Nokia's Ritzy Flagship in Chicago

With its first, high-design, U.S, store, the Finnish mobile-phone maker is cranking up competition for handset sales on Motorola's home turf

6/28/2006 By Reena Jana

Some 40 Chicagoans woke up early on Saturday and stood in line for the doors to open at what has been hyped as one of the Windy City's hottest new boutiques—the upscale U.S. flagship for Nokia (NOK ), the Finnish mobile phone maker. Yes, these hip consumers were queueing up for a cell-phone store.

But this is a store unlike the crowded, cluttered, and chaotic places run by carriers like Sprint (S ) and T-mobile. Designed by Eight, the firm behind Apple's sexy stores, Nokia's Chicago outpost promises to reinvent the mobile-phone shopping experience.

The choice of Chicago for Nokia's second such store in the world—the first opened last year in Moscow—was no accident. Chicago is home to archrival Motorola (MOT ), whose hot RAZR phone has helped secure its position as the leading seller in the U.S. But worldwide, Nokia owns nearly a third of the handset market, vs. 17.8% for Motorola, according to researcher Gartner.

BRAND BATH. Fixing Nokia's U.S. problem is a top priority for new Chief Executive Officer Olli-Pekka Kallasvuo. The Chicago showroom, the first of 18 planned around the world, is a first step to raising Nokia's profile in the critical U.S. market.

Located in the tony "Magnificent Mile" shopping area, the Nokia boutique looks more like a high-end retail environment for elegant clothing or jewelry than a personal electronics store. It's the result of a 40-page design brief, says Winston Wright, a senior marketing manager at Nokia responsible for retail initiative in the U.S.

"The design strategy behind the stores was to immerse customers in a brand bath," Wright says. "The colors, finishes, simplicity, and interactivity of the stores reflect Nokia's DNA. It's a Finnish company—and Scandinavian design, in the form of simple shapes and a respect for nature, really comes out in the new stores."

NIGHTCLUB STYLE. The space consists of a long, thin corridor that has a slinky, vertical feel—not unlike a fashion show catwalk. LED panels line the upper walls, casting a glow. Tasteful hardwood floors balance a polished wood ceiling—references to a signature Scandinavian taste for organic materials, says Wright. Phones are lined up on displays, bathed in spotlights.

And at the end of the boutique lies a store-within-a-store—the so-called Vertu lounge, where Nokia's most expensive line of handsets is showcased. Picture a VIP room within a fancy nightclub, set off by velvet ropes and a bouncer. In this area of the store, phones that cost up to $90,000, embellished with leather, gold, titanium, and sapphire details are shown off in vitrines, as if they were museum-quality artifacts.

The Vertu lounge aside, the Nokia flagship is all about interactivity. Customers may play with the phones, sending SMS text messages that appear on plasma displays within the boutique and at other Nokia stores around the world. "The overall space is meant for people to come in and be part of the Nokia community, in the way that the Apple stores have built that feeling. But the Nokia stores are more about mobility," says Tim Kobe, a principal of Eight.

NOT TO COMPLAIN, BUT. When asked if Nokia is trying to remake the mobile-phone buying experience, Wright responds diplomatically, careful not to downplay the less-than-stylish design of most carrier-operated retail stores. "Our friends at Sprint, Cingular, and T-mobile are selling airtime and phone plans, not handsets," he says. "Their stores make sure consumers actually get that message." He points out Nokia's focus on user experience and the purchase of an actual object make a pleasant, entertaining, shopping experience more important than it would be for a carrier.

Maybe. Although carrier stores are the most common point of purchase for U.S. mobile buyers, according to mobile market researcher M: Metrics, these bare bones retail environments are often associated with long lines and aggressive sales pitches. Shoppers no doubt would appreciate a more customer-friendly environment. The problem is with high sales rates at carrier outlets, change doesn't seem imminent. That's one reason Nokia is making an end-run around the service providers to communicate with consumers directly.

The idea is to put the phones in the spotlight and to showcase the high-end features in Nokia phones that salespeople in a carrier store might not play up because they are more focused on selling a service plan. Nokia's new N-Series devices, for instance, range from gizmos that play digital music to camera and video phones that double as camcorders. And the new E-Series business handsets send and receive e-mail and synchronize with desktop calendars and address books.

NO SUBSIDIES. But Nokia is not merely showing off its phones at the new store. It's also selling them, unlocked, so they're not carrier specific. Customers can sign up for a new plan on-site. Or if they have a GSM phone with SIM card, they can pop out the card and insert it into a new handset. Sprint or Verizon users with incompatible CDMA phones can open a new account with the same carrier if they switch to a GSM, if an appropriate service plan is available.

One huge catch: There's no carrier subsidy, meaning customers at the Nokia flagship store must pay full price. Nokia hopes upscale customers won't mind paying a premium to get their hands on the newest models, most of which will be available there first.

Nokia isn't alone in taking its message directly to consumers. Just blocks from the new flagship store is Motorola's stylish, temporary Q store. Motorola is Nokia's main competitor worldwide, and the Finnish company's push to cater to high-end U.S. customers seems to reflect Motorola's success.

IMAGE PROBLEM. Moto's RAZR has become a status symbol among U.S. consumers—and even comes in a golden version designed by Italian fashion house Dolce & Gabbana. Nokia, by contrast, is widely considered a low-end brand among U.S. mobile phone users, says Seamus McAteer, a senior analyst at mobile-market researcher M: Metrics.

Nokia plans to open a similar boutique at a swanky Manhattan address on 57th Street between Fifth and Madison Avenues this fall, followed by 18 additional stores around the world.

The attempt to attract more U.S. customers comes at a time when Nokia's sales are on the upswing in North America. According to Nokia's sales stats, Nokia's mobile-phone volume in North America was up to 8.4 million units in the first quarter of 2006, from only 4.3 million in the first quarter of 2005.

MADE YOU LOOK. Worldwide, Nokia leads mobile-phone handset sales. The company commanded 32.5% of all mobile-phone sales in 2005, according to researcher Gartner. Motorola comes in second, with 17.8 %. And mobile phones are hotter than ever. The entire global market, Gartner reports, totaled 816.6 million units in 2005, a 21% increase from 2004. And analysts now figure the market could top 950 million units in 2006.

But can stylish new stores keep Nokia at the forefront of U.S. consumers' minds? More importantly, will they forgo the significant handset discounts available at carrier stores? Nokia's boutique may be a bit of a tough sell. But a splashy store that draws shoppers and builds brand recognition could be a good first step.