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stores
Flagship stores as a market entry asFlagship
a market entry
method
method: the perspective of luxury
fashion retailing
Christopher M. Moore
Heriot-Watt University, Edinburgh, UK
Anne Marie Doherty
University of Glamorgan, Pontypridd, UK, and
139
Received January 2007
Revised February 2008,
July 2008
Stephen A. Doyle
Glasgow Caledonian University, Glasgow, UK
Abstract
Purpose – Employing the qualitative method, this paper sets out to investigate the role and function
of flagship stores as a market entry mechanism employed by luxury fashion retailers.
Design/methodology/approach – The paper employs an interpretive research position, utilising
qualitative techniques in the form of semi-structured interviews with élite informants. In total,
12 luxury fashion retailers form the empirical focus of the work.
Findings – The paper identifies the defining characteristics of luxury retailers’ flagship stores. It
finds that luxury flagship stores represent a strategic approach to market entry that is employed to
support, enhance and develop distribution activities within a foreign market. The interdependence of
flagship stores and the wholesaling method of distribution is highlighted. The importance of the
flagship store in reinforcing and enhancing the retailer’s luxury status and enhancing and maintaining
relationships not only with customers but also with distribution partners and the fashion media is
found to be significant.
Practical implications – The paper provides practical information to luxury retailers on the role
and importance of flagship stores as a method of entering international markets.
Originality/value – Flagship stores are a pivotal aspect of any luxury fashion retailer’s
internationalisation strategy. For the first time in the literature, the paper provides insights into
their form and function and an understanding of why they are crucial to the international development
of luxury retailers despite their prohibitively high cost.
Keywords International marketing, Market entry, Fashion, Retailing
Paper type Research paper
Introduction
Fashion retailers are consistently recognised as the most prolific of international
retailers (Hollander, 1970; Fernie et al., 1998; Doherty, 2000; Moore et al., 2000; Wigley
and Moore, 2007). While the general fashion and general merchandise fashion retailers
(Moore, 2000) have been the focus of some academic attention (Laulajainen, 1991;
Moore, 1997; Doherty, 2000; Doherty and Alexander, 2004, 2006), luxury or designer
European Journal of Marketing
fashion retailers have attracted more consistent attention and form the basis of the
Vol. 44 No. 1/2, 2010
current work (Laulajainen, 1992; Fernie et al., 1997; Moore et al., 2000; Moore et al.,
pp. 139-161
Limited
2004). This growing body of research has addressed the issues of location, global q Emerald Group Publishing0309-0566
branding and luxury brand management (Fernie et al., 1997, 1998; Moore et al., 2000;
DOI 10.1108/03090561011008646
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Moore and Birtwistle, 2004; Moore and Wigley, 2004; Moore and Birtwistle, 2005).
Implicit in many of these studies is the entry mode strategy adopted by luxury fashion
retailers when entering foreign markets. Franchising and wholesaling warrant
particular attention (Moore et al., 2004); however, the importance of flagship stores as
an international market entry method has been somewhat neglected despite its
centrality to the internationalisation strategy of these firms (Moore et al., 2000).
Entry mode strategy is typically defined as “an institutional arrangement that
makes possible the entry of a company’s products, technology, human skills,
management or other resources into a foreign country” (Root, 1987, p. 5). Entry mode
research has been dominated by studies on the manufacturing sector and, to a lesser
extent, the service sector, with little acknowledgement of the specifics of retail firms
(Erramilli, 1990; Erramilli and Rao, 1993; Sarkar and Cavusgil, 1996; Kumar and
Subramaniam, 1997). Despite the fundamental importance of entry mode choice to the
success or otherwise of an international venture, relatively few studies have examined
entry-mode strategy by retailers (Doherty, 1999, 2000). According to Dawson (1994),
retailers can enter foreign markets via internal expansion, merger or takeover,
franchising, joint venture and through a non-controlling interest. However, when we
examine the specifics of the luxury fashion sector it is clear that entry modes outside
this “norm” prevail such as flagship stores (Moore et al., 2000) and guerrilla stores
(Doyle and Moore, 2004). The aim of this paper is to examine flagship stores as a
market entry method for luxury fashion retailers. By providing qualitative research in
the form of semi-structured interviews with a sample of luxury retailers, we introduce
the flagship concept to the entry mode debate. In order to provide context for the
primary research, the paper begins by reviewing extant entry mode literature from the
manufacturing and service sectors before relevant research from international retailing
research is explored. The methodology section outlines the research approach and
methods employed. The findings are subsequently reported before a discussion and
conclusion are provided and areas for future research outlined.
Entry mode research
Entry mode research: manufacturing and service sector perspectives
Entry mode research has been dominated by studies on the manufacturing sector
(Anderson and Gatignon, 1986; Kogut and Singh, 1988; Hill et al., 1990; Agarwal and
Ramaswami, 1992; Gannon, 1993; Sarkar and Cavusgil, 1996; Kumar and
Subramaniam, 1997; Brouthers, 2002). Much of this research focuses on the
transaction cost and institutional/agency implications of choosing one particular entry
mode over another or why a multi-modal strategy would be adopted. According to Hill
et al. (1990), much of this international business literature focuses on three distinct
modes of entering a foreign market: “licensing (or franchising), entering into a joint
venture and setting up a wholly owned subsidiary” (p. 118). Kim and Hwang (1992)
maintain that each of these entry methods is consistent with a different level of control
and resource commitment. Control, they contend, means authority over operational
and strategic decision-making; resource commitment is interpreted as dedicated assets
that cannot be redeployed to alternative uses without loss of value (Kim and Hwang,
1992). Given the nature of manufacturing it is of no great surprise that entering
international markets via a flagship operation receives no mention in this developed
Flagship stores
literature.
as a market entry
A considerable body of knowledge also exists on entry mode strategy amongst
method
service firms (Erramilli, 1990, 1991; Erramilli and Rao, 1990, 1993; Erramilli and
DeSouza, 1993; Contractor and Kundu, 1998; Ekeledo and Sivakumar, 1998; Dev et al.,
2002; Brown et al., 2003). These studies examine entry mode choice decisions and
141
explore the various factors that influence service firms to choose entry modes when
entering foreign markets. A major limitation of this work, however, is that it is
dominated by cross sectional studies based on questionnaire data from
internationalising US service firms only (Erramilli, 1990, 1991; Erramilli and Rao,
1990, 1993; Erramilli and DeSouza, 1993). None of these studies include the retail sector
as part of their sample. This dearth of research on the retail sector in mainstream
service sector research is further exacerbated by more recent work by Dev et al. (2002)
and Brown et al. (2003) which focuses solely on the internationalisation of hotels.
