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Is the flagship store still relevant?

NEW YORK, NY - MAY 16: A general view of atmosphere at the unveiling of Fashion Star winner Kara Laricks exclusive collection with H&M at the H&M flagship store on May 16, 2012 in New York City. (Photo by Neilson Barnard/Getty Images for H&M) (Getty Images for H&M)

When Sears Canada shuts its flagship location in Toronto's Eaton Centre early next year it will be the end of an era.

For nearly 15 years, after it took over the Eaton’s chain, the largest Sears store located in the iconic mall has captured the attention of thousands of shoppers and tourists as they pass through downtown Toronto.

Sears says it’s abandoning the prime real estate to save money and focus on e-commerce -- a move that makes sense for the struggling retailer but removes a key branding and promotion platform.

While some argue the flagship store is less relevant as more shoppers are going online to buy products, others argue a flagship is still key to luring customers.

“In my view the flagships are more important that ever,” says Morningstar Inc. retail analyst Paul Swinand.

Consumers are increasingly looking for and expecting an experience when they shop, says Swinand.

That’s especially true in big cities such as New York, London and Toronto, which are often destinations for shoppers and tourists.

Swinand says big cities also tend to have more affluent populations, and flagship stores can use that opportunity to cater to customers and leverage their brand.

In fact, he says the rise in Internet shopping makes the flagship even more important as sales and inventory in smaller stores shrinks.

“Flagships are going back to roots when people took the train to downtown for the weekend and wanted a full, grand city shopping experience,” says Swinand. “With fewer choices for growth and more volume going through flagships, companies will continue to invest.”

Examples include the recent opening of the H&M flagship store in New York City, where Lady Gaga was brought in to cut the ribbon, Saint Laurent’s new flagship in Paris, and a Restoration Hardware in a historic 1860s building in downtown Boston. A number of retailers are reportedly lining up to takeover the Sears space in the Eaton Centre, including Nordstrom Inc. and Quebec chain La Maison Simons Inc.

Flagships are a huge part of the branding and promotion for retailers today, says Tony Kent, associate dean of research at the UK-based University of the Arts London.

In a research paper about the impact of flagship stores, Kent says these spaces communicate corporate and brand values not just to customers, but also to competitors and communities in which they’re located.

“The flagship can be understood as the 'purest expression of brand' to internal and external stakeholders,” Kent writes. “The flagship, at the very least it is the best example of the retail brand. Products, service and environment combine to provide leadership and best practice, as a prototype for the store group.”

Increased competition in the retail sector has also led many companies to invest more in their flagship stores, and turn them into an even bigger shopping experience. Extreme examples include the The Prada New York Epicenter, which is a store as well as a gallery and space used to research shopping habits, as well as the Barbie shelter in Shanghai.

Canada has fewer examples of over-the-top flagships, maybe because we are less of a shopping destination. Even with the increase in e-commerce and the number of American retailers coming into Canada, many Canadians continue to cross the border when looking for a shopping adventure.

Also, more Canadians are going online to buy their goods and services. Canadians spent $18.9 billion in products online last year, which up 24 per cent from 2010, according to recent data from Statistics Canada. The number of Internet users that bought something online increased to 56 per cent last year, up from 51 per cent two years earlier.

The growing online trend is part of the reason why more retailers, at home and abroad, are offering online shopping. Consider a recent move by Amazon.ca to increase its online offering to include groceries and car parts, as just the latest example.

Instead of opening big flagship stores, some retailers also are choosing to flood Canada with several stores to capture customers from coast-to-coast. Examples include Target and Nordstrom, both of which opening multiple locations across the country.

It’s a good strategy in a vast country like Canada, where flagship stores make less sense, says Terry R. Henderson of retail consulting firm J.C. Williams Group.

More and more shoppers prefer ordering online from their home or office, rather than spend the time and money travelling to a store.

“It’s not like going out to a restaurant which can be more of an emotional experience,” says Henderson. “There are some exceptions, but things are changing.”

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