Major outdoor manufacturers, including Mountain Khakis and Yeti, are putting big efforts (and cash) into flagship brand stores that draw consumers into a one-brand Disneyland. What effect do these shiny, new shops have on the neighborhood specialty retailer?

Last fall, Ross Saldarini swung by Confluence Kayaks hoping to learn something about retail. The president of Mountain Khakis was pondering a branded flagship store, and he wanted to share the idea with store owner Jon Kahn, who has been carrying Mountain Khakis for years. Saldarini had his eyes on a spot in Denver’s historic Larimer Square, less than a mile from Kahn’s shop.

“We want to be able to provide a full Mountain Khakis’ product and brand experience in our own retail environment, something that is difficult to do with just displays,” Saldarini says. “But I wanted to be a good partner and a good neighbor. So I told Jon that my viewpoint was that if we did this right, it will be a win for Confluence Kayaks.”

Maybe we could hang one of your kayaks in the flagship, Saldarini suggested. How about a summertime table for visitors to sign up for Confluence Kayak stand-up or paddling lessons? “If we were getting into retail and we were a brand that has been around for 40-plus years, maybe we wouldn’t need to focus so much on community aspects. But if you have a young brand and are entering a new community, I think it’s vitally important to take seriously being a good neighbor and integrating yourself into that community,” Saldarini says. “It can, if done right, have the impact of raising awareness and raising sales for everyone.”

The suddenly red-hot flagship trend is not inherently bad for independent speciality. In many ways, a brand’s efforts to build its identity through its own store is taking a page from those retailers, who foster the growth of countless brands from obscurity to international prominence.

But from a retailer’s perspective, there are certainly good ways and bad ways for an outdoor brand to develop and operate its own retail flagship store. If it’s designed as a way to reinforce a brand’s distinctiveness and support its omnichannel sales and outreach strategy, it can work by building customer interest and loyalty. But if it’s a discount warehouse and the store cultivates a customer’s expectation for deals, it can do damage to specialty retailers, especially those nearby.

There’s a cautionary tale here. If a brand’s specialty retailers are grappling with oversupply, as many today are, that flagship could spur a less-than-healthy multichannel pursuit that ends in their own oversupply, which would trigger discounts that prod retailers to drop the brand.

Immersed in the Experience

Kahn, whose shop is the city’s premier independent whitewater and backcountry skiing retailer, has carried Mountain Khakis for a decade. He was one of the first retailers to champion the nascent Jackson Hole brand. So he understands the Mountain Khakis’  flagship push, but that doesn’t mean he likes it.

The Mountain Khakis store opened April 1, 2017, and, a few weeks later, Kahn hadn’t noticed a decline in sales. “But we are definitely buying a little less than we might otherwise because we don’t know what the impact is going to be,” Kahn says. “We assume we are likely to lose some sales with them being so close. But we do plan on continuing to carry the brand.” More brands are following suit, adds Kahn, who hears that Kühl, whom he also carries, might also open a flagship in Denver.

According to Saldarini, his company’s first-ever flagship will not be undercutting retailers with discounts and sales. It will only sell Mountain Khakis’ product at full retail.

“We are here to enhance awareness of the brand and hopefully create more sales for everyone,” he says.

Mountain Khakis is not the only hot, young brand to head down the flagship route. Corey Maynard, the head of marketing for Yeti Coolers, just opened his company’s first flagship store in the brand’s hometown of Austin. He calls the 8,000-square-foot marquee location adjacent to Austin’s most trafficked hike-and-bike trail “a brand museum.”

There’s a music stage. A meeting space. Photos and artifacts from adventures by the brand’s heavy-hitting ambassadors like Conrad Anker and Shane Dorian. According to Maynard, the store was designed to reflect the feel-it-all experience of a children’s museum.

“Our intention was to build a fully immersive brand-experience center much more than becoming a retailer. We’ve never had the intention of selling a lot of product from this,” Maynard says.

The cooler maker even invited retailers from the region to the store for a soft opening in the spring. Maynard wanted to show them it wasn’t really a store.