Therefore, despite this growing body of literature little, if anything, can be gleaned
about entry mode strategy of retail firms. That said, the entry modes in question reflect
those investigated in the studies on the manufacturing sector – that is, wholly owned
subsidiary, joint ventures, franchising, licensing and exporting.
Entry mode strategy in international retailing
Like their counterparts in manufacturing and other service industries, international
retailers are faced with a number of choices for international expansion and may well
use more than one method in developing international operations (Doherty, 2003).
Hollander (1970) offers one of the first reviews of entry modes used by international
retailers. He classifies them as purchase of existing stores and firms, participation in
joint ventures, establishment of new foreign subsidiaries and franchising.
Subsequently, Dawson (1994) provides a summary of the main mechanisms
international retailers can use to enter new markets. They are:
.
internal expansion, in which a company opens individual shops using
in-company resources;
.
merger or takeover with the acquisition of control over a firm in the host country;
.
franchise type agreements in which the franchisee in the host country uses the
ideas of the franchisor based in the home country;
.
joint ventures which may take a variety of forms for the joint operation of
retailing, including in-store concessions between a firm in the host country and
one in the home country; and
.
non-controlling interest in a firm in the host country being taken by a firm in the
home country.
Traditionally, as with manufacturing and service firms, entry strategies for
international retailers have been classified along a risk/control continuum. Entry
methods such as organic growth and merger and acquisition which require more
financial commitment are deemed to offer greater control of the overseas operation,
with less costly, and therefore less risky, methods such as joint ventures and
franchising being deemed to offer much less control of the overseas markets (Dawson,
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1994; Doherty, 2003). Quinn (1996) acknowledges additional entry modes as retail
alliances, mail order, licensing, management contracts, exporting merchandise to
foreign retailers and duty-free shopping. Those highlighted by Hollander (1970) and
Dawson (1994), however, tend to be the most popular and widely employed. Despite
these classifications of entry modes, apart from the work by Doherty (1999) and
Gielens and Dekimpe (2001), there are very few dedicated studies in the international
retailing literature that take a broad perspective on entry mode choice examining a
range of entry methods. Studies have tended to focus on aspects of particular entry
modes such as mergers and acquisitions (Wrigley, 1997a, b, 1998, 2000, 2002), joint
ventures (Palmer, 2006; Palmer and Owens, 2006) and franchising (Quinn, 1998, 1999;
Doherty and Quinn, 1999; Quinn and Doherty, 2000; Doherty and Alexander, 2006;
Doherty 2007a, 2009). Broadly speaking, those studies that focus on merger,
acquisition and joint venture activity, tend to focus on the food sector and larger
formats, such as DIY retailing for example. When research on the internationalisation
of the fashion sector is examined, however, franchising and wholesaling entry modes
are particularly prevalent (Doherty, 2000; Moore et al., 2000, 2004).
International fashion retailing and entry mode strategy
Moore (2000) places international fashion retailers within four categories:
(1) general fashion retailers such as Kookai and Gap;
(2) general merchandise fashion retailers such as Marks & Spencer;
(3) product specialist fashion retailers such as Nike and Sock Shop; and
(4) luxury fashion retailers such as Chanel and Gucci.
The internationalisation of product specialist fashion retailers has received minimal
attention in the literature; however, when we examine research on the
internationalisation activities of general fashion and general merchandise fashion
retailers, evidence shows that these firms predominantly engage in low-cost/low-risk
entry methods such as franchising, licensing and wholesaling (Moore, 1998; Doherty,
2000; Petersen and Welch, 2000; Doherty and Alexander, 2004; Doherty, 2007b). There
are some exceptions, such as Marks & Spencer, which has in the past employed other
entry methods, particularly acquisition. However, since divesting its owned store
business in 2001, Marks & Spencer’s internationalisation strategy is now firmly based
on franchising (Alexander and Quinn, 2002; Burt et al., 2002). Employing a qualitative,
cross case analysis of UK-based international fashion retailers, Doherty (2000)
examines the factors that influence these firms in their choice of entry mode when
moving into overseas markets. She concludes that entry mode strategy emerges over
time as a result of a combination of factors such as history, experience, finance,
opportunistic approaches and changes in management structure. In comparison to the
retailers under study in the current work, however, the firms in her study were not in
the luxury fashion sector and none reported the use of flagship stores, preferring
instead to use franchising and licensing as their main methods of entering foreign
markets. Further research on UK-based general fashion and general merchandise
retailers by Doherty and Alexander (2004) also focuses on the franchising entry mode
by exploring the relationship building aspects of international retail franchising in the
context of relationship marketing. Petersen and Welch’s (2000) study of the
international franchising experiences of the Danish general fashion retailers Carli Gry
Flagship stores
and InWear explores how these firms moved into international franchising as a result as a market entry
of a move from wholesaling and subcontracting activities into retailing. Moore (1998)
method
discusses the entry of the French fashion retailers Morgan and Kookai into the UK via
wholesaling before subsequently entering into franchise agreements with a master
franchisor. Hence, franchising, wholesaling and, to a lesser extent, licensing are
characteristic of research on general merchandise and general fashion retailers.
143
When we explore the work of Fernie et al. (1997, 1998) and Moore et al. (2000), which
focuses on the luxury/designer fashion sector, while wholesaling in particular is a
mainstay of their internationalisation strategy, it is also readily apparent how
fundamental flagships stores are to the international development of this sector. While
not an entry method explored in any of the mainstream literatures noted previously,
flagship stores are an integral element of luxury designer retailers internationalisation
and as such are deserving of more in-depth academic attention.
Luxury fashion retailing
Moore and Doherty (2007) define luxury fashion retailers as:
. . . those firms that distribute clothing, accessories and other lifestyle products which are:
.
