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The Rise of the Retailer-Restaurant

Tommy Bahama in Laguna Beach, Calif., offers fashion ... and island cuisine

Photograph by Peter Bohler for Bloomberg Businessweek

Tommy Bahama in Laguna Beach, Calif., offers fashion ... and island cuisine

By yearend, shoppers at the new Tommy Bahama flagship store on Manhattan’s Fifth Avenue will be able to buy one of the brand’s signature tropical-print shirts before grabbing a drink at the Marlin Bar, next to the selling floor. Later they can head upstairs to order macadamia nut-encrusted snapper at a restaurant perched above the retailing space. Adding island-inspired dishes and $12 Chauffered Sidecar martinis to the clothing chain’s product mix isn’t a marketing gimmick or loss leader. Tommy Bahama, owned by Atlanta-based Oxford Industries (OXM), has become a model for other retailers: Its 13 combination restaurant-stores generate two and a half times the sales per square foot of the apparel chain’s 97 regular locations worldwide, Chief Executive Officer Terry Pillow says. Fellow CEOs, he says, are “fascinated first of all that we have it, and the second thing they’re fascinated about is we run it ourselves.”

As retail sales increasingly migrate online, more merchants are following the Tommy Bahama model of using food and drink to lure customers into stores. Urban Outfitters (URBN), known for selling hipster threads in college towns, has served lamb merguez and striped bass at its Terrain home-and-garden store in Westport, Conn. Gap’s (GPS) Banana Republic has offered cocktails at shopping events for its best customers or to introduce new clothing collections, while Ann’s (ANN) Loft has held occasional Friday happy hours. Even J.C. Penney (JCP) plans to add juice bars and coffee shops to hundreds of its stores over the next few years.

In the 1900s, many U.S. department stores ran restaurants and tearooms. Some achieved iconic status and continue to serve customers today, including Chicago’s Walnut Room at the former Marshall Field’s flagship (now a Macy’s (M)) and the Zodiac restaurant at a Neiman Marcus store in Dallas. More recently, Nordstrom (JWN), which has offered food for many years, has tested operating a contemporary diner called Sixth & Pine and added espresso bars. The Seattle-based department store chain currently operates seven different kinds of in-store restaurants, for a total of more than 200 eateries and coffee bars.

More retailers are lighting up the stove as they look for ways to attract customers to their brick-and-mortar locations. With the National Retail Federation forecasting that online sales may rise to 16 percent of the expected $586 billion in holiday revenue this season, traditional merchants are eager to slow that encroachment. Many view the growth in farmers’ markets and the popularity of cable-TV cooking shows such as Bravo’s (CMCSA)Top Chef as evidence that consumers are hungry for culinary adventures alongside their shopping. Eating provides a memorable experience, “and a lot of lifestyle retailers have been exploring it,” says Aaron Spiess, co-founder and co-head of Big Red Rooster, a brand consulting firm. Spiess says he has spoken with three companies about incorporating food into their stores.

A spot to rest while you shop, at Tommy Bahama in Laguna Beach, Calif.Photograph by Peter Bohler for Bloomberg BusinessweekA spot to rest while you shop, at Tommy Bahama in Laguna Beach, Calif.

Tommy Bahama is raising its bet on the so-called Island retail-restaurant concept, which marries commerce and cuisine in a resort-style setting, with the opening of the 13,000-square-foot Manhattan flagship. This 14th Island outlet is the chain’s largest location, with a 6,700-square-foot restaurant space. While the retail part of the store opened in November, Superstorm Sandy pushed back the opening of the restaurant until December. The bar will have a sugarcane press for cocktails, and the menu will feature New York dishes with island-inspired twists, such as pineapple cheesecake and grouper Reubens.

The first Island store, which opened in 1996 in Naples, Fla., generates about $2,000 per square foot, CEO Pillow says. That’s similar to the productivity of an industry-leading Coach (COH) or Lululemon Athletica (LULU) store, according to RetailSails, a consulting firm. Tommy Bahama plans to open another Island store in Tokyo next year and is assessing locations elsewhere. The company says its restaurants generate about 12 percent of its $452 million in annual revenue.

$12 cocktails help open walletsPeter Bohler for Bloomberg Businessweek$12 cocktails help open wallets

With $18 grilled steak salads, $12.50 seared scallop sliders, and $12 cocktails, Tommy Bahama’s restaurants aren’t cheap, especially compared with the fast-food offerings at Wal-Mart Stores (WMT) and Target (TGT). But neither are the brand’s $98 polos and $118 shorts. Pillow says the food and service are in line with the brand’s upscale lifestyle positioning.

The two Urban Outfitters Terrain stores—in Westport and Glen Mills, Pa.—offer a trendy farm-to-table spread. In Westport, the dinner menu last month included a $9 pickled beet salad, $31 New England swordfish, and a $38 flat iron steak. Customers typically spend 90 minutes browsing Terrain merchandise like $48 ceramic birdhouses or $228 teak outdoor dining chairs, but that can double to three hours if they visit the cafe and shop between glasses of wine or lunch, says Wendy McDevitt, Terrain’s president. The menus at each restaurant are different because the food is sourced locally, says McDevitt, who is a fan of the Stonington scallops and Brussels sprouts at the Westport location. “The one thing you can’t get in the cyberworld is the tactile experience, and that won’t go away,” she says. “Food is becoming bigger and bigger in terms of entertainment value.”

Adding in-store dining does hold risks. “You have the opportunity to lose a guest with every single meal, and they’ll look at that meal as an extension of every product you sell, so to fail is to fail big,” says Doug Wood, Tommy Bahama’s president. “It’s the difference between ‘I just bought this Tommy Bahama shirt, and I don’t like it as well as the other ones I have,’ vs. ‘I just had a meal, and I got sick, and I’m never going to go back again, and I’m not going to buy their clothes,’ ” he says. “It’s challenging to operate, but if you execute it right, it’s magic.”

The bottom line: Sales at Tommy Bahama’s combination store-restaurants average $2,000 per square foot—more than twice sales at regular stores.

Maheshwari is a reporter for Bloomberg News.

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