“I’m sure no retailer loves there being any kind of distribution point for our product besides them. It’s definitely a sensitive subject, but our focus has been for this to be a giant marketing vehicle,” says Maynard, who expects the store could help with employee recruiting as well. “We believe it elevates the brand profile. It makes Austin a Yeti town, and we believe it’s going to elevate all our retail partners in the area.”

And just to be clear, Maynard says, there are no plans to open more stores like the flagship in Austin.  “We are going to stick to coolers from here on out,” he says.

Semaphore Squad—Mountain Khakis brand manager Jen Taylor, president Ross Saldarini, and retail manager Steve Carpenter pose in the new flagship store.

We Can Work It Out

The direct-to-consumer trend is one specialty retailers have been watching warily for the last several years, and the its progression has evolved toward flagships. That’s disconcerting to retailers, especially when a flagship opens near their stores. But not always. The 45-store, 59-year-old, family-owned Christy Sports has many locations within a stroll of Burton, Marmot, The North Face, Arc’teryx, and Helly Hansen branded stores.

It’s working out well, says Dan Fox, head of operations for Christy Sports, which ranks as one of the nation’s largest winter sports specialty retail chains. “We didn’t stop buying any of those products,” he says. “As a specialty retailer we feel it’s our goal to to deliver a broader spectrum. We are never going to give one manufacturer full presentation.”

But there’s definitely a way to do it wrong, according to Fox. Come in and be very competitive with retailers or evolve into a discount outlet, and you will alienate them and lose their trust, he says. But hold prices and, if you do have sales, offer them later than retailers, and it can be a very symbiotic relationship.

“Most manufacturers don’t want to be retailers,” he says. “They would rather have a retail partner. Right now these flagships are trendy and hip, but we will see what their lifespan will be. If they fade, they’ll want to have that retailer support.”

In Steamboat Springs, Smartwool is taking a sort-of half step into branded retail. In addition to bolstering wholesale relationships and partnerships with speciality retailers, the company is planning three “pop-up” stores this year. The brand opened its first temporary pop-up in Chicago during the holiday season last year, and it proved “successful and incredibly insightful,” says Molly Cuffe, Smartwool director of global brand marketing.

Pop-ups are nimble, short-lived, unique spaces that are sometimes inside partner stores and sometimes stand alone or are part of an event. For Smartwool, the pop-up is way to show consumers that the brand has mid-layer products beyond their wildly popular socks and base layers.

“Same as with partner stores, picking a location is a critical component in the process. We want to make sure we are in a location that works for the brand and is accessible to our consumers, but not next door to a key wholesale partner,” Cuffe says. “Equally important is working closely with our wholesale partners in the area to ensure we are all driving toward the same promotional strategy in that we are all pushing the same story at the same time so we have maximum voice in the marketplace.”

Columbia Sportswear’s vibrant direct-to-consumer strategy leans on a mix that is dominatd by outlet stores, followed by ecommerce,  and then branded stores. As of March 31, 2017, the company has 93 U.S. outlet stores, four U.S. branded stores, two employee stores, and four brand-specific ecommerce sites. It plans to open 11 new locations in 2017.

“Outlet stores provide us with a profitable means to clear excess inventories in an orderly fashion without relying on third-party liquidation channels, thereby helping to protect the brand(s) and keep in-line wholesale channels more healthy,” says Ron Parham, Columbia senior director of investor relations and corporate communications.

Rich Hill, the president of Grassroots Outdoor Alliance, a 61-store collective of outdoor retailers across the country, says the trend of brands discounting their products at flagships isn’t necessarily a bad thing, it just doesn’t work for specialty retailers.

“If you’re trying to figure out whether a flagship store is ‘good or bad’ for specialty, you need to know a lot more than the neighborhood and the square footage. You need to know the direct-to-consumer strategy that’s driving the store’s retail practices, like the percentage of goods sold at MSRP,” Hill says. “If you don’t know that, then it’s really difficult for anyone to form an opinion on whether it’s a good or a not-so-good thing.”