.
.
.
.
exclusively designed and/or manufactured by/or for the retailer;
exclusively branded with a recognised insignia, design handwriting or some other
identifying device;
perceived to be of a superior design, quality and craftsmanship;
priced significantly higher than the market norm; and
sold within prestigious retail settings.
Though not claiming to be an exhaustive list, retailers that conform to this
categorisation include Prada, Gucci, Dior, Louis Vuitton, Chanel, Giorgio Armani,
Versace, Hermes, Burberry and Mulberry.
As stated earlier, the coverage of this sector in the international fashion literature
has addressed the key themes of luxury brand management, global branding and
location. Operating through flagship stores has been noted in this literature but their
importance and role has been, hitherto, somewhat neglected. A generic definition of
flagship stores was provided by Kozinets et al. (2002), who identified three
characteristics as follows:
(1) they carry only a single brand of product;
(2) they are company owned; and
(3) they operate with the intention of building brand image rather than solely to
generate profit for the company.
In the context of luxury fashion retailing in London and New York, Fernie et al. (1998)
acknowledge that luxury fashion brands restrict their representation to one “flagship”
store and distribute product via in-store concessions and wholesale agreements. Their
work also provides interesting findings on the location of these flagships noting that in
London, Bond Street and Sloane Street account for 85 per cent of the total designer
stores in the city, with Madison Avenue and Fifth Avenue housing the majority of New
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York’s luxury retailers. Fernie et al. (1998) also comment on the loss-making nature of
many of these stores, making them a particularly fascinating method of entry. They
claim that “flagship stores are maintained to act as publicity vehicles for the ranges
and are not required to show a typical return on investment” (p. 373).
Moore et al.’s (2000) study on the internationalisation process of luxury retailers
places the opening of flagship stores at the centre of the process. While these firms may
enter markets via wholesaling initially, their presence in a market is normally marked
by the opening of flagship stores in central locations such as those noted above.
Thus, while Fernie et al. (1998) and Moore et al. (2000) have introduced the concept
of the flagship store in the context of broader studies on the internationalisation of
luxury brand retailers, much remains to be learned about the role and importance of
flagship stores as a market entry method. Given the prevalence of luxury fashion
retailers on the global stage, and the centrality of flagship stores to their
internationalisation strategy, further investigation of these entities is deemed
important to both the entry mode and international fashion retailing debates.
In summary, entry mode research is dominated by studies examining the
internationalisation of manufacturing firms and, to a lesser extent, service sector firms.
This body of work, however, does not address the specifics of internationalisation by
retailers. When we examine the international retailing literature, it is clear that a wide
range of entry methods have received some limited academic attention across the range
of retail sectors. However, the luxury fashion sector stands apart from other retail
sectors due to the specific characteristics identified by Moore and Doherty (2007). It is
reasonable to assume that due to these specific issues, entry mode strategy for these
firms will also differ from more mainstream fashion retailers. In this vein, we assert
that flagship stores are a fundamental method of market entry for this sector, but one
that has remained relatively neglected in the literature. While flagship stores have been
highlighted by Fernie et al. (1998) and Moore et al. (2000), no study has examined the
flagship store concept in the context of entry mode strategy for luxury fashion
retailers. The remainder of this paper aims to redress this gap in the entry modes and
international fashion retailing literatures by examining, through primary, qualitative
research, the role and importance of flagship stores as an entry method for luxury
fashion retailers.
Methodology
Research position
This study adopts an interpretive research position and utilises qualitative techniques
in the form of semi-structured interviews. Twelve luxury fashion retailers that operate
flagship stores within foreign markets are the empirical focus for this research. The
aim of this study is to understand the role and importance of flagship stores as an entry
method for luxury fashion retailers. To this end, two research objectives were
identified as follows:
(1) to identify the defining characteristics of the international flagship store within
the luxury fashion goods sector; and
(2) to review the motivations for adopting flagships as a form of foreign market
entry.
Given both the exploratory nature of the study, coupled with the focus on
Flagship stores
understanding management decision-making activity and behaviour, it was decided as a market entry
that qualitative data would be collected using semi-structured interviews with senior
method
personnel with direct responsibility for the development and management of flagship
stores within foreign markets. A similar approach to data collection has been
developed extensively within the international retailing literature and has been used
effectively by others researching the market entry behaviour of international fashion
145
retailers (Doherty, 2000; Doherty and Alexander, 2004; Moore et al., 2004). Furthermore,
given that this particular aspect of foreign market entry by luxury fashion retailers has
been given minimal attention within the literature, it is anticipated that the inductive
process of data generation that this methodology supports would provide for a depth of
understanding of the form and function of flagship stores within the context of
international market development by luxury retailers.
Case selection
A criteria description for the selection of luxury fashion retailers was based on Moore
and Doherty’s (2007) definition of luxury fashion retailers noted earlier. Two additional
criteria for selection were included:
(1) the retailer had to operate at least one flagship store in a foreign market; and
(2) the flagship store had to be opened for at least one year.
With no complete database of international fashion retailers, a list was devised by the
researchers utilising a variety of sources. A significant source was the Mintel (2004)
report on luxury goods retailing. This publication does not concentrate exclusively on
luxury fashion retailers. It also includes data on luxury companies that operate within
the luxury perfumes and cosmetics, leather goods, and watches and jewellery sectors.
Using the criteria identified above, some 32 luxury fashion retailers were identified.
Using other sources, a more extensive list was developed which incorporated the
membership lists provided by the three lead bodies representing luxury companies:
(1) Walpole for the UK;
(2) Altagamma for Italian luxury firms; and
(3) the Comité Colbert for the French luxury firms.
These lists were further augmented by information derived from luxury fashion brand
coverage within the trade press (such as Drapers in the UK), from newspaper coverage
(such as the International Herald Tribune), and from consumer magazines, such as
Vogue, Elle and Cosmopolitan. Verification of the luxury status of all the companies
included in the research list was secured through reference to corporate websites and
other forms of corporate communications. In addition, advice was provided by a leading
consultant who specialises in the field of international luxury fashion retailing, and in
particular the leading Japanese luxury companies were identified by this source. A total
of 55 companies were included on the research lists as having met the set criteria.
