Flagship Store as a Metod

Flagship stores as a market entrymethod: the perspective of luxury

fashion retailingChristopher M. Moore

Heriot-Watt University, Edinburgh, UK

Anne Marie DohertyUniversity of Glamorgan, Pontypridd, UK, and

Stephen A. DoyleGlasgow Caledonian University, Glasgow, UK

Abstract

Purpose – Employing the qualitative method, this paper sets out to investigate the role and functionof flagship stores as a market entry mechanism employed by luxury fashion retailers.

Design/methodology/approach – The paper employs an interpretive research position, utilisingqualitative techniques in the form of semi-structured interviews with elite 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. Itfinds that luxury flagship stores represent a strategic approach to market entry that is employed tosupport, enhance and develop distribution activities within a foreign market. The interdependence offlagship stores and the wholesaling method of distribution is highlighted. The importance of theflagship store in reinforcing and enhancing the retailer’s luxury status and enhancing and maintainingrelationships not only with customers but also with distribution partners and the fashion media isfound to be significant.

Practical implications – The paper provides practical information to luxury retailers on the roleand importance of flagship stores as a method of entering international markets.

Originality/value – Flagship stores are a pivotal aspect of any luxury fashion retailer’sinternationalisation strategy. For the first time in the literature, the paper provides insights intotheir form and function and an understanding of why they are crucial to the international developmentof luxury retailers despite their prohibitively high cost.

Keywords International marketing, Market entry, Fashion, Retailing

Paper type Research paper

IntroductionFashion retailers are consistently recognised as the most prolific of internationalretailers (Hollander, 1970; Fernie et al., 1998; Doherty, 2000; Moore et al., 2000; Wigleyand 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 designerfashion retailers have attracted more consistent attention and form the basis of thecurrent work (Laulajainen, 1992; Fernie et al., 1997; Moore et al., 2000; Moore et al.,2004). This growing body of research has addressed the issues of location, globalbranding and luxury brand management (Fernie et al., 1997, 1998; Moore et al., 2000;

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Flagship storesas a market entry

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Received January 2007Revised February 2008,

July 2008

European Journal of MarketingVol. 44 No. 1/2, 2010

pp. 139-161q Emerald Group Publishing Limited

0309-0566DOI 10.1108/03090561011008646

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 fashionretailers when entering foreign markets. Franchising and wholesaling warrantparticular attention (Moore et al., 2004); however, the importance of flagship stores asan international market entry method has been somewhat neglected despite itscentrality to the internationalisation strategy of these firms (Moore et al., 2000).

Entry mode strategy is typically defined as “an institutional arrangement thatmakes possible the entry of a company’s products, technology, human skills,management or other resources into a foreign country” (Root, 1987, p. 5). Entry moderesearch has been dominated by studies on the manufacturing sector and, to a lesserextent, the service sector, with little acknowledgement of the specifics of retail firms(Erramilli, 1990; Erramilli and Rao, 1993; Sarkar and Cavusgil, 1996; Kumar andSubramaniam, 1997). Despite the fundamental importance of entry mode choice to thesuccess or otherwise of an international venture, relatively few studies have examinedentry-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 weexamine the specifics of the luxury fashion sector it is clear that entry modes outsidethis “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 amarket entry method for luxury fashion retailers. By providing qualitative research inthe form of semi-structured interviews with a sample of luxury retailers, we introducethe flagship concept to the entry mode debate. In order to provide context for theprimary research, the paper begins by reviewing extant entry mode literature from themanufacturing and service sectors before relevant research from international retailingresearch is explored. The methodology section outlines the research approach andmethods employed. The findings are subsequently reported before a discussion andconclusion are provided and areas for future research outlined.

Entry mode researchEntry mode research: manufacturing and service sector perspectivesEntry mode research has been dominated by studies on the manufacturing sector(Anderson and Gatignon, 1986; Kogut and Singh, 1988; Hill et al., 1990; Agarwal andRamaswami, 1992; Gannon, 1993; Sarkar and Cavusgil, 1996; Kumar andSubramaniam, 1997; Brouthers, 2002). Much of this research focuses on thetransaction cost and institutional/agency implications of choosing one particular entrymode over another or why a multi-modal strategy would be adopted. According to Hillet al. (1990), much of this international business literature focuses on three distinctmodes of entering a foreign market: “licensing (or franchising), entering into a jointventure 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 controland resource commitment. Control, they contend, means authority over operationaland strategic decision-making; resource commitment is interpreted as dedicated assetsthat 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

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international markets via a flagship operation receives no mention in this developedliterature.