Some brands are doing direct-to-consumer right with pricing practices that enable retailers to thrive, Hill says. “But there are also companies out there that definitely are not playing well with others,” he says. “If our stores did the same things they’re doing, those brands wouldn’t open us as a dealer.”

There’s one more point, according to Hill: Flagship stores are excellent at speaking to the choir. They tickle brand loyalists. “What they aren’t so good at is creating new converts,” he says. “That is what the trusted third-party opinion of specialty does so well.”

Follow the ROI

The danger for a brand opening a flagship is that a lack of retail experience can cost more than they expect and they end up becoming outlet stores, which ultimately does damage to retail partners, says Joe Butler. His 14,000-square-foot Black Creek Outfitters in the 150-store St. Johns Town Center outdoor mall in central Jacksonville, Florida, is steps away from more than a dozen branded stores, but none of them directly compete with his outdoor, paddlesports specialty. But he’s close to nearby big retail competitors like Dick’s Sporting Goods, West Marine, and REI.

“Walk around our area and you can’t help but walk down brand roads. There’s Microsoft, Apple, Tommy Bahamas, Lululemon. You can’t help but notice the consistent drumbeat of mark-downs at these brand stores,” Butler says. “Then it becomes the expectation. Why would a consumer pay full price for anything? It’s a trap branded stores can fall into.”

Butler has an idea for manufacturers eager to build a castle for their brands: Avoid the seemingly unavoidable outlet trap and look at the flagship through the lens of a return on investment.

“If they took every dollar they used to build and run these branded stores and sunk it into their top 50 retailers and said, ‘you might not be a brand store but we want to treat you like a brand store’… it would empower retailers and just knock it out of the park. They could have one store in one location or 50, 75 zealots for their brand spread across the country,” he says.

Butler has partnerships with five brands, and his team members are experts on them: Yakima, Hobie, Outdoor Research, Osprey, and Astral. Those partnerships elevate the balance of being valuable to the consumer, the vendor, and the manufacturer.

“It just required a willingness to understand what a vendor is good at and them recognizing there are things they are not good at,” Butler says. “It’s a pretty simple decision.”

Butler, like Kahn, understands why a brand would develop a flagship. They get to control their message, their merchandising, their distribution. “It’s a perfectly good business model. But it’s not compatible with my business model,” he says.

Renowned retail consultant Michael Dart co-authored the book New Rules of Retail: Competing in the World’s Toughest Marketplace, which posits that the retail world’s rapid transformation, including the surging direct-to-consumer movement, is dismantling traditional business models and could eliminate more than half of the today’s retailers and consumer companies.

Dart has studied the flagship phenomenon, and it’s not bad news for retailers. He says the branded store builds familiarity with the brand, so when a flagship store visitor eventually sees the brand in a specialty shop, they are engaged and the brand is further validated. He’s seen that happen in shopping malls, where an Oakley sunglass shop opens up a few doors down from a Sunglass Hut.

“You’d think the Sunglass Hut would be decimated, right?” Dart says. “But they both sold more glasses. They didn’t cannibalize each other. They ended up incrementally driving more sales. You’d think it would be detrimental, but it turned out beneficial for both.”

Flagships also tell a story and that ends up selling more product in specialty retail stores, Dart says. And those aspirational products found in branded stores—like say, The North Face’s $1,000 Himalayan Suit, which stores don’t carry because, really, how many people need a down one-piece made for climbing above 8,000 meters?—linger with flagship visitors, Dart says.

“So when they see the standard line in the store, they are tempted,” Dart says. “What’s been shown is that retail stores around flagship stores actually do better with that brand than they have done previously.”

Back in Denver, at Confluence Kayaks, Jon Kahn is wary.

“It’s not really fair or unfair. I would prefer they don’t open flagships within a mile of us, but I can respect their decision. At the same time, it’s a sign that their loyalty is with themselves and not with specialty retailers. That makes us maybe more likely to look at other brands and something new,” Kahn says. “It’s kind of tough when Denver is the outdoor epicenter right now. In the end, it’s about what sells through for us and if a flagship negatively impacts our sales, it will make it difficult for us to keep them in the long term.”

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