From this list, it was possible to identify contact details for 50 of the companies. All
50 companies were contacted by letter or e-mail. Where it was possible to identify by
name the person responsible for the management of flagship stores (usually the
International Marketing Director/International Brand Director or International Retail
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Director), the communication was sent to them directly. Where it was not possible to
make this identification, the correspondence was sent to the Managing Director or to
the Chief Executive. In all cases, the correspondence outlined the purpose and scope of
the study and invited the companies to participate in the research. The letters of
introduction were written in French, English, Italian and German to reflect the country
of origin of each of the case companies. Fifteen companies responded to the requests.
Three stated that they were unable to participate and provided no reason for their
refusal. Twelve companies did agree to participate. For reasons of confidentiality, none
of the participating companies are identified in the reporting of this study.
Data collection
Face-to-face interviews were undertaken at either the Head Office of the luxury
companies, either in the home market (notably Paris and Milan), or in the UK Head Office
or their London flagship store. In the correspondence that invited the companies to
participate in the study, all were asked to identify the most senior person(s) responsible
for the strategic management of their international flagship stores. As a result, a number
of different designations were interviewed, and these included the Chief Executive
Officer, Managing Director, Directors of Marketing, International Operations,
International Brand, International Business Development, Communications, as well
as a Retail and Marketing Director. In all cases, the interviews were conducted in
English, with the full agreement of the research participants.
Two of the companies made available internal documentation that included details
of the organisational structures of their international flagship stores, as well as
operations manuals and press releases. Interviews were transcribed and initially
categorised using a framework for analysis that was established using existent
relevant literature. While it is acknowledged that this literature is limited in terms of
scale and scope, it did provide sufficient guidance with respect to the identification of
significant dimensions and issues. As with all interviewing, other important issues also
emerged and developed as part of the ongoing research process. As part of this process,
the analysis sought to reveal common and important themes identified within the
findings, to identify any interconnections or relationships between them, and to
prioritise these in terms of their importance. The interview data are used throughout
this paper in order to illustrate important aspects and issues. Following from Doherty
(2000) and Quinn and Doherty (2000), vignettes are included using the words of the
research participants so as to maintain and illustrate the richness of the data.
Brief descriptions of the 12 luxury companies
Mintel (2004) reports that four markets – notably Japan, the UK, France and Italy –
dominate as the country of origin for luxury fashion brand companies. For this study,
two companies were from Japan, one was from the USA, one was from Germany and
three were from Italy. In addition, the study drew upon the experiences of three French
companies, as well as two from the UK. The 12 firms were diverse in terms of their
ownership characteristics, the number of foreign markets and number of flagship
stores. The companies ranged in age (i.e. the year of establishment) from eight to
over one hundred years, while in terms of turnover for the year 2005, these ranged
from £26m to over £1 billion. Table I highlights further characteristics of the case
companies.
L
K
J
I
F
G
H
D
E
C
A
B
France
Italy
UK
Italy
France
Japan
USA
UK
France
Germany
Japan
Italy
Flagship locations (open/in pipeline)
Tokyo, London
Milan, London, New York, Paris, Tokyo, Hong
Kong, Shanghai
In total, 11 flagships including Munich, Berlin,
London, New York, Paris, Milan, Mumbai, Beverly
Hills, Chicago
Menswear, womenswear
London
Womenswear, menswear,
Paris, Tel Aviv, New York, Beverly Hills, Munich,
childrenswear
London, Bucharest, Mumbai
Womenswear, menswear
New York, London
Womenswear, menswear
Tokyo, London
Menswear, womenswear, childrenswear New York, London, Milan, Tokyo, Chicago, Palm
Beach, South Beach, SoHo, East Hampton
Menswear, womenswear
Florence, Milan, Paris, London, Beverly Hills, New
York, Boston, Tokyo, Osaka, Hong Kong, Shanghai,
Seoul
Menswear, womenswear, childrenswear London, Tokyo, Nottingham, Milan, New York,
Paris, Moscow
Menswear
New York, Bucharest, Mumbai, Milan, London,
Paris, Lisbon, Berlin, Buenos Aires
Menswear, womenswear
Paris, London, Tokyo, Seoul, Hong Kong, Milan,
New York
Womenswear, menswear
Womenswear, menswear,
childrenswear
Womenswear
Company Country of origin/ownership Trading focus
September
2006
November 2005
April 2006
September
2006
November 2005
April 2006
May 2006
March 2006
November 2005
March 2006
September
2006
May 2006
Interview dates
Flagship stores
as a market entry
method
147
Table I.
Case company
characteristics
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Findings
This section is in two parts. The first considers the characteristics of the international
luxury flagship store, while the second considers the reasons for adopting flagships as
a form of foreign market entry.
148
Flagship characteristics
This study found that the international flagship store varies markedly from the other
retail formats that luxury fashion retailers operate within foreign markets. Described
as the “Cinderella part of the international network” by one International Marketing
Director, these stores were distinguished from the rest of the international network by
their scale and design, their location, set-up and operating costs. They also have a
distinct and specific function – “to showcase the brand and to support and bolster the
whole network – within that and all other foreign markets”.
By way of delineating the physical differences that characterise flagship stores, the
findings have identified that these stores are significantly larger in scale than any other
format operated by the retailers – either domestically or internationally. Typically,
flagships are between five to eight times larger than the typical retail store footprint
and they extend, on average, to four sales floors, as opposed to the norm of no more
than two floors. Two explanations were offered by the case companies to justify their
larger size. The first was that their larger scale enhanced the status of the brand – in
that “a large flagship gives the impression of a large brand that is significant and
imposing”. The second was that large-scale premises, with an abundance of space for
“product display and customer flow and movement”, serve as an essential element of
the luxury brand experience. The statement from one Marketing Director (Company D)
extends this latter point further:
The rules of luxury retailing are clear. Space, and what we call “the extravagant use of the
empty space”, defines a luxury experience. By having commercially inactive space we signal
exclusivity, luxury and an extravagance that is at the heart of luxury.