A considerable body of knowledge also exists on entry mode strategy amongstservice firms (Erramilli, 1990, 1991; Erramilli and Rao, 1990, 1993; Erramilli andDeSouza, 1993; Contractor and Kundu, 1998; Ekeledo and Sivakumar, 1998; Dev et al.,2002; Brown et al., 2003). These studies examine entry mode choice decisions andexplore the various factors that influence service firms to choose entry modes whenentering foreign markets. A major limitation of this work, however, is that it isdominated by cross sectional studies based on questionnaire data frominternationalising US service firms only (Erramilli, 1990, 1991; Erramilli and Rao,1990, 1993; Erramilli and DeSouza, 1993). None of these studies include the retail sectoras part of their sample. This dearth of research on the retail sector in mainstreamservice 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 gleanedabout entry mode strategy of retail firms. That said, the entry modes in question reflectthose investigated in the studies on the manufacturing sector – that is, wholly ownedsubsidiary, joint ventures, franchising, licensing and exporting.

Entry mode strategy in international retailingLike their counterparts in manufacturing and other service industries, internationalretailers are faced with a number of choices for international expansion and may welluse more than one method in developing international operations (Doherty, 2003).Hollander (1970) offers one of the first reviews of entry modes used by internationalretailers. He classifies them as purchase of existing stores and firms, participation injoint ventures, establishment of new foreign subsidiaries and franchising.Subsequently, Dawson (1994) provides a summary of the main mechanismsinternational retailers can use to enter new markets. They are:

. internal expansion, in which a company opens individual shops usingin-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 theideas of the franchisor based in the home country;

. joint ventures which may take a variety of forms for the joint operation ofretailing, including in-store concessions between a firm in the host country andone in the home country; and

. non-controlling interest in a firm in the host country being taken by a firm in thehome country.

Traditionally, as with manufacturing and service firms, entry strategies forinternational retailers have been classified along a risk/control continuum. Entrymethods such as organic growth and merger and acquisition which require morefinancial commitment are deemed to offer greater control of the overseas operation,with less costly, and therefore less risky, methods such as joint ventures andfranchising 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 retailalliances, mail order, licensing, management contracts, exporting merchandise toforeign retailers and duty-free shopping. Those highlighted by Hollander (1970) andDawson (1994), however, tend to be the most popular and widely employed. Despitethese classifications of entry modes, apart from the work by Doherty (1999) andGielens and Dekimpe (2001), there are very few dedicated studies in the internationalretailing literature that take a broad perspective on entry mode choice examining arange of entry methods. Studies have tended to focus on aspects of particular entrymodes such as mergers and acquisitions (Wrigley, 1997a, b, 1998, 2000, 2002), jointventures (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 largerformats, such as DIY retailing for example. When research on the internationalisationof the fashion sector is examined, however, franchising and wholesaling entry modesare particularly prevalent (Doherty, 2000; Moore et al., 2000, 2004).

International fashion retailing and entry mode strategyMoore (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 minimalattention in the literature; however, when we examine research on theinternationalisation activities of general fashion and general merchandise fashionretailers, evidence shows that these firms predominantly engage in low-cost/low-riskentry methods such as franchising, licensing and wholesaling (Moore, 1998; Doherty,2000; Petersen and Welch, 2000; Doherty and Alexander, 2004; Doherty, 2007b). Thereare some exceptions, such as Marks & Spencer, which has in the past employed otherentry methods, particularly acquisition. However, since divesting its owned storebusiness in 2001, Marks & Spencer’s internationalisation strategy is now firmly basedon 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 whenmoving into overseas markets. She concludes that entry mode strategy emerges overtime as a result of a combination of factors such as history, experience, finance,opportunistic approaches and changes in management structure. In comparison to theretailers under study in the current work, however, the firms in her study were not inthe luxury fashion sector and none reported the use of flagship stores, preferringinstead to use franchising and licensing as their main methods of entering foreignmarkets. Further research on UK-based general fashion and general merchandiseretailers by Doherty and Alexander (2004) also focuses on the franchising entry modeby exploring the relationship building aspects of international retail franchising in thecontext of relationship marketing. Petersen and Welch’s (2000) study of the

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international franchising experiences of the Danish general fashion retailers Carli Gryand InWear explores how these firms moved into international franchising as a resultof a move from wholesaling and subcontracting activities into retailing. Moore (1998)discusses the entry of the French fashion retailers Morgan and Kookai into the UK viawholesaling before subsequently entering into franchise agreements with a masterfranchisor. Hence, franchising, wholesaling and, to a lesser extent, licensing arecharacteristic of research on general merchandise and general fashion retailers.

When we explore the work of Fernie et al. (1997, 1998) and Moore et al. (2000), whichfocuses on the luxury/designer fashion sector, while wholesaling in particular is amainstay of their internationalisation strategy, it is also readily apparent howfundamental flagships stores are to the international development of this sector. Whilenot an entry method explored in any of the mainstream literatures noted previously,flagship stores are an integral element of luxury designer retailers internationalisationand as such are deserving of more in-depth academic attention.

