Rethinking, ReinterpretingBy John McCormick | Posted 2002-12-16 Email Print
WEBINAR: On-demand webcast
Next-Generation Applications Require the Power and Performance of Next-Generation Workstations REGISTER >
Prada wants to reinvent retailing. So its first Epicenter store features everything from antennas and chips embedded in clothing tags, to video displays hanging from the racks, to clear doors on fitting rooms that are supposed to fog up when you walk in.
The technical problems, however, don't detract from the store's interior beauty. The most striking visual feature is "the wave," a wooden staircase, amphitheater and shoe department in the center of the store that would make a great half-pipe for skateboarders.
That is the kind of rethinking of space that Bertelli and Miuccia Prada sought when they called on Dutch architect Rem Koolhaas in the fall of 1999 to produce a wholly original form of fashion and fashionable retailing.
Koolhaas is progenitor of such controversial structural ideas as the jaw-like Seattle Public Library and author of a sort of retail architecture bible called The Harvard Design School Guide to Shopping (Taschen America, 2002). Here's an excerpt of this thinking: "So even if shopping is constantly facing crisis and decline, it is also being constantly (and artificially) reinvented, reinterpreted, refashioned, reborn, rechanneled and repackaged. What allows this is an apparatus—a survival mechanism—that can seize on any technique for squeezing out a pathway toward life: modulation, constant change, camouflage, mutation, predation, sabotage, parasitism and surveillance.''
Prada needed such a "pathway toward life." Profits peaked at $163 million in 1999, were nearly cut in half in 2000 and were falling another two-thirds in 2001. Already competing on the high end with other luxury brands such as Gucci and Dior, Prada found buyers of its $400-a-pair shoes mixing them with $10 skirts from Kmart.
Bertelli, the businessman and passionate pursuer of victory in world-class yacht races such as the America's Cup, "was very interested in putting Prada in a new light. He was worried about the store [and] the brand name becoming very tired," says Reid Freeman, a principal with ARO, which coordinated several architectural, design and engineering firms for the first Epicenter store. "He wanted to stay on the cutting edge."
So Koolhaas challenged accepted notions of space, populating the first floor of the SoHo store with oversized mannequins and evoking the spirit of New York street art with a long open wall that could be constantly repainted or reshod—the first covering was a fabric—to create new moods and selling environments.
At about the same time, the company was "reinterpreting" its information technology strategy.
According to Oracle Vice President Tom Madigan, Prada started adopting technology such as his company's database software to more rapidly gauge market demand, reduce inventory and serve customers.
The idea was to be "in a better position to monitor product demand, personalize customer offerings and services," he says, "and take advantage of developing market trends."
According to a variety of Prada's technology suppliers, the company has gotten serious about crunching customer data and now employs a sophisticated set of analytical tools, including software from Business Objects, which the company brought in about two years ago.
With Business Objects, "you can segment customers and find out who's buying what. Look for a purchasing pattern," says Adrian Reynolds, the company's London-based director of marketing applications. That way a retailer such as Prada not only can figure out what to put on hangers or shelves, but what promotions to launch, and which customer to target those promotions at.
Good analytics can help a retailer with "a little bit of everything," says Peter Abell, an AMR Research analyst who has consulted with Prada. "If there's limited shelf space in the store, you need to pay real close attention to what's out there. You don't want to delete an item that might have slow sales but a huge profit. And you don't want to remove an item that some of your best customers buy."
Good analytics helps sales associates get closer to customers. Prada targets 20- and 30-somethings with cash to spend. "The young and the affluent," says Arnold Aronson, a retail strategist at Kurt Salmon Associates and former CEO at Saks Fifth Avenue. "Isn't that a wonderful combination?"
These people expect to have a more personal shopping experience, than say, a harried parent running through an aisle at Kohl's. "When you're paying the prices you are at Prada, you are not just paying for the material that goes in the clothes, you're paying for the level of service that comes with it … the attention," says IconNicholson's Eckfeldt.
And, in retail, constant attention means constant selling.
Christine De Givenchy, 39, is a married mother of two who visits a Prada shop in the U.S. or Europe at least once a month. On her last visit, she picked up two pairs of shoes, "one casual, one dress—both kind of sporty," for about $570. De Givenchy says she likes the personal touch of the store. She's also aware that, when they're with her, the sales associates are always ready to entice her with more Prada merchandise. "That's all part of it," she says.
But whether Prada's information-system-based "up-selling'' is working is open to question, after the first 12 months.
According to several industry executives familiar with Prada's operations, the Epicenter sells more goods each month than any other store in the United States, save one. An independent financial analysis of the store pegged Epicenter sales at about $2,660 a square meter while finding that a traditional Prada store rakes in about $3,450 a meter. But an Epicenter store is more open and this one occupies more than twice as much space as a traditional Prada store. The bottom line, according to the independent financial estimate, is: earnings before interest, taxes, depreciation and amortization at the Epicenter store is running at about $5 million for the year, compared with $4.3 million at a typical Prada boutique.
Given rents in Manhattan and the $40 million up-front investment, retail experts doubt Prada will see a return on its investment for more than five years, however. "It will be a long time, let's put it that way," says retail strategist Aronson.
But, IconNicholson's Eckfeldt says Prada is looking for more than just a hard-dollar return. He says there are "three legs" to the retailer's ROI expectations:
- Better sales effectiveness and efficiency. The store and its systems are designed to improve the sales process. If sales associates use the staff devices, they spend less time worrying about what's in stock and more time selling merchandise.
- Better branding. The Prada name must stay synonymous with style and affluence. New ideas and new technologies stamp the brand as hip and innovative.
- Better customer information. With accurate and up-to-date information on customers, salespeople are able to offer shoppers better service and better in-store experiences.
For Prada, it all comes down to, "understanding who their customers are," according to Eckfeldt.