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Flagship stores as a market entry asFlagship stores a market entry method method: the perspective of luxury fashion retailing
Christopher M. Moore
Heriot-Watt University, Edinburgh, UK

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Received January 2007 Revised February 2008, July 2008

Anne Marie Doherty

University of Glamorgan, Pontypridd, UK, and

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 agship 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 elite informants. In total, 12 luxury fashion retailers form the empirical focus of the work. Findings The paper identies the dening characteristics of luxury retailers agship stores. It nds that luxury agship 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 agship stores and the wholesaling method of distribution is highlighted. The importance of the agship store in reinforcing and enhancing the retailers luxury status and enhancing and maintaining relationships not only with customers but also with distribution partners and the fashion media is found to be signicant. Practical implications The paper provides practical information to luxury retailers on the role and importance of agship stores as a method of entering international markets. Originality/value Flagship stores are a pivotal aspect of any luxury fashion retailers internationalisation strategy. For the rst 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 prolic 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 fashion retailers have attracted more consistent attention and form the basis of the current 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, global branding and luxury brand management (Fernie et al., 1997, 1998; Moore et al., 2000;

European Journal of Marketing Vol. 44 No. 1/2, 2010 pp. 139-161 q Emerald Group Publishing Limited 0309-0566 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 agship stores as an international market entry method has been somewhat neglected despite its centrality to the internationalisation strategy of these rms (Moore et al., 2000). Entry mode strategy is typically dened as an institutional arrangement that makes possible the entry of a companys 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 specics of retail rms (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 specics of the luxury fashion sector it is clear that entry modes outside this norm prevail such as agship stores (Moore et al., 2000) and guerrilla stores (Doyle and Moore, 2004). The aim of this paper is to examine agship 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 agship 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 ndings 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 agship operation receives no mention in this developed literature. A considerable body of knowledge also exists on entry mode strategy amongst service rms (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 explore the various factors that inuence service rms 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 rms 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 rms. That said, the entry modes in question reect 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 rst reviews of entry modes used by international retailers. He classies them as purchase of existing stores and rms, 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 rm 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 rm in the host country and one in the home country; and . non-controlling interest in a rm in the host country being taken by a rm in the home country. Traditionally, as with manufacturing and service rms, entry strategies for international retailers have been classied along a risk/control continuum. Entry methods such as organic growth and merger and acquisition which require more nancial 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 classications 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 rms 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 & Spencers internationalisation strategy is now rmly 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 inuence these rms 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, nance, opportunistic approaches and changes in management structure. In comparison to the retailers under study in the current work, however, the rms in her study were not in the luxury fashion sector and none reported the use of agship 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 Welchs (2000) study of the

international franchising experiences of the Danish general fashion retailers Carli Gry and InWear explores how these rms moved into international franchising as a result of 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 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. 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 agships stores are to the international development of this sector. While not an entry method explored in any of the mainstream literatures noted previously, agship 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) dene luxury fashion retailers as:
. . . those rms that distribute clothing, accessories and other lifestyle products which are:
. .

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. . .

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 signicantly 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 agship stores has been noted in this literature but their importance and role has been, hitherto, somewhat neglected. A generic denition of agship stores was provided by Kozinets et al. (2002), who identied 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 prot 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 agship store and distribute product via in-store concessions and wholesale agreements. Their work also provides interesting ndings on the location of these agships 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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Yorks 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 agship 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 agship stores at the centre of the process. While these rms may enter markets via wholesaling initially, their presence in a market is normally marked by the opening of agship 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 agship 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 agship stores as a market entry method. Given the prevalence of luxury fashion retailers on the global stage, and the centrality of agship 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 rms and, to a lesser extent, service sector rms. This body of work, however, does not address the specics 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 specic characteristics identied by Moore and Doherty (2007). It is reasonable to assume that due to these specic issues, entry mode strategy for these rms will also differ from more mainstream fashion retailers. In this vein, we assert that agship stores are a fundamental method of market entry for this sector, but one that has remained relatively neglected in the literature. While agship stores have been highlighted by Fernie et al. (1998) and Moore et al. (2000), no study has examined the agship 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 agship 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 agship stores within foreign markets are the empirical focus for this research. The aim of this study is to understand the role and importance of agship stores as an entry method for luxury fashion retailers. To this end, two research objectives were identied as follows: (1) to identify the dening characteristics of the international agship store within the luxury fashion goods sector; and (2) to review the motivations for adopting agships as a form of foreign market entry.