Luxury fashion retailingMoore 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 otheridentifying 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 thiscategorisation 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 literaturehas addressed the key themes of luxury brand management, global branding andlocation. Operating through flagship stores has been noted in this literature but theirimportance and role has been, hitherto, somewhat neglected. A generic definition offlagship stores was provided by Kozinets et al. (2002), who identified threecharacteristics 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 togenerate 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. Theirwork also provides interesting findings on the location of these flagships noting that inLondon, Bond Street and Sloane Street account for 85 per cent of the total designerstores 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 ofmany of these stores, making them a particularly fascinating method of entry. Theyclaim that “flagship stores are maintained to act as publicity vehicles for the rangesand are not required to show a typical return on investment” (p. 373).

Moore et al.’s (2000) study on the internationalisation process of luxury retailersplaces the opening of flagship stores at the centre of the process. While these firms mayenter markets via wholesaling initially, their presence in a market is normally markedby 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 conceptof the flagship store in the context of broader studies on the internationalisation ofluxury brand retailers, much remains to be learned about the role and importance offlagship stores as a market entry method. Given the prevalence of luxury fashionretailers on the global stage, and the centrality of flagship stores to theirinternationalisation strategy, further investigation of these entities is deemedimportant to both the entry mode and international fashion retailing debates.

In summary, entry mode research is dominated by studies examining theinternationalisation of manufacturing firms and, to a lesser extent, service sector firms.This body of work, however, does not address the specifics of internationalisation byretailers. When we examine the international retailing literature, it is clear that a widerange of entry methods have received some limited academic attention across the rangeof retail sectors. However, the luxury fashion sector stands apart from other retailsectors due to the specific characteristics identified by Moore and Doherty (2007). It isreasonable to assume that due to these specific issues, entry mode strategy for thesefirms will also differ from more mainstream fashion retailers. In this vein, we assertthat flagship stores are a fundamental method of market entry for this sector, but onethat has remained relatively neglected in the literature. While flagship stores have beenhighlighted by Fernie et al. (1998) and Moore et al. (2000), no study has examined theflagship store concept in the context of entry mode strategy for luxury fashionretailers. The remainder of this paper aims to redress this gap in the entry modes andinternational fashion retailing literatures by examining, through primary, qualitativeresearch, the role and importance of flagship stores as an entry method for luxuryfashion retailers.

MethodologyResearch positionThis study adopts an interpretive research position and utilises qualitative techniquesin the form of semi-structured interviews. Twelve luxury fashion retailers that operateflagship stores within foreign markets are the empirical focus for this research. Theaim of this study is to understand the role and importance of flagship stores as an entrymethod for luxury fashion retailers. To this end, two research objectives wereidentified as follows:

(1) to identify the defining characteristics of the international flagship store withinthe luxury fashion goods sector; and

(2) to review the motivations for adopting flagships as a form of foreign marketentry.

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Given both the exploratory nature of the study, coupled with the focus onunderstanding management decision-making activity and behaviour, it was decidedthat qualitative data would be collected using semi-structured interviews with seniorpersonnel with direct responsibility for the development and management of flagshipstores within foreign markets. A similar approach to data collection has beendeveloped extensively within the international retailing literature and has been usedeffectively by others researching the market entry behaviour of international fashionretailers (Doherty, 2000; Doherty and Alexander, 2004; Moore et al., 2004). Furthermore,given that this particular aspect of foreign market entry by luxury fashion retailers hasbeen given minimal attention within the literature, it is anticipated that the inductiveprocess of data generation that this methodology supports would provide for a depth ofunderstanding of the form and function of flagship stores within the context ofinternational market development by luxury retailers.

Case selectionA criteria description for the selection of luxury fashion retailers was based on Mooreand Doherty’s (2007) definition of luxury fashion retailers noted earlier. Two additionalcriteria 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 theresearchers utilising a variety of sources. A significant source was the Mintel (2004)report on luxury goods retailing. This publication does not concentrate exclusively onluxury fashion retailers. It also includes data on luxury companies that operate withinthe 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 themembership lists provided by the three lead bodies representing luxury companies:

(1) Walpole for the UK;

(2) Altagamma for Italian luxury firms; and

(3) the Comite Colbert for the French luxury firms.

These lists were further augmented by information derived from luxury fashion brandcoverage within the trade press (such as Drapers in the UK), from newspaper coverage(such as the International Herald Tribune), and from consumer magazines, such asVogue, Elle and Cosmopolitan. Verification of the luxury status of all the companiesincluded in the research list was secured through reference to corporate websites andother forms of corporate communications. In addition, advice was provided by a leadingconsultant who specialises in the field of international luxury fashion retailing, and inparticular the leading Japanese luxury companies were identified by this source. A totalof 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. All50 companies were contacted by letter or e-mail. Where it was possible to identify byname the person responsible for the management of flagship stores (usually theInternational 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 tomake this identification, the correspondence was sent to the Managing Director or tothe Chief Executive. In all cases, the correspondence outlined the purpose and scope ofthe study and invited the companies to participate in the research. The letters ofintroduction were written in French, English, Italian and German to reflect the countryof 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 theirrefusal. Twelve companies did agree to participate. For reasons of confidentiality, noneof the participating companies are identified in the reporting of this study.