Located within the premium shopping districts of a cluster of key cities (notably Milan,
London, New York, Paris, Tokyo, Shanghai and Moscow), the property costs
associated with these locations were variously described as “exorbitant”, “financially
demanding” and “cripplingly high”. These high costs were sustained and justified by
the claim that the operation of a flagship store within these “world centres” made a
significant positive contribution to the identity and prestige of the luxury brand.
Following from Hollander’s (1970) observation that the choice of flagship location
contributes to and enhances the luxury brand’s reputation and status (which he defined
as the “New York, London, Paris syndrome”), this study also found that flagship stores
are restricted to either “established” centres of luxury goods consumption – such as
London, Paris, Tokyo, Milan and New York – or to “emergent” luxury goods markets,
such as Moscow and Shanghai. The following extract develops these points further:
We have two strands to our flagship strategy. One part is for established centres – those
markets totally associated with luxury – London and Paris. These are usually the core
income markets and the flagship sustains the vital income from these areas. The other strand
is to support our new markets. These flagships are much more concerned with exploiting
commercial opportunities as these emerge (Director of International Operations, Company C).
This study also found that the choice of site location within these important cities was
Flagship stores
restricted to distinct districts, even specific streets – such as Bond Street and Sloane as a market entry
Street in London and Fifth Avenue and Madison Avenue in New York. The focus upon
method
these micro-locations provided access to “rich locals, wealthy tourists and luxury
fashion enthusiasts”, while access to a prestigious address is typically used as a
“powerful brand communications tool that supports the brand by placing it in a setting
149
of a street associated with luxury”. Respondents explained that the competition for
sites on these premier streets was intense and as a result, “rental costs are extreme yet
the battle for new lease opportunities is intense”. Locating a flagship store even only
one street away from these influential addresses can be detrimental to the profile and
financial success of the enterprise, as one respondent explained:
In London, we could not secure a shop on Old Bond Street so we leased a site nearby. But we
may as well have been on the moon. I cannot emphasise enough the importance of the address
in this business. We learned to our cost the impact of getting that address wrong (Managing
Director, Company G).
This study found that flagship stores also differed in their design and physicality.
These stores are often located within premises that previously have served as a
distinguished residence or as an important corporate building – such as the HQ for a
bank. The costs associated with their refurbishment and modifications were found to
be considerable, but the acquisition and redevelopment of a prestigious property was
again justified on the grounds of the prestige and sense of heritage that an association
with a grand building brought to the brand. One respondent suggested that flagships
“must have the best locations and the most prestigious address – that is a long
established rule for luxury fashion”. This is a continuing element of the strategy for the
luxury fashion brand, as one respondent explained:
All the newer luxury companies have followed what the established companies did. Ralph
Lauren bought the Rhinelander Mansion for his New York flagship. If we look at Prada
and their acquisition of the Guggenheim Building in New York and Jil Sander buying the
Royal Bank Building in London, their aim was to claim some of the heritage, cachet and
status of what was there in the past for the new brand in the present. It is really about
buying the brand some heritage – albeit at a significant cost (International Brand
Director, Company B).
Respondents reported that flagship costs were further exacerbated by their companies’
engagement of leading architects to design their flagship stores. Reflecting on the
relationship between architecture and luxury fashion, one respondent proposed that
“luxury brands are the new patrons of architecture – we have taken over from the
popes and royalty!”. Aside from their place in the patronage hierarchy, the companies
provided three principal justifications for their engagement of the leading architects.
These reasons are clearly reflected in the following statement:
First, the involvement of a great architect has a good impact upon the brand’s image and
standing. It is a halo-effect that comes from the association. Then there is the benefit of
having access to their new ideas and creativity. That helps create a different brand
experience. A third reason is that the celebrated architect provides leverage for brands to
have their stores upgraded and improved by their license partners. It really is an important
leverage device (Head of International Business Development, Company E).
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The involvement of these celebrated architects was found to bring a further distinction
with respect to the international flagships. Typically, the retail stores operated or
franchised by luxury fashion firms are standardised with respect to their designs,
materials and layout features. In contrast, the international flagship stores were each
found to be unique in all of these respects. Their unique and often distinctive designs
were a deliberate attempt to “create different flagship experiences and represent the
rejection of the formulaic approach to international retail design development”.
As a result of their non-standardised design, the set-up costs are high. These costs,
coupled with high operating costs, led a number of executives to explain that most
luxury brands can sustain only a handful of flagship stores. Furthermore, the
respondents proposed that the term “flagship store” is used liberally and often
inappropriately, especially within an international context, and that is was wrong to
assume that all foreign stores – company-owned or otherwise – can be reasonably
classified as such. Instead, “true and authentic” flagships, as notable and significant
expressions of the retailer’s luxury positioning, are developed sparingly. The following
extract further extends that point:
The idea of a flagship in every country really dilutes the flagship principle. Flagships have to
be exclusive – exclusive to the prestige markets. Too many flagships dilute their
significance. These are special experiences. The flagship must be as exclusive as the brand it
represents (Director of Marketing, Company B).
While most of the participating companies relied upon third parties (such as
department stores and quality independent stores) to operate stores and sell their
brand under wholesale arrangements within foreign markets, each elected to retain full
ownership and control over their domestic and international flagship stores. This was
for two main reasons. The first was financial, since “the costs are too much for a
partner company to even consider, far less sustain or justify”. The second was due to
their desire to retain full and absolute control over “every aspect of how the flagship
looks and is operated since its main purpose is to accurately reflect our positioning
plan for the brand in our key markets”. In all cases, the opening of a flagship store
marked the first direct investment within the various foreign markets by the case
companies and tended to mark their development of a retail store portfolio within their
most important foreign markets.
Consequently, the research identified that the luxury companies viewed their
flagships, and their locations, as essential components of the DNA of their respective
brands. According to one interviewee the “flagships have become part of our brand
essence and identity – these stores have informed how customers have come to
understand our brand”. As such, a profile of the luxury fashion flagship emerges which
recognises these to be grand in design and scale, costly to establish and operate,
company-owned, limited in number and represented only in those cities/markets
deemed to be significant in terms of both sales and brand positioning.
