American Girl to Expand

Pack your trunk, Samantha. Load up the covered wagon, Kirsten. American Girl is heading south.

The wildly popular and pricey doll emporium plans to open two satellite stores in high-profile shopping malls in Atlanta and Dallas this year.

The stores are scaled-down versions of American Girl Place stores in Chicago, New York and Los Angeles, which draw a total of 3 million shoppers annually.

The move comes as sales at American Girl, a division of giant toymaker Mattel Inc., stalled in the first nine months of 2006 on a decline in its catalog business. Also, profits fell because of costs associated with opening its flagship store in Los Angeles in April, Mattel disclosed in its most recent quarterly filing.

"Retail expansion is part of our growth plans," said Wade Opland, American Girl vice president of retail. "Our research shows that our customers want more accessibility to our brand."

American Girl has been a bright spot at Mattel since the toymaker bought the Middleton, Wis.-based company for $700 million in 1998. The line outshines most of Mattel's other brands.

While its latest retail expansion could boost sales, it also carries risk.

"I would proceed with caution," said Scott Davis, a senior partner at Prophet, a Chicago-based brand consulting firm. "I think they have a shot as long as they balance the growth with not commoditizing the brand."

Called American Girl Boutique and Bistro, the stores are to carry a rotating selection of its best-selling dolls and apparel, operate a casual bistro and offer private party rooms for birthdays and other celebrations. The boutiques won't have a theater, museum or full-fledged restaurant like the flagship stores, but are aimed at boosting sales without the high operating costs of their 40,000-square-feet big sister stores.

A 22,500-square-foot boutique is opening at the Galleria Dallas, and a 12,000-square-foot store is slated for North Point Mall near Atlanta.

"It's possible we can open up more," Opland said. "We want to be selective about where we place them."

Plenty of brands have lost their mystique by becoming too accessible.

Coors, the Rocky Mountain beer, reached cult status in the 1970s because fans had to travel west of the Mississippi to buy it. Some of the suds blew off the beer's cachet in the 1990s when distribution was rolled out to all 50 states.

Similarly, when Walt Disney Co. opened more than 700 stores in the 1990s, they ceased to be considered "special." The company eventually shuttered hundreds of stores and sold the operation in 2004.

"If you have a product where part of its success depends on its exclusivity, anything you do to make the product seem less exclusive could impact the selling price, and, in turn, margins," said Jay McIntosh, director of retail and consumer products group for the Americas in Chicago at Ernst & Young LLP.

That's not to suggest American Girl can't succeed. Analysts point to Build-A-Bear Workshop Inc., where children make their own stuffed animals, as an example of how a retailer can open more than 260 stores but manage to keep the experience unique.

American Girl sales climbed 15 percent, to $436.1 million, in 2005 from 2004. Profit rose 37 percent, to $106.2 million, accounting for 8.5 percent of Mattel's $5.2 billion in total sales and 16 percent of its $652 million in profit. In 2004, sales rose 10 percent and profit increased 25 percent, accounting for 7.4 percent of total sales and 11 percent of total profit.

But the dollmaker didn't have to look far to see how fickle girls can be. Mattel is in the midst of an all-out effort to revive its Barbie brand, which has suffered declining sales.

Mattel Chairman Robert Eckert told investors in July that without the Los Angeles flagship, "the business isn't doing as well as we'd like."

Opland believes that with a careful rollout, American Girl can hold on to its cachet.

Hinsdale-based retail analyst Steven Platt, whose 9-year-old daughter makes four treks a year downtown to the flagship, agrees.

"Every weekend she wants to go to buy more clothes for the dolls," said Platt. "I wish they would open one at Oak Brook. It's such a unique brand. I don't think it will suffer the brand dilution."

American Girl keeps girls interested by introducing new dolls and stories regularly. Each year, the company unveils a "Girl of the Year" doll, a contemporary character available only for that year.

And the first new historical character since Kaya, the Nez Perce girl from 1764, which debuted in 2002, is to be unveiled this fall. She will add to a lineup of eight historic characters, and assorted friend dolls, each with her own story and clothing line.

A day at American Girl Place can easily run about $300 for one adult and one child. It starts with the purchase of an $87 doll and paperback book.

Visitors spend on average two hours at the store--watching the musical American Girls Revue at the in-store theater ($28 each), having lunch at the pink-and-black polka-dotted tea room ($20 each), visiting the doll hair salon ($10 to $20), posing for a picture at the photo studio ($23 to $35), perusing the doll museum (no charge), and shopping for doll outfits, doll furniture and doll accessories.

Kaya's horse, Steps High, for example, is $65 and Samantha's bed is $68. The three made-for-TV movies, now on DVD, are $55 for the set. And there are plenty of skirts, sweaters and coats for girls who want outfits to match their dolls.

Madison Whitehead, 10, from Minneapolis, visited her first American Girl Place store in November when her aunt, Sara Whitehead, took her to New York. She bought a Just Like You doll--one of 25 different dolls with skin, hair and eyes to match their owners--and is now working on her mom to let her buy more doll outfits through the catalog. Some of her friends have several American Girl dolls, and Madison has her eye on Samantha.

The only part of the visit that aunt and niece didn't like was the store's crowds, which made it exciting but challenging to shop, they said.

"I like the big stores in New York and Chicago because you can travel," Madison said. "I also would be really happy if they were close to me."

The malls in Dallas and Atlanta are owned by Chicago-based General Growth Properties Inc., the country's second-largest shopping mall operator and owner of Water Tower Place on North Michigan Avenue. American Girl Place in Chicago has signed a lease to relocate to Water Tower Place in fall 2008.

"It's a clever strategy," said Love Goel, chairman and chief executive of Growth Ventures Group, a Minneapolis-based retail investment firm. "If I was running the company, I would absolutely test [the boutique concept]. I think there's enough demand for the brand that they could have dozens of stores."