Data collectionFace-to-face interviews were undertaken at either the Head Office of the luxurycompanies, either in the home market (notably Paris and Milan), or in the UK Head Officeor their London flagship store. In the correspondence that invited the companies toparticipate in the study, all were asked to identify the most senior person(s) responsiblefor the strategic management of their international flagship stores. As a result, a numberof different designations were interviewed, and these included the Chief ExecutiveOfficer, Managing Director, Directors of Marketing, International Operations,International Brand, International Business Development, Communications, as wellas a Retail and Marketing Director. In all cases, the interviews were conducted inEnglish, with the full agreement of the research participants.

Two of the companies made available internal documentation that included detailsof the organisational structures of their international flagship stores, as well asoperations manuals and press releases. Interviews were transcribed and initiallycategorised using a framework for analysis that was established using existentrelevant literature. While it is acknowledged that this literature is limited in terms ofscale and scope, it did provide sufficient guidance with respect to the identification ofsignificant dimensions and issues. As with all interviewing, other important issues alsoemerged 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 thefindings, to identify any interconnections or relationships between them, and toprioritise these in terms of their importance. The interview data are used throughoutthis 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 theresearch participants so as to maintain and illustrate the richness of the data.

Brief descriptions of the 12 luxury companiesMintel (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 andthree were from Italy. In addition, the study drew upon the experiences of three Frenchcompanies, as well as two from the UK. The 12 firms were diverse in terms of theirownership characteristics, the number of foreign markets and number of flagshipstores. The companies ranged in age (i.e. the year of establishment) from eight toover one hundred years, while in terms of turnover for the year 2005, these rangedfrom £26m to over £1 billion. Table I highlights further characteristics of the casecompanies.

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FindingsThis section is in two parts. The first considers the characteristics of the internationalluxury flagship store, while the second considers the reasons for adopting flagships asa form of foreign market entry.

Flagship characteristicsThis study found that the international flagship store varies markedly from the otherretail formats that luxury fashion retailers operate within foreign markets. Describedas the “Cinderella part of the international network” by one International MarketingDirector, these stores were distinguished from the rest of the international network bytheir scale and design, their location, set-up and operating costs. They also have adistinct and specific function – “to showcase the brand and to support and bolster thewhole network – within that and all other foreign markets”.

By way of delineating the physical differences that characterise flagship stores, thefindings have identified that these stores are significantly larger in scale than any otherformat operated by the retailers – either domestically or internationally. Typically,flagships are between five to eight times larger than the typical retail store footprintand they extend, on average, to four sales floors, as opposed to the norm of no morethan two floors. Two explanations were offered by the case companies to justify theirlarger size. The first was that their larger scale enhanced the status of the brand – inthat “a large flagship gives the impression of a large brand that is significant andimposing”. 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 ofthe 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 theempty space”, defines a luxury experience. By having commercially inactive space we signalexclusivity, 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 costsassociated with these locations were variously described as “exorbitant”, “financiallydemanding” and “cripplingly high”. These high costs were sustained and justified bythe claim that the operation of a flagship store within these “world centres” made asignificant positive contribution to the identity and prestige of the luxury brand.Following from Hollander’s (1970) observation that the choice of flagship locationcontributes to and enhances the luxury brand’s reputation and status (which he definedas the “New York, London, Paris syndrome”), this study also found that flagship storesare restricted to either “established” centres of luxury goods consumption – such asLondon, 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 – thosemarkets totally associated with luxury – London and Paris. These are usually the coreincome markets and the flagship sustains the vital income from these areas. The other strandis to support our new markets. These flagships are much more concerned with exploitingcommercial opportunities as these emerge (Director of International Operations, Company C).

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This study also found that the choice of site location within these important cities wasrestricted to distinct districts, even specific streets – such as Bond Street and SloaneStreet in London and Fifth Avenue and Madison Avenue in New York. The focus uponthese micro-locations provided access to “rich locals, wealthy tourists and luxuryfashion 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 settingof a street associated with luxury”. Respondents explained that the competition forsites on these premier streets was intense and as a result, “rental costs are extreme yetthe battle for new lease opportunities is intense”. Locating a flagship store even onlyone street away from these influential addresses can be detrimental to the profile andfinancial 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 wemay as well have been on the moon. I cannot emphasise enough the importance of the addressin this business. We learned to our cost the impact of getting that address wrong (ManagingDirector, 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 adistinguished residence or as an important corporate building – such as the HQ for abank. The costs associated with their refurbishment and modifications were found tobe considerable, but the acquisition and redevelopment of a prestigious property wasagain justified on the grounds of the prestige and sense of heritage that an associationwith 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 longestablished rule for luxury fashion”. This is a continuing element of the strategy for theluxury fashion brand, as one respondent explained:

All the newer luxury companies have followed what the established companies did. RalphLauren bought the Rhinelander Mansion for his New York flagship. If we look at Pradaand their acquisition of the Guggenheim Building in New York and Jil Sander buying theRoyal Bank Building in London, their aim was to claim some of the heritage, cachet andstatus of what was there in the past for the new brand in the present. It is really aboutbuying the brand some heritage – albeit at a significant cost (International BrandDirector, Company B).