Finally, all of the luxury fashion retailers indicated that while their flagships
provided an important and significant revenue stream, their primary purpose was “for
something other than profit generation”. And while none were prepared to
acknowledge that their flagship stores operated at a loss, all positioned these stores
as having a “more strategic, brand building and business support function” and that it
was this dimension that “really separates and distinguishes flagship stores from the
rest of the distribution network”. Within this context, the following section will
Flagship stores
examine the function of the luxury fashion flagship store as a method of market entry. as a market entry
method
Motivations for flagships as a market entry method
For all but one of the luxury fashion retailers involved in this study, entry into foreign
markets was initiated through the establishment of wholesale arrangements with
department stores and other prestige fashion boutique stockists. For these companies,
wholesaling remains a significant, and in some cases, dominant source of foreign
market income. However, as well as supporting their wholesale business, the case
companies explained that direct investment in an important foreign market – in the
form of a luxury flagship store – was an important “rite of passage” in the
development of international distribution. A flagship store opening signals a strategic
orientation to international market expansion, as one respondent explained:
Flagship stores are a sign that the brand has reached a point of maturity where it has the
confidence to support its important international markets. It means that the brand can bear
scrutiny within a retail setting and that it has a depth of product and a depth to its reputation
to sustain a major retail store (Director of International Operations, Company F).
For all of the case companies, a flagship store opening marked their first direct
financial investment within their important foreign markets and signals an important
stage in their market development. As has been hinted at previously, the decision to
fund these new stores internally was cost-driven, in that it would be unlikely that any
external agent (such as a franchise partner or wholesale stockist) would have the
inclination, or the resources, to fund the opening of a flagship store. Direct ownership
enabled the case companies to retain full and complete control over flagship operations
and removed the risks associated with a reliance upon a third party.
Clearly, the strategic function of the luxury fashion flagship is three-fold. Firstly, it
further introduces, reinforces and enhances the retailer’s positioning and status as a
credible luxury brand. Secondly, it provides the retailer with the retail space
opportunity to develop and adapt new business propositions, such as diffusion ranges,
cafes and restaurants, as well as the entry into new product categories, such as home
furnishings. Thirdly, and perhaps most importantly, the function of the flagship is to
strengthen, stimulate and support the relationships that exist between and among each
retailer and three distinct and important groups – i.e. distribution partners, the fashion
media, and customers – within the important foreign markets. Furthermore, it is
through these relationships that the retailer’s luxury brand reputation is maintained
and business opportunities exploited. The way in which flagship stores support the
three relationship groups is delineated below.
Distribution partner relations. The study has evidence that luxury fashion retailers
use flagship stores to recruit and retain wholesale customers. An investment as
significant as a flagship store opening is used by the case companies to indicate “a
belief in the viability and future of the market and is a signal of brand confidence,
strength and viability to international partners”. The flagship makes a significant
contribution to brand profile building within a foreign market. This, in turn, means
that these stores have a positive impact upon wholesale sales – especially within the
cities where the flagships are located. Within this context, one respondent stated:
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It is very clear to us that the flagship store has an important role to play in the development of
a wholesale business. When we opened a flagship in Shanghai, the impact upon our wholesale
business was incredible. If we refurbish the flagships we also know that we will attract more
than one hundred new wholesale customers as a result (Head of International Marketing,
Company E).
In terms of wholesale customer recruitment, the respondents suggested that new
clients were often “inspired and encouraged to stock the brand after having visited the
flagship”. Indeed, it would seem that for an increasing number of wholesale stockists,
the availability of a flagship store within the trading country is an important selection
criterion. One respondent suggested that “flagships give confidence to new stockists.
The flagship reassures them, it is confidence-boosting and brings us a great deal of
credibility”.
The luxury fashion retailers also use their flagship stores as a venue to promote
closer relationships between the brand and their distribution partners. Events such as
launch parties, fashion shows and charity evenings are used to maintain interest in the
brand, reward the loyalty of stockists, as well as to generate and nurture new business.
One respondent proposed that the flagship serves as a conduit for close
brand-customer relationships:
We must always find ways of connecting with distribution partners and the flagship is the
best place to achieve that connection. As a foreign company – far from the home market – we
use the flagship like an ambassador’s residence. It is the place where we all come together –
under the common flag of the brand (Brand Manager, Company I).
Flagship stores also had an important role to play in the development of relationships
between the company and those franchise partners. The stores provide a venue for
franchisee-franchisor instruction and education. For example, the majority of the case
companies used the stores as a space to inform and train franchisees about new
business developments, new product ranges, merchandising and display techniques,
as well as changes to operating procedures. It became clear that the flagship store
serves as a model for presenting the brand lifestyle concept, as the following extract
indicates:
Our five flagship stores bring the brand to life for our franchise partners. The flagship is the
place where we make explicit our claim as a lifestyle brand. I know that our franchisees really
only understand the brand and its tone of voice after they have viewed the store. That is
never captured in a book nor is it available from a visit to the showroom (Managing Director,
Company G).
Fashion media relations. Recognising the significant influence that the fashion media
has on how a luxury fashion brand is perceived and accepted, the retailers maintained
that the flagship store contributes to the development of positive relationships with
fashion editors and stylists. Once more, flagships are used as venues to meet and
entertain fashion journalists. In addition, because of their proximity to where fashion
editors work, live and shop, these stores allow for the retailer’s range to be accessible
and “retained in the memory of a journalist or stylist and that significantly increases
the chances of the brand being supported”. Thirdly, flagship stores attract famous
people and celebrities and their presence within flagship stores provides fashion
journalists with “something to write about on a quiet news day”.
As an illustration of the impact of the flagship upon fashion media relations, one
Flagship stores
retailer explained that when their London flagship was closed (due to untenable as a market entry
operating costs), the British fashion press abandoned all coverage of the brand and,
method
according to the company, sales in their other outlets were adversely affected:
The press need a place to connect with the brand. When we closed our store, it was as if we
were wiped from the journalists’ memories. It was incredible. It did not matter what we tried
to do, we just did not matter to them anymore. We had to quickly reverse the decision because
no press coverage is just terrible for luxury brand sales (Director of Communications,
Company J).
