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[11 comments]

Does Starbucks need flagship locations?

July 25, 2014

For its first store in Colombia, Starbucks opened a 2,700-square-foot flagship location replete with a heated patio, concrete columns, mirrors on the ceiling and walls of colorful plants. It's apparently part of a plan to open more flagships in major cities.

"We are designing and opening flagship stores around the world," CEO Howard Schultz said in a phone interview last week from Bogota with Bloomberg BusinessWeek at the store's opening. "We are in a position to open the kind of stores that are similar to what Apple and Niketown have been able to do."

Schultz mentioned that Starbucks is planning a flagship location in the U.S., although the location was not given. Other flagships include a 3,000-square-foot flagship store opened last year in Bengaluru, India, as well as two locally themed flagships in China.

The article noted that Starbucks recently opened a number of "high-design" cafes in several U.S. cities that serve as statement stores if not outright flagships. Many act like mini-museums paying homage to each city's history.

In July, a 4,400 square-foot location opened near San Francisco's Fisherman's Wharf. Many of the details are inspired by the city's nautical past, including a steel front door made of ship's hull material. A concrete wall discovered during demolition of the previous space portrays elements of the city's history.

Design details of a themed store opened in Austin in February speak both to the city's early history as a timber outpost and its recent reputation as a destination for local music. A location opened last year in New Orleans was reimagined to what the space might look like had it belonged to a Louisianan merchant in the early 1900s.

For the May opening of its first company-owned store opened at Walt Disney World, Starbucks added a "passion wall video" rendered to look like an animated painting or drawing that projects the story behind Starbucks coffee.

But the splashy Colombia location supports Starbucks' aggressive expansion in Latin America, a relatively untapped area for the chain. Opened through a joint venture between two of its longest-term partners in the region—Alsea and Grupo Nutresa, the three-level location is the first time Starbucks is exclusively serving coffee sourced locally. It's also the first time Starbucks has installed a Clover machine, a $12,000 high-end system for making single-cup brewed coffee, which is popular with locals.

FINANCIALS:     [NASDAQ:SBUX] [ ]

Discussion Questions:

What do you think Starbucks will gain by opening flagship or statement locations in major U.S. cities? Do you see similarities between Starbucks' approach and that of Apple and Nike?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How important will the opening of flagship or statement stores be to the future success of Starbucks in the U.S. and around the globe?

Comments:

Boy, this is fascinating, and goes back to an interesting finding in RSR's store benchmark study this year.

I mentioned in an earlier blog post that sales under-performers like Walmart have a propensity to plan for smaller stores. Well, the inverse is also true. Retail winners (over-performers on comps) are opening larger ones. And here's Starbucks (apologies to Ed McMahon)!

Successful retailers clearly believe flagships are important to be the standard-bearer of their very hot brands—a recognizable symbol of their strength.

I'd never thought about it much before we published that report, but the truth of it has been borne out quite a bit.

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Paula Rosenblum, Managing Partner, RSR Research

Flagship stores make a statement, and Starbucks' new Colombia location does just that in several ways; its physical plant, serving only locally-sourced coffee and the investment in the Clover Brewing System. The commitment to serve five varieties of Colombian coffee will certainly make it stand out in the market.

These flagship locations become must see/visit tourist locations. The strategy is no different than Niketown in Chicago or in other cities. They serve as the "face" of the company. Opening locally themed locations (assuming they are done well) has always proved popular.

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Steve Montgomery, President, b2b Solutions, LLC

Robin Williams once said, "Cocaine is God's way of telling you that you have way too much money." This move by Starbucks says much the same. They have way too much money and when that happens, you lose focus. Ego takes over resulting in poor decisions.

There's a huge difference between Apple and Nike as compared to Starbucks. The elasticity in the price of a cup of coffee as compared to an Apple-like device or Nike shoes simply doesn't compare.

This is an example of poor decision making where for the same dollars spent, more locations could be created selling far more coffee and expanding their presence. Gaining results in new markets requires presence, not a statement. More locations versus an outrageous "flagship" will yield far better results.