Respondents reported that flagship costs were further exacerbated by their companies’engagement of leading architects to design their flagship stores. Reflecting on therelationship between architecture and luxury fashion, one respondent proposed that“luxury brands are the new patrons of architecture – we have taken over from thepopes and royalty!”. Aside from their place in the patronage hierarchy, the companiesprovided 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 andstanding. It is a halo-effect that comes from the association. Then there is the benefit ofhaving access to their new ideas and creativity. That helps create a different brandexperience. A third reason is that the celebrated architect provides leverage for brands tohave their stores upgraded and improved by their license partners. It really is an importantleverage device (Head of International Business Development, Company E).


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The involvement of these celebrated architects was found to bring a further distinctionwith respect to the international flagships. Typically, the retail stores operated orfranchised by luxury fashion firms are standardised with respect to their designs,materials and layout features. In contrast, the international flagship stores were eachfound to be unique in all of these respects. Their unique and often distinctive designswere a deliberate attempt to “create different flagship experiences and represent therejection 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 mostluxury brands can sustain only a handful of flagship stores. Furthermore, therespondents proposed that the term “flagship store” is used liberally and ofteninappropriately, especially within an international context, and that is was wrong toassume that all foreign stores – company-owned or otherwise – can be reasonablyclassified as such. Instead, “true and authentic” flagships, as notable and significantexpressions of the retailer’s luxury positioning, are developed sparingly. The followingextract further extends that point:

The idea of a flagship in every country really dilutes the flagship principle. Flagships have tobe exclusive – exclusive to the prestige markets. Too many flagships dilute theirsignificance. These are special experiences. The flagship must be as exclusive as the brand itrepresents (Director of Marketing, Company B).

While most of the participating companies relied upon third parties (such asdepartment stores and quality independent stores) to operate stores and sell theirbrand under wholesale arrangements within foreign markets, each elected to retain fullownership and control over their domestic and international flagship stores. This wasfor two main reasons. The first was financial, since “the costs are too much for apartner company to even consider, far less sustain or justify”. The second was due totheir desire to retain full and absolute control over “every aspect of how the flagshiplooks and is operated since its main purpose is to accurately reflect our positioningplan for the brand in our key markets”. In all cases, the opening of a flagship storemarked the first direct investment within the various foreign markets by the casecompanies and tended to mark their development of a retail store portfolio within theirmost important foreign markets.

Consequently, the research identified that the luxury companies viewed theirflagships, and their locations, as essential components of the DNA of their respectivebrands. According to one interviewee the “flagships have become part of our brandessence and identity – these stores have informed how customers have come tounderstand our brand”. As such, a profile of the luxury fashion flagship emerges whichrecognises these to be grand in design and scale, costly to establish and operate,company-owned, limited in number and represented only in those cities/marketsdeemed to be significant in terms of both sales and brand positioning.

Finally, all of the luxury fashion retailers indicated that while their flagshipsprovided an important and significant revenue stream, their primary purpose was “forsomething other than profit generation”. And while none were prepared toacknowledge that their flagship stores operated at a loss, all positioned these storesas having a “more strategic, brand building and business support function” and that itwas this dimension that “really separates and distinguishes flagship stores from the

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rest of the distribution network”. Within this context, the following section willexamine the function of the luxury fashion flagship store as a method of market entry.

Motivations for flagships as a market entry methodFor all but one of the luxury fashion retailers involved in this study, entry into foreignmarkets was initiated through the establishment of wholesale arrangements withdepartment stores and other prestige fashion boutique stockists. For these companies,wholesaling remains a significant, and in some cases, dominant source of foreignmarket income. However, as well as supporting their wholesale business, the casecompanies explained that direct investment in an important foreign market – in theform of a luxury flagship store – was an important “rite of passage” in thedevelopment of international distribution. A flagship store opening signals a strategicorientation 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 theconfidence to support its important international markets. It means that the brand can bearscrutiny within a retail setting and that it has a depth of product and a depth to its reputationto sustain a major retail store (Director of International Operations, Company F).

For all of the case companies, a flagship store opening marked their first directfinancial investment within their important foreign markets and signals an importantstage in their market development. As has been hinted at previously, the decision tofund these new stores internally was cost-driven, in that it would be unlikely that anyexternal agent (such as a franchise partner or wholesale stockist) would have theinclination, or the resources, to fund the opening of a flagship store. Direct ownershipenabled the case companies to retain full and complete control over flagship operationsand removed the risks associated with a reliance upon a third party.