Given both the exploratory nature of the study, coupled with the focus on understanding management decision-making activity and behaviour, it was decided that qualitative data would be collected using semi-structured interviews with senior personnel with direct responsibility for the development and management of agship 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 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 agship 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 Dohertys (2007) denition of luxury fashion retailers noted earlier. Two additional criteria for selection were included: (1) the retailer had to operate at least one agship store in a foreign market; and (2) the agship 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 signicant 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 identied above, some 32 luxury fashion retailers were identied. 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 rms; and (3) the Comite Colbert for the French luxury rms. 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. Verication 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 eld of international luxury fashion retailing, and in particular the leading Japanese luxury companies were identied 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 agship 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 identication, 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 reect 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 condentiality, none of the participating companies are identied in the reporting of this study. Data collection Face-to-face interviews were undertaken at either the Head Ofce of the luxury companies, either in the home market (notably Paris and Milan), or in the UK Head Ofce or their London agship 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 agship stores. As a result, a number of different designations were interviewed, and these included the Chief Executive Ofcer, 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 agship 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 sufcient guidance with respect to the identication of signicant 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 identied within the ndings, 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 rms were diverse in terms of their ownership characteristics, the number of foreign markets and number of agship 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.

Company Country of origin/ownership Trading focus

Flagship locations (open/in pipeline)

Interview dates March 2006 September 2006 May 2006 March 2006 November 2005 November 2005 April 2006 May 2006 September 2006 April 2006

A B

Japan Italy

Germany

Womenswear, menswear Womenswear, menswear, childrenswear Womenswear

D E

UK France

F G H

France Japan USA

Italy

UK

Italy

France

Tokyo, London Milan, London, New York, Paris, Tokyo, Hong Kong, Shanghai In total, 11 agships 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

September 2006 November 2005

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Table I. Case company characteristics

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Findings This section is in two parts. The rst considers the characteristics of the international luxury agship store, while the second considers the reasons for adopting agships as a form of foreign market entry. Flagship characteristics This study found that the international agship 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 specic 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 agship stores, the ndings have identied that these stores are signicantly larger in scale than any other format operated by the retailers either domestically or internationally. Typically, agships are between ve to eight times larger than the typical retail store footprint and they extend, on average, to four sales oors, as opposed to the norm of no more than two oors. Two explanations were offered by the case companies to justify their larger size. The rst was that their larger scale enhanced the status of the brand in that a large agship gives the impression of a large brand that is signicant and imposing. The second was that large-scale premises, with an abundance of space for product display and customer ow 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, denes a luxury experience. By having commercially inactive space we signal exclusivity, luxury and an extravagance that is at the heart of luxury.

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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, nancially demanding and cripplingly high. These high costs were sustained and justied by the claim that the operation of a agship store within these world centres made a signicant positive contribution to the identity and prestige of the luxury brand. Following from Hollanders (1970) observation that the choice of agship location contributes to and enhances the luxury brands reputation and status (which he dened as the New York, London, Paris syndrome), this study also found that agship 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 agship 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 agship sustains the vital income from these areas. The other strand is to support our new markets. These agships 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 restricted to distinct districts, even specic streets such as Bond Street and Sloane Street in London and Fifth Avenue and Madison Avenue in New York. The focus upon 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 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 agship store even only one street away from these inuential addresses can be detrimental to the prole and nancial 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).

