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AT&T to Take On Apple, Verizon With Flagship Chicago Shop

AT&T Inc. (T) is refining its retail strategy with its first flagship store, a location on Chicago’s Michigan Avenue that goes beyond phones and tablets to show services such as fitness applications and “smartcar” features.

The 10,000-square-foot (929-square-meter) store, opening Sept. 1 in the shopping mecca known as Chicago’s “Magnificent Mile,” is three times larger than the average of the company’s 2,300 retail outlets. Located across the street from Coach Inc. and Cartier Ltd. stores, it has cement floors, white plastic and reclaimed teak furniture with more than 100 video displays.

With the loss of its exclusive agreement to sell Apple Inc. (AAPL)’s iPhone and a saturated wireless market that makes it hard to find new subscribers, Dallas-based AT&T is planning to use its stores to gain an edge against Verizon Wireless, Sprint Nextel Corp. (S) and T-Mobile USA Inc. The move also pits AT&T against the standard-bearer in consumer-electronics retail, Apple itself.

“We are very different than Apple,” Paul Roth, AT&T’s president of retail sales and services, said in an interview. “In their stores, the product is the hero. This store is all about the experience.”

The second-biggest U.S. wireless carrier is looking for ways to show investors it’s a bargain. Investors are getting a 29 percent discount for AT&T compared to its telecommunications peers on a price-to-earnings basis, up from 18 percent at the end of last year, according to data compiled by Bloomberg. AT&T shares fell 0.4 percent to $36.69 today in New York.

No Shadowing

Roth’s plan is to blend the hands-on approach of Apple stores with a visually dazzling environment. He’s requiring sales staff to greet visitors within 10 seconds or 10 feet after they’ve entered the store, to make them welcome without shadowing them, he said.

Emulating Apple doesn’t guarantee success. Nike Inc. (NKE), Nokia Oyj (NOK1V), Microsoft Corp. and Sony Corp. have each tested the brand- centered retail approach, with mixed results. Nokia, the Espoo, Finland-based mobile-phone maker, has shut stores in New York, Chicago, London and Mexico City in the past three years after starting its own retail chain in 2005.

AT&T has tried to give its store a customer-friendly makeover before. In 2007, it opened its first “AT&T Experience” store, a 5,000-square-foot Houston location with sales kiosks and product demonstrations.

App Lounge

The Chicago flagship goes beyond the Experience concept, which AT&T has dropped. At the front of the new store is an 18- foot wall of video screens and an App Lounge where people can use 55-inch monitors to test apps for Apple products or for Google Inc.’s Android system. The shop’s open layout has a series of “boutiques” where customers can see demonstrations on how to prepare for the Chicago Marathon or examine the texting safety features on a Nissan Leaf.

“Customers are overwhelmed by technology,” Roth said. “They want to know less about the device and more about what it can do for them.”

The store has 40 employees with as many as 30 on the sales floor at one time, Roth said. There are no cash registers, with staff using tablets or smartphones to make sales.

Flagship stores help companies immerse their customers in everything they have to offer, said Michael Cote, a wireless strategist with the Cote Collaborative in Chicago.

“These are branding opportunities more than retail outlets,” Cote said. “And what’s important here is that AT&T will be the first carrier to have an ‘experiential’ flagship store on the Magnificent Mile.”

Verizon Overhaul

Verizon Wireless, which has a store about two blocks away from AT&T on Michigan Avenue, has started an overhaul of its stores to keep up with the trend in retail toward giving customers more access to sample devices.

The nation’s largest wireless carrier plans to have 60 stores outfitted this year with a new look featuring white interiors with blond wood, fewer counters separating staff from customers and products displayed on tables instead of walls, said Thomas Pica, a Verizon Wireless spokesman. The Basking Ridge, New Jersey-based company hasn’t designated a flagship store, he said.

Sprint has had a flagship site in New York, prominently located on the first floor of the angular Flatiron Building, since 1997. Deutsche Telekom AG (DTE) unit T-Mobile’s flagship is also in New York, near Times Square.

The model for success with a self-branded store is Cupertino, California-based Apple, said Lee Peterson, executive vice president of creative services at WD Partners, a retail strategy and design company based in Dublin, Ohio.

“There’s no magic bullet,” said Peterson, whose clients include Best Buy Co. and Samsung Electronics Co. “Gimmickry doesn’t work. Lounges don’t work. We try to convince clients that it’s what the salesperson knows about the customer and the product that matters.”

Apple, which had 372 stores around the world at the end of June, is preparing to introduce the next version of the iPhone on Sept. 12, two people with knowledge of the company’s plans said last month.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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