Clearly, the strategic function of the luxury fashion flagship is three-fold. Firstly, itfurther introduces, reinforces and enhances the retailer’s positioning and status as acredible luxury brand. Secondly, it provides the retailer with the retail spaceopportunity 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 homefurnishings. Thirdly, and perhaps most importantly, the function of the flagship is tostrengthen, stimulate and support the relationships that exist between and among eachretailer and three distinct and important groups – i.e. distribution partners, the fashionmedia, and customers – within the important foreign markets. Furthermore, it isthrough these relationships that the retailer’s luxury brand reputation is maintainedand business opportunities exploited. The way in which flagship stores support thethree relationship groups is delineated below.

Distribution partner relations. The study has evidence that luxury fashion retailersuse flagship stores to recruit and retain wholesale customers. An investment assignificant as a flagship store opening is used by the case companies to indicate “abelief 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 significantcontribution to brand profile building within a foreign market. This, in turn, meansthat these stores have a positive impact upon wholesale sales – especially within thecities 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 ofa wholesale business. When we opened a flagship in Shanghai, the impact upon our wholesalebusiness was incredible. If we refurbish the flagships we also know that we will attract morethan one hundred new wholesale customers as a result (Head of International Marketing,Company E).

In terms of wholesale customer recruitment, the respondents suggested that newclients were often “inspired and encouraged to stock the brand after having visited theflagship”. 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 selectioncriterion. One respondent suggested that “flagships give confidence to new stockists.The flagship reassures them, it is confidence-boosting and brings us a great deal ofcredibility”.

The luxury fashion retailers also use their flagship stores as a venue to promotecloser relationships between the brand and their distribution partners. Events such aslaunch parties, fashion shows and charity evenings are used to maintain interest in thebrand, 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 closebrand-customer relationships:

We must always find ways of connecting with distribution partners and the flagship is thebest place to achieve that connection. As a foreign company – far from the home market – weuse 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 relationshipsbetween the company and those franchise partners. The stores provide a venue forfranchisee-franchisor instruction and education. For example, the majority of the casecompanies used the stores as a space to inform and train franchisees about newbusiness developments, new product ranges, merchandising and display techniques,as well as changes to operating procedures. It became clear that the flagship storeserves as a model for presenting the brand lifestyle concept, as the following extractindicates:

Our five flagship stores bring the brand to life for our franchise partners. The flagship is theplace where we make explicit our claim as a lifestyle brand. I know that our franchisees reallyonly understand the brand and its tone of voice after they have viewed the store. That isnever 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 mediahas on how a luxury fashion brand is perceived and accepted, the retailers maintainedthat the flagship store contributes to the development of positive relationships withfashion editors and stylists. Once more, flagships are used as venues to meet andentertain fashion journalists. In addition, because of their proximity to where fashioneditors work, live and shop, these stores allow for the retailer’s range to be accessibleand “retained in the memory of a journalist or stylist and that significantly increasesthe chances of the brand being supported”. Thirdly, flagship stores attract famouspeople and celebrities and their presence within flagship stores provides fashionjournalists with “something to write about on a quiet news day”.

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As an illustration of the impact of the flagship upon fashion media relations, oneretailer explained that when their London flagship was closed (due to untenableoperating costs), the British fashion press abandoned all coverage of the brand and,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 wewere wiped from the journalists’ memories. It was incredible. It did not matter what we triedto do, we just did not matter to them anymore. We had to quickly reverse the decision becauseno 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 alsoan effective means of recruiting new and high-spending customers. This is due in partto the shopping behaviour of these wealthy consumers who appear to concentrate mostof their spending within luxury fashion shopping areas, as one respondent explained:

Many luxury fashion shoppers do not stray into department stores or boutiques. They stayon the premier shopping streets. When we opened flagships in New York and London, notonly 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 onecompany, “the home of the brand and is the place where they return so as to be updatedand inspired once again”. For other customers, the visit to the flagship store is a vividand pleasant memory that sustains their interest and engagement with the brandthrough time. For these customers, it was claimed that a visit to the flagship storeencourages and sustains future purchasing through department store concessions andthird party stockists.

In the case of those customers for whom the flagship is accessible, its main role is toshowcase the full co-ordinated product range with the hope of “getting a bigger share ofthe wallet or purse, more of their money spent on our brand”. Furthermore, these storesprovide a place for relationship building activities with regular customers and becausethese are operated directly by the companies, these outlets afford an opportunity for “usas a retailer and them as customers to better understand each other”.

The proposition that the flagship offers the opportunity for luxury fashion retailersto obtain customer intelligence is further evidenced in the practice of using these sitesas a “testing ground” for the monitoring of customers’ responses to new products andservices, changes to selling methods and the redevelopment of store interiors. Theretailers stated that new initiatives are normally trialled within flagships and that theinsights obtained have a clear impact upon company policy, as one intervieweeexplained:

Our flagships are like our research laboratories and given that we fully control these, we canhave confidence that nothing is contaminating the results. That independence means that weexperiment without disclosure to our competitors and we can keep the results close to thebusiness (Director of Retail and Marketing, Company K).