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This study found that agship 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 modications were found to be considerable, but the acquisition and redevelopment of a prestigious property was again justied 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 agships 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 agship. 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 signicant cost (International Brand Director, Company B).

Respondents reported that agship costs were further exacerbated by their companies engagement of leading architects to design their agship stores. Reecting 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 justications for their engagement of the leading architects. These reasons are clearly reected in the following statement:
First, the involvement of a great architect has a good impact upon the brands image and standing. It is a halo-effect that comes from the association. Then there is the benet 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 agships. Typically, the retail stores operated or franchised by luxury fashion rms are standardised with respect to their designs, materials and layout features. In contrast, the international agship 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 agship 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 agship stores. Furthermore, the respondents proposed that the term agship 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 classied as such. Instead, true and authentic agships, as notable and signicant expressions of the retailers luxury positioning, are developed sparingly. The following extract further extends that point:
The idea of a agship in every country really dilutes the agship principle. Flagships have to be exclusive exclusive to the prestige markets. Too many agships dilute their signicance. These are special experiences. The agship 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 agship stores. This was for two main reasons. The rst was nancial, 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 agship looks and is operated since its main purpose is to accurately reect our positioning plan for the brand in our key markets. In all cases, the opening of a agship store marked the rst 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 identied that the luxury companies viewed their agships, and their locations, as essential components of the DNA of their respective brands. According to one interviewee the agships have become part of our brand essence and identity these stores have informed how customers have come to understand our brand. As such, a prole of the luxury fashion agship 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 signicant in terms of both sales and brand positioning. Finally, all of the luxury fashion retailers indicated that while their agships provided an important and signicant revenue stream, their primary purpose was for something other than prot generation. And while none were prepared to acknowledge that their agship 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 agship stores from the

rest of the distribution network. Within this context, the following section will examine the function of the luxury fashion agship store as a method of market entry. Motivations for agships 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 signicant, 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 agship store was an important rite of passage in the development of international distribution. A agship 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 condence 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).

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For all of the case companies, a agship store opening marked their rst direct nancial 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 agship store. Direct ownership enabled the case companies to retain full and complete control over agship operations and removed the risks associated with a reliance upon a third party. Clearly, the strategic function of the luxury fashion agship is three-fold. Firstly, it further introduces, reinforces and enhances the retailers 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 agship 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 retailers luxury brand reputation is maintained and business opportunities exploited. The way in which agship stores support the three relationship groups is delineated below. Distribution partner relations. The study has evidence that luxury fashion retailers use agship stores to recruit and retain wholesale customers. An investment as signicant as a agship 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 condence, strength and viability to international partners. The agship makes a signicant contribution to brand prole 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 agships are located. Within this context, one respondent stated:

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It is very clear to us that the agship store has an important role to play in the development of a wholesale business. When we opened a agship in Shanghai, the impact upon our wholesale business was incredible. If we refurbish the agships we also know that we will attract more than one hundred new wholesale customers as a result (Head of International Marketing, Company E).

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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 agship. Indeed, it would seem that for an increasing number of wholesale stockists, the availability of a agship store within the trading country is an important selection criterion. One respondent suggested that agships give condence to new stockists. The agship reassures them, it is condence-boosting and brings us a great deal of credibility. The luxury fashion retailers also use their agship 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 agship serves as a conduit for close brand-customer relationships:
We must always nd ways of connecting with distribution partners and the agship is the best place to achieve that connection. As a foreign company far from the home market we use the agship like an ambassadors residence. It is the place where we all come together under the common ag 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 agship store serves as a model for presenting the brand lifestyle concept, as the following extract indicates:
Our ve agship stores bring the brand to life for our franchise partners. The agship 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 signicant inuence that the fashion media has on how a luxury fashion brand is perceived and accepted, the retailers maintained that the agship store contributes to the development of positive relationships with fashion editors and stylists. Once more, agships 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 retailers range to be accessible and retained in the memory of a journalist or stylist and that signicantly increases the chances of the brand being supported. Thirdly, agship stores attract famous people and celebrities and their presence within agship stores provides fashion journalists with something to write about on a quiet news day.