It has often been said that Starbucks is so ubiquitous that it will hurt them in the long run. Traveling this year, it never seemed more evident how untrue that assertion is, and just how difficult it is to stay strung-out on Starbucks through very large parts of this country.

Some Starbucks loyalists, acutely aware of their price increases over the past several weeks, just might be thinking ...

'Scanner'

This completely makes sense in new markets. It's a way to express all the possibilities of a brand, show off and try out new menu items to see if they'll work there.

Starbucks has spent a ton in recent years to refurnish stores, which shows that they're ready to adapt to changing customer expectations and tastes—and that's important.

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Cathy Hotka, Principal, Cathy Hotka & Associates

I've been talking a lot about the myth that "small is the new big" in retail. Retailers like Macy's, Uniqlo, Restoration Hardware, Best Buy (and now Starbucks) are investing in flagship locations because they serve as the ultimate expression of their brands. In high-profile locations, flagships also serve as a brand beacon that can drive global brand awareness. For some retailers, that can translate into digital dollars in markets where no stores exist. Finally, these locations are often giant learning labs, teeming with experiments that retailers can deconstruct and leverage in other locations (or not, if unsuccessful). Flagships are enjoying a renaissance for a reason!

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Carol Spieckerman, President, newmarketbuilders

Looks like a smart move by Starbucks to ensure "locale validity." Putting their global experience in responsive design (audience/environment aware) to good use!

Jim lucas, dir insights & strategy, schawk

The strategy for opening flagship locations in new markets is clear; establish a beachhead and build a key brand differentiation in the marketplace.

Flagship or statement locations in the United States seem a little excessive given the strong penetration of the Starbucks brand in most major markets. The local customization is right on strategy, but may be more effective when distributed across the existing locations; reinforcing the local with national positioning.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

I see more similarities with McDonald's flagship locations than Apple and Nike. Starbucks will have a lot to gain following the trend of McDonald's as many of know of the McDonald's in Orlando, Chicago, New York and other cities and their unique designs.

Ed Dunn, Founder, (Stealth Operation)

This is not a sales gain strategy, but instead a corporate positioning and statement of their brand. Coffee, community and chat are key components of the Starbucks approach, and each of these locations epitomizes this corporate vision along with a local feel....

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Kai Clarke, President, Kowa Optimed, Inc.

Bravo to Starbucks! While so many corporate retailers have been trending to create uniformity in their stores no matter their locale, Starbucks is making a commitment to bring innovation and local relevancy with their new flagship stores.

Starbucks knows that the experience in their stores is what keeps customers coming back. They are writing the book on telling stories. How refreshing to give your customers something to discover within an historical context while maintaining your core brand values.

The use of local artists and materials is a brilliant stroke to build meaningful connections that will engender loyalty from local customers and an irresistible attraction for tourists.

While other retailers disconnect from local relevancy, Starbucks embraces it. Let's hope this starts a trend and other retailers will start looking to the communities they serve for inspiration.

'RetailRetell'

In the recent past, I have been ranting against flagship stores. Okay, maybe not ranting but at least whimpering. You see, in this time of rethinking the store, you take a look at Macy's Herald Square flagship and it makes me think that my Macy's is not even the real thing. A cheap imitation. Another case in point, Restoration Hardware's Boston Back Bay flagship. WOW!

In my opinion, the flagship is suppose to set the tone of the brand and that same tone should be carried through to all of the stores. Yes, there may be a few extra bells and whistles in the Flagship but the overall theme, experience, service levels, etc. should be the same.

So with all that said, I read this article and had to take note. It appears that Starbucks is doing it right! They often do. From what I can gather, these stores pay homage to their cities while not changing the experience that we all expect from Starbucks.

What can this do for Starbucks? These stores give them the opportunity to show they care about each city as well as make their mark. My 2 cents says this is a win-win.

Lee Kent, Encourages retailers to meet share and learn, YourRetailAuthority

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