaled-down array of merchandise with a toned-down look and feel compared to that of the flagships, and are invariably expected to earn a profit.But making a profit in such locations can be very difficult, Frankel says. "They are constantly getting hammered from every single angle, every hour of the day," he says. "There are stores to the left, stores to the right, there are freestanding kiosks in back of you. And that's just in a 20-foot radius. Your senses are constantly being pounded by advertising and marketing messages."Jill Wittnebel, project manager for Carbone Smolan, New York, says mall-based stores are mostly intended to reach those who won't be walking across Times Square any time soon. "The genuine purpose of the mall store is to reach the masses," she says."You're right there with America," Chang agrees. "It's where a large portion of your potential customers are, that you can access more easily and have them come in and learn about you. A lot of flagships tend to be in big metropolis areas, like New York City. But what portion of your real customer base gets to visit that [flagship] store?"Nokia Americas, Irving, TX, has mall-based "experience centers" that are designed solely to build brand, says spokesperson Keith Nowak. The 150-square-foot centers, of which the company has 12 in "destination-type malls," do not sell any product in an effort to lower the pressure, he says."We have a lot of very unique, very cool products, but there's never been a place a person could go and see a majority of them on the market," Nowak says. "The experience centers were designed to get out in front of people and not only introduce the entire Nokia line but also give them a place where they can ask questions."Outlet StoresConsultants differ on the value of locations in outlet malls, with some believing they carry the danger of detracting from the brand while others see positives to them."Branded stores are there to build brand value. Outlet stores undermine brand value," Frankel says. "That's why the outlet stores are never next-door. They're 150 miles away. You can dump a lot of excess inventory there.""I don't know if that fits into the brand strategy," Phibbs says. "It's all about price. Anybody can be a discount whore. I do wonder if there's a mixed message."Davies of FRCH believes outlets can play a role in branding, but product makers must figure out how to create the right merchandising balance. "You have to do a take-down for these environments. You don't want it to be an unfriendly experience, but you want it to be an appropriate level of experience."Nelson agrees that it's a fine line to walk. "I'm sure they're fabulous business propositions: what better way to get rid of your unsold merchandise?" she says. "But it can get a little bit dicey when your same customer is experiencing your full-on brand and your outlet brand."adidas' 46 mall-based stores are split about 50-50 between suburban malls and outlets, Hayes says, and "we're definitely moving more into opening up more outlets." The material choices, graphics and sign packages for merchandising tend to be the same, she says. "It is a good place to continue your brand messaging."Pop-Up StoresAnother option for product companies wishing to combine a splash in a major market with a lower-tiered investment is to create temporary, so-called pop-up stores. "They're another weapon in the arsenal," Davies says. "Brands are more fluid right now than they've ever been."Nelson sees it as a "buzz-building activity" targeted toward niche brands. "We're different, and you'd better look quick, or you're not going to find out," she says. "It's going to be a hard strategy to maintain for the long term. It's more like the 30-second ad in some ways. It's going to cost you a lot of money over time."Hawk Hill Advisors has been working in that environment to support a new product launch and generate local interest and excitement, Appelbaum says. He figures the investment is typically between $50,000 and $100,000 per month to secure and build out a site and to hire staff. "You're going to pay for a lot of inefficiencies in doing something on a temporary basis," he says. But "if the objective is to learn, or to create initial awareness, this gives you a vehicle to do that without making a 10-year commitment. The tradeoffs are often acceptable."Meow Mix opened a cafe for cats in midtown Manhattan to help generate a buzz for its new wet cat food, which drew 100 people for an opening-day party and stayed open for two weeks (see sidebar)."The brand's personality is kind of fun and whimsical," says Matthew Glass, CEO for Grand Central Marketing, New York, which worked with the company. "We wanted to get press attention, and we wanted to see if this concept would work."It was a funny idea, and obviously it captured everyone's imagination," he adds. "The purpose was to build awareness, to let cat owners know that the product was launched. Meow Mix does in-store point-of-sale and negotiates aisle signage and rack space. Every brand's dream is to take over the whole store, and do whatever you want."

Brand Store Retailing

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