The function and purpose of luxury fashion flagship stores is clearly summarised byone interviewee who suggested that “these places are expensive and extravagant. Buttheir strategic importance is unquestionable. They are critical – critical to anybusiness strategy”.


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DiscussionAs noted earlier, consideration of the features and functions of the flagship storesoperated by luxury fashion retailers has been largely ignored within the internationalretailing literature. Indeed, operating internationally via the flagship route has not beena feature of the broader literature on entry mode strategy (Gannon, 1993; Kumar andSubramaniam, 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 doacknowledge the importance of flagship stores for the luxury retail sector, but they donot explore the issues in depth. The current work builds on their initial findings, andthrough the use of qualitative methods and securing access to very prominent firms inthe luxury fashion sector, adds much needed depth to our understanding of flagshipstores as a market entry method.

Based on the results of this study, it is clear that these flagships form adifferentiated route to international market entry that is distinct and important.Luxury flagship stores represent a strategic approach to market entry that is used on arestricted basis and only within those cities that are significant to the retailer in termsof the revenue these generate and the status-benefit these provide for the retailer’sbrand. Part of the restriction is borne from the very nature of the flagship storesthemselves. Their scale, architectural features, micro-level location requirements andtheir high operating costs collectively prohibit and discourage the over-replication ofthese stores on an international basis.

While the findings reported here produce new perspectives on the operation andimportance of flagships, findings also support the work of Fernie et al. (1998) in termsof the location of these stores and also provide a more up-to-date account of whatHollander (1970) termed “the New York, London, Paris” syndrome. While theestablished centres of luxury consumption – i.e. London, New York, Paris, Milan andTokyo – are identified as the main locations for flagship stores, emergent markets areidentified as Moscow, Mumbai and Shanghai.

The characteristics of restriction and limitation provide some interesting insightsinto evaluative practices that inform and direct how and where luxury fashion retailersinvest in foreign markets and the outcome effects that these investments areanticipated to generate. The restriction on the number of flagships is driven principallyas a result of their significant cost and as a result requires that the luxury retailersdirectly invest (often for the first time) significant resources in order to leverage thebenefits that the operation of a flagship may provide.

To that end, arguably the most distinctive feature of flagship stores as a form ofmarket entry is that this is essentially a market development activity that is used tosupport, enhance and develop the distribution network, be it in the form of retail storesor via third party stockists, within important foreign markets. Internationalisingluxury fashion retailers use flagships to support existing business within establishedmarkets, but these companies also recognise the opportunities that flagships provide inassuring the profile of a new brand within an emerging market. For example, at leastfive of the 12 case companies have opened flagship stores within China and have usedthese as a signal of the strength of their brand to prospective consumers and as ameans of assuring partner companies of their commitment to China as an importanttrading market.

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With respect to these latter relationships, this study recognises that wholesalingprovides a critical income stream for luxury fashion retailers. It also identifies thatwholesaling and flagship stores become inter-dependent channels of distribution. Theflagship stores sustain interest and market demand for the brand, which the wholesalestockists satisfy through their distribution network, while the income from wholesaleaccounts offsets the cost of flagship store operations. The study emphasises the pointthat market entry methods are not mutually exclusive, but are instead often symbioticand complex in their interconnections. Indeed, as one respondent noted, the “flagshipstore is the heart of the business and the wholesale stockists are like the veins whichtake the product across the market. None is without the other”. These findings furthersupport work of Fernie et al. (1997, 1998) and Moore et al. (2000), who also identified theimportance of wholesaling and flagships stores to retailers in the luxury sector as partof broader studies on the internationalisation of luxury brands.

Flagship stores play a critical role in relationship development. This can beconceptualised as a three-stage development process. Stage one is principally themarket entry and investment stage. Here the principal function of the flagship is toestablish awareness and interest in the brand within the foreign market. A flagshipstore opening initially attracts the attention of the fashion press, and their coveragesubsequently generates customer excitement and interest in the brand. The positivereaction to the flagship and to the brand demonstrates to current and prospectivewholesale customers the commitment of the brand to the foreign market.

Stage two is concerned with stabilising relationships with customers, the fashionpress and distribution partners. The flagship store acts as a memory prompt for thebrand and functions as a central point where the development of a relationship canbegin. With an emphasis upon customer service and by prioritising the flagship as theplace where new products such as limited edition collections are launched, the flagshipserves 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 andstockists – receive an education with respect to the function and features of the brand.

Finally, stage three is focused on market development, principally in terms ofextending the function of the store to become a venue for brand relationshipdevelopment activities. Fashion shows, launch parties and cultural exhibitions allillustrate how the function of the flagship extends beyond being solely a selling spaceand 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 thelogo on the handbag”.