Customer relations. The study identified that the opening of a flagship store was also
an effective means of recruiting new and high-spending customers. This is due in part
to the shopping behaviour of these wealthy consumers who appear to concentrate most
of their spending within luxury fashion shopping areas, as one respondent explained:
Many luxury fashion shoppers do not stray into department stores or boutiques. They stay
on the premier shopping streets. When we opened flagships in New York and London, not
only did we engage with regular customers, but we found a new group of wealthy customers.
The store has put us on their shopping list (Head of Marketing, Company L).
For new and established customers, the flagship store becomes, according to one
company, “the home of the brand and is the place where they return so as to be updated
and inspired once again”. For other customers, the visit to the flagship store is a vivid
and pleasant memory that sustains their interest and engagement with the brand
through time. For these customers, it was claimed that a visit to the flagship store
encourages and sustains future purchasing through department store concessions and
third party stockists.
In the case of those customers for whom the flagship is accessible, its main role is to
showcase the full co-ordinated product range with the hope of “getting a bigger share of
the wallet or purse, more of their money spent on our brand”. Furthermore, these stores
provide a place for relationship building activities with regular customers and because
these are operated directly by the companies, these outlets afford an opportunity for “us
as a retailer and them as customers to better understand each other”.
The proposition that the flagship offers the opportunity for luxury fashion retailers
to obtain customer intelligence is further evidenced in the practice of using these sites
as a “testing ground” for the monitoring of customers’ responses to new products and
services, changes to selling methods and the redevelopment of store interiors. The
retailers stated that new initiatives are normally trialled within flagships and that the
insights obtained have a clear impact upon company policy, as one interviewee
explained:
Our flagships are like our research laboratories and given that we fully control these, we can
have confidence that nothing is contaminating the results. That independence means that we
experiment without disclosure to our competitors and we can keep the results close to the
business (Director of Retail and Marketing, Company K).
The function and purpose of luxury fashion flagship stores is clearly summarised by
one interviewee who suggested that “these places are expensive and extravagant. But
their strategic importance is unquestionable. They are critical – critical to any
business strategy”.
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Discussion
As noted earlier, consideration of the features and functions of the flagship stores
operated by luxury fashion retailers has been largely ignored within the international
retailing literature. Indeed, operating internationally via the flagship route has not been
a feature of the broader literature on entry mode strategy (Gannon, 1993; Kumar and
Subramaniam, 1997; Dev et al., 2002). However, studies such as those by Fernie et al.
(1998) and Moore et al. (2000) on the internationalisation of luxury fashion retailers do
acknowledge the importance of flagship stores for the luxury retail sector, but they do
not explore the issues in depth. The current work builds on their initial findings, and
through the use of qualitative methods and securing access to very prominent firms in
the luxury fashion sector, adds much needed depth to our understanding of flagship
stores as a market entry method.
Based on the results of this study, it is clear that these flagships form a
differentiated route to international market entry that is distinct and important.
Luxury flagship stores represent a strategic approach to market entry that is used on a
restricted basis and only within those cities that are significant to the retailer in terms
of the revenue these generate and the status-benefit these provide for the retailer’s
brand. Part of the restriction is borne from the very nature of the flagship stores
themselves. Their scale, architectural features, micro-level location requirements and
their high operating costs collectively prohibit and discourage the over-replication of
these stores on an international basis.
While the findings reported here produce new perspectives on the operation and
importance of flagships, findings also support the work of Fernie et al. (1998) in terms
of the location of these stores and also provide a more up-to-date account of what
Hollander (1970) termed “the New York, London, Paris” syndrome. While the
established centres of luxury consumption – i.e. London, New York, Paris, Milan and
Tokyo – are identified as the main locations for flagship stores, emergent markets are
identified as Moscow, Mumbai and Shanghai.
The characteristics of restriction and limitation provide some interesting insights
into evaluative practices that inform and direct how and where luxury fashion retailers
invest in foreign markets and the outcome effects that these investments are
anticipated to generate. The restriction on the number of flagships is driven principally
as a result of their significant cost and as a result requires that the luxury retailers
directly invest (often for the first time) significant resources in order to leverage the
benefits that the operation of a flagship may provide.
To that end, arguably the most distinctive feature of flagship stores as a form of
market entry is that this is essentially a market development activity that is used to
support, enhance and develop the distribution network, be it in the form of retail stores
or via third party stockists, within important foreign markets. Internationalising
luxury fashion retailers use flagships to support existing business within established
markets, but these companies also recognise the opportunities that flagships provide in
assuring the profile of a new brand within an emerging market. For example, at least
five of the 12 case companies have opened flagship stores within China and have used
these as a signal of the strength of their brand to prospective consumers and as a
means of assuring partner companies of their commitment to China as an important
trading market.
With respect to these latter relationships, this study recognises that wholesaling
Flagship stores
provides a critical income stream for luxury fashion retailers. It also identifies that as a market entry
wholesaling and flagship stores become inter-dependent channels of distribution. The
method
flagship stores sustain interest and market demand for the brand, which the wholesale
stockists satisfy through their distribution network, while the income from wholesale
accounts offsets the cost of flagship store operations. The study emphasises the point
155
that market entry methods are not mutually exclusive, but are instead often symbiotic
and complex in their interconnections. Indeed, as one respondent noted, the “flagship
store is the heart of the business and the wholesale stockists are like the veins which
take the product across the market. None is without the other”. These findings further
support work of Fernie et al. (1997, 1998) and Moore et al. (2000), who also identified the
importance of wholesaling and flagships stores to retailers in the luxury sector as part
of broader studies on the internationalisation of luxury brands.
Flagship stores play a critical role in relationship development. This can be
conceptualised as a three-stage development process. Stage one is principally the
market entry and investment stage. Here the principal function of the flagship is to
establish awareness and interest in the brand within the foreign market. A flagship
store opening initially attracts the attention of the fashion press, and their coverage
subsequently generates customer excitement and interest in the brand. The positive
reaction to the flagship and to the brand demonstrates to current and prospective
wholesale customers the commitment of the brand to the foreign market.
Stage two is concerned with stabilising relationships with customers, the fashion
press and distribution partners. The flagship store acts as a memory prompt for the
brand and functions as a central point where the development of a relationship can
begin. With an emphasis upon customer service and by prioritising the flagship as the
place where new products such as limited edition collections are launched, the flagship
serves to underline and enhance the exclusivity dimensions of the brand. Furthermore,
given that the flagship is typically the place where the whole collection is presented,
the store becomes the situation where all three groups – customers, media and
stockists – receive an education with respect to the function and features of the brand.
