Flagship frenzy.

EXISTING RETAIL CHAINS LOOKING TO BUILD BIGGER STORES

How does a retail chain that already has scores of locations around town try to be new and different?

Build even more stores and call them "flagships."

It used to be that the term flagship was reserved for a chain's single, premier store. Macy's flagship was in New York, Marshall Field's in Chicago.

But today flagships are cropping up all over L.A. in a bid to keep revenues growing in a store-saturated market. Having exhausted the prime locations for new stores, chains are now expanding the size of their locations and the breadth of their product offerings.

"We used to just sell glassware, then we figured, 'Why not sell the table under the glassware?' "said Barbara Turf, president of Crate & Barrel, which last week opened a 35,000-square-foot "flagship" in Old Pasadena where its former 10,000-square-foot store once stood. "We've already established our look, so it's a matter of applying (that look) to different products."

Other retailers are doing the same thing. Starbucks is looking to add sandwiches and other lunchtime fare to its menu. Tower Records is adding books and cafes.

"The key concept is that you've got a good format to start with, so you don't have to prove yourself again to the consumer," said John Golisch, a partner in the retail practice at Arthur Andersen LLP. "So you can get more sales from existing locations and can carry more product and turn more inventory."

Having bigger stores also allows retailers to reduce the rent they pay on a per-square-foot basis.

"Typically, larger retailers will get better rates - as much as a 10 to 20 percent discount (when they lease) over 10,000 square feet," said Chuck Dembo, a partner at retail brokerage firm Dembo & Associates in Beverly Hills.

Even so, a flagship is far costlier to build than a smaller store.

Pottery Barn, a subsidiary of San Francisco-based Williams-Sonoma Inc., spends about $1.7 million on each of its 10,000-square-foot flagships. (Its smaller stores are 3,500 square feet.)

"It probably costs half as much to open the old Pottery Barns, but stores are desperately competing against each other to outdo one another," said Jason Klein, an analyst with Blackford Securities. "However, they can quickly recoup costs. You can get higher margins on a couch than on a picture frame. You can generally get a 40-50 percent return on your money in the first year."

Motivating retailers is the persistent strength of the economy.

"Consumer spending is up, so retailers are doing quite well, which is boosting their confidence," said Jackie Fernandez, a partner in the consumer practice at Deloitte & Touche LLC. "Retailers are always wanting to reinvent themselves, and the easiest thing is a new look. They figure the hardest part is getting the consumers into the store. Then once they're in, they'll buy."

Some analysts caution, however, that retailers might suffer if they stray too far from their core product lines.

"The question is, can you be all things to all people? Look at some of the mammoth grocery stores of the '80s that had banks and video rentals and didn't fare so well," said Golisch. "If you're a one-stop-shop retailer, does that take you out of your expertise? For instance, Starbucks is a great coffee retailer, but are they a good general merchandiser?"

Starbucks intends to find out, having just opened a 3,000-square-foot flagship in Westwood Village, twice as big as its typical-sized shop.

"This is a flagship store that we've done successfully elsewhere, and it helps define who we are," said Steve Gamalon, Starbucks' regional development director. "We don't want to clone one look and feel. This helps us redefine our concept and expand our parameters."