As an illustration of the impact of the agship upon fashion media relations, one retailer explained that when their London agship was closed (due to untenable operating 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 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).

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Customer relations. The study identied that the opening of a agship 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 agships 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 agship 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 agship 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 agship store encourages and sustains future purchasing through department store concessions and third party stockists. In the case of those customers for whom the agship 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 agship 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 agships and that the insights obtained have a clear impact upon company policy, as one interviewee explained:
Our agships are like our research laboratories and given that we fully control these, we can have condence 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 agship 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 agship stores operated by luxury fashion retailers has been largely ignored within the international retailing literature. Indeed, operating internationally via the agship 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 agship stores for the luxury retail sector, but they do not explore the issues in depth. The current work builds on their initial ndings, and through the use of qualitative methods and securing access to very prominent rms in the luxury fashion sector, adds much needed depth to our understanding of agship stores as a market entry method. Based on the results of this study, it is clear that these agships form a differentiated route to international market entry that is distinct and important. Luxury agship stores represent a strategic approach to market entry that is used on a restricted basis and only within those cities that are signicant to the retailer in terms of the revenue these generate and the status-benet these provide for the retailers brand. Part of the restriction is borne from the very nature of the agship 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 ndings reported here produce new perspectives on the operation and importance of agships, ndings 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 identied as the main locations for agship stores, emergent markets are identied 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 agships is driven principally as a result of their signicant cost and as a result requires that the luxury retailers directly invest (often for the rst time) signicant resources in order to leverage the benets that the operation of a agship may provide. To that end, arguably the most distinctive feature of agship 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 agships to support existing business within established markets, but these companies also recognise the opportunities that agships provide in assuring the prole of a new brand within an emerging market. For example, at least ve of the 12 case companies have opened agship 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 provides a critical income stream for luxury fashion retailers. It also identies that wholesaling and agship stores become inter-dependent channels of distribution. The agship 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 agship store operations. The study emphasises the point that market entry methods are not mutually exclusive, but are instead often symbiotic and complex in their interconnections. Indeed, as one respondent noted, the agship 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 ndings further support work of Fernie et al. (1997, 1998) and Moore et al. (2000), who also identied the importance of wholesaling and agships 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 agship is to establish awareness and interest in the brand within the foreign market. A agship 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 agship 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 agship 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 agship as the place where new products such as limited edition collections are launched, the agship serves to underline and enhance the exclusivity dimensions of the brand. Furthermore, given that the agship 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 agship 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 agship 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 agship stores as a market entry method is crucial. Luxury retailers have specic 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 rms, this paper offers unique insights into the specic characteristics of agship stores and the reasons why agship 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 agship store as a market entry mechanism. Flagship stores are identied 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 agship store provides a luxury retailer with strategic, brand building and market development advantages. The highlighting of the market development role of agship stores is a key contribution of the current work. Given the exorbitant costs involved it was identied that the purpose of agship stores was for something other than prot generation. As a result of this, the paper reveals that agship 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 agship store is therefore ultimately outweighed by the overall protability of the organisation to which it contributes signicantly through its market development function. In terms of areas for future research, there is an opportunity to consider the role and function of the agship 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 agship 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 nal and crucial stage is preceded by market entry and investment and the stabilising role of the agship store. Such ndings 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 agship 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 agship 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 internationalisation of luxury retailers has not been hitherto examined in depth may be due to the difculty of securing access to these prestigious companies. By achieving this and providing in-depth, qualitative data, the paper provides a thicker and deeper understanding of the phenomenon that is the agship store. While the lack of generalisability of ndings may be considered a limitation, it is also accepted in studies such as this that the in-depth nature of the ndings provided signicantly contribute to our understanding of an under-researched phenomenon and also present various avenues for future research.
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of Marketing (2004) on the topics of the internationalisation of retailing, retail franchising and 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 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 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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