Finally, stage three is focused on market development, principally in terms of
extending the function of the store to become a venue for brand relationship
development activities. Fashion shows, launch parties and cultural exhibitions all
illustrate how the function of the flagship extends beyond being solely a selling space
and instead becomes the context where the values and the identity of the brand are
“brought to life and the brand becomes much more than a name above the door or the
logo on the handbag”.
Consequently, it is clear that the flagship maintains an important function as both a
mode of foreign market entry but also as a means of enhancing business within
international markets.
Conclusions and areas for future research
According to Mintel (2004), the luxury market was predicted to be worth $100 billion
by 2008, with the fashion sector estimated to account for 42 per cent of the market. For
this growth industry, understanding the role and function of flagship stores as a
market entry method is crucial. Luxury retailers have specific characteristics (Moore
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and Doherty, 2007); therefore it is not surprising that the methods by which they enter
markets will also be different to the norm covered in other sectors. Through the use of
in-depth interviews with elite informants in 12 luxury fashion retail firms, this paper
offers unique insights into the specific characteristics of flagship stores and the reasons
why flagship stores are an important method of market entry for these global luxury
brands.
The paper makes a contribution not only to the entry mode literature but also to the
international retailing and luxury fashion retailing literatures by shedding light on a
relatively unexplored aspect of global luxury retailing – the flagship store as a market
entry mechanism. Flagship stores are identified as being distinguishable from the rest
of the retail network due to their scale, design, location and set-up and operating costs.
Their decadent size provides a positive signal with regard to the identity and prestige
of the luxury brand. Their design by world-renowned architects and their physicality,
often in historical buildings that allows them to claim further heritage, adds to their
exclusivity. Moreover, entering an international market via a flagship store provides a
luxury retailer with strategic, brand building and market development advantages.
The highlighting of the market development role of flagship stores is a key
contribution of the current work. Given the exorbitant costs involved it was identified
that the purpose of flagship stores was “for something other than profit generation”.
As a result of this, the paper reveals that flagship stores are the conduit to the
successful development of relationships between the luxury brand and its distribution
partners, members of the fashion media and consumers. The individual cost of a
flagship store is therefore ultimately outweighed by the overall profitability of the
organisation to which it contributes significantly through its market development
function.
In terms of areas for future research, there is an opportunity to consider the role and
function of the flagship store from the perspective of distribution partners, members of
the fashion media and luxury fashion consumers. As well as offering an opportunity to
assess whether and how their views on the importance or otherwise of flagship stores
square with those provided by the luxury fashion retailers included as part of this
study, studies of this nature would provide further and important insights into the
inter-relationships which supports and underpin international fashion retailing
activity.
The paper also delineates a three-stage relationship development process that
culminates in the market development role. This final and crucial stage is preceded by
market entry and investment and the stabilising role of the flagship store. Such
findings resonate with earlier work of Doherty and Alexander (2004) on the
relationship building process in international retail franchising. As such exploring
relationship marketing as a means of conceptualising the role of the luxury flagship
store is a potential area for future research.
Finally, the paper concludes that market entry methods in the luxury fashion sector
are not mutually exclusive. Indeed, the symbiotic nature of the market entry methods
employed alongside the flagship store, that is, franchising and wholesaling, is
highlighted. Future research that explores, in more detail, the interconnections between
these entry methods in helping to build global luxury brands, could be very fruitful
indeed.
As with all qualitative research, access is key. One reason why this aspect of the
Flagship stores
internationalisation of luxury retailers has not been hitherto examined in depth may be as a market entry
due to the difficulty of securing access to these prestigious companies. By achieving
method
this and providing in-depth, qualitative data, the paper provides a thicker and deeper
understanding of the phenomenon that is the flagship store. While the lack of
generalisability of findings may be considered a limitation, it is also accepted in studies
157
such as this that the in-depth nature of the findings provided significantly contribute to
our understanding of an under-researched phenomenon and also present various
avenues for future research.
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About the authors
Christopher M. Moore is Vice-Dean and Chair in Marketing & Retailing at Glasgow Caledonian
University, Glasgow. Previously, he was Professor in Retail Marketing at the George Davies
Centre for Retail Excellence, at Heriot-Watt University, Edinburgh. A graduate of Glasgow and
Stirling universities, his doctoral research was in the area of fashion retailer internationalisation.
Current research interests include luxury brand marketing, fashion retailer internationalisation,
country-of-origin impact on luxury branding, and buying and branding strategies within the
fashion sector.
Anne Marie Doherty is Professor of Marketing and Director of the Centre for Research on
Consumption, Markets and Culture, Glamorgan Business School and a member of Academic
Senate of the Chartered Institute of Marketing. Previously she held posts at the University of
Ulster and Aberystwyth University. She holds a PhD in Marketing from the University of
Strathclyde. Her areas of research expertise are international retail marketing, market entry
mode strategy, particularly franchising, and fashion marketing. Her work has been published in
journals such as Journal of Business Research, Journal of International Marketing, European
Journal of Marketing, Journal of Marketing Management, Journal of Strategic Marketing and
International Marketing Review. She has edited special issues of International Marketing Review
(2000), International Journal of Retail & Distribution Management (2002), and European Journal
of Marketing (2004) on the topics of the internationalisation of retailing, retail franchising and
Flagship stores
fashion marketing respectively. She is on the editorial boards of European Journal of Marketing
and Journal of Marketing Management. She was awarded the European Journal of Marketing as a market entry
method
Outstanding Reviewer of the Year Award 2009. Her co-authored book (with Professor Nicholas
Alexander, Aberystwyth University) on International Retailing is published by Oxford
University Press. Anne Marie Doherty is the corresponding author and can be contacted:
adoherty@glam.ac.uk
161
Stephen Doyle is a Senior Lecturer in Marketing in the Department of Fashion, Marketing and
Retailing at Glasgow Caledonian University. Areas of research interest include brand
management in the fashion and luxury sectors, brand internationalisation and manufacturing
networks.
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