Consequently, it is clear that the flagship maintains an important function as both amode of foreign market entry but also as a means of enhancing business withininternational markets.

Conclusions and areas for future researchAccording to Mintel (2004), the luxury market was predicted to be worth $100 billionby 2008, with the fashion sector estimated to account for 42 per cent of the market. Forthis growth industry, understanding the role and function of flagship stores as amarket 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 entermarkets will also be different to the norm covered in other sectors. Through the use ofin-depth interviews with elite informants in 12 luxury fashion retail firms, this paperoffers unique insights into the specific characteristics of flagship stores and the reasonswhy flagship stores are an important method of market entry for these global luxurybrands.

The paper makes a contribution not only to the entry mode literature but also to theinternational retailing and luxury fashion retailing literatures by shedding light on arelatively unexplored aspect of global luxury retailing – the flagship store as a marketentry mechanism. Flagship stores are identified as being distinguishable from the restof 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 prestigeof 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 theirexclusivity. Moreover, entering an international market via a flagship store provides aluxury retailer with strategic, brand building and market development advantages.The highlighting of the market development role of flagship stores is a keycontribution of the current work. Given the exorbitant costs involved it was identifiedthat 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 thesuccessful development of relationships between the luxury brand and its distributionpartners, members of the fashion media and consumers. The individual cost of aflagship store is therefore ultimately outweighed by the overall profitability of theorganisation to which it contributes significantly through its market developmentfunction.

In terms of areas for future research, there is an opportunity to consider the role andfunction of the flagship store from the perspective of distribution partners, members ofthe fashion media and luxury fashion consumers. As well as offering an opportunity toassess whether and how their views on the importance or otherwise of flagship storessquare with those provided by the luxury fashion retailers included as part of thisstudy, studies of this nature would provide further and important insights into theinter-relationships which supports and underpin international fashion retailingactivity.

The paper also delineates a three-stage relationship development process thatculminates in the market development role. This final and crucial stage is preceded bymarket entry and investment and the stabilising role of the flagship store. Suchfindings resonate with earlier work of Doherty and Alexander (2004) on therelationship building process in international retail franchising. As such exploringrelationship marketing as a means of conceptualising the role of the luxury flagshipstore is a potential area for future research.

Finally, the paper concludes that market entry methods in the luxury fashion sectorare not mutually exclusive. Indeed, the symbiotic nature of the market entry methodsemployed alongside the flagship store, that is, franchising and wholesaling, ishighlighted. Future research that explores, in more detail, the interconnections betweenthese entry methods in helping to build global luxury brands, could be very fruitfulindeed.

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As with all qualitative research, access is key. One reason why this aspect of theinternationalisation of luxury retailers has not been hitherto examined in depth may bedue to the difficulty of securing access to these prestigious companies. By achievingthis and providing in-depth, qualitative data, the paper provides a thicker and deeperunderstanding of the phenomenon that is the flagship store. While the lack ofgeneralisability of findings may be considered a limitation, it is also accepted in studiessuch as this that the in-depth nature of the findings provided significantly contribute toour understanding of an under-researched phenomenon and also present variousavenues for future research.

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About the authorsChristopher M. Moore is Vice-Dean and Chair in Marketing & Retailing at Glasgow CaledonianUniversity, Glasgow. Previously, he was Professor in Retail Marketing at the George DaviesCentre for Retail Excellence, at Heriot-Watt University, Edinburgh. A graduate of Glasgow andStirling 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 thefashion sector.

Anne Marie Doherty is Professor of Marketing and Director of the Centre for Research onConsumption, Markets and Culture, Glamorgan Business School and a member of AcademicSenate of the Chartered Institute of Marketing. Previously she held posts at the University ofUlster and Aberystwyth University. She holds a PhD in Marketing from the University ofStrathclyde. Her areas of research expertise are international retail marketing, market entrymode strategy, particularly franchising, and fashion marketing. Her work has been published injournals such as Journal of Business Research, Journal of International Marketing, EuropeanJournal of Marketing, Journal of Marketing Management, Journal of Strategic Marketing andInternational Marketing Review. She has edited special issues of International Marketing Review(2000), International Journal of Retail & Distribution Management (2002), and European Journal

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of Marketing (2004) on the topics of the internationalisation of retailing, retail franchising andfashion marketing respectively. She is on the editorial boards of European Journal of Marketingand Journal of Marketing Management. She was awarded the European Journal of MarketingOutstanding Reviewer of the Year Award 2009. Her co-authored book (with Professor NicholasAlexander, Aberystwyth University) on International Retailing is published by OxfordUniversity Press. Anne Marie Doherty is the corresponding author and can be contacted:[email protected]

Stephen Doyle is a Senior Lecturer in Marketing in the Department of Fashion, Marketing andRetailing at Glasgow Caledonian University. Areas of research interest include brandmanagement in the fashion and luxury sectors, brand internationalisation and manufacturingnetworks.


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